<PAGE> 1
As filed with the Securities and Exchange Commission on February 28, 1997
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. 27 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 ___
Amendment No. 27 [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, 1996 was filed on February 21, 1997.
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<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title Amount Proposed Proposed
of of Maximum Maximum Amount
Securities Shares Offering Aggregate of
Being Being Price Offering Registration
Registered Registered Per Share Price Fee
<S> <C> <C> <C> <C>
Beneficial 1,494,634 $10.75 $16,067,315.50 $100*
Interest
$.01 Par Value
</TABLE>
* This calculation has been made pursuant to Rule 24e-2 under the Investment
Company Act of 1940, as amended. Registrant, during its fiscal year ended
December 31, 1996 redeemed or repurchased 1,798,124 shares. Of these shares,
334,187 were previously used for a reduction pursuant to Paragraph (c) of Rule
24f-2. 1,463,937 shares are being used for reduction pursuant to Paragraph (a)
of Rule 24e-2 for purposes of this amendment. No previous filing, other than
that described above, during Registrant's current fiscal year has utilized
redeemed or repurchased shares for purposes of such a reduction. Minimum fee is
$100.
<PAGE> 3
ANCHOR SERIES TRUST
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item Number
in Form N-1A Caption
PART A - PROSPECTUS
<S> <C> <C>
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 and Portfolio Transactions and Brokerage
Other Practices
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 Performance Net Asset Value
Data
23. Financial Statements Financial Statements
</TABLE>
PART C
<PAGE> 4
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> 5
PROSPECTUS -- FEBRUARY 28, 1997
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ANCHOR SERIES TRUST
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P.O. BOX 54299
LOS ANGELES, CALIFORNIA, 90054-0299
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.
The GROWTH PORTFOLIO seeks capital appreciation primarily through
investments in growth equity securities.
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 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 allocating the Portfolio's assets among the following asset classes:
equity securities, aggressive growth equity securities, international equity
securities, fixed income securities including high-yield, high-risk bonds and
cash.
(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 should know before investing in the Trust. Please read it carefully and
retain it for future reference. A Statement of Additional Information dated
February 28, 1997 has been filed with the Securities and Exchange Commission.
Further information about the performance of the Portfolios is contained in the
Trust's Annual Report to Shareholders. 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-SUN2.
----------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------------------------------
<PAGE> 6
The MULTI-ASSET PORTFOLIO seeks long-term total investment return
consistent with moderate investment risk by allocating the Portfolio's assets
among the following assets classes: equity securities, investment grade fixed
income securities and cash.
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 (ALSO KNOWN AS "JUNK 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 maturing November 15, 1998 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 investment grade corporate debt securities.
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> 7
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.................................................................. 6
Growth Portfolio................................................................................ 7
Natural Resources Portfolio..................................................................... 7
Growth and Income Portfolio..................................................................... 8
Managed Portfolios................................................................................ 9
Strategic Multi-Asset and Multi-Asset Portfolios................................................ 9
Income Portfolios................................................................................. 11
High Yield Portfolio............................................................................ 11
Target '98 Portfolio............................................................................ 12
Fixed Income Portfolio.......................................................................... 14
Government and Quality Bond Portfolio........................................................... 14
MONEY MARKET PORTFOLIO............................................................................ 15
REPURCHASE AGREEMENTS............................................................................. 16
ILLIQUID SECURITIES............................................................................... 16
HEDGING AND INCOME ENHANCEMENT STRATEGIES......................................................... 17
INVESTMENT RESTRICTIONS............................................................................... 18
SPECIAL CONSIDERATIONS................................................................................ 18
MANAGEMENT OF THE TRUST............................................................................... 19
The Trustees...................................................................................... 19
SAAMCo............................................................................................ 19
Wellington Management Company, LLP................................................................ 20
Portfolio Management.............................................................................. 21
Custodian, Transfer and Dividend Paying Agent..................................................... 21
Expenses of the Trust............................................................................. 21
PORTFOLIO TRANSACTIONS................................................................................ 22
NET ASSET VALUE....................................................................................... 22
DIVIDENDS, DISTRIBUTIONS AND TAXES.................................................................... 23
DESCRIPTION OF THE TRUST.............................................................................. 23
REPORTS AND INDEPENDENT ACCOUNTANTS................................................................... 24
DISTRIBUTION AND REDEMPTION OF SHARES; INQUIRIES...................................................... 24
APPENDIX A
</TABLE>
(i)
<PAGE> 8
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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, 1996 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 INVEST- MENT 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
12/31/96 11.81 0.15 1.19 1.34 (0.21) -- 12.94 11.5
<CAPTION>
NET RATIO OF NET
ASSETS RATIO OF INVESTMENT
END OF EXPENSES TO INCOME TO PORTFOLIO AVERAGE
YEAR PERIOD AVERAGE NET AVERAGE NET TURNOVER COMMISSION
ENDED (000'S) ASSETS ASSETS RATE PER SHARE @
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<S> <C> <C> <C> <C> <C>
Foreign Securities Portfolio
3/23/87-
12/31/87 $ 12,284 1.8%#+ 0.3% 85.0% N/A
12/31/88 16,785 1.7+ 1.1+ 79.5 N/A
12/31/89 45,261 1.8 1.1 61.8 N/A
12/31/90 34,237 1.7 1.3 75.1 N/A
12/31/91 30,823 1.4 0.7 64.2 N/A
12/31/92 29,204 1.3 1.4 144.2 N/A
12/31/93 72,579 1.3 0.5 47.7 N/A
12/31/94 68,641 1.2 1.0 73.9 N/A
12/31/95 53,609 1.2 1.2 33.0 N/A
12/31/96 48,036 1.4 1.2 74.3 0.0062
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
12/31/96 23.22 0.06 5.73 5.79 (0.06) (0.95) 28.00 25.1
<CAPTION>
Capital Appreciation Portfolio
3/23/87-
12/31/87 7,849 1.5#+ 0.5#+ 115.0 N/A
12/31/88 19,976 1.1 1.0 30.3 N/A
12/31/89 35,951 1.0 1.6 30.9 N/A
12/31/90 27,568 1.0 1.2 37.2 N/A
12/31/91 45,976 1.0 0.7 72.9 N/A
12/31/92 83,414 0.9 0.1 92.9 N/A
12/31/93 182,515 0.9 (0.2) 111.2 N/A
12/31/94 229,544 0.8 (0.1) 64.0 N/A
12/31/95 356,218 0.8 0.3 60.1 N/A
12/31/96 567,672 0.8 0.2 69.2 0.0517
Growth Portfolio
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)
<CAPTION>
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
12/31/96 19.48 0.20 4.57 4.77 (0.11) (0.95) 23.19 25.0
<CAPTION>
Growth Portfolio
12/31/87 210,736 0.9 1.6 81.6 N/A
12/31/88 195,105 1.0 1.6 37.6 N/A
12/31/89 171,593 1.0 1.8 26.9 N/A
12/31/90 151,527 0.9 1.6 22.2 N/A
12/31/91 231,857 0.9 1.2 36.9 N/A
12/31/92 279,291 0.9 0.5 37.9 N/A
12/31/93 311,050 0.9 0.2 66.3 N/A
12/31/94 246,149 0.8 0.2 74.8 N/A
12/31/95 307,857 0.9 0.6 92.1 N/A
12/31/96 366,602 0.8 0.9 51.7 0.0515
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
12/31/96 15.12 0.22 1.89 2.11 (0.13) (0.23) 16.87 14.1
* Selected data for a share of beneficial interest outstanding throughout each period (calculated based upon average shares
outstanding).
# Annualized.
+ Net of expense reimbursement.
@ The average commission per share is derived by taking the agency commissions paid on equity securities trades and dividing
by the number of shares purchased and sold. This information was not required to be disclosed prior to 1996.
<CAPTION>
Natural Resources Portfolio
12/31/88 12,324 1.6+ 3.2+ 20.0 N/A
12/31/89 16,971 1.5 3.3 38.2 N/A
12/31/90 14,954 1.4 3.0 26.6 N/A
12/31/91 9,407 1.2 2.5 2.6 N/A
12/31/92 8,796 1.3 2.1 18.7 N/A
12/31/93 18,255 1.1 1.3 34.5 N/A
12/31/94 21,230 1.0 1.7 36.0 N/A
12/31/95 28,941 1.0 1.3 32.0 N/A
12/31/96 45,329 0.9 1.3 52.5 0.0409
* Selected data for a share of beneficial interest outstanding throughout each period (calculated based upon average shares
outstanding).
# Annualized.
+ Net of expense reimbursement.
@ The average commission per share is derived by taking the agency commissions paid on equity securities trades and dividing
by the number of shares purchased and sold. This information was not required to be disclosed prior to 1996.
</TABLE>
2
<PAGE> 9
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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 INVEST- MENT 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
12/31/96 12.01 0.33 2.02 2.35 (0.77) -- 13.59 20.2
<CAPTION>
NET RATIO OF NET
ASSETS RATIO OF INVESTMENT
END OF EXPENSES TO INCOME TO PORTFOLIO AVERAGE
YEAR PERIOD AVERAGE NET AVERAGE NET TURNOVER COMMISSION
ENDED (000'S) ASSETS ASSETS RATE PER SHARE @
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Growth and Income Portfolio
1/23/87-
12/31/87 $ 14,577 1.2%# 5.6%# 81.3% N/A
12/31/88 17,653 1.0 6.1 52.8 N/A
12/31/89 19,027 1.0 5.6 77.0 N/A
12/31/90 13,352 1.1 6.6 107.0 N/A
12/31/91 14,551 1.1 6.4 109.0 N/A
12/31/92 23,723 1.0 5.6 86.5 N/A
12/31/93 41,555 0.9 4.4 86.2 N/A
12/31/94 34,995 0.9 4.9 50.7 N/A
12/31/95 32,008 0.9 5.2 88.8 N/A
12/31/96 33,465 0.9 2.5 108.5 0.0477
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
12/31/96 11.78 0.25 1.41 1.66 (0.40) (0.84) 12.20 14.8
Strategic Multi-Asset Portfolio
<CAPTION>
1/13/87-
12/31/87 65,066 1.5# 3.4# 68.9 N/A
12/31/88 83,479 1.4 3.7 37.4 N/A
12/31/89 108,434 1.4 3.7 36.6 N/A
12/31/90 87,329 1.4 3.4 28.0 N/A
12/31/91 88,585 1.3 2.3 42.0 N/A
12/31/92 79,621 1.3 1.8 57.5 N/A
12/31/93 76,466 1.3 1.2 73.9 N/A
12/31/94 65,357 1.3 1.8 63.7 N/A
12/31/95 64,026 1.3 2.7 36.9 N/A
12/31/96 57,744 1.4 2.0 51.3 0.0064
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
12/31/96 13.04 0.35 1.36 1.71 (0.49) (0.91) 13.35 13.9
<CAPTION>
Multi-Asset Portfolio
3/23/87-
12/31/87 130,684 1.2# 4.5# 58.5 N/A
12/31/88 161,622 1.2 4.5 30.8 N/A
12/31/89 168,986 1.2 4.4 36.9 N/A
12/31/90 151,329 1.2 4.4 48.7 N/A
12/31/91 177,429 1.2 3.8 50.7 N/A
12/31/92 207,533 1.1 3.1 38.6 N/A
12/31/93 208,900 1.1 2.6 48.2 N/A
12/31/94 164,159 1.1 3.0 82.5 N/A
12/31/95 168,243 1.1 3.2 85.9 N/A
12/31/96 150,619 1.1 2.6 64.1 0.0517
High Yield Portfolio
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
12/31/96 8.33 0.74 0.19 0.93 (0.88) -- 8.38 11.7
* Selected data for a share of beneficial interest outstanding throughout each period (calculated based upon average shares
outstanding).
# Annualized.
+ Net of expense reimbursement.
@ The average commission per share is derived by taking the agency commissions paid on equity securities trades and dividing
by the number of shares purchased and sold. This information was not required to be disclosed prior to 1996.
<CAPTION>
High Yield Portfolio
12/31/87 52,783 0.9 9.9 71.3 N/A
12/31/88 57,916 0.9 11.4 41.5 N/A
12/31/89 33,430 1.0 12.2 43.9 N/A
12/31/90 20,695 1.0 13.2 50.9 N/A
12/31/91 33,046 1.0 11.3 54.9 N/A
12/31/92 47,140 0.9 9.7 134.9 N/A
12/31/93 79,303 0.9 8.5 121.1 N/A
12/31/94 48,057 0.9 9.0 97.9 N/A
12/31/95 46,817 0.9 9.2 68.1 N/A
12/31/96 45,687 0.9 8.8 58.0 N/A
* Selected data for a share of beneficial interest outstanding throughout each
period (calculated based upon average shares outstanding).
# Annualized.
+ Net of expense reimbursement.
@ The average commission per share is derived by taking the agency commissions
paid on equity securities trades and dividing by the number of shares
purchased and sold. This information was not required to be disclosed prior
to 1996.
</TABLE>
3
<PAGE> 10
- --------------------------------------------------------------------------------
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 INVEST- MENT 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
12/31/96 12.64 0.81 (0.37) 0.44 (1.41) -- 11.67 3.7
<CAPTION>
NET RATIO OF NET
ASSETS RATIO OF INVESTMENT
END OF EXPENSES TO INCOME TO PORTFOLIO AVERAGE
YEAR PERIOD AVERAGE NET AVERAGE NET TURNOVER COMMISSION
ENDED (000'S) ASSETS ASSETS RATE PER SHARE @
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Target '98 Portfolio
5/2/88-
12/31/88 $ 5,718 0.8%#+ 7.8% 13.0% N/A
12/31/89 15,385 1.1 7.3 21.9 N/A
12/31/90 14,614 1.0 7.5 6.8 N/A
12/31/91 12,553 1.0 6.9 14.4 N/A
12/31/92 19,227 0.9 6.0 37.3 N/A
12/31/93 20,500 0.9 5.7 20.8 N/A
12/31/94 19,194 0.8 6.5 9.2 N/A
12/31/95 12,774 0.9 6.7 38.6 N/A
12/31/96 10,172 0.9 6.5 -- N/A
Fixed Income Portfolio
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
12/31/96 14.16 0.93 (0.64) (0.29) (1.15) -- 13.30 2.4
<CAPTION>
Fixed Income Portfolio
12/31/87 56,410 0.8 7.4 57.0 N/A
12/31/88 48,044 0.8 7.6 45.6 N/A
12/31/89 42,512 0.9 7.6 34.0 N/A
12/31/90 34,392 0.9 7.5 52.2 N/A
12/31/91 37,887 0.9 7.2 55.3 N/A
12/31/92 40,001 0.8 6.8 31.8 N/A
12/31/93 41,116 0.8 6.3 45.9 N/A
12/31/94 28,582 0.8 6.5 56.5 N/A
12/31/95 27,975 0.8 6.5 76.7 N/A
12/31/96 22,743 0.8 6.8 77.9 N/A
Government and Quality Bond Portfolio
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
12/31/96 14.23 0.87 (0.50) 0.37 (0.90) (0.03) 13.67 2.9
<CAPTION>
Government and Quality Bond Portfolio
12/31/87 267,091 0.8 8.7 36.0 N/A
12/31/88 195,984 0.8 8.9 120.5 N/A
12/31/89 163,082 0.8 8.6 71.8 N/A
12/31/90 155,522 0.8 8.5 63.3 N/A
12/31/91 197,463 0.8 7.8 87.5 N/A
12/31/92 207,860 0.8 7.3 76.4 N/A
12/31/93 264,660 0.7 6.2 93.2 N/A
12/31/94 232,530 0.7 6.4 117.6 N/A
12/31/95 225,579 0.7 6.5 135.2 N/A
12/31/96 221,603 0.7 6.3 106.7 N/A
Money Market Portfolio
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
12/31/96 1.00 0.05 -- 0.05 (0.05) -- 1.00 5.0
* Selected data for a share of beneficial interest outstanding throughout each period (calculated based upon average shares
outstanding).
# Annualized.
+ Net of expense reimbursement.
@ The average commission per share is derived by taking the agency commissions paid on equity securities trades and dividing
by the number of shares purchased and sold. This information was not required to be disclosed prior to 1996.
<CAPTION>
Money Market Portfolio
12/31/87 83,360 0.7 6.4 -- N/A
12/31/88 171,364 0.7 7.2 -- N/A
12/31/89 248,774 0.7 8.6 -- N/A
12/31/90 181,956 0.7 7.6 -- N/A
12/31/91 119,855 0.7 5.7 -- N/A
12/31/92 127,262 0.6 3.3 -- N/A
12/31/93 99,309 0.6 2.7 -- N/A
12/31/94 126,004 0.6 3.8 -- N/A
12/31/95 93,692 0.6 5.5 -- N/A
12/31/96 74,001 0.6 4.9 -- N/A
* Selected data for a share of beneficial interest outstanding throughout each period (calculated based upon average shares
outstanding).
# Annualized.
+ Net of expense reimbursement.
@ The average commission per share is derived by taking the agency commissions paid on equity securities trades and dividing
by the number of shares purchased and sold. This information was not required to be disclosed prior to 1996.
</TABLE>
4
<PAGE> 11
- --------------------------------------------------------------------------------
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, LLP
("WMC" or the "Sub-Adviser") serves as sub-adviser for all the Portfolios of the
Trust. (See "Wellington Management Company, LLP.") 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 and is
managed separately. The risks and opportunities of each Portfolio should be
examined separately. The differences in objectives and policies among the
Portfolios will 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. The Portfolio may also invest up to 20% of its assets in foreign
fixed income 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 and may be denominated in U.S. dollars or foreign currencies.
The Sub-Adviser anticipates that, under normal market conditions, the Portfolio
will diversify its investments among a minimum of five countries.
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
5
<PAGE> 12
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.
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.
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, 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
to enhance income or to gain country exposure. 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.
(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 and may
engage in forward foreign exchange contracts with respect to these investments.
(See the discussion under "Foreign Securities Portfolio" above and "Foreign
Securities" in the Statement of Additional Information.)
6
<PAGE> 13
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.
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.)
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 and may engage in forward foreign exchange contracts with
respect to these investments. (See the discussion under "Foreign Securities
Portfolio" and "Foreign Securities" 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 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, 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 including ADRs or GDRs. Securities issued by foreign issuers may be
denominated in U.S. dollars or foreign currencies. (See "Foreign Securities
Portfolio.")
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
7
<PAGE> 14
expected to provide a hedge against anticipated inflation. The Portfolio will
concentrate its investments by investing at least 25% of its assets 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 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 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. The Portfolio may also engage in
forward foreign exchange contracts. (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
8
<PAGE> 15
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. 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.
Finally, the Portfolio may enter into contracts on financial futures or
stock index futures, or options thereon, for income 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 AND MULTI-ASSET PORTFOLIOS
The investment objective of the Strategic Multi-Asset and Multi-Asset
Portfolios 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 each Portfolio's
security holdings. Each Portfolio will allocate its assets among the asset
classes described below. Although the Strategic Multi-Asset Portfolio 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 assets of the Strategic Multi-Asset and the Multi-Asset Portfolios will
be allocated among the following actively managed sub-portfolios:
9
<PAGE> 16
Core Equity Sub-Portfolio -- The investment objective of the Core Equity
Sub-Portfolio is to seek long term capital appreciation by investing in a
diversified portfolio of common stocks, securities convertible into common
stocks, ADRs and GDRs.
Core Bond Sub-Portfolio -- The investment objective of the Core Bond
Sub-Portfolio is to seek a high level of current income consistent with the
preservation of capital by investing primarily in investment grade fixed income
securities.
Core Bond Plus Sub-Portfolio -- The investment objective of the Core Bond
Plus Sub-Portfolio is to seek a high level of current income by investing in a
diverse group of fixed income securities, including high-yield, high-risk income
producing corporate bonds. These high yield securities are typically subject to
greater market fluctuations and risk loss of income and principal due to default
by the issuer. (See "Risk Factors -- High Yield Bonds under "High Yield
Portfolio" for a discussion of the risks associated with high-yield securities.)
Capital Appreciation Sub-Portfolio -- The Capital Appreciation
Sub-Portfolio seeks long term capital appreciation by investing in a widely
diversified portfolio of growth equity securities. The Capital Appreciation
Sub-Portfolio will invest in substantially the same securities as the Capital
Appreciation Portfolio. (See "Capital Appreciation Portfolio.")
Foreign Securities Sub-Portfolio -- The Foreign Securities Sub-Portfolio
seeks long term capital appreciation by investing primarily in equity securities
issued by foreign companies. The Foreign Securities Sub-Portfolio will invest in
substantially the same securities as the Foreign Securities Portfolio. (See
"Foreign Securities Portfolio.")
Although each of the Sub-Portfolios described above intends to be fully
invested, a Sub-Portfolio may hold cash or cash equivalents and may invest any
portion or all of its assets in high quality money market instruments for
temporary defensive purposes, to meet liquidity needs or in anticipation of
investment of assets. Each Sub-Portfolio may also purchase when-issued
securities. (See "When-Issued Securities" in the Statement of Additional
Information).
Money Market Sub-Portfolio -- The Money Market Sub-Portfolio seeks current
income consistent with stability of principal by investing in a diversified
portfolio of money market instruments. The Money Market Sub-Portfolio seeks to
maintain a stable price per share, but there is no assurance that the
Sub-Portfolio will meet this objective. The Money Market Sub-Portfolio will
invest in substantially the same securities as the Money Market Portfolio. (See
"Money Market Portfolio.")
The assets of the MULTI-ASSET PORTFOLIO will be allocated between the Core
Equity Sub-Portfolio and the Core Bond Sub-Portfolio described above. The assets
of the STRATEGIC MULTI-ASSET PORTFOLIO will be allocated among the Core Equity,
Core Bond Plus, Capital Appreciation, Foreign Securities and Money Market
Sub-Portfolios.
ASSET ALLOCATION APPROACH
The Sub-Adviser will actively manage the allocation of assets among the
Sub-Portfolios based upon its judgment of the projected investment environment
for financial assets, relative fundamental values, attractiveness 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 the market sectors. As a result, shifts in asset
allocation are expected to be gradual and continuous and each Portfolio will
normally have some portion of its assets invested in each relevant Sub-Portfolio
at all times.
The Portfolios do 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.
As part of the asset allocation decisionmaking, the Sub-Adviser may use
futures and options for hedging purposes, income enhancement or to effect
allocation decisions in an efficient manner. Each 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. (See "Hedging and Income Enhancement Strategies.") In addition,
each Portfolio may purchase when-issued securities. (See "When-Issued
Securities" in the Statement of Additional Information.)
10
<PAGE> 17
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. A significant percentage of the high-yield securities
in which the Portfolio invests are securities issued in reliance on Rule 144A
under the 1933 Act.
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.
As of December 31, 1996 the Portfolio held securities of 128 corporate
issuers, which had the following credit quality characteristics:
<TABLE>
<CAPTION>
PERCENTAGE
OF
INVESTMENT BONDS
---------------------------------------------------------------------- ----------
<S> <C>
Corporate Bonds
BB.................................................................. 31%
B+.................................................................. 20%
B................................................................... 28%
B-.................................................................. 16%
CCC................................................................. 1%
Non-rated........................................................... 4%
----------
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.
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<PAGE> 18
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.")
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 to select suitable securities 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
12
<PAGE> 19
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.
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.
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. 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 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.
13
<PAGE> 20
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) or determined by the Sub-Adviser to be of comparable quality;
(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
14
<PAGE> 21
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.
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.") The Portfolio may also invest in when-issued
securities and may engage in transactions involving Financial Futures Contracts
and in options thereon for income enhancement or hedging purposes. (See
"When-Issued Securities" in the Statement of Additional Information and "Hedging
and Income Enhancement Strategies.")
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. The Portfolio may invest in: (i)
commercial paper and other short-term obligations of U.S. and foreign
corporations; (ii) obligations (including certificates of deposit, time
deposits, bank notes 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
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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.
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
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<PAGE> 23
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.
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. 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 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 strike prices 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.
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.
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.
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 than 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
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<PAGE> 24
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 liquid securities 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
the 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
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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. Certain 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
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<PAGE> 25
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., a
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., Style Select Series, Inc. and SunAmerica
Series Trust. The Adviser and its affiliates managed, advised and/or
administered assets of approximately $9.6 billion as of December 31, 1996 for
investment companies, individuals, pension accounts, and corporate and trust
accounts. SAAMCo provides investment advisory services, office space, and other
facilities for the management 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.
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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, 1996, SAAMCo received fees equal to the
following percentages of Assets: Foreign Securities Portfolio, 0.90%; Capital
Appreciation Portfolio, 0.67%; Growth Portfolio, 0.73%; 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, LLP
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, 1996,
WMC had discretionary management authority with respect to approximately $133
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 .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, 1996, SAAMCo informed the Trust that WMC
received fees equal to the following percentages of daily net assets: Foreign
Securities Portfolio, 0.39%; Capital Appreciation Portfolio, 0.23%; Growth
Portfolio, 0.23%; Natural Resources Portfolio, 0.35%; Growth and Income
Portfolio, 0.32%; Strategic Multi-Asset Portfolio, 0.28%; Multi-Asset Portfolio,
0.20%; 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%.
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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. Mr.
Skramstad also manages the FOREIGN SECURITIES SUB-PORTFOLIO OF THE STRATEGIC
MULTI-ASSET PORTFOLIO. He joined WMC in 1993 as the firm's Director of
International Equity Investments. Prior to joining WMC, Mr. Skramstad was a
principal at Scudder, Stevens & Clark, Inc.
Robert D. Rands has served as the portfolio manager for the CAPITAL
APPRECIATION PORTFOLIO since its inception in 1987. Mr. Rands also manages the
CAPITAL APPRECIATION SUB-PORTFOLIO OF THE STRATEGIC MULTI-ASSET PORTFOLIO. 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. Ms. Allen also manages
the CORE EQUITY SUB-PORTFOLIOS OF THE STRATEGIC MULTI-ASSET AND MULTI-ASSET
PORTFOLIOS.
Adam D. Seitchik has served as the strategist for the STRATEGIC MULTI-ASSET
and the MULTI-ASSET PORTFOLIOS since February, 1997. Mr. Seitchik is a Vice
President of WMC and joined the company in 1994. He was previously with John
Hancock Investment & Pension Group.
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. Ms. Smith also manages the CORE BOND PLUS SUB-PORTFOLIO OF THE
STRATEGIC MULTI-ASSET PORTFOLIO.
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 GOVERNMENT AND
QUALITY BOND PORTFOLIO since March 31, 1994. Mr. Keogh is a Senior Vice
President of WMC and joined the company in 1983. Mr. Keogh also manages the CORE
BOND SUB-PORTFOLIO OF THE MULTI-ASSET PORTFOLIO.
Timothy E. Smith has served as the portfolio manager of the MONEY MARKET
PORTFOLIO since February, 1997. Mr. Smith also manages the MONEY MARKET
SUB-PORTFOLIO OF THE STRATEGIC MULTI-ASSET PORTFOLIO. He is a Vice President of
WMC and joined the company in 1992.
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.
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.
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PORTFOLIO TRANSACTIONS
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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
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The Portfolios are open for business on any day the New York Stock Exchange
("NYSE") is open for regular trading. The net asset value of the shares of each
Portfolio is computed daily at the close of regular trading on the NYSE
(generally, 4:00 p.m., Eastern time).
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. 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 at determined in good faith by or
under the direction of the Board of Trustees of the Trust. 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 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 the 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 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 Portfolio 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 at least a majority of the
Trustees have been elected by the shareholders of the Trust at all times. 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.
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<PAGE> 30
- --------------------------------------------------------------------------------
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. 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-SUN2.
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<PAGE> 31
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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
STATEMENT OF ADDITIONAL INFORMATION
ANCHOR SERIES TRUST
THIS IS NOT A PROSPECTUS. This Statement of Additional Information should be
read in conjunction with the Prospectus for Anchor Series Trust. The Prospectus
may be obtained by calling or writing the Trust at the below address.
Capitalized terms used herein but not defined have the same meanings assigned to
them in the Prospectus.
------------------------------------
P.O. BOX 54299
LOS ANGELES, CALIFORNIA 90054-0299
(800) 445-SUN2.
------------------------------------
DATED: FEBRUARY 28, 1997
<PAGE> 33
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-38
CUSTODIAN............................................................... B-41
INDEPENDENT ACCOUNTANTS ................................................ B-41
PORTFOLIO TRANSACTIONS AND BROKERAGE.................................... B-41
PORTFOLIO TURNOVER...................................................... B-44
NET ASSET VALUE......................................................... B-45
Foreign Securities Portfolio...................................... B-46
Money Market Portfolio............................................ B-46
DIVIDENDS, DISTRIBUTIONS AND TAXES...................................... B-48
GENERAL INFORMATION..................................................... B-49
OWNERSHIP OF SHARES..................................................... B-50
FINANCIAL STATEMENTS.................................................... B-50
</TABLE>
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THE TRUST
The Trust, organized as a Massachusetts business trust on August 26, 1983,
is an open-end management investment company. The Trust is composed 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.
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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
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<PAGE> 36
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 whenissued 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
whenissued 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 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 this is not
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<PAGE> 37
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 an
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<PAGE> 38
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).
Each of the 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.
B-7
<PAGE> 39
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 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 specified period of time to purchase the
securities subject to the option at a specified price (the "exercise price" or
"strike
B-8
<PAGE> 40
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 or liquid securities 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.
There is no guarantee that either a closing purchase or a
closing sale transaction can be effected. Effecting a closing
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<PAGE> 41
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 anticipated
options transactions, and such exchanges have advised
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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 (e.g., 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.
A "sale" of a Financial Futures Contract means entering into a contractual
obligation to deliver the securities called for by
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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 more than or
less than the price of the securities being hedged. If the price of the
Financial Futures Contract moves less than the
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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 the Portfolio invested in fixed income securities in the event of
a large cash flow into the Portfolio. As the cash flow is invested
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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 or as a substitute for purchasing or selling a
security position 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. In the Foreign Securities Portfolio, stock index futures may also be used
to adjust country exposure.
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
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and, as such sales were made, an equivalent amount of stock index futures
contracts would be terminated.
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. Index futures contracts are also available on a
number of foreign exchanges.
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.
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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 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
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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 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
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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 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 would 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
B-22
<PAGE> 54
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.
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
B-23
<PAGE> 55
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 (e.g., cash) basis at the spot rate prevailing in the
foreign currency exchange market or through entering into contracts to purchase
or sell foreign currencies at a future date (e.g., 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 for the purpose of
adjusting country exposure as a part of an overall investment strategy as a
substitute for purchasing or selling a security, or to protect against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the foreign currency during the period between the date a
foreign security is purchased or sold and the date on which payment is made or
received. Forward contracts may be utilized when the Sub-Adviser believes that
the currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar. In this case, 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 projection of short-term hedging strategy is highly uncertain. Under
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 or liquid
B-24
<PAGE> 56
securities equal to the Portfolio's commitments under forward contracts except
to the extent they are otherwise "covered." 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 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,
B-25
<PAGE> 57
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 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
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<PAGE> 58
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.
Moody's employs designations to indicate the relative repayment capacity
of rated issuers as follows:
Prime-1 Highest Quality
Prime-2 Higher Quality
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<PAGE> 59
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. 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
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<PAGE> 60
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 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
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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
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
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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 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
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<PAGE> 63
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 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.
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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, 1996,
SAAMCo and its affiliates manage, advise and/or administer approximately $9.1
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 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
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<PAGE> 65
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%
Growth and Income $0-$100 million .700%
> $100 million .650%
> $250 million .600%
> $500 million .575%
</TABLE>
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<PAGE> 66
<TABLE>
<CAPTION>
AVERAGE DAILY MANAGEMENT
PORTFOLIO NET ASSETS FEE
- --------- ---------- ---
<S> <C> <C>
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>
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The following table sets forth the total advisory fees earned by the
Adviser from each Portfolio pursuant to the Advisory Agreement for the fiscal
years ended December 31, 1996, 1995, and 1994.
ADVISORY FEES
<TABLE>
<CAPTION>
FUND 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C>
Foreign Securities Portfolio $ 473,257 $ 525,490 $ 683,712
---------- ---------- ----------
Capital Appreciation Portfolio $3,030,849 $1,992,705 $1,416,274
---------- ---------- ----------
Growth Portfolio $2,393,836 $2,044,069 $1,991,742
---------- ---------- ----------
Natural Resources Portfolio $ 302,086 $ 195,327 $ 162,953
---------- ---------- ----------
Growth and Income Portfolio $ 220,009 $ 229,671 $ 284,177
---------- ---------- ----------
Strategic Multi-Asset Portfolio $ 597,679 $ 640,025 $ 713,262
---------- ---------- ----------
Multi-Asset Portfolio $1,569,359 $1,671,735 $1,840,983
---------- ---------- ----------
High Yield Portfolio $ 313,621 $ 346,773 $ 408,977
---------- ---------- ----------
Target '98 Portfolio $ 72,086 $ 98,847 $ 127,107
-- ---------- ---------- ----------
Fixed Income Portfolio $ 152,430 $ 174,815 $ 213,577
---------- ---------- ----------
Government and Quality Bond
Portfolio $1,392,653 $1,346,394 $1,554,525
---------- ---------- ----------
Money Market Portfolio $ 432,146 $ 569,193 $ 662,202
---------- ---------- ----------
</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. 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.
B-36
<PAGE> 68
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 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, LLP 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, LLP" 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, 1996, 1995, and
1994.
SUB-ADVISORY FEES
<TABLE>
<CAPTION>
FUND 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C>
Foreign Securities Portfolio $ 206,599 $ 223,066 $ 271,412
---------- ---------- ----------
Capital Appreciation Portfolio $1,057,476 $ 736,837 $ 559,914
---------- ---------- ----------
Growth Portfolio $ 766,639 $ 637,763 $ 622,372
---------- ---------- ----------
Natural Resources Portfolio $ 140,974 $ 91,152 $ 76,045
---------- ---------- ----------
Growth and Income Portfolio $ 102,147 $ 106,633 $ 131,939
---------- ---------- ----------
Strategic Multi-Asset Portfolio $ 169,536 $ 178,005 $ 192,652
---------- ---------- ----------
Multi-Asset Portfolio $ 310,404 $ 325,760 $ 351,373
---------- ---------- ----------
High Yield Portfolio $ 134,409 $ 148,328 $ 168,345
---------- ---------- ----------
Target '98 Portfolio $ 25,951 $ 35,585 $ 45,759
---------- ---------- ----------
Fixed Income Portfolio $ 54,875 $ 62,934 $ 76,888
---------- ---------- ----------
Government and Quality Bond
Portfolio $ 299,809 $ 291,764 $ 327,961
---------- ---------- ----------
Money Market Portfolio $ 64,822 $ 85,379 $ 99,364
---------- ---------- ----------
</TABLE>
B-37
<PAGE> 69
OFFICERS AND TRUSTEES OF THE TRUST
The following table lists the Trustees and executive officers of the
Trust, their ages, business addresses and principal occupations during the past
five years. The SunAmerica Mutual Funds consist of SunAmerica Equity Funds,
SunAmerica Income Funds, SunAmerica Money Market Funds, Inc. and Style Select
Series, Inc. 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, 64 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, 56 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, 53 Trustee Chairman of the Board,
340 East 79 Street Chief Operating and
New York, NY 10021 Executive Officer of Beau
Brummel Casuals Limited, Inc., a
menswear special retailer since
May 1989; Director/Trustee of
the SunAmerica Mutual Funds.
Peter A. Harbeck*, 43 Trustee and President, SAAMCo
The SunAmerica Center President and SunAmerica Capital
733 Third Avenue Services, Inc. ("SACS")
New York, NY 10017-3204 since August, 1995;
Director and Chief
Operating Officer of SAAMCo
and President of SunAmerica
</TABLE>
B-38
<PAGE> 70
<TABLE>
<S> <C> <C>
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, 46 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, 32 Treasurer Vice President, SAAMCo,
The SunAmerica Center since September 1994;
733 Third Avenue Treasurer, SunAmerica
New York, NY 10017-3204 Mutual Funds (since
February 1996 and Style
Select Series, Inc. since
September 1996; Vice
President, SunAmerica
Series Trust and Anchor
Pathway Fund, since
October 1994; Controller,
SunAmerica Mutual Funds (March
1993 - February 1996) and
Assistant Controller, SunAmerica
Mutual Funds(1990-1993).
Robert M. Zakem, 39 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>
B-39
<PAGE> 71
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 (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, 1997, 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, 1996. Neither the Trustees who are interested persons of the Trust
nor any officers of the Trust receive any compensation.
B-40
<PAGE> 72
COMPENSATION TABLE
<TABLE>
<CAPTION>
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 $22,560 $35,315 $65,000
------- ------- -------
Samuel M. Eisenstat $24,535 $31,099 $65,000
------- ------- -------
Stephen J. Gutman $22,560 $32,200 $65,000
------- ------- -------
</TABLE>
* Information is as of December 31, 1996 for the five 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.
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
B-41
<PAGE> 73
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 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
B-42
<PAGE> 74
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, 1996, 1995, and 1994.
1996 BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE OF
AGGREGATE PAID TO COMMISSIONS PAID
BROKERAGE AFFILIATED TO AFFILIATED
PORTFOLIO COMMISSIONS BROKERS BROKERS
--------- ----------- ------- -------
<S> <C> <C> <C>
Growth Portfolio $357,209 $6,310 1.8%
-------- ------ ---
Strategic Multi-Asset
Portfolio $117,865 $3,963 3.4%
-------- ------ ---
Multi-Asset Portfolio $107,911 $750 0.7%
-------- ---- ---
Capital Appreciation
Portfolio $655,271 $25,962 4.0%
-------- ------- ---
Natural Resources Portfolio $84,830 $1,300 1.5%
------ ---
Growth and Income Portfolio $39,598 $12 0.0%
------- --- ---
Foreign Securities Portfolio $248,098 $552 0.2%
-------- ---- ---
</TABLE>
B-43
<PAGE> 75
1995 BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT COMMISSIONS
AGGREGATE PAID TO PAID TO
PORTFOLIO BROKERAGE AFFILIATED AFFILIATED
COMMISSIONS BROKERS BROKERS
----------- ------- -------
<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 PAID TO
PORTFOLIO COMMISSIONS AFFILIATED AFFILIATED
BROKERS BROKERS
--------- ----------- ------- -------
<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 0.16%
-------- ------- ----
Natural Resources Portfolio $29,961 $8,412 28.1%
-------- ------- ----
</TABLE>
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
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<PAGE> 76
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
Shares of the Trust are currently offered only to the Variable Separate
Account. The Trust is open for business on any day the New York Stock Exchange
("NYSE") is open for regular trading. Shares are valued each day as of the close
of regular trading in the NYSE (generally, 4:00 p.m., Eastern time). Each
Portfolio calculates the net asset value of its shares separately by dividing
the total value of net assets by the shares outstanding. The net asset value of
a Portfolio's shares will also be computed on each other day in which there is a
sufficient degree of trading in such Portfolio's securities that the net asset
value of its shares might be materially affected by changes in the values of the
portfolio securities; provided, however, that on such day the Trust receives a
request to purchase or redeem such Portfolio's shares. The days and times of
such computation may, in the future, be changed by the Trustees in the event
that the portfolio securities are traded in significant amounts in markets other
than the NYSE, or on days or at times other than those during which the NYSE is
open for trading.
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 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
B-45
<PAGE> 77
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
regular trading on the NYSE. 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 regular trading on the
NYSE. 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.
MONEY MARKET PORTFOLIO
Securities of the Money Market Portfolio are valued by the amortized cost
method Pursuant to Rule 2a-7 under 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,
B-46
<PAGE> 78
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 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
B-47
<PAGE> 79
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) (the "short-short rule"); 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) and (ii) not more than 25% of the Portfolio's
assets is invested in the securities (other than government securities) of any
one issuer.
The short-short rule may restrict a Portfolio's ability to close out a
position in a security or financial or currency contract at the most opportune
time.
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.
It is the Trust's intention to distribute substantially all
the net investment income, if any, of each Portfolio. For dividend
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<PAGE> 80
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, 1996, the Fixed Income Portfolio, High Yield Portfolio and
Target '98 Portfolio had capital loss carryforwards of $1,990,561, $14,097,904,
and $252,703, respectively, which are available to the extent not utilized to
offset future gains from 1997 through 2003. The utilization of such losses will
be subject to annual limitations under the Code and the regulations thereunder.
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
B-49
<PAGE> 81
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, 1996.
B-50
<PAGE> 82
<PAGE> 1
- ---------------------
ANCHOR SERIES TRUST
MONEY MARKET PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM SECURITIES -- 100.2% AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
BANK NOTES -- 15.5%
Bank of New York Co., Inc. 5.84% due 6/03/97.......................... $ 2,000,000 $ 2,001,012
Bank of Tokyo-Mitsubishi 5.83% due 1/21/97............................ 2,000,000 2,000,011
Chase Manhattan Corp. 5.73% due 2/03/97............................... 3,000,000 3,000,000
First National Bank of Boston 5.47% due 2/12/97....................... 2,500,000 2,500,000
Wilmington Trust Co. 5.41% due 3/26/97................................ 2,000,000 2,000,000
-----------
TOTAL BANK NOTES (cost $11,501,023)................................... 11,501,023
-----------
CORPORATE SHORT-TERM NOTES -- 61.7%
Bear Stearns Cos., Inc. 5.32% due 1/27/97............................. 435,000 433,329
BHF Finance (DE), Inc. 5.30% due 4/11/97.............................. 2,000,000 1,970,556
BHP Finance Ltd. 5.30% due 2/25/97.................................... 2,000,000 1,983,806
Centric Funding Corp. 5.30% due 2/13/97............................... 2,500,000 2,484,174
Corporate Receivables Corp. 5.37% due 2/14/97......................... 2,000,000 1,986,873
Delaware Funding Corp. 5.36% due 2/28/97.............................. 2,000,000 1,982,729
Disney (Walt) Co. 5.28% due 3/03/97................................... 2,200,000 2,180,317
Falcon Asset Securitization Corp. 5.47% due 1/10/97................... 1,950,000 1,947,333
First Chicago Financial Corp. 5.31% due 2/19/97....................... 2,000,000 1,985,545
General Electric Capital Corp. 5.34% due 6/16/97...................... 2,000,000 1,950,753
General Motors Acceptance Corp. 5.40% due 3/14/97..................... 1,000,000 989,200
Gillette Co. 5.29% due 3/05/97........................................ 2,200,000 2,179,633
Goldman Sachs Group L.P. 5.31% due 3/11/97............................ 2,200,000 2,177,610
Greenwich Funding Corp. 5.35% due 1/16/97............................. 2,000,000 1,995,542
Hitachi America Ltd. 5.33% due 2/14/97................................ 1,200,000 1,192,183
Kittyhawk Funding Corp. 5.38% due 3/03/97............................. 2,000,000 1,981,768
Merrill Lynch & Co., Inc. 5.34% due 1/23/97........................... 1,970,000 1,963,571
Morgan Stanley Group, Inc. 5.32% due 1/29/97.......................... 890,000 886,317
National Fuel Gas Co. 5.37% due 1/21/97............................... 1,700,000 1,694,928
Nationsbank Corp. 5.40% due 1/06/97................................... 3,000,000 2,997,750
Pfizer, Inc. 5.30% due 3/19/97........................................ 2,200,000 2,175,061
Ranger Funding Corp. 5.33% due 2/03/97................................ 2,500,000 2,487,785
Sears Roebuck Acceptance Corp. 5.32% due 2/11/97...................... 2,000,000 1,987,882
Unifunding, Inc. 5.33% due 1/22/97.................................... 2,040,000 2,033,657
-----------
TOTAL CORPORATE SHORT-TERM NOTES (cost $45,648,302)................... 45,648,302
-----------
MISCELLANEOUS -- 6.8%
Peoples Security Life Insurance Co. 5.60% due 2/02/97(1).............. 2,000,000 2,000,000
SMM Trust 5.61% due 2/04/97(1)........................................ 3,000,000 3,000,000
-----------
TOTAL MISCELLANEOUS (cost $5,000,000)................................. 5,000,000
-----------
</TABLE>
- ---------------------
4
<PAGE> 2
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM SECURITIES (continued) AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCIES -- 16.2%
Federal Farm Credit Banks 5.60% due 6/03/97........................... $ 2,000,000 $ 1,998,826
Student Loan Marketing Association 5.41% due 1/21/97(1)............... 10,000,000 10,000,000
-----------
TOTAL U.S. GOVERNMENT & AGENCIES (cost $11,998,826)................... 11,998,826
-----------
TOTAL SHORT-TERM SECURITIES (cost $74,148,151)........................ 74,148,151
-----------
TOTAL INVESTMENTS -- (cost $74,148,151) 100.2% 74,148,151
Liabilities in excess of other assets -- (0.2) (147,498)
------ -----------
NET ASSETS -- 100.0% $74,000,653
====== ===========
</TABLE>
-----------------------------
(1) Variable rate security -- the rate reflected is as of December
31, 1996; maturity date reflects next reset date
See Notes to Financial Statements
---------------------
5
<PAGE> 3
- ---------------------
ANCHOR SERIES TRUST
FIXED INCOME PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES -- 97.3% AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE & MILITARY TECHNOLOGY -- 0.5%
Howmet Corp. 10.00% 2003............................................... $ 50,000 $ 54,625
Moog, Inc. 10.00% 2006................................................. 50,000 52,500
------------
107,125
------------
CABLE -- 2.0%
Cablevision Systems Corp. 9.25% 2005................................... 35,000 34,650
Comcast Corp. 9.13% 2006............................................... 35,000 35,787
Tele-Communications, Inc. 9.80% 2012................................... 350,000 378,770
------------
449,207
------------
CHEMICALS -- 0.6%
Harris Chemical North America, Inc. 10.25% 2001........................ 50,000 51,938
Rexene Corp. 11.75% 2004............................................... 50,000 56,125
Texas Petrochemicals Corp. 11.13% 2006................................. 25,000 26,875
------------
134,938
------------
COMMUNICATIONS & MEDIA -- 1.7%
360 Communications Co. 7.13% 2003...................................... 200,000 197,582
Benedek Communications Corp. zero coupon 2006(1)(2).................... 65,000 37,212
Chancellor Broadcasting Co. 9.38% 2004................................. 10,000 10,100
Lenfest Communications, Inc. 8.38% 2005................................ 25,000 24,156
MobileMedia Corp. 9.38% 2007+(3)....................................... 50,000 13,500
Rifkin Acquisitions Partners L.P. 11.13% 2006.......................... 20,000 20,850
World Color Press, Inc. 9.13% 2003..................................... 50,000 50,500
Young Broadcasting, Inc. 9.00% 2006.................................... 25,000 24,313
------------
378,213
------------
ENERGY -- 0.7%
Mesa Operating Co. 10.63% 2006......................................... 50,000 54,250
Plains Resources, Inc. 10.25% 2006..................................... 50,000 53,500
Transportadora De Gas 10.25% 2001...................................... 50,000 52,975
------------
160,725
------------
FINANCE -- 12.6%
Abbey National First Capital 8.20% 2004................................ 500,000 536,285
Banponce Financial Corp. 6.80% 2005.................................... 300,000 293,454
Japan Finance Corp. Municipal Enterprises 9.13% 2000................... 400,000 431,084
KFW International Finance, Inc. 9.13% 2001............................. 400,000 440,152
Ohio National Life Insurance Co. 8.50% 2026............................ 200,000 207,890
Security Benefit Life Co. 8.75% 2016................................... 200,000 212,160
Sun Canada Financial Co. 7.25% 2015.................................... 300,000 286,422
Tembec Finance Corp. 9.88% 2005........................................ 50,000 46,750
United States Bancorp Oregon 7.50% 2026................................ 400,000 417,992
------------
2,872,189
------------
GAMING -- 0.1%
Trump Atlantic City Associates 11.25% 2006............................. 30,000 29,700
------------
GROCERY -- 0.1%
Smith's Food & Drug Centers, Inc. 11.25% 2007.......................... 25,000 27,625
------------
</TABLE>
- ---------------------
6
<PAGE> 4
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (continued) AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE -- 1.6%
Allegiance Corp. 7.00% 2026............................................ $ 200,000 $ 202,904
Integrated Health Services, Inc. 10.25% 2006........................... 50,000 52,500
Owens & Minor, Inc. 10.88% 2006........................................ 50,000 53,625
Quorum Health Group, Inc. 8.75% 2005................................... 50,000 51,250
------------
360,279
------------
INDUSTRIAL & COMMERCIAL -- 6.4%
Bell & Howell Co. zero coupon 2005(1).................................. 50,000 36,250
Cincinnati Milacron, Inc. 7.88% 2000................................... 150,000 151,445
Collins & Aikman Corp. 11.50% 2006..................................... 50,000 54,500
Columbia University Trustees 8.62% 2001................................ 500,000 538,030
Dominion Textile USA, Inc. 9.25% 2006.................................. 20,000 20,325
Ford Motor Co. 9.00% 2001.............................................. 500,000 546,590
Hayes Wheels International, Inc. 11.00% 2006........................... 25,000 27,281
Lear Corp. 9.50% 2006.................................................. 35,000 37,800
Walbro Corp. 9.88% 2005................................................ 50,000 51,500
------------
1,463,721
------------
INFORMATION & ENTERTAINMENT -- 1.0%
News America Holdings, Inc. 9.25% 2013................................. 200,000 224,058
------------
INFORMATION TECHNOLOGY -- 2.2%
Bellsouth Telecommunications 6.25% 2003................................ 500,000 489,965
------------
METALS & MINERALS -- 0.7%
A.K. Steel Corp. 9.13% 2006............................................ 15,000 15,413
Armco, Inc. 9.38% 2000................................................. 50,000 50,250
Northwestern Steel & Wire Co. 9.50% 2001............................... 50,000 49,000
S.D. Warren Co. 12.00% 2004............................................ 50,000 54,000
------------
168,663
------------
PAPER PRODUCTS -- 0.5%
Container Corp. of America 9.75% 2003.................................. 50,000 52,500
Fort Howard Corp. 9.25% 2001........................................... 50,000 52,125
Repap New Brunswick, Inc. 9.88% 2000................................... 15,000 15,300
------------
119,925
------------
RETAIL -- 0.1%
Guitar Center Management Co., Inc. 11.00% 2006*........................ 10,000 10,500
------------
U.S. GOVERNMENT & AGENCIES -- 61.0%
Federal Home Loan Mortgage Corp. 6.00% 2003............................ 498,515 487,139
Federal Home Loan Mortgage Corp. 6.50% 2024............................ 868,194 834,551
Federal Home Loan Mortgage Corp. 7.00% 2003 - 2026..................... 1,941,735 1,917,417
Federal Home Loan Participation 7.50% 2007............................. 601,001 606,356
Federal Home Loan Participation 11.00% 2000............................ 8,641 9,138
Government National Mortgage Association 7.00% 2023.................... 525,494 516,298
Government National Mortgage Association 7.50% 2022 - 2023............. 884,972 890,242
Government National Mortgage Association 8.00% 2023.................... 483,533 495,012
Government National Mortgage Association 10.00% 2000................... 26,778 28,334
Government National Mortgage Association 11.25% 1998................... 4,847 5,120
Government National Mortgage Association 13.25% 1999................... 1,536 1,624
United States Treasury Bonds 10.75% 2003............................... 1,400,000 1,714,118
United States Treasury Bonds 11.63% 2004............................... 270,000 356,484
United States Treasury Bonds 11.88% 2003............................... 1,000,000 1,304,530
United States Treasury Bonds 12.00% 2013............................... 2,650,000 3,790,745
United States Treasury Notes 5.50% 2000................................ 120,000 117,225
</TABLE>
---------------------
7
<PAGE> 5
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (continued) AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCIES (continued)
United States Treasury Notes 6.38% 1999................................ $ 70,000 $ 70,601
United States Treasury Notes 7.13% 1999................................ 500,000 513,830
United States Treasury Notes 7.88% 1999................................ 200,000 209,532
------------
13,868,296
------------
UTILITIES -- 5.5%
El Paso Electric Co. 8.90% 2006........................................ 50,000 52,132
Niagara Mohawk Power Corp. 5.88% 2002.................................. 750,000 705,105
Quebec Hydro 8.05% 2024................................................ 450,000 494,784
------------
1,252,021
------------
TOTAL BONDS & NOTES (cost $22,161,148)................................. 22,117,150
------------
PREFERRED STOCK -- 0.1% SHARES
----------------------------------------------------------------------------------------------------
FINANCE -- 0.1%
Chevy Chase Preferred Capital Corp., Series A 10.38% (cost $25,000).... 500 26,062
------------
TOTAL INVESTMENT SECURITIES (cost $22,186,148)......................... 22,143,212
------------
PRINCIPAL
REPURCHASE AGREEMENT -- 0.9% AMOUNT
----------------------------------------------------------------------------------------------------
Joint Repurchase Agreement Account -- Lehman Bros. (Note 3)
(cost $210,000)...................................................... $ 210,000 210,000
------------
TOTAL INVESTMENTS -- (cost $22,396,148) 98.3% 22,353,212
Other assets less liabilities -- 1.7 389,790
------ ------------
NET ASSETS -- 100.0% $22,743,002
====== =============
</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) Issuer of the security has filed for bankruptcy and interest
payments are in default
See Notes to Financial Statements
- ---------------------
8
<PAGE> 6
- ---------------------
ANCHOR SERIES TRUST
GOVERNMENT & QUALITY BOND
PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES -- 93.5% AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
AUTOMOTIVE -- 0.9%
Daimler-Benz Vehicle Trust 5.95% 2000................................ $ 736,244 $ 735,176
Premier Auto Trust 4.65% 1999........................................ 1,321,303 1,307,575
-------------
2,042,751
-------------
FINANCE -- 11.0%
Banc One Auto Grantor Trust 6.55% 2003............................... 3,711,970 3,735,170
General Electric Capital Corp. 7.50% 2035............................ 5,000,000 5,192,050
General Reinsurance Corp. 9.00% 2009................................. 5,000,000 5,729,450
Morgan (J.P.) & Co., Inc. 6.25% 2005................................. 5,000,000 4,859,300
Stanford University 6.88% 2024....................................... 5,000,000 4,795,650
-------------
24,311,620
-------------
INDUSTRIALS -- 2.6%
Postal Square L.P. 8.95% 2022........................................ 4,811,800 5,627,448
-------------
INFORMATION & ENTERTAINMENT -- 1.4%
McDonald's Corp. 7.05% 2025.......................................... 3,300,000 3,155,589
-------------
NON-U.S. GOVERNMENT OBLIGATIONS -- 1.3%
British Columbia Province Canada 6.50% 2026.......................... 3,125,000 2,890,969
-------------
RETAIL -- 2.1%
Wal-Mart Stores, Inc. 6.75% 2023..................................... 5,000,000 4,737,700
-------------
TRANSPORTATION -- 2.6%
United Parcel Service of America, Inc. 8.38% 2020.................... 5,000,000 5,655,400
-------------
U.S. GOVERNMENT & AGENCIES -- 67.1%
Federal Home Loan Mortgage Corp. 6.00% 2008 - 2011................... 9,222,996 8,913,374
Federal Home Loan Mortgage Corp. 6.50% 2011.......................... 13,916,772 13,712,335
Federal Home Loan Mortgage Corp. 7.00% 2010 - 2011................... 19,082,099 19,087,965
Federal Home Loan Mortgage Corp. 7.29% 2004.......................... 20,000,000 19,896,800
Federal Home Loan Mortgage Corp. 14.75% 2010......................... 155,981 186,397
Federal National Mortgage Association 7.00% 2010 - 2011.............. 6,766,934 6,765,160
Federal National Mortgage Association 7.50% 2023 - 2025.............. 4,337,789 4,345,205
Federal National Mortgage Association 8.00% 2023..................... 12,399,136 12,631,619
Government National Mortgage Association 6.50% 2023.................. 8,450,345 8,059,516
Government National Mortgage Association 7.00% TBA................... 10,000,000 10,037,500
Government National Mortgage Association 7.50% 2022.................. 7,921,932 7,972,870
Government National Mortgage Association 9.50% 2016 - 2017........... 2,654,669 2,882,476
Government National Mortgage Association 10.00% 2013 - 2017.......... 2,568,426 2,788,889
Government National Mortgage Association 11.50% 2014................. 19,712 21,101
Government National Mortgage Association 12.00% 1999 - 2016.......... 143,432 153,410
Government National Mortgage Association 12.75% 2014................. 79,957 94,624
Government National Mortgage Association 13.25% 1999 - 2014.......... 20,656 24,101
Government National Mortgage Association 13.50% 2014................. 8,981 10,814
Government National Mortgage Association 13.75% 2014................. 1,426 1,687
</TABLE>
---------------------
9
<PAGE> 7
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (continued) AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCIES (continued)
United States Treasury Bonds 7.63% 2022.............................. $10,000,000 $ 11,039,100
United States Treasury Notes 6.13% 1998.............................. 20,000,000 20,092,100
-------------
148,717,043
-------------
UTILITIES -- 4.5%
Hydro Quebec Electric 8.40% 2022..................................... 5,000,000 5,460,750
US West Communications, Inc. 6.88% 2033.............................. 5,000,000 4,528,800
-------------
9,989,550
-------------
TOTAL INVESTMENT SECURITIES (cost $208,172,650)...................... 207,128,070
-------------
REPURCHASE AGREEMENTS -- 9.7%
----------------------------------------------------------------------------------------------------
Joint Repurchase Agreement Account -- First Boston (Note 3).......... 7,744,000 7,744,000
Joint Repurchase Agreement Account -- Lehman Bros. (Note 3).......... 13,835,000 13,835,000
-------------
TOTAL REPURCHASE AGREEMENTS (cost $21,579,000)....................... 21,579,000
-------------
TOTAL INVESTMENTS -- (cost $229,751,650) 103.2% 228,707,070
Liabilities in excess of other assets -- (3.2) (7,103,993)
------ -------------
NET ASSETS -- 100.0% $221,603,077
====== =============
</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
- ---------------------
10
<PAGE> 8
- ---------------------
ANCHOR SERIES TRUST
HIGH YIELD PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES -- 92.9% AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE & MILITARY TECHNOLOGY -- 6.8%
Howmet Corp. 10.00% 2003.............................................. $ 605,000 $ 660,962
Moog, Inc. 10.00% 2006................................................ 655,000 687,750
Newport News Shipbuilding, Inc. 8.63% 2006*........................... 125,000 128,125
Northrop Grumman Corp. 9.38% 2024..................................... 250,000 276,378
Rohr, Inc. 11.63% 2003................................................ 500,000 551,250
Wyman-Gordon Co. 10.75% 2003.......................................... 750,000 798,750
------------
3,103,215
------------
CABLE -- 3.4%
Cablevision Systems Corp. 9.25% 2005.................................. 350,000 346,500
Cablevision Systems Corp. 9.88% 2006.................................. 145,000 148,625
Comcast Corp. 9.38% 2005.............................................. 350,000 363,125
Marcus Cable Operating Co. L.P. zero coupon 2004(1)................... 350,000 287,000
Tele-Communications, Inc. 9.25% 2023.................................. 150,000 145,792
Videotron Ltd. 10.25% 2002............................................ 250,000 265,625
------------
1,556,667
------------
CHEMICALS -- 5.3%
Acetex Corp. 9.75% 2003............................................... 305,000 302,560
Agriculture Minerals & Chemicals 10.75% 2003.......................... 500,000 543,750
Arcadian Partners L.P. 10.75% 2005.................................... 250,000 274,375
General Chemical Corp. 9.25% 2003..................................... 250,000 255,625
Harris Chemical North America, Inc. 10.25% 2001....................... 150,000 155,812
PMI Acquisition Corp. 10.25% 2003..................................... 350,000 357,000
Rexene Corp. 11.75% 2004.............................................. 150,000 168,375
Sterling Chemicals, Inc. 11.75% 2006.................................. 235,000 249,100
Texas Petrochemicals Corp. 11.13% 2006................................ 90,000 96,750
------------
2,403,347
------------
COMMUNICATIONS & MEDIA -- 10.3%
Benedek Communications Corp. zero coupon 2006(1)(2)................... 550,000 314,875
Big Flower Press Holdings 10.75% 2003................................. 250,000 260,625
Chancellor Broadcasting Co. 9.38% 2004................................ 500,000 505,000
Galaxy Telecom L.P. 12.38% 2005....................................... 250,000 266,250
Granite Broadcasting Corp. 10.38% 2005................................ 150,000 153,750
Granite Broadcasting Corp. 12.75% 2002................................ 350,000 381,500
Lenfest Communications, Inc. 8.38% 2005............................... 250,000 241,562
MobileMedia Corp. 9.38% 2007+(3)...................................... 500,000 135,000
Plitt Theaters, Inc. 10.88% 2004...................................... 500,000 503,750
Rifkin Acquisitions Partners L.P. 11.13% 2006......................... 500,000 521,250
Teleport Communications Group, Inc. zero coupon 2007(1)............... 175,000 119,875
World Color Press, Inc. 9.13% 2003.................................... 750,000 757,500
Young Broadcasting, Inc. 11.75% 2004.................................. 500,000 545,000
------------
4,705,937
------------
CONSUMER DISCRETIONARY -- 0.7%
Webb (Del) Corp. 9.00% 2006........................................... 350,000 341,250
------------
</TABLE>
---------------------
11
<PAGE> 9
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (continued) AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER STAPLES -- 3.2%
American Safety Razor Co. 9.88% 2005.................................. $ 150,000 $ 159,375
Gruma SA de CV 9.75% 1998............................................. 250,000 257,188
Sweetheart Cup, Inc. 10.50% 2003...................................... 500,000 520,000
Westpoint Stevens, Inc. 8.75% 2001.................................... 500,000 513,750
------------
1,450,313
------------
ENERGY -- 6.3%
Energy Ventures, Inc. 10.25% 2004..................................... 150,000 162,375
Flores & Rucks, Inc. 9.75% 2006....................................... 165,000 174,900
Mesa Operating Co. zero coupon 2006(1)................................ 350,000 241,500
Mesa Operating Co. 10.63% 2006........................................ 75,000 81,375
Plains Resources, Inc. 10.25% 2006.................................... 600,000 642,000
Santa Fe Energy Resources, Inc. 11.00% 2004........................... 500,000 550,000
Seagull Energy Corp. 8.63% 2005....................................... 250,000 253,750
Transportadora De Gas 7.75% 1998...................................... 250,000 250,312
Transportadora De Gas 10.25% 2001..................................... 250,000 264,875
YPF Sociedad Anonima 8.00% 2004....................................... 250,000 241,250
------------
2,862,337
------------
FINANCE -- 4.4%
Chevy Chase Savings Bank 9.25% 2008................................... 125,000 127,500
Dime Bancorp, Inc. 10.50% 2005........................................ 500,000 550,625
First Nationwide Escrow Corp. 10.63% 2003*............................ 40,000 43,200
First Nationwide Parent Holdings 12.50% 2003.......................... 350,000 392,000
Imperial Credit Industries, Inc. 9.75% 2004........................... 400,000 410,000
Tembec Finance Corp. 9.88% 2005....................................... 500,000 467,500
------------
1,990,825
------------
GAMING -- 1.6%
Hollywood Casino, Inc. 12.75% 2003.................................... 250,000 240,000
Trump Atlantic City Associates 11.25% 2006............................ 500,000 495,000
------------
735,000
------------
GROCERY -- 1.6%
Bruno's, Inc. 10.50% 2005............................................. 85,000 90,100
Dominick's Finer Foods, Inc. 10.88% 2005.............................. 225,000 249,188
Smith's Food & Drug Centers, Inc. 11.25% 2007......................... 350,000 386,750
------------
726,038
------------
HEALTHCARE -- 5.2%
Beverly Enterprises, Inc. 9.00% 2006.................................. 250,000 251,250
Dade International, Inc. 11.13% 2006.................................. 190,000 206,150
Genesis Health Ventures, Inc. 9.75% 2005.............................. 225,000 236,250
Integrated Health Services, Inc. 10.25% 2006*......................... 250,000 262,500
OrNda HealthCorp. 11.38% 2004......................................... 500,000 577,500
Owens & Minor, Inc. 10.88% 2006....................................... 350,000 375,375
Quorum Health Group, Inc. 8.75% 2005.................................. 175,000 179,375
Tenet Healthcare Corp. 9.63% 2002..................................... 250,000 273,750
------------
2,362,150
------------
</TABLE>
- ---------------------
12
<PAGE> 10
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (continued) AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL & COMMERCIAL -- 16.6%
American Standard, Inc. zero coupon 2005(1)........................... $ 500,000 $ 465,000
Amtrol, Inc. 10.63% 2006*............................................. 175,000 179,156
Associated Materials, Inc. 11.50% 2003................................ 235,000 239,700
Bell & Howell Co. zero coupon 2005(1)................................. 1,000,000 725,000
Bell & Howell Co. 9.25% 2000.......................................... 250,000 254,375
Collins & Aikman Corp. 11.50% 2006.................................... 500,000 545,000
Delco Remy International, Inc. 10.63% 2006*........................... 350,000 368,375
Doman Industries Ltd. 8.75% 2004...................................... 500,000 467,500
Dominion Textile USA, Inc. 8.88% 2003................................. 150,000 150,375
Dominion Textile USA, Inc. 9.25% 2006................................. 50,000 50,812
EnviroSource, Inc. 9.75% 2003......................................... 150,000 141,188
Essex Group, Inc. 10.00% 2003......................................... 500,000 512,500
Exide Corp. 10.75% 2002............................................... 50,000 52,250
Graphic Controls Corp. 12.00% 2005(2)................................. 225,000 249,187
Great Lakes Carbon Corp. 10.00% 2006.................................. 500,000 530,000
Hayes Wheels International, Inc. 11.00% 2006.......................... 135,000 147,319
Interlake Corp. 12.13% 2002........................................... 250,000 258,750
Johnstown America Industries, Inc. 11.75% 2005(2)..................... 380,000 362,900
K & F Industries, Inc. 10.38% 2004.................................... 350,000 369,250
K & F Industries, Inc. 11.88% 2003.................................... 150,000 161,625
Lear Seating Corp. 8.25% 2002......................................... 250,000 251,875
Mettler Toledo, Inc. 9.75% 2006....................................... 95,000 99,750
Specialty Equipment Cos., Inc. 11.38% 2003............................ 250,000 273,125
UCAR Global Enterprises, Inc. 12.00% 2005............................. 200,000 230,500
Walbro Corp. 9.88% 2005............................................... 500,000 515,000
------------
7,600,512
------------
INFORMATION TECHNOLOGY -- 3.2%
Advanced Micro Devices, Inc. 11.00% 2003.............................. 250,000 271,250
Digital Equipment Corp. 7.75% 2023.................................... 250,000 214,413
Jacor Communications Co. 9.75% 2006................................... 430,000 438,600
Unisys Corp. 12.00% 2003.............................................. 500,000 532,500
------------
1,456,763
------------
METALS & MINERALS -- 9.6%
A.K. Steel Corp. 9.13% 2006*.......................................... 260,000 267,150
A.K. Steel Corp. 10.75% 2004.......................................... 350,000 382,375
Armco, Inc. 9.38% 2000................................................ 750,000 753,750
Bethlehem Steel Corp. 10.38% 2003..................................... 500,000 528,750
Northwestern Steel & Wire Co. 9.50% 2001.............................. 500,000 490,000
NS Group, Inc. 13.50% 2003............................................ 500,000 511,250
S.D. Warren Co. 12.00% 2004........................................... 400,000 432,000
Weirton Steel Corp. 10.88% 1999....................................... 300,000 312,000
Weirton Steel Corp. 11.38% 2004....................................... 350,000 355,250
Wheeling Pittsburgh Corp. 9.38% 2003.................................. 350,000 346,500
------------
4,379,025
------------
NON-U.S. GOVERNMENT OBLIGATIONS -- 1.1%
Republic of Argentina 8.38% 2003...................................... 250,000 237,500
Republic of Argentina 11.00% 2006..................................... 100,000 104,125
Republic of Brazil 6.00% 2013......................................... 250,000 179,297
------------
520,922
------------
</TABLE>
---------------------
13
<PAGE> 11
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (continued) AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
PAPER PRODUCTS -- 6.5%
Container Corp. of America 9.75% 2003................................. $ 500,000 $ 525,000
Container Corp. of America 11.25% 2004................................ 450,000 488,250
Domtar, Inc. 8.75% 2006............................................... 50,000 52,875
Fort Howard Corp. 9.25% 2001.......................................... 750,000 781,875
Grupo International Durango SA de CV 12.63% 2003...................... 115,000 124,775
Rainy River Forest Products, Inc. 10.75% 2001......................... 250,000 269,375
Repap New Brunswick, Inc. 9.88% 2000.................................. 210,000 214,200
Silgan Corp. 11.75% 2002.............................................. 150,000 159,750
Silgan Holdings, Inc. 13.25% 2002..................................... 69,000 69,431
Stone Container Corp. 11.88% 1998..................................... 250,000 263,438
------------
2,948,969
------------
RETAIL -- 1.1%
Guitar Center Management Co., Inc. 11.00% 2006*....................... 500,000 525,000
------------
SERVICES -- 1.9%
Muzak L.P. 10.00% 2003................................................ 500,000 514,375
Penda Corp. 10.75% 2004............................................... 375,000 363,281
------------
877,656
------------
UTILITIES -- 4.1%
Cabot Safety Acquisition Corp. 12.50% 2005............................ 350,000 388,500
El Paso Electric Co. 8.90% 2006....................................... 500,000 521,320
First PV Funding Corp. 10.15% 2016.................................... 164,000 174,250
Telefonica de Argentina SA 11.88% 2004................................ 250,000 276,250
Texas-New Mexico Power Co. 10.75% 2003................................ 500,000 536,250
------------
1,896,570
------------
TOTAL BONDS & NOTES (cost $40,749,545)................................ 42,442,496
------------
COMMON STOCK -- 0.1% SHARES
----------------------------------------------------------------------------------------------------
INDUSTRIAL & COMMERCIAL -- 0.1%
Triangle Wire And Cable, Inc.+(2)(4) (cost $330,000).................. 31,667 31,667
------------
PREFERRED STOCK -- 2.1%
----------------------------------------------------------------------------------------------------
COMMUNICATIONS & MEDIA -- 0.4%
Benedek Communications Corp.(2)....................................... 2,000 197,000
------------
FINANCE -- 1.5%
California Federal Bank Los Angeles 10.63%............................ 2,500 275,000
Chevy Chase Preferred Capital Corp., Series A 10.38%.................. 8,285 431,856
------------
706,856
------------
PAPER PRODUCTS -- 0.2%
Silgan Holdings, Inc. 13.25%*......................................... 74 79,055
------------
TOTAL PREFERRED STOCK (cost $932,452)................................. 982,911
------------
</TABLE>
- ---------------------
14
<PAGE> 12
<TABLE>
<CAPTION>
WARRANTS -- 0.0%+ SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMUNICATIONS & MEDIA -- 0.0%
Benedek Communications Corp. 7/01/07(2) (cost $13,800)................ 2,000 $ 6,000
------------
TOTAL INVESTMENT SECURITIES (cost $42,025,797)........................ 43,463,074
------------
<CAPTION>
PRINCIPAL
REPURCHASE AGREEMENTS -- 2.6% AMOUNT
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Joint Repurchase Agreement Account -- First Boston (Note 3)........... $ 433,000 433,000
Joint Repurchase Agreement Account -- Lehman Bros. (Note 3)........... 740,000 740,000
------------
TOTAL REPURCHASE AGREEMENTS (cost $1,173,000)......................... 1,173,000
------------
TOTAL INVESTMENTS --
(cost $43,198,797) 97.7% 44,636,074
Other assets less liabilities -- 2.3 1,050,646
------ ------------
NET ASSETS -- 100.0% $45,686,720
====== =============
</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) Issuer of the security has filed for bankruptcy and interest
payments are in default
(4) At December 31, 1996 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 12/31/96
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
Triangle Wire and Cable, Inc. 3/21/94 10,556 $ 10.716654 $1.00
Triangle Wire and Cable, Inc. 3/24/94 21,111 10.273080 1.00
-----------
31,667
======
</TABLE>
See Notes to Financial Statements
---------------------
15
<PAGE> 13
- ---------------------
ANCHOR SERIES TRUST
TARGET '98 PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES -- 97.2% AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCE -- 7.1%
American General Corp. 9.70% 1998...................................... $ 250,000 $ 259,350
International Lease Finance Corp. 7.50% 1999........................... 250,000 255,680
United Virginia Bankshares, Inc. 8.63% 1998............................ 200,000 205,480
------------
720,510
------------
SUPRANATIONALS -- 5.0%
International Bank For Reconstruction & Development zero coupon 1998... 550,000 507,101
------------
U.S. GOVERNMENT & AGENCIES -- 77.9%
Federal Judiciary Office Building zero coupon 1998..................... 1,000,000 910,470
Federal National Mortgage Association zero coupon 1998................. 2,000,000 1,817,838
Government Trust Certificates Series 3D zero coupon 1998............... 1,000,000 897,500
Government Trust Certificates Series T zero coupon 1998................ 2,600,000 2,333,500
Tennessee Valley Authority zero coupon 1998............................ 1,000,000 888,320
Treasury Investment Growth Receipts zero coupon 1998................... 500,000 449,160
United States Treasury Note Strip Prior zero coupon 1998............... 700,000 628,145
------------
7,924,933
------------
UTILITIES -- 7.2%
Michigan Bell Telephone Co. 9.25% 1998................................. 300,000 315,894
Quebec Hydroelectric 9.55% 1998........................................ 100,000 102,898
Virginia Electric & Power Co. 9.38% 1998............................... 300,000 312,306
------------
731,098
------------
TOTAL INVESTMENT SECURITIES (cost $9,617,629).......................... 9,883,642
------------
<CAPTION>
REPURCHASE AGREEMENTS -- 2.8%
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Joint Repurchase Agreement Account -- First Boston (Note 3)............ 128,000 128,000
Joint Repurchase Agreement Account -- Lehman Bros. (Note 3)............ 155,000 155,000
------------
TOTAL REPURCHASE AGREEMENTS (cost $283,000)............................ 283,000
------------
TOTAL INVESTMENTS -- (cost $9,900,629) 100.0% 10,166,642
Other assets less liabilities -- 0.0 4,899
------ ------------
NET ASSETS -- 100.0% $10,171,541
====== =============
</TABLE>
-----------------------------
See Notes to Financial Statements
- ---------------------
16
<PAGE> 14
- ---------------------
ANCHOR SERIES TRUST
GROWTH AND INCOME
PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK -- 87.0% SHARES VALUE
<S> <C> <C>
--------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
CONSUMER DISCRETIONARY -- 5.4%
Retail -- 5.4%
May Department Stores Co. ........................................... 13,000 $ 607,750
Mercantile Stores Co., Inc. ......................................... 7,200 355,500
Saks Holdings, Inc.+................................................. 13,000 351,000
Wal-Mart Stores, Inc. ............................................... 22,000 503,250
---------
1,817,500
---------
CONSUMER STAPLES -- 10.8%
Food, Beverage & Tobacco -- 2.6%
PepsiCo, Inc. ....................................................... 12,000 351,000
Sara Lee Corp. ...................................................... 14,000 521,500
Household Products -- 8.2%
Colgate-Palmolive Co. ............................................... 4,000 369,000
Gillette Co. ........................................................ 7,000 544,250
Kimberly-Clark Corp. ................................................ 7,000 666,750
Procter & Gamble Co. ................................................ 7,000 752,500
Revlon, Inc., Class A+............................................... 14,000 418,250
---------
3,623,250
---------
ENERGY -- 8.9%
Energy Services -- 2.6%
Fluor Corp. ......................................................... 6,000 376,500
Schlumberger Ltd. ................................................... 5,000 499,375
Energy Sources -- 6.3%
Amoco Corp. ......................................................... 6,000 483,000
Exxon Corp. ......................................................... 6,000 588,000
Royal Dutch Petroleum Co., NY Registry Shares ....................... 3,500 597,625
Union Pacific Resources Group, Inc. ................................. 14,234 416,345
---------
2,960,845
---------
FINANCE -- 14.0%
Banks -- 6.1%
Citicorp............................................................. 5,000 515,000
First Bank System, Inc. ............................................. 7,000 477,750
First Union Corp. ................................................... 9,000 666,000
Wachovia Corp. ...................................................... 7,000 395,500
Financial Services -- 1.9%
American Express Co. ................................................ 11,000 621,500
Insurance -- 6.0%
ACE Ltd. ............................................................ 10,000 601,250
Allstate Corp. ...................................................... 11,000 636,625
American International Group, Inc. .................................. 7,000 757,750
---------
4,671,375
---------
</TABLE>
---------------------
17
<PAGE> 15
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE -- 12.6%
Drugs -- 11.1%
American Home Products Corp. ........................................ 10,000 $ 586,250
Bristol-Myers Squibb Co. ............................................ 6,000 652,500
Pfizer, Inc. ........................................................ 7,000 580,125
Pharmacia & Upjohn, Inc. ............................................ 14,000 554,750
Warner-Lambert Co. .................................................. 10,000 750,000
Zeneca Group PLC ADR................................................. 7,000 588,000
Medical Products -- 1.5%
Abbott Laboratories.................................................. 10,000 507,500
---------
4,219,125
---------
INDUSTRIAL & COMMERCIAL -- 8.2%
Aerospace & Military Technology -- 3.5%
Boeing Co. .......................................................... 7,000 744,625
United Technologies Corp. ........................................... 6,400 422,400
Electrical Equipment -- 3.8%
AMP, Inc. ........................................................... 10,000 383,750
General Electric Co. ................................................ 9,000 889,875
Transportation -- 0.9%
Union Pacific Corp. ................................................. 5,000 300,625
---------
2,741,275
---------
INFORMATION & ENTERTAINMENT -- 5.3%
Broadcasting & Media -- 3.5%
Gannett Co., Inc. ................................................... 9,000 673,875
Viacom, Inc., Class B+............................................... 15,000 523,125
Leisure & Tourism -- 1.8%
McDonald's Corp. .................................................... 13,000 588,250
---------
1,785,250
---------
INFORMATION TECHNOLOGY -- 10.1%
Communication Equipment -- 3.0%
Cisco Systems, Inc.+................................................. 7,000 445,375
Motorola, Inc. ...................................................... 9,000 552,375
Computers & Business Equipment -- 3.8%
International Business Machines Corp. ............................... 5,700 860,700
Xerox Corp. ......................................................... 8,000 421,000
Software -- 3.3%
Computer Sciences Corp.+............................................. 6,000 492,750
Electronic Data Systems Corp. ....................................... 14,078 608,873
---------
3,381,073
---------
MATERIALS -- 6.1%
Chemicals -- 4.5%
Air Products & Chemicals, Inc. ...................................... 9,000 622,125
Dow Chemical Co. .................................................... 4,000 313,500
du Pont (E.I.) de Nemours & Co. ..................................... 6,000 566,250
Metals & Minerals -- 1.6%
Phelps Dodge Corp. .................................................. 8,000 540,000
---------
2,041,875
---------
</TABLE>
- ---------------------
18
<PAGE> 16
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES -- 5.6%
Electric Utilities -- 2.9%
Central & South West Corp. .......................................... 13,000 $ 333,125
Pacific Gas & Electric Co. .......................................... 15,000 315,000
Texas Utilities Co. ................................................. 7,500 305,625
Telephone -- 2.7%
AT&T Corp. .......................................................... 11,000 478,500
SBC Communications, Inc. ............................................ 8,500 439,875
---------
1,872,125
---------
TOTAL COMMON STOCK (cost $25,357,675)................................ 29,113,693
---------
CONVERTIBLE PREFERRED STOCK -- 5.8%
--------------------------------------------------------------------------------------------------------
ENERGY -- 1.1%
Energy Sources -- 1.1%
Unocal Capital Trust 6.25%........................................... 6,696 379,998
---------
FINANCE -- 2.2%
Insurance -- 2.2%
Jefferson Pilot Corp. 7.25%.......................................... 8,000 728,000
---------
INFORMATION & ENTERTAINMENT -- 0.9%
Broadcasting & Media -- 0.9%
Cablevision Systems Corp., Series I 8.50%............................ 15,000 307,500
---------
INFORMATION TECHNOLOGY -- 0.4%
Software -- 0.4%
Microsoft Corp., Series A $2.20...................................... 1,600 128,200
---------
MATERIALS -- 1.2%
Forest Products -- 1.2%
International Paper Capital Trust 5.25%.............................. 8,500 389,937
---------
TOTAL CONVERTIBLE PREFERRED STOCK (cost $1,810,191).................. 1,933,635
---------
PRINCIPAL
CONVERTIBLE BONDS -- 5.1% AMOUNT
--------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY -- 1.2%
Retail -- 1.2%
Home Depot, Inc. 3.25% 2001.......................................... $400,000 390,000
---------
FINANCE -- 2.3%
Financial Services -- 2.3%
First Financial Management Corp. 5.00% 1999.......................... 450,000 775,688
---------
</TABLE>
---------------------
19
<PAGE> 17
<TABLE>
<CAPTION>
PRINCIPAL
CONVERTIBLE BONDS (continued) AMOUNT VALUE
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE -- 1.6%
Health Services -- 1.6%
Tenet Healthcare Corp. 6.00% 2005.................................... $500,000 $ 532,500
---------
TOTAL CONVERTIBLE BONDS (cost $1,565,100)............................ 1,698,188
---------
TOTAL INVESTMENT SECURITIES (cost $28,732,966)....................... 32,745,516
---------
REPURCHASE AGREEMENTS -- 3.1%
--------------------------------------------------------------------------------------------------------
Joint Repurchase Agreement Account -- First Boston (Note 3).......... 399,000 399,000
Joint Repurchase Agreement Account -- Lehman Bros. (Note 3).......... 640,000 640,000
---------
TOTAL REPURCHASE AGREEMENTS (cost $1,039,000)........................ 1,039,000
---------
TOTAL INVESTMENTS -- (cost $29,771,966) 101.0% 33,784,516
Liabilities in excess of other assets -- (1.0) (319,243)
------ ---------
NET ASSETS -- 100.0% $ 33,465,273
====== =========
</TABLE>
-----------------------------
+ Non-income producing securities
ADR - American Depositary Receipts
See Notes to Financial Statements
- ---------------------
20
<PAGE> 18
- ---------------------
ANCHOR SERIES TRUST
FOREIGN SECURITIES
PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK -- 88.1% SHARES VALUE
<S> <C> <C>
----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
ARGENTINA -- 0.5%
YPF Sociedad Anonima ADR (Energy)@..................................... 10,000 $ 252,500
-----------
AUSTRALIA -- 3.5%
Amcor Ltd. (Materials)................................................. 63,964 411,310
Boral Ltd. (Materials)................................................. 42,271 120,285
Broken Hill Proprietary Ltd. (Materials)............................... 37,178 529,552
Goodman Fielder Wattie Ltd. (Consumer Staples)......................... 108,471 134,500
Pioneer International Ltd. (Materials)+................................ 90,000 268,262
Qantas Airways Ltd. ADR (Information & Entertainment)*@................ 13,600 226,838
-----------
1,690,747
-----------
AUSTRIA -- 0.8%
OMV AG (Energy)........................................................ 3,500 394,653
-----------
BELGIUM -- 0.8%
Credit Dexia/Communal Holding (Finance)+*.............................. 4,100 374,108
-----------
BRAZIL -- 0.3%
Centrais Eletricas Brasileiras SA - ELETROBRAS ADR (Utilities)......... 9,000 161,102
-----------
CANADA -- 1.8%
Canadian Pacific Ltd. ADR (Industrial & Commercial)+................... 25,000 658,183
Canwest Global Communications (Information Technology)................. 21,300 218,325
-----------
876,508
-----------
CHILE -- 0.8%
Enersis SA ADR (Utilities)............................................. 13,000 360,750
-----------
DENMARK -- 2.5%
Tele Danmark A/S, Class B ADR (Utilities)@............................. 15,400 419,650
Unidanmark A/S (Finance)............................................... 15,500 802,523
-----------
1,222,173
-----------
FINLAND -- 2.8%
Kesko (Consumer Discretionary)......................................... 100 1,411
Merita Ltd. (Finance)+................................................. 78,600 244,343
Metsa Serla Oy (Materials)............................................. 47,500 356,250
Nokia Corp., Class A ADR (Information Technology)...................... 8,500 489,813
Rauma Oy (Industrial & Commercial)..................................... 12,000 253,043
-----------
1,344,860
-----------
FRANCE -- 7.8%
Accor SA (Information & Entertainment)................................. 2,772 351,008
Assurance General de France (Finance)+*................................ 6,500 209,839
Banque Nationale de Paris (Finance).................................... 16,000 619,216
Cie de St. Gobain (Materials).......................................... 2,097 296,656
Credit Commerce France (Finance)....................................... 2,000 92,512
Elf Aquitaine SA (Energy).............................................. 5,000 455,141
</TABLE>
---------------------
21
<PAGE> 19
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
FRANCE (continued)
Havas SA (Information & Entertainment)................................. 4,089 $ 286,864
Peugeot SA (Consumer Discretionary).................................... 500 56,278
Remy Cointreau SA (Consumer Staples)................................... 6,000 169,991
Rhone-Poulenc SA (Healthcare).......................................... 15,830 539,718
Societe Generale (Finance)............................................. 3,846 415,844
Total SA, Series B (Energy)............................................ 2,956 240,423
-----------
3,733,490
-----------
GERMANY -- 3.8%
Daimler-Benz AG (Consumer Discretionary)............................... 11,500 792,176
Degussa AG (Materials)................................................. 700 316,838
Karstadt AG (Consumer Discretionary)................................... 1,100 371,718
Mannesmann AG (Industrial & Commercial)................................ 800 346,763
-----------
1,827,495
-----------
HONG KONG -- 3.6%
CITIC Pacific Ltd. (Consumer Discretionary)............................ 35,000 203,181
Hutchison Whampoa Ltd. (Real Estate)................................... 60,000 471,265
Sun Hung Kai Properties Ltd. (Real Estate)............................. 43,000 526,763
Swire Pacific Ltd., Class A (Real Estate).............................. 55,000 524,436
-----------
1,725,645
-----------
INDIA -- 0.4%
State Bank India GDR (Finance)*@....................................... 11,500 199,755
-----------
INDONESIA -- 1.0%
PT Bank Negara Indonesia (Finance)+*................................... 249,500 132,038
PT Indonesian Satellite Corp. ADR (Utilities)+*........................ 4,000 109,500
PT Jaya Real Property alien (Real Estate).............................. 154,000 215,157
-----------
456,695
-----------
IRELAND -- 0.8%
Allied Irish Banks (Finance)........................................... 21,008 141,085
Jefferson Smurfit Group (Paper Products)+.............................. 80,000 230,941
-----------
372,026
-----------
ITALY -- 3.1%
Arnaldo Mondadori Edit (Information & Entertainment)................... 40,000 325,643
Banca Commerciale Italiana SpA (Finance)............................... 111,200 202,315
Fiat SpA (Consumer Discretionary)...................................... 100,000 302,571
STET (Utilities)....................................................... 144,000 654,977
-----------
1,485,506
-----------
JAPAN -- 18.8%
77th Bank (Finance).................................................... 20,000 164,062
Asahi Organic Chemical (Industrial & Commercial)....................... 19,000 112,054
Canon Sales Co., Inc. (Industrial & Commercial)........................ 5,500 122,528
Chudenko Corp. (Industrial & Commercial)............................... 6,000 173,042
Chugai Pharmaceutical Co., Ltd. (Healthcare)........................... 22,000 184,267
Cosel Co. Ltd. (Industrial & Commercial)............................... 3,000 46,887
Dai Nippon Printing Co., Ltd. (Information & Entertainment)............ 30,000 525,861
Danto Corp. (Materials)................................................ 6,000 58,544
Fuji Machine Manufacturing Co. (Industrial & Commercial)............... 9,000 238,580
JGC Corp. (Industrial & Commercial).................................... 33,000 247,621
Kyudenko Corp. (Industrial & Commercial)............................... 15,000 155,427
Mabuchi Motor Co., Ltd. (Industrial & Commercial)...................... 6,000 302,047
Maruichi Steel Tube (Energy)........................................... 19,000 328,124
Matsushita Electric Industrial Co., Ltd. (Information Technology)+..... 32,000 522,235
Mitsubishi Heavy Industrial Ltd. (Industrial & Commercial)............. 55,000 436,923
Murata Manufacturing Co. (Information Technology)...................... 12,000 398,929
</TABLE>
- ---------------------
22
<PAGE> 20
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
JAPAN (continued)
NGK Spark Plug Co. Ltd. (Industrial & Commercial)...................... 40,000 $ 438,650
Nippon Express Co. Ltd. (Industrial & Commercial)...................... 25,000 171,401
Nippon Television Network (Information & Entertainment)................ 1,760 531,906
Nomura Securities International, Inc. (Finance)........................ 23,000 345,566
Onward Kashiyama (Consumer Discretionary).............................. 40,000 562,991
Sakura Bank Ltd. (Finance)............................................. 33,000 235,938
Sanwa Bank Ltd. (Finance).............................................. 14,000 191,003
Sony Corp. (Information & Entertainment)............................... 4,000 262,154
Sumitomo Realty & Development Co., Ltd. (Real Estate).................. 47,000 296,261
Sumitomo Trust & Banking Co., Ltd. (Finance)........................... 7,000 70,115
Toda Construction Co. (Industrial & Commercial)........................ 32,000 243,157
Tokio Marine & Fire Insurance Co., Ltd. (Finance)...................... 26,000 244,711
Toyo Ink Manufacturing Co. (Materials)................................. 75,000 307,616
Toyota Motor Corp. (Consumer Discretionary)............................ 14,000 402,556
World Co., Ltd. (Consumer Discretionary)............................... 7,900 327,433
Yamato Kogyo Co. (Materials)........................................... 42,000 388,049
Yamazaki Baking Co. (Consumer Staples)................................. 1,000 15,974
-----------
9,052,612
-----------
MALAYSIA -- 1.6%
Land & General Bhd (Real Estate)....................................... 70,000 167,689
Resorts World Bhd (Information & Entertainment)........................ 43,000 195,803
Sime Darby Bhd (Industrial & Commercial)............................... 98,000 386,102
-----------
749,594
-----------
MEXICO -- 1.5%
Cemex SA de CV (Materials)............................................. 50,000 180,069
Fomento Economico Mexicano SA de CV (Consumer Staples)................. 60,000 205,793
Grupo Carso SA de CV (Consumer Staples)................................ 25,000 132,431
Grupo Financiero Bancomer SA de CV, Series B (Finance)................. 350,000 140,053
Transportacion Maritima Mexicana SA de CV ADR
(Industrial & Commercial)............................................ 17,100 79,087
-----------
737,433
-----------
NETHERLANDS -- 2.7%
Internationale Nederladen Groep NV (Finance)........................... 14,765 531,934
KLM Royal Dutch Air Lines NV (Information & Entertainment)............. 12,428 349,841
PolyGram NV (Information & Entertainment).............................. 8,000 407,761
-----------
1,289,536
-----------
NEW ZEALAND -- 1.1%
Air New Zealand Ltd. (Information & Entertainment)..................... 70,561 191,555
Carter Holt Harvey Ltd. (Materials).................................... 139,000 315,440
-----------
506,995
-----------
NORWAY -- 1.4%
Fokus Bank ASA (Finance)............................................... 20,000 136,270
Nycomed ASA (Healthcare)+.............................................. 20,000 302,649
Saga Petroleum (Energy)................................................ 15,000 247,940
-----------
686,859
-----------
PHILIPPINES -- 0.4%
Philipino Telephone Corp. (Utilities).................................. 100,000 84,601
Philippine Long Distance Telephone Co. ADR (Utilities)................. 2,000 102,000
-----------
186,601
-----------
PORTUGAL -- 0.1%
Telecel -- Comunicacoes Pessoais SA (Information Technology)+*......... 500 31,925
-----------
</TABLE>
---------------------
23
<PAGE> 21
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
SINGAPORE -- 3.4%
Development Bank of Singapore alien (Finance).......................... 41,250 $ 557,153
Far East Levingston Shipbuilding Ltd. (Energy)......................... 66,000 344,315
Keppel Corp., Ltd. (Industrial & Commercial)........................... 46,000 358,322
Straits Steamship Land Ltd. (Real Estate).............................. 50,000 160,080
United Overseas Bank Ltd. alien (Finance).............................. 20,000 222,969
-----------
1,642,839
-----------
SOUTH KOREA -- 1.7%
Chosun Brewery Co., Ltd. (Consumer Staples)............................ 3,020 83,372
Commerce Bank Korea (Finance).......................................... 6,100 39,849
Daewoo Securities Co., Ltd. (Finance).................................. 5,814 74,997
Hanil Bank (Finance)................................................... 13,000 89,231
Hanwha Chemical (Materials)............................................ 7,000 54,260
Korea Electric Power Corp. (Utilities)................................. 2,000 58,225
Korean Air Lines (Industrial & Commercial)............................. 9,770 160,829
Pohang Iron & Steel Co., Ltd. ADR (Materials)@......................... 5,000 101,250
Samsung Fire & Marine Insurance (Finance)+............................. 130 53,415
Shinsegae Department Street (Consumer Discretionary)................... 2,000 83,077
-----------
798,505
-----------
SPAIN -- 2.5%
Acerinox SA (Materials)................................................ 2,250 325,130
Empresa Nacional de Electricidad ADR (Utilities)....................... 4,500 315,000
Empresa Nacional de Electricidad SA (Utilities)........................ 4,000 284,691
Telefonica de Espana SA (Utilities).................................... 12,000 278,683
-----------
1,203,504
-----------
SWEDEN -- 1.3%
BT Industries AB (Industrial & Commercial)............................. 7,200 134,078
Pharmacia & Upjohn, Inc. (Healthcare).................................. 12,000 491,796
-----------
625,874
-----------
SWITZERLAND -- 2.4%
Nestle SA (Consumer Staples)........................................... 420 450,908
Richemont Cie Finance (Consumer Staples)............................... 200 280,911
Sulzer AG (Healthcare)................................................. 780 417,243
-----------
1,149,062
-----------
THAILAND -- 0.8%
Bangkok Metropolitan Bank PCL alien (Finance).......................... 238,227 90,104
Land & Houses PCL alien (Real Estate).................................. 9,200 67,082
Siam City Cement PCL alien (Materials)................................. 18,000 94,050
Siam Commercial Bank PCL alien (Finance)............................... 20,000 145,052
-----------
396,288
-----------
UNITED KINGDOM -- 13.8%
Associated British Foods PLC (Consumer Staples)........................ 40,000 330,992
BOC Group PLC (Industrial & Commercial)................................ 21,000 314,442
Boots Co. PLC (Consumer Discretionary)................................. 45,000 464,108
British Gas PLC (Utilities)............................................ 140,000 537,262
British Telecommunications PLC (Utilities)............................. 62,000 419,565
BTR PLC (Industrial & Commercial)...................................... 110,000 537,091
Cookson Group PLC (Information Technology)............................. 60,000 243,618
De La Rue PLC (Information Technology)................................. 20,000 197,019
National Grid Group PLC (Utilities).................................... 130,000 434,299
Northern Foods PLC (Consumer Staples).................................. 68,000 235,327
PowerGen PLC (Utilities)............................................... 41,013 401,909
Rank Group PLC (Information & Entertainment)........................... 50,000 375,193
Reckitt & Colman PLC (Consumer Staples)................................ 38,950 482,454
Royal & Sun Alliance Insurance Group PLC (Finance)..................... 54,181 413,528
Royal Bank of Scotland Group PLC (Finance)............................. 40,000 385,129
</TABLE>
- ---------------------
24
<PAGE> 22
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM (continued)
Sainsbury (J.) PLC (Consumer Discretionary)............................ 81,829 $ 542,536
Sun Life & Provincial Holdings PLC (Finance)+*......................... 70,000 311,804
-----------
6,626,276
-----------
VENEZUELA -- 0.3%
Compania Anon Nacional Tele De Venezuela ADR (Utilities)............... 4,800 135,000
-----------
TOTAL COMMON STOCK (cost $39,771,403).................................. 42,296,916
-----------
PREFERRED STOCK -- 1.5%
----------------------------------------------------------------------------------------------------
BRAZIL -- 0.6%
Centrais Electricas Brasileiras SA-Electrobras, Series B (Utilities)... 350,000 130,016
Petroleo Brasileiros SA (Energy)....................................... 990,000 157,680
-----------
287,696
-----------
GERMANY -- 0.6%
Hornbach Holding AG (Consumer Discretionary)........................... 4,000 285,937
-----------
VENEZUELA -- 0.3%
Quilmes Industrial Quinsa Societe (Consumer Staples)@.................. 14,300 130,488
-----------
TOTAL PREFERRED STOCK (cost $656,644).................................. 704,121
-----------
TOTAL INVESTMENT SECURITIES (cost $40,428,047)......................... 43,001,037
-----------
PRINCIPAL
SHORT-TERM SECURITIES -- 1.0% AMOUNT
----------------------------------------------------------------------------------------------------
United States Treasury Bills 4.85% due 3/20/97 @ (cost $494,746)....... $ 500,000 494,746
-----------
REPURCHASE AGREEMENTS -- 9.6%
----------------------------------------------------------------------------------------------------
Joint Repurchase Agreement Account -- First Boston @ (Note 3).......... 1,541,000 1,541,000
Joint Repurchase Agreement Account -- Lehman Bros. @ (Note 3).......... 3,080,000 3,080,000
-----------
TOTAL REPURCHASE AGREEMENTS (cost $4,621,000).......................... 4,621,000
-----------
TOTAL INVESTMENTS --
(cost $45,543,793) 100.2% 48,116,783
Liabilities in excess of other assets -- (0.2) (81,094)
------ -----------
NET ASSETS -- 100.0% $48,035,689
====== ===========
</TABLE>
-----------------------------
+ Non-income producing securities
* Resale restricted to qualified institutional buyers
ADR - American Depositary Receipts
GDR - Global Depositary Receipts
@ The security or a portion thereof represents collateral for the
following open futures contracts:
---------------------
25
<PAGE> 23
<TABLE>
<CAPTION>
OPEN FUTURES CONTRACTS
<S> <C> <C>
----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF EXPIRATION VALUE AT VALUE AS OF APPRECIATION/
CONTRACTS DESCRIPTION DATE TRADE DATE DECEMBER 31, 1996 DEPRECIATION
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------
24 Short All ordinaries share March 1997 $1,113,576 $ 1,167,144 $(53,568)
price Stock Index
Future-Sydney Futures
Exchange
10 Long Deutsche Terminboerse- March 1997 1,842,930 1,884,692 41,762
Dax Stock Index Future
2 Short Hang Seng Index Future- March 1997 167,368 174,013 (6,645)
Hong Kong Futures
Exchange
80 Long IBEX 35 Future-Mercado January 1997 290,791 316,346 25,555
de Opciones y Futures
Financieras
10 Short Marche A Terme March 1997 861,304 896,553 (35,249)
International de France-
CAC 40 Stock Index
Future
3 Long Mercato Italiano Future- March 1997 310,148 315,820 5,672
MIB 30 Stock Index
Future
17 Long Stockholm Exchange-OMS January 1997 447,346 468,073 20,727
Stock Index Future
2 Long Tokyo Stock Exchange- March 1997 266,979 253,625 (13,354)
Topix Future
8 Long Toronto 35 Index Future- March 1997 875,533 918,654 43,121
Toronto Futures Exchange
----------------
Net Unrealized Appreciation................................................. $ 28,021
==============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OPEN FORWARD FOREIGN CURRENCY CONTRACTS
<CAPTION>
------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CONTRACT IN DELIVERY GROSS UNREALIZED
TO DELIVER EXCHANGE FOR DATE APPRECIATION
<S> <C> <C> <C>
---------------------------------------------------------------------------
AUD 1,404,000 USD 1,115,338 3/31/97 $ 443
USD 1,005,052 DEM 1,556,273 3/20/97 11,550
USD 741,633 DEM 1,139,000 3/21/97 2,444
USD 297,519 ESP 38,734,000 1/17/97 704
USD 237,757 FRF 1,243,042 3/27/97 3,033
USD 282,515 ITL 432,813,600 3/21/97 1,732
USD 223,925 SEK 1,537,870 1/24/97 1,802
----------------
21,708
----------------
</TABLE>
<TABLE>
<CAPTION>
GROSS UNREALIZED
DEPRECIATION
<S> <C> <C> <C>
---------------------------------------------------------------------------
USD 896,435 CAD 1,217,000 3/20/97 $ (3,140)
FRF 4,418,000 USD 851,285 3/27/97 (4,529)
USD 276,122 JPY 31,378,530 3/13/97 (2,394)
USD 158,863 SEK 1,082,000 1/24/97 (48)
----------------
(10,111)
----------------
Net Unrealized Appreciation.................. $ 11,597
==============
AUD -- Australian Dollar
CAD -- Canadian Dollar
DEM -- Deutsche Mark
ESP -- Spanish Peseta
FRF -- French Franc
ITL -- Italian Lira
JPY -- Japanese Yen
SEK -- Swedish Krona
USD -- United States Dollar
</TABLE>
See Notes to Financial Statements
- ---------------------
26
<PAGE> 24
- ---------------------
ANCHOR SERIES TRUST
GROWTH PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK -- 98.3% SHARES VALUE
<S> <C> <C>
----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
CONSUMER DISCRETIONARY -- 9.3%
Apparel & Textiles -- 0.4%
Nine West Group, Inc.+................................................ 31,900 $ 1,479,362
Automotive -- 1.9%
Ford Motor Co......................................................... 82,500 2,629,687
General Motors Corp., Class H......................................... 40,000 2,250,000
Goodyear Tire & Rubber Co............................................. 38,500 1,977,938
Housing -- 0.1%
Juno Lighting, Inc.................................................... 22,200 355,200
Retail -- 6.9%
Arbor Drugs, Inc...................................................... 124,500 2,163,187
Barnes & Noble, Inc.+................................................. 75,200 2,030,400
Ethan Allen Interiors, Inc............................................ 23,000 885,500
Gymboree Corp.+....................................................... 27,000 617,625
Home Depot, Inc....................................................... 86,000 4,310,750
May Department Stores Co.............................................. 95,000 4,441,250
Office Max, Inc.+..................................................... 121,000 1,285,625
Rite Aid Corp......................................................... 100,000 3,975,000
Saks Holdings, Inc.+.................................................. 79,000 2,133,000
Wal-Mart Stores, Inc.................................................. 160,000 3,660,000
-------------
34,194,524
-------------
CONSUMER STAPLES -- 6.8%
Food, Beverage & Tobacco -- 3.5%
General Mills, Inc.................................................... 45,000 2,851,875
PepsiCo, Inc.......................................................... 82,500 2,413,125
Philip Morris Cos., Inc............................................... 26,000 2,928,250
Sara Lee Corp......................................................... 120,600 4,492,350
Household Products -- 3.3%
Bush Boake Allen, Inc.+............................................... 65,000 1,730,625
Kimberly-Clark Corp................................................... 37,800 3,600,450
Procter & Gamble Co................................................... 65,000 6,987,500
-------------
25,004,175
-------------
ENERGY -- 6.1%
Energy Services -- 1.3%
Input/Output, Inc.+................................................... 81,100 1,500,350
Schlumberger Ltd...................................................... 35,000 3,495,625
Energy Sources -- 4.8%
Amoco Corp............................................................ 77,000 6,198,500
Barrett Resources Corp.+.............................................. 13,000 554,125
Chevron Corp.......................................................... 75,000 4,875,000
Exxon Corp............................................................ 38,700 3,792,600
Union Pacific Resources Group, Inc.................................... 70,418 2,059,727
-------------
22,475,927
-------------
</TABLE>
---------------------
27
<PAGE> 25
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCE -- 16.4%
Banks -- 6.0%
Associated Banc Corp.................................................. 41,000 $ 1,742,500
Bancorp Hawaii, Inc................................................... 59,200 2,486,400
Citicorp.............................................................. 21,000 2,163,000
First Commercial Corp................................................. 39,322 1,459,829
First Union Corp...................................................... 58,000 4,292,000
NationsBank Corp...................................................... 44,500 4,349,875
State Street Boston Corp.............................................. 70,000 4,515,000
Wilmington Trust Corp................................................. 30,000 1,185,000
Financial Services -- 4.3%
American Express Co................................................... 90,000 5,085,000
Federal National Mortgage Association................................. 200,000 7,450,000
Morgan Stanley Group, Inc............................................. 56,000 3,199,000
Insurance -- 6.1%
ACE Ltd............................................................... 52,000 3,126,500
Allstate Corp......................................................... 84,600 4,896,225
American International Group, Inc..................................... 52,500 5,683,125
Frontier Insurance Group, Inc......................................... 53,000 2,027,250
Reinsurance Group America, Inc........................................ 24,200 1,140,425
Travelers Group, Inc.................................................. 120,000 5,445,000
-------------
60,246,129
-------------
HEALTHCARE -- 12.1%
Drugs -- 6.3%
Cognizant Corp........................................................ 80,000 2,640,000
Merck & Co., Inc...................................................... 35,000 2,773,750
Pfizer, Inc........................................................... 54,000 4,475,250
Pharmacia & Upjohn, Inc............................................... 35,000 1,386,875
Rhone-Poulenc Rorer, Inc.............................................. 71,000 5,546,875
Warner-Lambert Co..................................................... 48,000 3,600,000
Zeneca Group PLC ADR.................................................. 31,000 2,604,000
Health Services -- 3.2%
Columbia/HCA Healthcare Corp.......................................... 75,000 3,056,250
Living Centers of America, Inc.+...................................... 50,000 1,387,500
Shared Medical Systems, Inc........................................... 49,000 2,413,250
Tenet Healthcare Corp.+............................................... 100,000 2,187,500
United Healthcare Corp................................................ 58,800 2,646,000
Medical Products -- 2.6%
Abbott Laboratories................................................... 90,000 4,567,500
Biomet, Inc........................................................... 85,000 1,285,625
Life Technologies, Inc................................................ 77,000 1,925,000
Nellcor Puritan Bennett, Inc.+........................................ 79,000 1,728,125
-------------
44,223,500
-------------
INDUSTRIAL & COMMERCIAL -- 13.1%
Aerospace & Military Technology -- 1.8%
Boeing Co............................................................. 36,000 3,829,500
United Technologies Corp.............................................. 44,000 2,904,000
</TABLE>
- ---------------------
28
<PAGE> 26
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL & COMMERCIAL (continued)
Business Services -- 3.6%
Avnet, Inc............................................................ 23,000 $ 1,339,750
Computer Sciences Corp.+.............................................. 18,000 1,478,250
Dames & Moore, Inc.................................................... 105,000 1,535,625
Foster Wheeler Corp................................................... 100,000 3,712,500
G & K Services, Inc................................................... 73,000 2,755,750
Metromail Corp.+...................................................... 100,000 1,825,000
Tetra Tech, Inc.+..................................................... 21,000 414,750
Electrical Equipment -- 3.6%
General Electric Co................................................... 64,000 6,328,000
Hubbell, Inc.......................................................... 94,000 4,065,500
Littelfuse, Inc.+..................................................... 59,000 2,861,500
Machinery -- 2.8%
Caterpillar, Inc...................................................... 35,000 2,633,750
Donaldson Co., Inc.................................................... 55,000 1,842,500
Minnesota Mining & Manufacturing Co................................... 50,000 4,143,750
MSC Industrial Direct, Inc., Class A+................................. 38,000 1,406,000
Nordson Corp.......................................................... 5,000 318,750
Transportation -- 1.3%
Air Express International Corp........................................ 64,100 2,067,225
Union Pacific Corp.................................................... 43,000 2,585,375
-------------
48,047,475
-------------
INFORMATION & ENTERTAINMENT -- 8.1%
Broadcasting & Media -- 3.9%
Advo, Inc............................................................. 105,000 1,470,000
Gannett Co., Inc...................................................... 55,000 4,118,125
Scholastic Corp.+..................................................... 15,900 1,069,275
U.S. West Media Group+................................................ 78,000 1,443,000
Viacom, Inc., Class B+................................................ 171,537 5,982,353
Entertainment Products -- 0.7%
Harley-Davidson, Inc.................................................. 28,000 1,316,000
Speedway Motorsports, Inc.+........................................... 65,000 1,365,000
Leisure & Tourism -- 3.5%
Doubletree Corp.+..................................................... 12,000 540,000
Landry's Seafood Restaurants, Inc.+................................... 29,100 622,012
McDonald's Corp....................................................... 108,000 4,887,000
Mirage Resorts, Inc.+................................................. 115,000 2,486,875
Quality Dining, Inc.+................................................. 45,000 804,375
Southwest Airlines Co................................................. 155,000 3,429,375
-------------
29,533,390
-------------
INFORMATION TECHNOLOGY -- 15.9%
Communication Equipment -- 2.8%
Cisco Systems, Inc.+.................................................. 100,000 6,362,500
Nokia Corp., Class A ADR.............................................. 70,000 4,033,750
Computers & Business Equipment -- 2.8%
Adaptec, Inc.+........................................................ 27,600 1,104,000
Compaq Computer Corp.+................................................ 35,000 2,598,750
Hewlett-Packard Co.................................................... 99,000 4,974,750
International Business Machines Corp.................................. 10,000 1,510,000
</TABLE>
---------------------
29
<PAGE> 27
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
INFORMATION TECHNOLOGY (continued)
Electronics -- 3.1%
AMP, Inc.............................................................. 100,000 $ 3,837,500
Dallas Semiconductor Corp............................................. 64,900 1,492,700
Intel Corp............................................................ 35,000 4,582,813
Maxim Integrated Products, Inc.+...................................... 32,000 1,384,000
Software -- 6.8%
American Management Systems, Inc.+.................................... 60,000 1,470,000
Automatic Data Processing, Inc........................................ 112,000 4,802,000
BISYS Group, Inc.+.................................................... 32,000 1,186,000
Cognos, Inc.+......................................................... 39,400 1,108,125
DST Systems, Inc.+.................................................... 56,000 1,757,000
First Data Corp....................................................... 72,000 2,628,000
Microsoft Corp.+...................................................... 54,000 4,461,750
Policy Management Systems Corp.+...................................... 52,000 2,398,500
Sterling Commerce, Inc.+.............................................. 40,000 1,410,000
Sterling Software, Inc.+.............................................. 61,500 1,944,937
Systems & Computer Technology Corp.+.................................. 97,000 1,552,000
Telecommunications -- 0.4%
Lucent Technologies, Inc.............................................. 34,167 1,580,224
-------------
58,179,299
-------------
MATERIALS -- 7.6%
Chemicals -- 3.6%
Air Products & Chemicals, Inc......................................... 60,000 4,147,500
Dow Chemical Co....................................................... 32,100 2,515,837
Engelhard Corp........................................................ 149,925 2,867,316
Minerals Technologies, Inc............................................ 45,000 1,845,000
Schulman A., Inc...................................................... 75,000 1,837,500
Metals & Minerals -- 2.4%
Aluminum Co. of America............................................... 44,000 2,805,000
Crown, Cork & Seal, Inc............................................... 30,000 1,631,250
Phelps Dodge Corp..................................................... 40,400 2,727,000
UCAR International, Inc.+............................................. 45,000 1,693,125
Paper Products -- 1.6%
Bemis Co., Inc........................................................ 59,700 2,201,438
International Paper Co................................................ 92,000 3,714,500
-------------
27,985,466
-------------
UTILITIES -- 2.9%
Telephone -- 2.9%
AT&T Corp............................................................. 90,000 3,727,266
Century Telephone Enterprises, Inc.................................... 47,500 1,466,562
SBC Communications, Inc............................................... 106,000 5,485,500
-------------
10,679,328
-------------
TOTAL INVESTMENT SECURITIES (cost $280,752,310)....................... 360,569,213
-------------
</TABLE>
- ---------------------
30
<PAGE> 28
<TABLE>
<CAPTION>
PRINCIPAL
REPURCHASE AGREEMENTS -- 1.7% AMOUNT VALUE
<S> <C> <C>
----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
Joint Repurchase Agreement Account -- First Boston (Note 3)........... $2,724,000 $ 2,724,000
Joint Repurchase Agreement Account -- Lehman Bros. (Note 3)........... 3,430,000 3,430,000
-------------
TOTAL REPURCHASE AGREEMENTS (cost $6,154,000)......................... 6,154,000
-------------
TOTAL INVESTMENTS --
(cost $286,906,310) 100.0% 366,723,213
Liabilities in excess of other assets -- 0.0 (120,886)
-------------------------- -------------
NET ASSETS -- 100.0% $366,602,327
==============
==========================
</TABLE>
-----------------------------
+ Non-income producing securities
ADR - American Depositary Receipts
See Notes to Financial Statements
---------------------
31
<PAGE> 29
- ---------------------
ANCHOR SERIES TRUST
CAPITAL APPRECIATION
PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK -- 83.8% SHARES VALUE
<S> <C> <C>
----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
CONSUMER DISCRETIONARY -- 8.6%
Apparel & Textiles -- 1.7%
Tommy Hilfiger Corp.+................................................ 205,000 $ 9,840,000
Retail -- 6.9%
Barnes & Noble, Inc.+................................................ 295,000 7,965,000
Bed Bath & Beyond, Inc.+............................................. 300,000 7,275,000
Gymboree Corp.+...................................................... 255,000 5,833,125
Home Depot, Inc...................................................... 100,000 5,012,500
Mercantile Stores Co., Inc........................................... 160,000 7,900,000
Saks Holdings, Inc.+................................................. 190,000 5,130,000
-------------
48,955,625
-------------
CONSUMER STAPLES -- 2.3%
Household Products -- 2.3%
Revlon, Inc., Class A+............................................... 184,800 5,520,900
Tupperware Corp...................................................... 140,000 7,507,500
-------------
13,028,400
-------------
ENERGY -- 7.4%
Energy Services -- 4.9%
ENSCO International, Inc.+........................................... 198,600 9,632,100
Input/Output, Inc.+.................................................. 200,000 3,700,000
Transocean Offshore, Inc............................................. 233,619 14,630,390
Energy Sources -- 2.5%
Alberta Energy Ltd................................................... 200,000 4,800,000
Unocal Corp.......................................................... 115,000 4,671,875
Vastar Resources, Inc................................................ 118,500 4,503,000
-------------
41,937,365
-------------
FINANCE -- 5.9%
Financial Services -- 1.2%
Imperial Credit Industries, Inc.+.................................... 190,000 3,990,000
Moneygram Payment Systems, Inc.+..................................... 225,000 2,981,250
Insurance -- 4.7%
ACE Ltd.............................................................. 165,000 9,920,625
Allstate Corp........................................................ 175,000 10,128,125
Transatlantic Holdings, Inc.......................................... 80,000 6,440,000
-------------
33,460,000
-------------
HEALTHCARE -- 13.8%
Drugs -- 6.6%
Eisai Co. Ltd........................................................ 350,000 6,890,597
Genetics Institute, Inc.+............................................ 30,000 2,542,500
Genzyme Corp.+....................................................... 365,000 7,938,750
Immunex Corp.+....................................................... 300,000 5,850,000
Rhone-Poulenc Rorer, Inc............................................. 144,000 11,250,000
Zeneca Group PLC ADR................................................. 100,000 2,818,228
</TABLE>
- ---------------------
32
<PAGE> 30
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE (continued)
Health Services -- 4.4%
Beverly Enterprises, Inc.+........................................... 225,000 $ 2,868,750
GranCare, Inc.+...................................................... 130,000 2,323,750
IDX Systems Corp.+................................................... 125,000 3,578,125
Magellan Health Services, Inc.+...................................... 285,000 6,376,875
Vencor, Inc.+........................................................ 310,000 9,803,750
Medical Products -- 2.8%
Biomet, Inc.......................................................... 300,000 4,537,500
Haemonetics Corp.+................................................... 275,000 5,190,625
Sulzer AG............................................................ 11,500 6,151,662
-------------
78,121,112
-------------
INDUSTRIAL & COMMERCIAL -- 5.6%
Aerospace & Military Technology -- 3.6%
Gulfstream Aerospace Corp.+.......................................... 230,000 5,577,500
Northrop Grumman Corp................................................ 60,000 4,965,000
Precision Castparts Corp............................................. 200,000 9,925,000
Electrical Equipment -- 0.6%
York International Corp.............................................. 60,000 3,352,500
Transportation -- 1.4%
Pittston Burlington Co............................................... 230,000 4,600,000
Werner Enterprises, Inc.............................................. 175,000 3,171,875
-------------
31,591,875
-------------
INFORMATION & ENTERTAINMENT -- 19.1%
Broadcasting & Media -- 16.5%
American Radio Systems Corp., Class A+............................... 225,000 6,131,250
Canwest Global Communications........................................ 240,000 2,460,000
Central European Media Enterprises Ltd., Class A+.................... 170,000 5,397,500
Comcast Corp., Class A............................................... 98,452 1,753,676
E-Z Communications, Inc., Class A+................................... 55,000 2,014,375
Emmis Broadcasting Corp., Class A+................................... 60,000 1,965,000
Gaylord Entertainment Co., Class A................................... 325,299 7,441,215
International Cabletel, Inc.+........................................ 146,666 3,703,317
Jacor Communications, Inc.+.......................................... 225,000 6,159,375
LodgeNet Entertainment Corp.+........................................ 200,000 3,550,000
Metro Networks, Inc.+................................................ 230,000 5,807,500
Outdoor Systems, Inc.+............................................... 101,950 2,867,344
Pulitzer Publishing Co............................................... 82,766 3,838,273
Saga Communications, Inc., Class A+.................................. 100,000 1,950,000
Scholastic Corp.+.................................................... 80,000 5,380,000
Scripps Howard, Inc.................................................. 85,000 2,975,000
Tele-Communications Liberty Media Group, Class A+.................... 490,000 13,995,625
Universal Outdoor Holdings, Inc.+.................................... 125,000 2,937,500
Valuevision International, Inc., Class A+............................ 200,000 1,075,000
Viacom, Inc., Class A+............................................... 11,200 386,400
Viacom, Inc., Class B+............................................... 134,861 4,703,277
Westwood One, Inc.+.................................................. 170,000 2,826,250
Young Broadcasting, Inc., Class A+................................... 150,000 4,387,500
Leisure & Tourism -- 2.1%
AMR Corp.+........................................................... 75,000 6,609,375
Continental Airlines, Inc., Class B+................................. 100,000 2,825,000
Royal Caribbean Cruises Ltd.......................................... 100,000 2,337,500
-------------
105,477,252
-------------
</TABLE>
---------------------
33
<PAGE> 31
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
INFORMATION TECHNOLOGY -- 19.7%
Communication Equipment -- 4.8%
APT Satellite Holdings Ltd. ADR+..................................... 148,500 $ 2,079,000
Cisco Systems, Inc.+................................................. 150,000 9,543,750
Larscom, Inc., Class A+.............................................. 175,000 1,990,625
Nokia Corp., Class A ADR............................................. 150,000 8,643,750
Oak Industries, Inc.+................................................ 150,000 3,450,000
Scitex Corp. Ltd..................................................... 145,100 1,378,450
Computers & Business Equipment -- 1.7%
Adaptec, Inc.+....................................................... 230,000 9,200,000
Integrated Technology USA, Inc.+..................................... 150,000 375,000
Electronics -- 2.5%
Gilat Satellite Networks Ltd.+....................................... 125,000 3,078,125
S3, Inc.+............................................................ 310,000 5,037,500
Sterling Commerce, Inc.+............................................. 170,964 6,026,481
Software -- 10.2%
BA Merchants Services, Inc., Class A+................................ 150,000 2,681,250
BISYS Group, Inc.+................................................... 150,000 5,559,375
BMC Software, Inc.+.................................................. 170,000 7,033,750
Cadence Design Systems, Inc.+........................................ 250,000 9,937,500
Cognos, Inc.+........................................................ 200,000 5,625,000
DST Systems, Inc.+................................................... 250,000 7,843,750
Parametric Technology Corp.+......................................... 150,000 7,706,250
Policy Management Systems Corp.+..................................... 75,000 3,459,375
Sterling Software, Inc.+............................................. 200,000 6,325,000
Systems & Computer Technology Corp.+................................. 130,000 2,080,000
Telecommunications -- 0.5%
West Teleservices Corp.+............................................. 125,000 2,843,750
-------------
111,897,681
-------------
MATERIALS -- 1.9%
Metals & Minerals -- 1.9%
Titanium Metals Corp.+............................................... 59,800 1,965,925
UCAR International, Inc.+............................................ 242,400 9,120,300
-------------
11,086,225
-------------
TOTAL COMMON STOCK (cost $377,552,647)............................... 475,555,535
-------------
PREFERRED STOCK -- 0.6%
----------------------------------------------------------------------------------------------------
INFORMATION & ENTERTAINMENT -- 0.6%
Broadcasting & Media -- 0.6%
News Corp., Ltd. ADR
(cost $3,459,640).................................................. 200,000 3,525,000
-------------
WARRANTS -- 0.0%
----------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 0.0%
Computers & Business Equipment -- 0.0%
Integrated Technology USA, Inc. 2001+
(cost $15,000)..................................................... 150,000 56,250
-------------
TOTAL INVESTMENT SECURITIES (cost $381,027,287)...................... 479,136,785
-------------
</TABLE>
- ---------------------
34
<PAGE> 32
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM SECURITIES -- 0.3% AMOUNT VALUE
<S> <C> <C>
----------------------------------------------------------------------------------------------------
U.S. GOVERNMENT -- 0.3%
United States Treasury Bills 4.84% due 3/20/97....................... $ 85,000 $ 84,108
United States Treasury Bills 4.85% due 3/20/97 @..................... 990,000 979,597
United States Treasury Bills 4.94% due 3/20/97....................... 260,000 257,220
-------------
TOTAL SHORT-TERM SECURITIES (cost $1,320,925)........................ 1,320,925
-------------
<CAPTION>
REPURCHASE AGREEMENTS -- 14.9%
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Joint Repurchase Agreement Account -- First Boston (Note 3).......... 31,656,000 31,656,000
Joint Repurchase Agreement Account -- Lehman Bros. @ (Note 3)........ 53,035,000 53,035,000
-------------
TOTAL REPURCHASE AGREEMENTS (cost $84,691,000)....................... 84,691,000
-------------
TOTAL INVESTMENTS --
(cost $467,039,212) 99.6% 565,148,710
Other assets less liabilities -- 0.4 2,523,595
------ -------------
NET ASSETS -- 100.0% $567,672,305
====== ============
</TABLE>
-----------------------------
+ Non-income producing securities
ADR - American Depositary Receipts
@ The security or a portion thereof represents collateral for the
following open futures contracts:
<TABLE>
<CAPTION>
OPEN FUTURES CONTRACTS
------------------------------------------------------------------------------------------------------------
NUMBER OF EXPIRATION VALUE AT VALUE AS OF UNREALIZED
CONTRACTS DESCRIPTION DATE TRADE DATE DECEMBER 31, 1996 APPRECIATION
------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
19 Long Russell 2000 Index March 1997 $ 3,421,125 $ 3,446,125 $ 25,000
41 Long Russell 2000 Index March 1997 7,384,500 7,436,375 51,875
75 Long Standard & Poor's 500 Index March 1997 27,601,875 27,918,750 316,875
------------
Net Unrealized Appreciation......................................................... $ 393,750
===========
</TABLE>
See Notes to Financial Statements
---------------------
35
<PAGE> 33
- ---------------------
ANCHOR SERIES TRUST
NATURAL RESOURCES
PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK -- 88.4% SHARES VALUE
<S> <C> <C>
----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
ENERGY -- 29.1%
Energy Sources -- 29.1%
Alberta Energy Co. Ltd. ............................................... 40,000 $ 955,233
Amerada Hess Corp. .................................................... 17,390 1,006,446
Barrett Resources Corp.+............................................... 30,000 1,278,750
Canadian Natural Resources Ltd.+....................................... 30,000 823,779
Chevron Corp. ......................................................... 20,000 1,300,000
Elan Energy, Inc.+..................................................... 20,000 175,272
Enron Oil & Gas Co. ................................................... 600 15,150
Imperial Oil Ltd. ..................................................... 20,000 940,000
Northstar Energy Corp.+................................................ 30,000 349,449
PanCanadian Petroleum Ltd. ............................................ 30,000 1,194,041
Poco Petroleum Ltd.+................................................... 60,000 574,016
Sun Co., Inc. ......................................................... 39,800 970,125
Talisman Energy, Inc.+................................................. 27,000 899,145
Total SA ADR........................................................... 793 31,918
Ultramar Diamond Shamrock+............................................. 20,200 638,825
Unocal Corp. .......................................................... 14,020 569,562
Vastar Resources, Inc. ................................................ 20,000 760,000
YPF Sociedad Anonima, Class D ADR...................................... 28,000 707,000
-----------
13,188,711
-----------
MATERIALS -- 59.2%
Metals & Minerals -- 47.5%
Agnico Eagle Mines Ltd. ............................................... 32,000 448,000
Algoma Steel, Inc.+.................................................... 220,000 1,144,687
Alumax, Inc.+.......................................................... 20,200 674,175
Aluminum Co. of America................................................ 17,600 1,122,000
Amax Gold, Inc.+....................................................... 94,000 599,250
Barrick Gold Corp. .................................................... 25,000 718,750
British Steel PLC ADR.................................................. 19,000 522,500
Carbide/Graphite Group, Inc.+.......................................... 42,100 826,213
Century Aluminum Co. .................................................. 17,800 307,050
Dominion Mining Ltd.+.................................................. 139,680 104,363
EASCO, Inc. ........................................................... 59,000 449,875
Freeport-McMoRan Copper & Gold, Inc., Class A.......................... 42,900 1,206,562
Hecla Mining Co.+...................................................... 17,300 97,313
Homestake Mining Co. .................................................. 29,685 423,011
Lukens, Inc. .......................................................... 52,000 1,046,500
Newcrest Mining Ltd. .................................................. 95,953 381,341
Newmont Gold Co. ...................................................... 12,600 551,250
Newmont Mining Corp. .................................................. 30,150 1,349,212
Normandy Mining Ltd. .................................................. 529,325 732,077
Phelps Dodge Corp. .................................................... 21,500 1,451,250
Placer Dome, Inc. ..................................................... 30,000 652,500
Republic Engineered Steels, Inc.+...................................... 158,900 297,938
Royal Oak Mines, Inc.+................................................. 161,000 523,250
RTZ Corp. PLC.......................................................... 10,000 160,699
Santa Fe Pacific Gold Corp. ........................................... 100,000 1,537,500
Titanium Metals Corp.+................................................. 28,600 940,225
</TABLE>
- ---------------------
36
<PAGE> 34
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
MATERIALS (continued)
Metals & Minerals (continued)
TVX Gold, Inc.+........................................................ 68,000 $ 527,000
UCAR International, Inc.+.............................................. 41,500 1,561,437
Usinor Sacilor......................................................... 47,000 683,916
Western Mining Corp. Holdings Ltd. .................................... 81,168 511,615
Paper Products -- 11.7%
Bowater, Inc. ......................................................... 14,000 526,750
International Paper Co. ............................................... 15,000 605,625
Longview Fibre Co. .................................................... 30,000 551,250
Temple-Inland, Inc. ................................................... 14,500 784,813
Weyerhaeuser Co. ...................................................... 30,000 1,421,250
Willamette Industries, Inc. ........................................... 20,000 1,392,500
-----------
26,833,647
-----------
TOTAL COMMON STOCK (cost $35,313,737).................................. 40,022,358
-----------
WARRANTS -- 0.1%
----------------------------------------------------------------------------------------------------
MATERIALS -- 0.1%
Metals & Minerals -- 0.1%
Dominion Mining Ltd. 12/31/98+ (cost $0)............................... 69,840 27,201
-----------
TOTAL INVESTMENT SECURITIES (cost $35,313,737)......................... 40,049,559
-----------
PRINCIPAL
REPURCHASE AGREEMENTS -- 11.5% AMOUNT
----------------------------------------------------------------------------------------------------
Joint Repurchase Agreement Account -- First Boston (Note 3)............ $1,811,000 1,811,000
Joint Repurchase Agreement Account -- Lehman Bros. (Note 3)............ 3,410,000 3,410,000
-----------
TOTAL REPURCHASE AGREEMENTS (cost $5,221,000).......................... 5,221,000
-----------
TOTAL INVESTMENTS -- (cost $40,534,737) 99.9% 45,270,559
Other assets less liabilities -- 0.1 58,642
------ -----------
NET ASSETS -- 100.0% $45,329,201
====== ===========
</TABLE>
-----------------------------
+ Non-income producing securities
ADR - American Depositary Receipts
See Notes to Financial Statements
---------------------
37
<PAGE> 35
- ---------------------
ANCHOR SERIES TRUST
MULTI-ASSET PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK -- 63.8% SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER DISCRETIONARY -- 4.7%
Automotive -- 0.4%
Ford Motor Co. ....................................................... 20,000 $ 637,500
Retail -- 4.3%
Home Depot, Inc. ..................................................... 30,000 1,503,750
May Department Stores Co. ............................................ 40,000 1,870,000
Saks Holdings, Inc.+.................................................. 43,000 1,161,000
Wal-Mart Stores, Inc. ................................................ 80,000 1,830,000
-------------
7,002,250
-------------
CONSUMER STAPLES -- 6.6%
Food, Beverage & Tobacco -- 0.9%
Sara Lee Corp. ....................................................... 35,000 1,303,750
Household Products -- 5.7%
Colgate-Palmolive Co. ................................................ 15,000 1,383,750
Gillette Co. ......................................................... 24,000 1,866,000
Kimberly-Clark Corp. ................................................. 20,000 1,905,000
Procter & Gamble Co. ................................................. 19,000 2,042,500
Revlon, Inc., Class A+................................................ 46,000 1,374,250
-------------
9,875,250
-------------
ENERGY -- 7.0%
Energy Services -- 1.8%
Fluor Corp. .......................................................... 20,000 1,255,000
Schlumberger Ltd. .................................................... 15,000 1,498,125
Energy Sources -- 5.2%
Amoco Corp. .......................................................... 30,000 2,415,000
Exxon Corp. .......................................................... 25,000 2,450,000
Union Pacific Resources Group, Inc. .................................. 37,000 1,082,250
Unocal Corp. ......................................................... 45,000 1,828,125
-------------
10,528,500
-------------
FINANCE -- 10.8%
Banks -- 4.8%
Citicorp. ............................................................ 12,000 1,236,000
First Bank System, Inc. .............................................. 30,000 2,047,500
First Union Corp. .................................................... 28,000 2,072,000
Wachovia Corp. ....................................................... 34,000 1,921,000
Financial Services -- 1.8%
American Express Co. ................................................. 40,000 2,260,000
Bancorp Hawaii, Inc. ................................................. 10,500 441,000
Insurance -- 4.2%
ACE Ltd. ............................................................. 30,000 1,803,750
Allstate Corp. ....................................................... 35,000 2,025,625
American International Group, Inc. ................................... 22,500 2,435,625
-------------
16,242,500
-------------
</TABLE>
- ---------------------
38
<PAGE> 36
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE -- 9.1%
Drugs -- 7.1%
Bristol-Myers Squibb Co. ............................................. 17,000 $ 1,848,750
Johnson & Johnson Co. ................................................ 38,000 1,890,500
Pfizer, Inc. ......................................................... 22,000 1,823,250
Pharmacia & Upjohn, Inc. ............................................. 35,000 1,386,875
Warner-Lambert Co. ................................................... 30,000 2,250,000
Zeneca Group PLC ADR.................................................. 18,000 1,512,000
Medical Products -- 2.0%
Abbott Laboratories................................................... 35,000 1,776,250
Biomet, Inc. ......................................................... 85,000 1,285,625
-------------
13,773,250
-------------
INDUSTRIAL & COMMERCIAL -- 6.3%
Aerospace & Military Technology -- 1.2%
Boeing Co. ........................................................... 17,000 1,808,375
Electrical Equipment -- 3.1%
General Electric Co. ................................................. 33,000 3,262,875
York International Corp. ............................................. 25,000 1,396,875
Machinery -- 0.9%
Illinois Tool Works, Inc. ............................................ 17,000 1,357,875
Transportation -- 1.1%
Canadian Pacific Ltd. ................................................ 65,000 1,722,500
-------------
9,548,500
-------------
INFORMATION & ENTERTAINMENT -- 5.5%
Broadcasting & Media -- 3.3%
Gannett Co., Inc. .................................................... 30,000 2,246,250
Gaylord Entertainment Co., Class A.................................... 60,486 1,383,617
Viacom, Inc., Class B+................................................ 40,000 1,395,000
Leisure & Tourism -- 2.2%
AMR Corp.+............................................................ 17,063 1,503,677
McDonald's Corp. ..................................................... 40,000 1,810,000
-------------
8,338,544
-------------
INFORMATION TECHNOLOGY -- 9.5%
Communication Equipment -- 2.2%
Cisco Systems, Inc.+.................................................. 22,000 1,399,750
Motorola, Inc. ....................................................... 23,000 1,411,625
Lucent Technologies, Inc. ............................................ 12,315 569,569
Computers & Business Equipment -- 2.1%
Hewlett-Packard Co. .................................................. 30,000 1,507,500
Xerox Corp. .......................................................... 30,000 1,578,750
Software -- 5.2%
BMC Software, Inc.+................................................... 40,000 1,655,000
Computer Sciences Corp.+.............................................. 20,000 1,642,500
Electronic Data Systems Corp. ........................................ 30,000 1,297,500
First Data Corp. ..................................................... 36,000 1,314,000
Microsoft Corp.+...................................................... 24,000 1,983,000
-------------
14,359,194
-------------
MATERIALS -- 4.3%
Chemicals -- 2.6%
Air Products & Chemicals, Inc. ....................................... 34,000 2,350,250
Dow Chemical Co. ..................................................... 20,000 1,567,500
</TABLE>
---------------------
39
<PAGE> 37
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
MATERIALS (continued)
Metals & Minerals -- 0.9%
Phelps Dodge Corp. ................................................... 20,000 $ 1,350,000
Paper Products -- 0.8%
International Paper Co. .............................................. 30,000 1,211,250
-------------
6,479,000
-------------
TOTAL COMMON STOCK (cost $68,417,903)................................. 96,146,988
-------------
PRINCIPAL
BONDS & NOTES -- 33.9% AMOUNT
----------------------------------------------------------------------------------------------------
FINANCE -- 7.5%
Banc One Auto Grantor Trust 6.55% 2003................................ $ 742,394 747,034
Bank of Boston Corp. 6.63% 2004....................................... 1,500,000 1,457,415
Bankers Trust New York Corp. 8.25% 2005............................... 1,000,000 1,068,035
Citicorp 6.75% 2005................................................... 1,500,000 1,469,085
Daimler-Benz Vehicle Trust 5.95% 2000................................. 368,122 367,588
First Financial Caribbean Corp. 7.84% 2006............................ 450,000 453,510
Fleet Mortgage Group, Inc. 6.50% 2000................................. 1,500,000 1,495,665
General Motors Acceptance Corp. 5.63% 2001............................ 1,000,000 964,230
IBM Credit Receivables Lease Asset Master Trust 4.55% 2000............ 302,401 300,311
Lumbermans Mutual Casualty Co. 9.15% 2026*............................ 1,000,000 1,085,660
Nissan Auto Receivables Grantor Trust 6.45% 1999...................... 376,150 378,460
Premier Auto Trust 4.65% 1999......................................... 396,391 392,272
Security Benefit Life Co. 8.75% 2016*................................. 1,000,000 1,060,800
-------------
11,240,065
-------------
INDUSTRIAL & COMMERCIAL -- 3.8%
Husky Oil Ltd. 7.13% 2006............................................. 1,000,000 1,000,040
Mobil Oil Corp. 9.17% 2000............................................ 519,500 545,288
Niagara Mohawk Power Corp. 5.88% 2002................................. 1,250,000 1,175,175
Northrop Grumman Corp. 8.63% 2004..................................... 1,000,000 1,089,880
Philips Electronics NV 7.20% 2026..................................... 1,000,000 1,013,750
TCI Communications, Inc. 6.88% 2006................................... 1,000,000 908,740
-------------
5,732,873
-------------
NON-U.S. GOVERNMENT OBLIGATIONS -- 1.1%
Quebec Province Canada 8.80% 2003..................................... 1,500,000 1,650,915
-------------
U.S. GOVERNMENT & AGENCIES -- 21.5%
Federal Home Loan Mortgage Corp. 6.50% 2010 - 2026.................... 10,338,188 10,030,246
Federal Home Loan Mortgage Corp. 7.00% 2011........................... 2,783,003 2,785,313
Federal Home Loan Mortgage Corp. 8.50% 2001........................... 1,417,219 1,449,975
Federal National Mortgage Association 7.50% 2022 - 2025............... 1,729,915 1,735,709
Government National Mortgage Association 6.50% 2023................... 4,394,160 4,190,930
Government National Mortgage Association 7.00% TBA.................... 5,000,000 5,018,750
United States Treasury Bonds 7.63% 2022............................... 3,000,000 3,311,730
United States Treasury Bonds 10.38% 2012.............................. 3,000,000 3,863,430
-------------
32,386,083
-------------
TOTAL BONDS & NOTES (cost $51,128,578)................................ 51,009,936
-------------
TOTAL INVESTMENT SECURITIES (cost $119,546,481)....................... 147,156,924
-------------
<CAPTION>
</TABLE>
- ---------------------
40
<PAGE> 38
<TABLE>
<CAPTION>
PRINCIPAL
REPURCHASE AGREEMENTS -- 5.3% AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Joint Repurchase Agreement Account -- First Boston (Note 3)........... $2,929,000 $ 2,929,000
Joint Repurchase Agreement Account -- Lehman Bros. (Note 3)........... 5,060,000 5,060,000
-------------
TOTAL REPURCHASE AGREEMENTS (cost $7,989,000)......................... 7,989,000
-------------
TOTAL INVESTMENTS --
(cost $127,535,481) 103.0% 155,145,924
Liabilities in excess of other assets -- (3.0) (4,527,063)
------ -------------
NET ASSETS -- 100.0% $150,618,861
==============
======
</TABLE>
-----------------------------
+ Non-income producing securities
* Resale restricted to qualified institutional buyers
ADR - American Depositary Receipts
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
---------------------
41
<PAGE> 39
- ---------------------
ANCHOR SERIES TRUST
STRATEGIC MULTI-ASSET
PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK -- 40.7% SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL APPRECIATION -- 14.9%
Aerospace & Military Technology -- 0.6%
Gulfstream Aerospace Corp.+............................................ 5,000 $ 121,250
Northrop Grumman Corp.................................................. 1,000 82,750
Precision Castparts Corp............................................... 3,200 158,800
Apparel & Textiles -- 0.2%
Tommy Hilfiger Corp.+.................................................. 2,200 105,600
Broadcasting & Media -- 3.8%
American Radio Systems Corp., Class A+................................. 2,500 68,125
Canwest Global Communications.......................................... 4,537 46,500
Central European Media Enterprises Ltd., Class A+...................... 5,000 158,750
E-Z Communications, Inc., Class A+..................................... 3,000 109,875
Emmis Broadcasting Corp., Class A+..................................... 1,500 49,125
Gaylord Entertainment Co., Class A..................................... 5,008 114,558
International Cabletel, Inc.+.......................................... 4,000 101,000
Jacor Communications, Inc.+............................................ 8,000 219,000
LodgeNet Entertainment Corp.+.......................................... 8,000 142,000
McKesson Corp.......................................................... 1,500 84,000
Metro Networks, Inc.+.................................................. 6,000 151,500
Outdoor Systems, Inc.+................................................. 2,350 66,094
Pulitzer Publishing Co................................................. 2,000 92,750
Saga Communications, Inc., Class A+.................................... 3,500 68,250
Scholastic Corp.+...................................................... 1,500 100,875
Scripps Howard, Inc.................................................... 1,500 52,500
Tele-Communications Liberty Media Group, Class A+...................... 7,000 199,937
Universal Outdoor Holdings, Inc.+...................................... 3,000 70,500
Valuevision International, Inc., Class A+.............................. 5,500 29,563
Viacom, Inc., Class A+................................................. 320 11,040
Viacom, Inc., Class B+................................................. 2,595 90,487
Westwood One, Inc.+.................................................... 5,000 83,125
Young Broadcasting, Inc., Class A+..................................... 3,500 102,375
Communication Equipment -- 0.8%
Cisco Systems, Inc.+................................................... 1,000 63,625
Larscom Inc., Class A+................................................. 7,000 79,625
Nokia Corp., Class A ADR............................................... 3,000 172,875
Oak Industries, Inc.+.................................................. 1,500 34,500
Scitex Corp. Ltd....................................................... 12,000 114,000
Computers & Business Equipment -- 0.3%
Adaptec, Inc.+......................................................... 4,000 160,000
Drugs -- 1.3%
Eisai Co. Ltd.......................................................... 5,000 98,437
Genzyme Corp.+......................................................... 5,500 119,625
Immunex Corp.+......................................................... 9,000 175,500
Rhone-Poulenc Rorer, Inc. ............................................. 3,000 234,375
Zeneca Group PLC ADR................................................... 4,500 126,820
Electrical Equipment -- 0.1%
York International Corp................................................ 1,000 55,875
</TABLE>
- ---------------------
42
<PAGE> 40
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL APPRECIATION (continued)
Electronics -- 0.5%
Gilat Satellite Networks Ltd.+......................................... 3,500 $ 86,187
S3, Inc.+.............................................................. 8,000 130,000
Sterling Commerce, Inc.+............................................... 2,185 77,021
Energy Services -- 0.8%
ENSCO International, Inc.+............................................. 3,900 189,150
Input/Output, Inc.+.................................................... 2,000 37,000
Transocean Offshore, Inc. ............................................. 3,889 243,549
Energy Sources -- 0.6%
Alberta Energy Ltd. ................................................... 4,000 96,000
Unocal Corp. .......................................................... 4,000 162,500
Vastar Resources, Inc. ................................................ 1,800 68,400
Financial Services -- 0.4%
Imperial Credit Industries, Inc.+...................................... 4,500 94,500
Moneygram Payment Systems, Inc.+ ...................................... 8,000 106,000
Health Services -- 0.7%
Beverly Enterprises, Inc.+............................................. 3,000 38,250
Grancare, Inc.+........................................................ 4,000 71,500
IDX Systems Corp.+..................................................... 2,000 57,250
Magellan Health Services, Inc.+........................................ 3,500 78,312
Vencor, Inc.+.......................................................... 5,000 158,125
Household Products -- 0.3%
Revlon, Inc., Class A+................................................. 2,500 74,688
Tupperware Corp. ...................................................... 2,000 107,250
Insurance -- 0.6%
ACE Ltd. .............................................................. 2,500 150,312
Allstate Corp. ........................................................ 2,500 144,688
Transatlantic Holdings, Inc. .......................................... 900 72,450
Leisure & Tourism -- 0.3%
AMR Corp.+............................................................. 500 44,063
Continental Airlines, Inc., Class B+................................... 2,000 56,500
Royal Caribbean Cruises Ltd. .......................................... 2,000 46,750
Medical Products -- 0.3%
Biomet, Inc. .......................................................... 4,000 60,500
Haemonetics Corp.+..................................................... 3,500 66,063
Sulzer AG.............................................................. 100 57,751
Metals & Minerals -- 0.4%
Titanium Metals Corp.+................................................. 1,100 36,163
UCAR International, Inc.+.............................................. 4,500 169,312
Retail -- 1.0%
Barnes & Noble, Inc.+.................................................. 3,500 94,500
Bed Bath & Beyond, Inc.+............................................... 5,000 121,250
Gymboree Corp.+........................................................ 3,500 80,062
Mercantile Stores Co., Inc. ........................................... 2,000 98,750
Saks Holdings, Inc.+................................................... 7,000 189,000
</TABLE>
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43
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<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL APPRECIATION (continued)
Software -- 1.6%
BISYS Group, Inc.+..................................................... 2,500 $ 92,656
BMC Software, Inc.+.................................................... 4,000 165,500
Cadence Design Systems, Inc.+.......................................... 2,000 79,500
Cognos, Inc.+.......................................................... 3,000 84,375
DST Systems, Inc.+..................................................... 5,000 156,875
Parametric Technology Corp.+........................................... 2,000 102,750
Policy Management Systems Corp.+....................................... 1,500 69,188
Sterling Software, Inc.+............................................... 4,000 126,500
Systems & Computer Technology Corp.+................................... 1,000 16,000
Telecommunications -- 0.1%
West Teleservices Corp.+............................................... 3,500 79,625
Transportation -- 0.2%
Pittston Bulington Co. ................................................ 2,000 40,000
Werner Enterprises, Inc. .............................................. 5,000 90,625
------------
8,582,976
------------
CORE EQUITY -- 25.8%
Aerospace & Military Technology -- 0.6%
Boeing Co. ............................................................ 3,000 319,125
Banks -- 2.0%
Citicorp............................................................... 2,000 206,000
First Bank System, Inc. ............................................... 5,000 341,250
First Union Corp. ..................................................... 5,500 407,000
Wachovia Corp. ........................................................ 3,700 209,050
Broadcasting & Media -- 1.5%
Comcast Corp. ......................................................... 1,737 30,940
Gannett Co., Inc. ..................................................... 5,000 374,375
Gaylord Entertainment Co., Class A..................................... 10,263 234,766
Viacom, Inc., Class B+................................................. 6,629 231,200
Business Services -- 0.3%
Fluor Corp. ........................................................... 3,000 188,250
Chemicals -- 1.1%
Air Products & Chemicals, Inc. ........................................ 5,500 380,188
Dow Chemical Co. ...................................................... 3,000 235,125
Communication Equipment -- 0.9%
Cisco Systems, Inc.+................................................... 3,000 190,875
Lucent Technologies, Inc. ............................................. 2,138 98,883
Motorola, Inc. ........................................................ 4,000 245,500
Computers & Business Equipment -- 0.9%
Hewlett-Packard Co. ................................................... 5,000 251,250
Xerox Corp. ........................................................... 5,000 263,125
Drugs -- 2.6%
Bristol-Myers Squibb Co. .............................................. 3,000 326,250
Genetics Institute, Inc.+.............................................. 400 33,900
Pfizer, Inc. .......................................................... 3,000 248,625
Pharmacia & Upjohn, Inc. .............................................. 6,000 237,750
Warner-Lambert Co. .................................................... 4,600 345,000
Zeneca Group PLC ADR................................................... 3,500 294,000
Electrical Equipment -- 1.3%
General Electric Co. .................................................. 5,000 494,375
York International Corp. .............................................. 4,500 251,437
</TABLE>
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44
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<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
CORE EQUITY (continued)
Energy Services -- 0.4%
Schlumberger Ltd....................................................... 2,000 $ 199,750
Energy Sources -- 2.1%
Amoco Corp. ........................................................... 5,000 402,500
Exxon Corp. ........................................................... 3,500 343,000
Union Pacific Resources Group, Inc. ................................... 7,000 204,750
Unocal Corp. .......................................................... 7,000 284,375
Financial Services -- 0.6%
American Express Co. .................................................. 6,000 339,000
Food, Beverage & Tobacco -- 0.4%
Sara Lee Corp. ........................................................ 6,500 242,125
Household Products -- 2.2%
Colgate-Palmolive Co. ................................................. 2,000 184,500
Gillette Co. .......................................................... 3,000 233,250
Kimberly-Clark Corp. .................................................. 3,000 285,750
Procter & Gamble Co. .................................................. 3,200 344,000
Revlon, Inc., Class A+................................................. 8,200 244,975
Insurance -- 1.8%
ACE Ltd. .............................................................. 5,000 300,625
Allstate Corp. ........................................................ 6,000 347,250
American International Group, Inc. .................................... 3,700 400,525
Leisure & Tourism -- 0.8%
AMR Corp.+............................................................. 2,000 176,250
McDonald's Corp. ...................................................... 7,000 316,750
Machinery -- 0.4%
Illinois Tool Works, Inc. ............................................. 3,000 239,625
Materials -- 0.5%
Phelps Dodge Corp. .................................................... 4,000 270,000
Medical Products -- 0.9%
Abbott Laboratories.................................................... 6,000 304,500
Biomet, Inc. .......................................................... 15,000 226,875
Paper Products -- 0.3%
International Paper Co. ............................................... 5,000 201,875
Retail -- 1.4%
Home Depot, Inc. ...................................................... 5,000 250,625
May Department Stores Co. ............................................. 5,000 233,750
Wal-Mart Stores, Inc. ................................................. 14,000 320,250
Software -- 2.2%
BMC Software, Inc.+.................................................... 6,000 248,250
Computer Sciences Corp.+............................................... 3,000 246,375
Electronic Data Systems Corp. ......................................... 5,000 216,250
First Data Corp. ...................................................... 6,000 219,000
Microsoft Corp.+....................................................... 4,000 330,500
</TABLE>
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45
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<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
CORE EQUITY (continued)
Transportation -- 0.6%
Canadian Pacific Ltd.+................................................. 12,000 $ 318,000
------------
14,913,489
------------
TOTAL COMMON STOCK (cost $17,021,544).................................. 23,496,465
------------
PREFERRED STOCK -- 0.5%
----------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION -- 0.2%
Broadcasting & Media -- 0.1%
News Corp., Ltd. ADR................................................... 2,000 35,250
Finance -- 0.1%
Chevy Chase Preferred Capital Corp., Series A 10.38% .................. 1,655 86,267
------------
121,517
------------
BRAZIL -- 0.1%
Consumer Staples -- 0.0%
Companhia Cervejaraia Brahma........................................... 57,700 31,541
Energy Sources -- 0.1%
Petroleo Brasileiros SA................................................ 350,000 55,745
------------
87,286
------------
GERMANY -- 0.2%
Consumer Discretionary -- 0.2%
Hornbach Holding AG.................................................... 1,400 100,078
------------
TOTAL PREFERRED STOCK (cost $288,107).................................. 308,881
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES -- 23.9% AMOUNT
----------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMUNICATIONS & MEDIA -- 0.9%
360 Communications 7.50% 2006.......................................... $ 100,000 99,191
Benedek Communications Corp. zero coupon 2006(1)(2).................... 165,000 94,462
Chancellor Broadcasting Co. 9.38% 2004................................. 15,000 15,150
Granite Broadcasting Corp. 10.38% 2005................................. 50,000 51,250
Muzak L.P. 10.00% 2003................................................. 100,000 102,250
Young Broadcasting, Inc. 9.00% 2006.................................... 50,000 48,625
Young Broadcasting, Inc. 11.75% 2004................................... 100,000 109,000
------------
519,928
------------
CONSUMER DISCRETIONARY -- 0.2%
Webb (Del) Corp. 9.00% 2006............................................ 150,000 146,250
------------
CONSUMER STAPLES -- 0.4%
Sweetheart Cup, Inc. 10.50% 2003....................................... 200,000 208,000
------------
ENERGY -- 1.1%
Mesa Operating Co. 10.63% 2006......................................... 25,000 27,125
Phillips Petroleum Co. 9.18% 2021...................................... 250,000 275,235
Plains Resources, Inc. 10.25% 2006..................................... 45,000 48,150
Santa Fe Energy Resources, Inc. 11.00% 2004............................ 150,000 165,000
Transportadora De Gas 10.25% 2001...................................... 100,000 105,950
------------
621,460
------------
</TABLE>
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46
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<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (continued) AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCE -- 0.4%
Dime Bancorp 10.50% 2005............................................... $ 100,000 110,125
First Nationwide Parent Holdings 12.50% 2003........................... 100,000 $ 112,000
------------
222,125
------------
HEALTHCARE -- 0.4%
OrNda HealthCorp 11.38% 2004........................................... 150,000 173,250
Owens & Minor, Inc. 10.88% 2006........................................ 60,000 64,350
------------
237,600
------------
INDUSTRIAL & COMMERCIAL -- 1.5%
American Standard, Inc. zero coupon 2005............................... 100,000 93,000
Cabot Safety Acquisition Corp. 12.50% 2005............................. 100,000 111,000
Collins & Aikman Corp. 11.50% 2006..................................... 100,000 109,000
Exide Corp. 10.75% 2002................................................ 100,000 104,500
Graphic Controls Corp. 12.00% 2005(2).................................. 50,000 55,375
Hayes Wheels International, Inc. 11.00% 2006........................... 25,000 27,281
K & F Industries, Inc. 10.38% 2004..................................... 25,000 26,375
Mettler Toledo, Inc. 9.75% 2006........................................ 15,000 15,750
Moog, Inc. 10.00% 2006................................................. 50,000 52,500
Northrop Grumman Corp. 9.38% 2024...................................... 100,000 110,551
Rohr, Inc. 11.63% 2003................................................. 125,000 137,813
------------
843,145
------------
INFORMATION & ENTERTAINMENT -- 0.4%
Cablevision Systems Corp. 9.25% 2005................................... 100,000 99,000
MCI Communications Corp. 7.13% 2000.................................... 90,000 91,905
Rifkin Acquisitions Partners L.P. 11.13% 2006.......................... 50,000 52,125
------------
243,030
------------
INFORMATION TECHNOLOGY -- 0.2%
Digital Equipment Corp. 7.75% 2023..................................... 150,000 128,647
------------
MATERIALS -- 2.6%
A.K. Steel Corp. 9.13% 2006*........................................... 155,000 159,262
A.K. Steel Corp. 10.75% 2004*.......................................... 100,000 109,250
Arcadian Partners L.P. 10.75% 2005..................................... 150,000 164,625
Armco, Inc. 9.38% 2000................................................. 275,000 276,375
Container Corp. of America 10.75% 2002................................. 225,000 243,000
Fort Howard Corp. 9.25% 2001........................................... 150,000 156,375
Rexene Corp. 11.75% 2004............................................... 25,000 28,063
S.D. Warren Co. 12.00% 2004............................................ 100,000 108,000
Sterling Chemicals, Inc. 11.75% 2006................................... 25,000 26,500
Texas Petrochemicals Corp. 11.13% 2006................................. 35,000 37,625
Weirton Steel Corp. 11.38% 2004........................................ 100,000 101,500
Wheeling Pittsburgh Corp. 9.38% 2003................................... 70,000 69,300
------------
1,479,875
------------
NON-U.S. GOVERNMENT OBLIGATIONS -- 0.5%
British Columbia Province Canada 6.50% 2026............................ 150,000 138,767
Republic of Argentina 8.38% 2003....................................... 150,000 141,187
------------
279,954
------------
RETAIL -- 0.1%
Guitar Center Management Co., Inc. 11.00% 2006*........................ 50,000 52,500
------------
U.S. GOVERNMENT & AGENCIES -- 14.8%
Government National Mortgage Association 6.00% 2009.................... 184,160 178,865
Government National Mortgage Association 6.50% 2008 - 2009............. 1,250,027 1,238,102
Government National Mortgage Association 7.50% 2022 - 2024............. 1,047,998 1,052,011
Government National Mortgage Association 8.50% 2024.................... 342,890 356,174
United States Treasury Bonds 6.25% 2023................................ 200,000 187,500
</TABLE>
---------------------
47
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<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (continued) AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCIES (continued)
United States Treasury Bonds 9.25% 2016................................ $ 200,000 $ 253,906
United States Treasury Notes 5.63% 1998 - 2000......................... 500,000 495,350
United States Treasury Notes 6.25% 2003................................ 750,000 749,063
United States Treasury Notes 6.50% 2006................................ 500,000 502,735
United States Treasury Notes 7.25% 2004................................ 100,000 105,250
United States Treasury Notes 7.50% 2001................................ 750,000 789,495
United States Treasury Notes 7.75% 1999................................ 500,000 522,420
United States Treasury Notes 7.88% 1999 - 2004......................... 1,250,000 1,342,267
United States Treasury Notes 8.50% 2000................................ 750,000 800,978
------------
8,574,116
------------
UTILITIES -- 0.4%
El Paso Electric Co. 8.90% 2006........................................ 215,000 224,168
------------
TOTAL BONDS & NOTES (cost $12,981,332)................................. 13,780,798
------------
FOREIGN SECURITIES -- 31.0% SHARES
----------------------------------------------------------------------------------------------------
ARGENTINA -- 0.2%
YPF Sociedad Anonima ADR (Energy)...................................... 4,000 101,000
------------
AUSTRALIA -- 1.6%
Amcor Ltd. (Materials)................................................. 25,446 163,626
Boral Ltd. (Materials)................................................. 41,272 117,442
Broken Hill Proprietary Ltd. (Materials)............................... 17,433 248,310
Goodman Fielder Wattie Ltd. (Consumer Staples)......................... 104,132 129,120
Pioneer International Ltd. (Materials)+................................ 40,000 119,227
Qantas Airways Ltd. ADR (Information & Entertainment)*................. 7,800 130,099
------------
907,824
------------
AUSTRIA -- 0.3%
OMV AG (Energy)........................................................ 1,400 157,861
------------
BELGIUM -- 0.3%
Credit Dexia/Communal Holding (Finance)+*.............................. 1,600 145,993
------------
BRAZIL -- 0.3%
Centrais Eletricas Brasileiras SA - ELETROBRAS ADR (Utilities)......... 5,500 98,451
Telecomunicacoes Brasileirassas SA (Information Technology)............ 920,000 65,961
------------
164,412
------------
CANADA -- 0.6%
Canadian Pacific Ltd. ADR (Industrial & Commercial)+................... 10,000 263,273
Canwest Global Communications (Information Technology)................. 7,463 76,500
------------
339,773
------------
CHILE -- 0.2%
Enersis SA ADR (Utilities)............................................. 5,000 138,750
------------
DENMARK -- 0.9%
Tele Danmark A/S, Class B ADR (Utilities).............................. 6,400 174,400
Unidanmark A/S (Finance)............................................... 6,250 323,598
------------
497,998
------------
</TABLE>
- ---------------------
48
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<TABLE>
<CAPTION>
FOREIGN SECURITIES (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
FINLAND -- 0.9%
Merita Ltd. (Finance)+................................................. 30,000 $ 93,261
Metsa Serla Oy (Materials)............................................. 15,500 116,250
Nokia Corp., Class A ADR (Information Technology)...................... 3,300 190,162
Rauma Oy (Industrial & Commercial)..................................... 5,000 105,435
------------
540,824
------------
FRANCE -- 2.8%
Accor SA (Information & Entertainment)................................. 1,025 129,792
Assurance General de France (Finance)+*................................ 6,200 200,154
Banque National de Paris (Finance)..................................... 5,500 212,855
Cie de St. Gobain (Materials).......................................... 781 110,486
Credit Commerce France (Finance)....................................... 2,000 92,512
Elf Aquitaine SA (Energy).............................................. 1,200 109,234
Havas SA (Information & Entertainment)................................. 3,226 226,321
Peugeot SA (Consumer Discretionary).................................... 400 45,023
Remy Cointreau SA (Consumer Staples)................................... 2,000 56,664
Rhone-Poulenc SA (Healthcare).......................................... 6,424 219,024
Societe Generale (Finance)............................................. 1,426 154,184
Total SA, Series B (Energy)............................................ 852 69,296
------------
1,625,545
------------
GERMANY -- 1.5%
Daimler-Benz AG (Consumer Discretionary)............................... 4,000 275,539
Degussa AG (Materials)................................................. 300 135,788
Karstadt AG (Consumer Discretionary)................................... 420 141,929
Mannesmann AG (Industrial & Commercial)................................ 262 113,565
Metallgesellschaft AG (Industrial & Commercial)+....................... 11,000 225,175
------------
891,996
------------
HONG KONG -- 1.3%
China Light & Power Co., Ltd. (Utilities).............................. 17,000 75,609
CITIC Pacific Ltd. (Consumer Discretionary)............................ 15,000 87,077
Hutchison Whampoa Ltd. (Real Estate)................................... 21,000 164,943
Sun Hung Kai Properties Ltd. (Real Estate)............................. 17,000 208,255
Swire Pacific Ltd., Class A (Real Estate).............................. 19,000 181,169
Tingyi Holding Co. (Consumer Staples).................................. 200,000 52,363
------------
769,416
------------
INDIA -- 0.1%
State Bank India GDR (Finance)*........................................ 4,400 76,428
------------
INDONESIA -- 0.4%
PT Jaya Real Property alien (Real Estate).............................. 78,000 108,975
PT Kalbe Farma alien (Healthcare)...................................... 36,000 41,152
PT Bank Negara Indonesia (Finance)+*................................... 25,500 13,495
PT Bank Negara Indonesia alien (Finance)+*............................. 72,000 38,103
PT Indonesian Satellite Corp. ADR (Utilities)+*........................ 2,000 54,750
------------
256,475
------------
IRELAND -- 0.2%
Allied Irish Banks (Finance)........................................... 4,522 30,369
Jefferson Smurfit Group (Paper Products)+.............................. 30,000 86,603
------------
116,972
------------
ITALY -- 1.0%
Arnaldo Mondadori Edit (Information & Entertainment)................... 14,000 113,975
Banca Commerciale Italiana SpA (Finance)............................... 60,000 109,163
Fiat SpA (Consumer Discretionary)...................................... 30,000 90,771
</TABLE>
---------------------
49
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<TABLE>
<CAPTION>
FOREIGN SECURITIES (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
ITALY (continued)
Finanziaria Autogrill SpA (Information & Entertainment)................ 60,000 $ 58,141
STET (Utilities)....................................................... 42,000 191,035
------------
563,085
------------
JAPAN -- 5.8%
77th Bank (Finance).................................................... 10,000 82,031
Asahi Organic Chemical (Industrial & Commercial)....................... 11,000 64,874
Chudenko Corp. (Industrial & Commercial)............................... 2,000 57,681
Chugai Pharmaceutical Co., Ltd. (Healthcare)........................... 13,000 108,885
Dai Nippon Printing Co., Ltd. (Information & Entertainment)............ 11,000 192,816
Danto Corp. (Materials)................................................ 2,000 19,515
Fuji Machine Manufacturing Co. (Industrial & Commercial)............... 3,000 79,527
JGC Corp. (Industrial & Commercial).................................... 13,000 97,548
Kyudenko Corp. (Industrial & Commercial)............................... 5,000 51,809
Mabuchi Motor Co., Ltd. (Industrial & Commercial)...................... 2,000 100,682
Maruichi Steel Tube (Energy)........................................... 7,000 120,888
Matsushita Electric Industrial Co., Ltd. (Information & Technology)+... 11,000 179,518
Mitsubishi Heavy Industrial Ltd. (Industrial & Commercial)............. 20,000 158,881
Murata Manufacturing Co. (Information Technology)...................... 2,000 66,488
NGK Spark Plug Co., Ltd. (Industrial & Commercial)..................... 16,000 175,460
Nippon Express Co., Ltd. (Industrial & Commercial)..................... 14,000 95,985
Nippon Television Network (Information & Entertainment)................ 650 196,443
Nomura Securities International, Inc. (Finance)........................ 8,000 120,197
Onward Kashiyama (Consumer Discretionary).............................. 14,000 197,047
Sakura Bank Ltd. (Finance)............................................. 13,000 92,945
Sanwa Bank Ltd. (Finance).............................................. 5,000 68,215
Sony Corp. (Information & Entertainment)............................... 1,000 65,538
Sumitomo Realty & Development Co., Ltd. (Real Estate).................. 19,000 119,765
Sumitomo Trust & Banking Co., Ltd. (Finance)........................... 3,000 30,049
Toda Construction Co. (Industrial & Commercial)........................ 17,000 129,177
Tokio Marine & Fire Insurance Co., Ltd. (Finance)...................... 17,000 160,004
Toyo Ink Manufacturing Co. (Materials)................................. 30,000 123,046
Toyota Motor Corp. (Consumer Discretionary)............................ 5,000 143,770
World Co., Ltd. (Consumer Discretionary)............................... 2,700 111,907
Yamato Kogyo Co. (Materials)........................................... 16,000 147,828
Yamazaki Baking Co. (Consumer Staples)................................. 1,000 15,974
------------
3,374,493
------------
LUXEMBOURG -- 0.1%
Quilmes Industrial SA (Consumer Staples)............................... 5,300 48,363
------------
MALAYSIA -- 0.4%
Land & General Bhd (Real Estate)....................................... 40,000 95,822
MBF Capital Bhd (Finance).............................................. 22,000 35,716
Resorts World Bhd (Information & Entertainment)........................ 34,000 154,821
------------
286,359
------------
MEXICO -- 0.6%
Cemex SA de CV (Materials)............................................. 20,000 72,028
Fomento Economico Mexicano SA de CV (Consumer Staples)................. 24,000 82,317
Grupo Carso SA de CV (Consumer Staples)................................ 20,000 105,945
Grupo Financiero Bancomer SA de CV, Series B (Finance)................. 180,000 72,027
Transportacion Maritima Mexicana SA de CV ADR (Industrial &
Commercial).......................................................... 2,900 13,413
------------
345,730
------------
</TABLE>
- ---------------------
50
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<TABLE>
<CAPTION>
FOREIGN SECURITIES (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
NETHERLANDS -- 1.1%
Akzo Nobel NV (Materials).............................................. 700 $ 95,685
Internationale Nederlanden Groep NV (Finance).......................... 5,632 202,902
KLM Royal Dutch Air Lines NV (Information & Entertainment)............. 4,000 112,598
PolyGram NV (Information & Entertainment).............................. 4,000 203,880
------------
615,065
------------
NEW ZEALAND -- 0.4%
Air New Zealand Ltd. (Information & Entertainment)..................... 31,366 85,151
Carter Holt Harvey Ltd. (Materials).................................... 65,000 147,508
------------
232,659
------------
NORWAY -- 0.7%
Fokus Bank ASA (Finance)............................................... 9,000 61,321
Nycomed ASA (Healthcare)+.............................................. 16,615 251,426
Saga Petroleum (Energy)................................................ 5,000 82,647
------------
395,394
------------
PHILIPPINES -- 0.1%
Philipino Telephone Corp. (Utilities).................................. 40,000 33,840
Philippine Long Distance Telephone Co. ADR (Utilities)................. 1,000 51,000
------------
84,840
------------
PORTUGAL -- 0.0%
Telecel-Comunicacoes Pessoais SA (Information Technology)+*............ 200 12,770
------------
SINGAPORE -- 1.2%
Development Bank of Singapore alien (Finance).......................... 16,500 222,861
Far East Levingston Shipbuilding Ltd. (Energy)......................... 20,000 104,338
Keppel Corp., Ltd. (Industrial & Commercial)........................... 28,000 218,109
Straits Steamship Land Ltd. (Real Estate).............................. 20,000 64,032
United Overseas Bank Ltd. alien (Finance).............................. 9,000 100,336
------------
709,676
------------
SOUTH KOREA -- 0.4%
Chosun Brewery Co., Ltd. (Consumer Staples)............................ 3,020 83,372
Commerce Bank Korea (Finance).......................................... 2,000 13,065
Daewoo Securities Co., Ltd. (Finance).................................. 2,040 26,315
Hanil Bank (Finance)................................................... 4,000 27,456
Hanwha Chemical (Materials)............................................ 2,000 15,503
Korea Electric Power Corp. (Utilities)................................. 1,000 29,112
Korean Air Lines (Information & Entertainment)......................... 1,450 23,869
Shinsegae Department Street (Consumer Discretionary)................... 600 24,923
------------
243,615
------------
SPAIN -- 1.0%
Acerinox SA (Materials)................................................ 950 137,277
Empresa Nacional de Electricidad ADR (Utilities)....................... 2,000 140,000
Empresa Nacional de Electricidad SA (Utilities)........................ 1,500 106,759
Telefonica de Espana SA (Utilities).................................... 7,500 174,177
------------
558,213
------------
SWEDEN -- 0.5%
BT Industries AB (Industrial & Commercial)............................. 2,950 54,935
Pharmacia & Upjohn, Inc. (Healthcare).................................. 5,000 204,915
------------
259,850
------------
SWITZERLAND -- 0.9%
Nestle SA (Consumer Staples)........................................... 170 182,510
Richemont Cie Finance (Consumer Staples)............................... 60 84,274
Sulzer AG (Healthcare)................................................. 450 240,717
------------
507,501
------------
</TABLE>
---------------------
51
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<TABLE>
<CAPTION>
FOREIGN SECURITIES (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
THAILAND -- 0.3%
Bangkok Metropolitan Bank PCL alien (Finance).......................... 108,536 $ 41,051
Land & Houses PCL alien (Real Estate).................................. 2,700 19,687
Siam City Cement PCL alien (Materials)................................. 2,000 10,450
Siam Commercial Bank PCL alien (Finance)............................... 10,000 72,526
------------
143,714
------------
UNITED KINGDOM -- 4.8%
Amersham International (Healthcare).................................... 3,000 59,106
Associated British Foods PLC (Consumer Staples)........................ 18,000 148,946
Bank of Scotland (Finance)............................................. 20,000 105,534
BOC Group PLC (Industrial & Commercial)................................ 8,000 119,787
Boots Co. PLC (Consumer Discretionary)................................. 20,000 206,270
British Gas PLC (Utilities)............................................ 60,000 230,255
British Telecommunications PLC (Utilities)............................. 28,000 189,481
BTR PLC (Industrial & Commercial)...................................... 35,000 170,893
Cookson Group PLC (Information Technology)............................. 30,000 121,809
De La Rue PLC (Information & Technology)............................... 20,000 197,019
National Grid Group PLC (Utilities).................................... 30,000 100,223
Northern Foods PLC (Consumer Staples).................................. 23,000 79,596
PowerGen PLC (Utilities)............................................... 21,065 206,428
Rank Group PLC (Information & Entertainment)........................... 15,000 112,558
Reckitt & Colman PLC (Consumer Staples)................................ 13,300 164,740
Royal Bank of Scotland Group PLC (Finance)............................. 10,101 97,255
Royal & Sun Alliance Insurance Group PLC (Finance)..................... 16,254 124,056
Sainsbury (J.) PLC (Consumer Discretionary)............................ 35,686 236,602
Sun Life & Provincial Holdings (Finance)+*............................. 20,000 89,087
United Biscuits (Consumer Staples)..................................... 10,000 36,149
------------
2,795,794
------------
VENEZUELA -- 0.1%
Compania Anon Nacional Tele De Venezuela ADR (Utilities)............... 1,900 53,438
------------
TOTAL FOREIGN SECURITIES (cost $16,434,606)............................ 17,926,110
------------
TOTAL INVESTMENT SECURITIES (cost $46,725,589)......................... 55,512,254
------------
<CAPTION>
REPURCHASE AGREEMENTS -- 3.4%
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Joint Repurchase Agreement Account -- First Boston (Note 3)............ 635,000 635,000
Joint Repurchase Agreement Account -- Lehman Bros. (Note 3)............ 1,320,000 1,320,000
------------
TOTAL REPURCHASE AGREEMENTS (cost $1,955,000).......................... 1,955,000
------------
TOTAL INVESTMENTS --
(cost $48,680,589) 99.5% 57,467,254
Other assets less liabilities -- 0.5 276,980
------ -----------
NET ASSETS -- 100.0% $57,744,234
====== ===========
</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
See Notes to Financial Statements
- ---------------------
52
<PAGE> 50
[This page is intentionally left blank]
---------------------
53
<PAGE> 51
- ---------------------
ANCHOR SERIES TRUST
STATEMENT OF ASSETS AND LIABILITIES
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONEY FIXED GOVERNMENT &
MARKET INCOME QUALITY BOND HIGH YIELD
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment securities, at value*............................ $ -- $22,143,212 $207,128,070 $43,463,074
Short-term securities*...................................... 74,148,151 -- -- --
Repurchase agreements (cost equals market).................. -- 210,000 21,579,000 1,173,000
Cash........................................................ 8,792 1,535 3,442 4,238
Foreign currency............................................ -- -- -- --
Receivables for --
Dividends and accrued interest............................ 223,228 423,296 2,392,444 1,042,946
Fund shares sold.......................................... 219,657 638 1,029,129 50,109
Sales of investments...................................... -- 531,768 -- --
Foreign currency contracts................................ -- -- -- --
Prepaid expenses............................................ 20,440 8,853 46,678 9,921
Unrealized appreciation on forward foreign currency
contracts................................................. -- -- -- --
-----------
74,620,268 23,319,302 232,178,763 45,743,288
-----------
LIABILITIES:
Payables for --
Fund shares redeemed...................................... 548,186 23,190 309,434 --
Management fees........................................... 31,906 12,084 116,134 27,190
Purchases of investments.................................. -- 522,006 10,062,500 --
Foreign currency contracts................................ -- -- -- --
Variation margin on futures contracts..................... -- -- -- --
Other accrued expenses...................................... 39,523 19,020 87,618 29,378
Unrealized depreciation on forward foreign currency
contracts................................................. -- -- -- --
-----------
619,615 576,300 10,575,686 56,568
-----------
NET ASSETS:................................................. $74,000,653 $22,743,002 $221,603,077 $45,686,720
===========
Shares of beneficial interest outstanding (unlimited shares
authorized)............................................... 74,000,653 1,709,571 16,209,760 5,450,139
Net asset value per share................................... $ 1.00 $ 13.30 $ 13.67 $ 8.38
===========
COMPOSITION OF NET ASSETS:
Capital paid in............................................. $74,000,653 $23,175,000 $208,048,632 $54,340,529
Accumulated undistributed net investment income............. 2,155 1,661,104 13,956,938 4,006,818
Accumulated undistributed net realized gain (loss) on
investments, futures contracts and options contracts...... (2,155) (2,050,166) 642,087 (14,097,904)
Unrealized appreciation (depreciation) of investments....... -- (42,936) (1,044,580) 1,437,277
Unrealized foreign exchange gain (loss) on other assets and
liabilities............................................... -- -- -- --
Unrealized appreciation on futures contracts................ -- -- -- --
-----------
$74,000,653 $22,743,002 $221,603,077 $45,686,720
===========
---------------
*Cost
Investment securities...................................... $ -- $22,186,148 $208,172,650 $42,025,797
===========
Short-term securities...................................... $74,148,151 $ -- $ -- $ --
===========
</TABLE>
See Notes to Financial Statements
- ---------------------
54
<PAGE> 52
- ---------------------
<TABLE>
<CAPTION>
GROWTH AND FOREIGN CAPITAL NATURAL STRATEGIC
TARGET '98 INCOME SECURITIES GROWTH APPRECIATION RESOURCES MULTI-ASSET MULTI-ASSET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$9,883,642 $32,745,516 $43,001,037 $360,569,213 $479,136,785 $40,049,559 $147,156,924 $55,512,254
-- -- 494,746 -- 1,320,925 -- -- --
283,000 1,039,000 4,621,000 6,154,000 84,691,000 5,221,000 7,989,000 1,955,000
3,780 2,535 4,460 1,118 1,690 2,818 4,144 70,238
-- -- 22 -- -- -- -- 6
21,229 64,627 124,550 409,583 158,149 57,959 641,182 296,839
308 59,069 97,717 638,497 1,922,086 227,785 14,881 37,635
-- -- 180,115 417,642 2,943,777 -- 1,414,317 426,194
-- -- 187,838 -- -- -- -- 133,071
966 3,965 4,841 46,958 24,787 3,025 31,487 14,787
-- -- 21,708 -- -- -- -- --
-----------
10,192,925 33,914,712 48,738,034 368,237,011 570,199,199 45,562,146 157,251,935 58,446,024
-----------
1,234 24,428 360,105 802,100 1,044,149 172,868 146,167 187,580
5,492 19,966 36,655 225,562 311,843 28,271 129,484 49,087
-- 376,860 25,613 493,771 388,357 -- 6,287,450 275,590
-- -- 188,405 -- -- -- -- 134,087
-- -- 11,648 -- 633,000 -- -- --
14,658 28,185 69,808 113,251 149,545 31,806 69,973 55,446
-- -- 10,111 -- -- -- -- --
-----------
21,384 449,439 702,345 1,634,684 2,526,894 232,945 6,633,074 701,790
-----------
$10,171,541 $33,465,273 $48,035,689 $366,602,327 $567,672,305 $45,329,201 $150,618,861 $57,744,234
===========
871,510 2,462,811 3,712,348 15,805,435 20,275,261 2,687,538 11,282,314 4,732,870
$ 11.67 $ 13.59 $ 12.94 $ 23.19 $ 28.00 $ 16.87 $ 13.35 $ 12.20
===========
$9,342,136 $28,676,058 $40,682,830 $238,848,041 $404,985,218 $37,003,652 $98,704,640 $38,286,430
816,095 857,047 969,165 3,059,640 1,034,306 525,994 4,119,739 1,252,720
(252,703) (80,382) 3,770,149 44,877,743 63,149,761 3,063,976 20,184,053 9,417,996
266,013 4,012,550 2,572,990 79,816,903 98,109,498 4,735,822 27,610,443 8,786,665
-- -- 12,534 -- (228) (243) (14) 423
-- -- 28,021 -- 393,750 -- -- --
-----------
$10,171,541 $33,465,273 $48,035,689 $366,602,327 $567,672,305 $45,329,201 $150,618,861 $57,744,234
===========
$9,617,629 $28,732,966 $40,428,047 $280,752,310 $381,027,287 $35,313,737 $119,546,481 $46,725,589
===========
$ -- $ -- $ 494,746 $ -- $ 1,320,925 $ -- $ -- $ --
===========
</TABLE>
---------------------
55
<PAGE> 53
- ---------------------
ANCHOR SERIES TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
GOVERNMENT &
MONEY MARKET FIXED INCOME QUALITY BOND HIGH YIELD
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME:
Income:
Interest........................................................ $4,727,875 $ 1,858,312 $ 15,640,194 $ 4,284,747
Dividends....................................................... -- 209 -- 31,095
---------------------------------------------------------
Total income*............................................ 4,727,875 1,858,521 15,640,194 4,315,842
---------------------------------------------------------
Expenses:
Investment management fees...................................... 432,146 152,430 1,392,653 313,621
Custodian fees.................................................. 35,490 36,595 109,320 49,940
Audit and tax consulting fees................................... 19,500 9,365 44,585 11,830
Trustees' fees.................................................. 6,092 2,483 15,087 2,971
Reports to investors............................................ 2,365 685 22,100 1,060
Insurance expense............................................... 1,998 527 4,221 962
Legal fees...................................................... 1,810 -- 3,760 --
Other expenses.................................................. 3,055 657 7,386 1,783
---------------------------------------------------------
Total expenses........................................... 502,456 202,742 1,599,112 382,167
---------------------------------------------------------
Net investment income............................................. 4,225,419 1,655,779 14,041,082 3,933,675
---------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCIES:
Net realized gain on investments.................................. -- 462,470 585,700 696,575
Net realized foreign exchange gain (loss) on other assets and
liabilities..................................................... -- -- -- --
Net realized gain (loss) on futures contracts..................... -- -- -- --
Change in unrealized appreciation/depreciation on investments..... -- (1,654,211) (7,904,999) 392,992
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 (loss) on investments and foreign
currencies...................................................... -- (1,191,741) (7,319,299) 1,089,567
---------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. $4,225,419 $ 464,038 $ 6,721,783 $ 5,023,242
===================================================
---------------
* Net of foreign withholding taxes on interest and dividends
of:............................................................. $ -- $ -- $ -- $ --
===================================================
</TABLE>
See Notes to Financial Statements
- ---------------------
56
<PAGE> 54
<TABLE>
<CAPTION>
TARGET GROWTH AND FOREIGN CAPITAL NATURAL STRATEGIC
'98 INCOME SECURITIES GROWTH APPRECIATION RESOURCES MULTI-ASSET MULTI-ASSET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 855,740 $ 326,241 $ 230,356 $ 439,259 $ 2,543,392 $ 194,464 $ 4,043,217 $1,321,229
-- 742,030 1,098,288 5,281,153 1,885,834 722,057 1,744,009 699,655
---------
855,740 1,068,271 1,328,644 5,720,412 4,429,226 916,521 5,787,226 2,020,884
---------
72,086 220,009 473,257 2,393,836 3,030,849 302,086 1,569,359 597,679
22,265 34,210 219,110 109,740 154,070 49,825 80,570 188,340
6,015 9,675 15,300 61,560 86,405 12,650 32,855 14,375
686 2,601 4,615 22,044 27,449 2,494 11,475 3,994
-- -- 2,055 32,055 55,425 7,790 6,320 2,430
257 627 1,127 5,830 7,020 592 3,221 1,242
-- 1,575 1,575 5,470 8,130 1,225 3,620 1,810
59 1,787 1,959 10,428 10,231 556 6,153 2,091
---------
101,368 270,484 718,998 2,640,963 3,379,579 377,218 1,713,573 811,961
---------
754,372 797,787 609,646 3,079,449 1,049,647 539,303 4,073,653 1,208,923
---------
70,306 1,459,904 6,115,742 44,948,751 63,266,968 3,314,738 20,265,945 9,506,288
-- -- (43,558) -- 2,560 1,145 (44) 8,710
-- -- 414,564 -- (34,322) -- -- --
(419,896) 3,455,775 (1,580,975) 24,747,361 29,785,509 901,030 (4,163,250) (2,438,293)
-- (19) (17,987) -- (860) (512) (6) (1,533)
-- -- (16,205) -- 393,750 -- -- --
---------
(349,590) 4,915,660 4,871,581 69,696,112 93,413,605 4,216,401 16,102,645 7,075,172
---------
$ 404,782 $5,713,447 $ 5,481,227 $72,775,561 $94,463,252 $4,755,704 $20,176,298 $8,284,095
=========
$ 4,301 $ 5,490 $ 155,650 $ 27,415 $ 120,398 $ 42,040 $ 14,450 $ 62,140
=========
</TABLE>
---------------------
57
<PAGE> 55
- ---------------------
ANCHOR SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
GOVERNMENT &
MONEY MARKET FIXED INCOME QUALITY BOND HIGH YIELD
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income..................................... $ 4,225,419 $ 1,655,779 $ 14,041,082 $ 3,933,675
Net realized gain on investments.......................... -- 462,470 585,700 696,575
Net realized foreign exchange gain (loss) on other assets
and liabilities......................................... -- -- -- --
Net realized gain (loss) on futures contracts............. -- -- -- --
Change in unrealized appreciation/depreciation
on investments.......................................... -- (1,654,211) (7,904,999) 392,992
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...... 4,225,419 464,038 6,721,783 5,023,242
--------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS PAID TO SHAREHOLDERS:
Distributions from capital gains.......................... -- -- (460,000) --
Dividends from net investment income...................... (4,225,419) (1,900,000) (14,120,000) (4,670,000)
--------------------------------------------------------------
Total dividends........................................... (4,225,419) (1,900,000) (14,580,000) (4,670,000)
--------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold................................. 159,314,533 2,345,220 101,230,555 27,871,250
Proceeds from shares issued for reinvestment of dividends
and distributions....................................... 4,225,419 1,900,000 14,580,000 4,670,000
Cost of shares repurchased................................ (183,230,982) (8,041,058) (111,927,989) (34,024,510)
--------------------------------------------------------------
Net increase (decrease) in net assets resulting from
capital share transactions.............................. (19,691,030) (3,795,838) 3,882,566 (1,483,260)
--------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS................... (19,691,030) (5,231,800) (3,975,651) (1,130,018)
NET ASSETS:
Beginning of period....................................... 93,691,683 27,974,802 225,578,728 46,816,738
--------------------------------------------------------------
End of period............................................. $ 74,000,653 $ 22,743,002 $221,603,077 $ 45,686,720
============================================================
---------------
Accumulated undistributed net investment income........... $ 2,155 $ 1,661,104 $ 13,956,938 $ 4,006,818
============================================================
Shares issued and repurchased:
Sold...................................................... 159,314,533 171,519 7,327,912 3,270,396
Issued in reinvestment of dividends and distributions..... 4,225,419 149,137 1,115,532 586,683
Repurchased............................................... (183,230,982) (587,362) (8,086,708) (4,025,306)
--------------------------------------------------------------
Net increase (decrease)................................... (19,691,030) (266,706) 356,736 (168,227)
============================================================
</TABLE>
See Notes to Financial Statements
- ---------------------
58
<PAGE> 56
<TABLE>
<CAPTION>
GROWTH AND FOREIGN CAPITAL NATURAL
TARGET '98 INCOME SECURITIES GROWTH APPRECIATION RESOURCES MULTI-ASSET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 754,372 $ 797,787 $ 609,646 $ 3,079,449 $ 1,049,647 $ 539,303 $ 4,073,653
70,306 1,459,904 6,115,742 44,948,751 63,266,968 3,314,738 20,265,945
-- -- (43,558) -- 2,560 1,145 (44)
-- -- 414,564 -- (34,322) -- --
(419,896) 3,455,775 (1,580,975) 24,747,361 29,785,509 901,030 (4,163,250)
-- (19) (17,987) -- (860) (512) (6)
-- -- (16,205) -- 393,750 -- --
-------------------------------------------------------------------------------------------------------------------
404,782 5,713,447 5,481,227 72,775,561 94,463,252 4,755,704 20,176,298
-------------------------------------------------------------------------------------------------------------------
-- -- -- (13,940,000) (16,280,000) (585,000) (9,825,000)
(1,210,000) (1,745,000) (810,000) (1,545,000) (935,000) (340,000) (5,330,000)
-------------------------------------------------------------------------------------------------------------------
(1,210,000) (1,745,000) (810,000) (15,485,000) (17,215,000) (925,000) (15,155,000)
-------------------------------------------------------------------------------------------------------------------
997,281 7,391,151 22,606,509 179,335,720 517,761,626 47,430,602 11,595,717
1,210,000 1,745,000 810,000 15,485,000 17,215,000 925,000 15,155,000
(4,004,707) (11,647,598) (33,661,510) (193,366,398) (400,770,612) (35,798,476) (49,395,962)
-------------------------------------------------------------------------------------------------------------------
(1,797,426) (2,511,447) (10,245,001) 1,454,322 134,206,014 12,557,126 (22,645,245)
-------------------------------------------------------------------------------------------------------------------
(2,602,644) 1,457,000 (5,573,774) 58,744,883 211,454,266 16,387,830 (17,623,947)
12,774,185 32,008,273 53,609,463 307,857,444 356,218,039 28,941,371 168,242,808
-------------------------------------------------------------------------------------------------------------------
$10,171,541 $ 33,465,273 $ 48,035,689 $ 366,602,327 $ 567,672,305 $ 45,329,201 $150,618,861
============================================================================================================================
$ 816,095 $ 857,047 $ 969,165 $ 3,059,640 $ 1,034,306 $ 525,994 $ 4,119,739
============================================================================================================================
80,381 574,026 1,828,894 8,416,003 19,407,178 2,907,359 874,874
106,327 140,273 66,942 740,555 644,274 58,213 1,220,209
(325,577) (916,670) (2,721,124) (9,155,873) (15,116,927) (2,192,057) (3,714,000)
-------------------------------------------------------------------------------------------------------------------
(138,869) (202,371) (825,288) 685 4,934,525 773,515 (1,618,917)
============================================================================================================================
<CAPTION>
STRATEGIC
MULTI-ASSET
PORTFOLIO
---------------------------
<S> <C<C>
$ 1,208,923
9,506,288
8,710
--
(2,438,293)
(1,533)
--
8,284,095
(3,785,000)
(1,800,000)
(5,585,000)
4,456,606
5,585,000
(19,022,327)
(8,980,721)
(6,281,626)
64,025,860
$ 57,744,234
$ 1,252,720
366,240
490,773
(1,560,019)
(703,006)
</TABLE>
---------------------
59
<PAGE> 57
- ---------------------
ANCHOR SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
FIXED GOVERNMENT &
MONEY MARKET INCOME QUALITY BOND HIGH YIELD
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income.................................. $ 6,214,069 $1,820,583 $ 14,132,112 $ 4,560,566
Net realized gain (loss) on investments................ -- 450,299 8,288,042 (574,848)
Net realized foreign exchange gain (loss) on other
assets and liabilities............................... -- -- -- --
Net realized loss on futures contracts................. -- -- -- --
Change in unrealized appreciation/depreciation on
investments.......................................... -- 2,644,460 16,257,191 4,437,941
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 4,915,342 38,677,345 8,423,659
-----------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS PAID TO SHAREHOLDERS:
Dividends from net investment income................... (6,214,069) (2,175,000) (15,800,000) (5,345,000)
Distributions from net realized gains on investments... -- -- -- --
-----------------------------------------------------------
Total dividends........................................ (6,214,069) (2,175,000) (15,800,000) (5,345,000)
-----------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold.............................. 174,371,348 3,593,837 82,378,525 29,986,515
Proceeds from shares issued for reinvestment of
dividends and distributions.......................... 6,214,069 2,175,000 15,800,000 5,345,000
Cost of shares repurchased............................. (212,898,151) (9,116,475) (128,007,378) (39,650,684)
-----------------------------------------------------------
Net increase (decrease) in net assets resulting from
capital share transactions........................... (32,312,734) (3,347,638) (29,828,853) (4,319,169)
-----------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS................ (32,312,734) (607,296) (6,951,508) (1,240,510)
NET ASSETS:
Beginning of period.................................... 126,004,417 28,582,098 232,530,236 48,057,248
-----------------------------------------------------------
End of period.......................................... $ 93,691,683 $27,974,802 $225,578,728 $ 46,816,738
===============================================================
---------------
Undistributed net investment income.................... $ 721 $1,886,024 $ 14,101,885 $ 4,658,768
===============================================================
Shares issued and repurchased:
Sold................................................... 174,371,348 260,087 5,911,036 3,623,914
Issued in reinvestment of dividends and
distributions........................................ 6,214,069 160,992 1,159,208 669,800
Repurchased............................................ (212,898,151) (660,807) (9,292,985) (4,777,982)
-----------------------------------------------------------
Net increase (decrease)................................ (32,312,734) (239,728) (2,222,741) (484,268)
===============================================================
</TABLE>
- ---------------
* The Convertible Securities Portfolio changed its name to the Growth and
Income Portfolio on February 29, 1996.
See Notes to Financial Statements
- ---------------------
60
<PAGE> 58
<TABLE>
<CAPTION>
CONVERTIBLE FOREIGN CAPITAL NATURAL STRATEGIC
TARGET '98 SECURITIES SECURITIES GROWTH APPRECIATION RESOURCES MULTI-ASSET MULTI-ASSET
PORTFOLIO PORTFOLIO* PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,058,818 $ 1,696,598 $ 707,451 $ 1,534,546 $ 879,808 $ 331,444 $ 5,277,929 $1,729,338
(73,496) (605,935) 3,192,282 13,885,804 16,341,623 765,009 9,801,363 3,804,739
-- (843) 177,598 1,682 45,778 (594) 54,742 62,813
-- -- -- -- (49,594) -- -- --
1,322,217 3,911,087 2,451,554 48,038,490 63,564,898 3,011,630 22,147,546 7,569,691
-- 32 (113,395) -- 639 342 12 (45,810)
-- -- 44,226 -- 96,925 -- -- --
---------------------------------------------------------------------------------------------------------------------
2,307,539 5,000,939 6,459,716 63,460,522 80,880,077 4,107,831 37,281,592 13,120,771
---------------------------------------------------------------------------------------------------------------------
(1,285,000) (2,059,675) (279,273) (600,000) (2,145,000) (365,000) (5,910,000) (1,125,000)
-- (1,515,325) (55,727) (45,075,000) (2,960,000) (510,000) (12,550,000) (8,585,000)
---------------------------------------------------------------------------------------------------------------------
(1,285,000) (3,575,000) (335,000) (45,675,000) (5,105,000) (875,000) (18,460,000) (9,710,000)
---------------------------------------------------------------------------------------------------------------------
1,032,164 4,402,376 31,832,730 134,319,676 288,502,705 27,421,662 20,218,971 4,822,892
1,285,000 3,575,000 335,000 45,675,000 5,105,000 875,000 18,460,000 9,710,000
(9,739,706) (12,390,422) (53,323,700) (136,071,781) (242,708,947) (23,817,885) (53,417,004) (19,275,150)
---------------------------------------------------------------------------------------------------------------------
(7,442,542) (4,413,046) (21,155,970) 43,922,895 50,898,758 4,478,777 (14,738,033) (4,742,258)
---------------------------------------------------------------------------------------------------------------------
(6,420,003) (2,987,107) (15,031,254) 61,708,417 126,673,835 7,711,608 4,083,559 (1,331,487)
19,194,188 34,995,380 68,640,717 246,149,027 229,544,204 21,229,763 164,159,249 65,357,347
---------------------------------------------------------------------------------------------------------------------
$12,774,185 $32,008,273 $53,609,463 $307,857,444 $356,218,039 $28,941,371 $168,242,808 $64,025,860
============================================================================================================================
$ 1,203,164 $ 1,734,211 $ 738,683 $ 1,525,191 $ 918,755 $ 325,546 $ 5,315,320 $1,761,777
============================================================================================================================
80,359 362,321 2,954,097 6,859,732 13,911,588 1,917,837 1,590,143 408,481
104,727 302,453 29,698 2,382,629 213,867 56,379 1,463,918 853,251
(748,356) (1,026,033) (4,950,332) (6,977,008) (11,890,507) (1,657,363) (4,174,813) (1,615,387)
---------------------------------------------------------------------------------------------------------------------
(563,270) (361,259) (1,966,537) 2,265,353 2,234,948 316,853 (1,120,752) (353,655)
============================================================================================================================
</TABLE>
---------------------
61
<PAGE> 59
- ---------------------
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. 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"). Effective February
29, 1996, the Convertible Securities Portfolio changed its name to the Growth
and Income Portfolio.
The investment objectives for each portfolio are as follows:
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 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 & Quality Bond Portfolio seeks relatively high current income,
liquidity and security of principal.
The High Yield Portfolio seeks to produce high current income and secondarily
seeks capital appreciation by investing in high-yielding, high-risk, income
producing corporate bonds.
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 companies. The Fund is
scheduled to terminate operations in 1998.
The Growth and Income 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 Foreign Securities Portfolio seeks long-term capital appreciation through
investment primarily in equity securities issued by foreign companies.
The Growth Portfolio seeks capital appreciation primarily through investments in
growth equity securities.
The Capital Appreciation Portfolio seeks long-term capital appreciation by
investing in growth equity securities which are widely diversified by industry
and company.
The Natural Resources Portfolio seeks a total return through investment
primarily in equity securities of U.S. or foreign companies which are expected
to provide favorable returns in periods of rising inflation.
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 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.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES: 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. 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. If a security's price is available from more than one foreign
exchange, a portfolio uses the exchange that is the primary market for the
security. 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
- ---------------------
62
<PAGE> 60
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.
Market value of investment securities are translated into U.S. dollars at the
prevailing rate of exchange on the valuation date.
Assets and liabilities denominated in foreign currencies and commitments under
forward foreign currency contracts ("forward 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. Purchases and sales of portfolio securities are
translated at the rate of exchange prevailing when such securities were acquired
or sold. Income and expenses are translated at rates of exchange prevailing when
earned or incurred.
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.
FORWARD FOREIGN CURRENCY CONTRACTS: Certain portfolios may enter into forward
contracts to attempt to protect securities and related receivables and payables
against changes in future foreign exchange rates. A forward contract is an
agreement between two parties to buy or sell currency at a set price on a future
date. The market value of the contract will fluctuate with changes in currency
exchange rates. The contract is marked-to-market daily using the forward rate
and the change in market value is recorded by the portfolio as unrealized gain
or loss. Upon settlement date, the portfolio records either realized gains or
losses when the contract is closed equal to the difference between the value of
the contract at the time it was opened and the value at the time it was closed.
Risks may arise upon entering into these contracts from the potential inability
of counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
Forward contracts involve elements of risk in excess of the amount reflected in
the Statement of Assets and Liabilities. A portfolio bears the risk of an
unfavorable change in the foreign exchange rate underlying the forward contract.
FUTURES CONTRACTS: A futures contract is an agreement between two parties to
buy or sell a financial instrument 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: Securities
transactions are accounted for as of the trade date. 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 portfolios based
upon relative net assets. In all other respects, expenses are charged to each
portfolio as incurred on a specific identification basis.
The Trust records dividends and distributions to its shareholders on the
ex-dividend date.
---------------------
63
<PAGE> 61
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 are not affected.
For the year ended December 31, 1996, 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.................................................. $ 1,434 $ (1,434) $ --
Fixed Income Portfolio.................................................. 19,301 100,286 (119,587)
Government & Quality Bond Portfolio..................................... (66,029) 66,029 --
High Yield Portfolio.................................................... 84,375 (84,375) --
Target '98 Portfolio.................................................... 68,559 (68,559) --
Growth and Income Portfolio............................................. 70,049 (70,049) --
Foreign Securities Portfolio*........................................... 430,836 (427,736) (3,100)
Growth Portfolio........................................................ -- -- --
Capital Appreciation Portfolio.......................................... 904 (904) --
Natural Resources Portfolio............................................. 1,145 (1,145) --
Multi-Asset Portfolio................................................... 60,766 (60,767) 1
Strategic Multi-Asset Portfolio......................................... 82,020 (80,453) (1,567)
</TABLE>
* Reclassification is primarily due to deferring book/tax treatments for foreign
currency transactions.
NOTE 3. JOINT REPURCHASE AGREEMENT ACCOUNT: The Trust transfers uninvested cash
balances into two joint accounts, 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, 1996, each participating
Portfolio had a percentage of an undivided interest in the repurchase agreements
in the joint account in which it participates. The balance in each of the joint
repo accounts at December 31, 1996 and the related repurchase agreements and
collateral is as follows:
<TABLE>
<CAPTION>
PRINCIPAL
REPURCHASE AGREEMENT DESCRIPTION AMOUNT
---------------------------------------------------------------------------------------- ------------
<S> <C> <C>
Lehman Brothers, Inc. Repurchase Agreement
6.80% dated 12/31/96, repurchase price $84,947,079
due 1/2/97 collateralized by $176,060,000 U.S. Treasury
Strip due 2/15/11 and $49,240,000 U.S. Treasury Strip
due 8/15/10, approximate aggregate value $87,250,708.................................... $ 84,915,000
=============
First Boston Corp. Repurchase Agreement, 6.75% dated
12/31/96, repurchase price $50,018,750 due 1/2/97
collateralized by $50,171,000 U.S. Treasury Notes due
10/31/01, approximate aggregate value $50,830,122....................................... $ 50,000,000
=============
</TABLE>
<TABLE>
<CAPTION>
FIRST LEHMAN
% OF UNDIVIDED INTEREST OWNED BY EACH PORTFOLIO BOSTON BROTHERS
------------------------------------------------------------------------------------------------ --------------
<S> <C> <C>
Money Market Portfolio............................................................ 0.0% 0.0%
Fixed Income Portfolio............................................................ 0.0% 0.2%
Government & Quality Bond Portfolio............................................... 15.4% 16.3%
High Yield Portfolio.............................................................. 0.9% 0.9%
Target '98 Portfolio.............................................................. 0.3% 0.2%
Growth and Income Portfolio....................................................... 0.8% 0.7%
Foreign Securities Portfolio...................................................... 3.1% 3.6%
Growth Portfolio.................................................................. 5.4% 4.0%
Capital Appreciation Portfolio.................................................... 63.3% 62.5%
Natural Resources Portfolio....................................................... 3.6% 4.0%
Multi-Asset Portfolio............................................................. 5.9% 6.0%
Strategic Multi-Asset Portfolio................................................... 1.3% 1.6%
------- -------
100.0% 100.0%
================ ================
</TABLE>
- ---------------------
64
<PAGE> 62
NOTE 4. FEDERAL INCOME TAXES: It is each portfolio'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, 1996, the cost of investment securities, including short-term
securities and aggregate gross unrealized gain (loss) 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............ $ -- $ -- $ -- $ 74,148,151 $ -- --*
Fixed Income Portfolio............ 150,065 (252,606) (102,541) 22,455,753 1,990,561 1997-2002
Government & Quality Bond
Portfolio....................... 2,367,111 (3,411,691) (1,044,580) 229,751,650 -- --*
High Yield Portfolio.............. 2,117,454 (680,177) 1,437,277 43,198,797 14,097,904 1997-2003
Target '98 Portfolio.............. 330,629 (64,616) 266,013 9,900,629 252,703 2002-2003
Growth and Income Portfolio....... 4,532,595 (520,045) 4,012,550 29,771,966 -- --*
Foreign Securities Portfolio...... 5,241,725 (2,668,735) 2,572,990 45,543,793 -- --
Growth Portfolio.................. 85,949,173 (6,233,556) 79,715,617 287,007,596 -- --
Capital Appreciation Portfolio.... 107,362,077 (9,252,579) 98,109,498 467,039,212 -- --**
Natural Resources Portfolio....... 6,269,189 (1,533,367) 4,735,822 40,534,737 -- --**
Multi-Asset Portfolio............. 29,518,516 (1,908,073) 27,610,443 127,535,481 -- --
Strategic Multi-Asset Portfolio... 11,470,901 (2,684,236) 8,786,665 48,680,589 -- --**
</TABLE>
The Fixed Income, High Yield, Target '98, Growth and Income and Foreign
Securities portfolios utilized capital loss carryovers of $502,774, $598,763,
$1,747, $1,470,924 and $2,275,439, respectively, to partially offset the
portfolios' net taxable gains realized and recognized in the year ended December
31, 1996. In addition $180,609 of prior year capital loss carryover for the
Fixed Income Portfolio expired as of December 31, 1996.
* Post 10/31 Capital Loss Deferrals: Money Market $2,155, Government & Quality
Bond $140,639, and Growth and Income $82,551.
** Post 10/31 Foreign Exchange Loss Deferrals: Capital Appreciation $101,
Natural Resources $754 and Strategic Multi-Asset $6,846.
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. 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.
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
PORTFOLIO NET ASSETS FEE
- --------------------------------------------------------
<S> <C> <C>
Money Market $0-$150 million .500%
> $150 million .475%
> $250 million .450%
> $500 million .425%
Government & Quality
Bond/ $0-$200 million .625%
Fixed Income > $200 million .575%
> $500 million .500%
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%
Growth and Income $0-$100 million .700%
> $100 million .650%
> $250 million .600%
> $500 million .575%
<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%
Growth $0-$250 million .750%
> $250 million .675%
> $500 million .600%
Capital Appreciation $0-$100 million .750%
> $100 million .675%
> $250 million .625%
> $500 million .600%
Natural Resources > $0 .750%
Strategic Multi-Asset/ $0-$200 million 1.000%
Multi-Asset > $200 million .875%
> $500 million .800%
</TABLE>
---------------------
65
<PAGE> 63
SAAMCO has entered into Subadvisory Agreements (the "Subadvisory Agreement")
with Wellington Management Company ("WMC") to manage the investments of each
portfolio.
The portion of the investment advisory fees received by SAAMCo which are paid
to WMC are as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY WMC
PORTFOLIO NET ASSETS ALLOCATION
- --------------------------------------------------------
<S> <C> <C>
Money Market $0-$500 million .075%
> $500 million .020%
Government & Quality
Bond/ $0-$ 50 million .225%
Fixed Income > $ 50 million .125%
> $100 million .100%
High Yield $0-$ 50 million .300%
> $ 50 million .225%
> $150 million .175%
> $500 million .150%
Target '98 $0-$ 50 million .225%
> $ 50 million .150%
> $100 million .100%
> $500 million .050%
Growth/ $0-$ 50 million .325%
Growth and Income > $ 50 million .225%
> $150 million .200%
> $500 million .150%
<CAPTION>
AVERAGE DAILY WMC
PORTFOLIO NET ASSETS ALLOCATION
- --------------------------------------------------------
<S> <C> <C>
Foreign Securities $0-$ 50 million .400%
> $ 50 million .275%
> $150 million .200%
> $500 million .150%
Capital Appreciation $0-$ 50 million .375%
> $ 50 million .275%
> $150 million .200%
> $500 million .150%
Natural Resources $0-$ 50 million .350%
> $ 50 million .250%
> $150 million .200%
> $500 million .150%
Multi-Asset $0-$ 50 million .250%
> $ 50 million .175%
> $150 million .150%
Strategic Multi-Asset $0-$ 50 million .300%
> $ 50 million .200%
> $150 million .175%
> $500 million .150%
</TABLE>
For the year ended December 31, 1996, SAAMCo received fees of $10,950,011 from
the Trust, of which SAAMCo informed the Trust that $7,616,371 was retained and
$3,333,640 was allocated to WMC.
NOTE 6. SECURITIES TRANSACTIONS: The portfolios had the following purchases and
sales of long-term securities for the year ended December 31, 1996:
<TABLE>
<CAPTION>
MONEY GOVERNMENT & GROWTH
MARKET FIXED INCOME QUALITY BOND HIGH YIELD TARGET '98 AND INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------
Purchases.............................. $ -- $ 18,388,879 $246,789,898 $24,263,266 $ -- $33,286,649
Sales.................................. -- 21,411,694 221,470,659 25,563,232 2,995,902 36,516,128
U.S. Government Securities included
above were as follows:
Purchases of U.S. Government
Securities........................... -- 12,871,829 226,982,095 -- -- --
Sales of U.S. Government Securities.... -- 8,759,171 206,357,709 -- 1,130,738 --
<CAPTION>
FOREIGN CAPITAL NATURAL STRATEGIC
SECURITIES GROWTH APPRECIATION RESOURCES MULTI-ASSET MULTI-ASSET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Purchases.............................. $35,472,026 $166,211,860 $342,216,979 $27,337,681 $ 97,303,252 $29,742,924
Sales.................................. 45,691,188 180,448,567 283,615,002 19,170,014 117,813,662 42,432,943
U.S. Government Securities included
above were as follows:
Purchases of U.S. Government
Securities........................... -- -- -- -- 49,147,136 502,812
Sales of U.S. Government Securities.... -- -- -- -- 51,628,502 4,743,427
</TABLE>
- ---------------------
66
<PAGE> 64
NOTE 7. TRANSACTIONS WITH AFFILIATES: The Trust has executed purchases and
sales of securities through Royal Alliance Associates, Inc., SunAmerica
Securities, Inc., and Advantage Capital Corp., which are broker/dealers
affiliated with SAAMCo. For the year ended December 31, 1996, the following
portfolios of the Trust paid brokerage commissions to these affiliate companies
of:
<TABLE>
<CAPTION>
AMOUNT
-------
<S> <C>
Growth and Income Portfolio.................................................... $ 12
Foreign Securities Portfolio................................................... 552
Growth Portfolio............................................................... 6,310
Capital Appreciation Portfolio................................................. 25,962
Natural Resources Portfolio.................................................... 1,300
Multi-Asset Portfolio.......................................................... 750
Strategic Multi-Asset Portfolio................................................ 3,963
-------
$38,849
========
</TABLE>
NOTE 8. 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, 1996,
the Trust had accrued $86,100 for the Retirement Plan, which is included in
accrued expenses on the Statement of Assets and Liabilities and for the year
ended December 31, 1996, expensed $34,404 for the Retirement Plan, which is
included in Trustee fees and expenses on the Statement of Operations.
---------------------
67
<PAGE> 65
- ---------------------
ANCHOR SERIES TRUST
FINANCIAL HIGHLIGHTS*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET DIVIDENDS DIVIDENDS
REALIZED TOTAL DECLARED FROM NET
NET ASSET NET & UNREALIZED FROM FROM NET REALIZED NET ASSET
VALUE INVEST- GAIN (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>
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Portfolio
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
12/31/96 1.00 0.05 -- 0.05 (0.05) -- 1.00 5.0
Fixed Income Portfolio
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
12/31/96 14.16 0.93 (0.64) (0.29) (1.15) -- 13.30 2.4
Government & Quality Bond Portfolio
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
12/31/96 14.23 0.87 (0.50) 0.37 (0.90) (0.03) 13.67 2.9
High Yield Portfolio
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
12/31/96 8.33 0.74 0.19 0.93 (0.88) -- 8.38 11.7
Target '98 Portfolio
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
12/31/96 12.64 0.81 (0.37) 0.44 (1.41) -- 11.67 3.7
Growth and Income Portfolio
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
12/31/96+ 12.01 0.33 2.02 2.35 (0.77) -- 13.59 20.2
<CAPTION>
NET RATIO OF NET
ASSETS RATIO OF INVESTMENT
END OF EXPENSES INCOME PORTFOLIO AVERAGE
PERIOD PERIOD TO AVERAGE TO AVERAGE TURNOVER COMMISSION
ENDED (000'S) NET ASSETS NET ASSETS RATE PER SHARE@
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Money Market Portfolio
12/31/92 $127,262 0.6% 3.3% %-- $ NA
12/31/93 99,309 0.6 2.7 -- NA
12/31/94 126,004 0.6 3.8 -- NA
12/31/95 93,692 0.6 5.5 -- NA
12/31/96 74,001 0.6 4.9 -- NA
Fixed Income Portfolio
12/31/92 40,001 0.8 6.8 31.8 NA
12/31/93 41,116 0.8 6.3 45.9 NA
12/31/94 28,582 0.8 6.5 56.5 NA
12/31/95 27,975 0.8 6.5 76.7 NA
12/31/96 22,743 0.8 6.8 77.9 NA
Government & Quality Bond Portfolio
12/31/92 207,860 0.8 7.3 76.4 NA
12/31/93 264,660 0.7 6.2 93.2 NA
12/31/94 232,530 0.7 6.4 117.6 NA
12/31/95 225,579 0.7 6.5 135.2 NA
12/31/96 221,603 0.7 6.3 106.7 NA
High Yield Portfolio
12/31/92 47,140 0.9 9.7 134.9 NA
12/31/93 79,303 0.9 8.5 121.1 NA
12/31/94 48,057 0.9 9.0 97.9 NA
12/31/95 46,817 0.9 9.2 68.1 NA
12/31/96 45,687 0.9 8.8 58.0 NA
Target '98 Portfolio
12/31/92 19,227 0.9 6.0 37.3 NA
12/31/93 20,500 0.9 5.7 20.8 NA
12/31/94 19,194 0.8 6.5 9.2 NA
12/31/95 12,774 0.9 6.7 38.6 NA
12/31/96 10,172 0.9 6.5 -- NA
Growth and Income Portfolio
12/31/92 23,723 1.0 5.6 86.5 NA
12/31/93 41,555 0.9 4.4 86.2 NA
12/31/94 34,995 0.9 4.9 50.7 NA
12/31/95 32,008 0.9 5.2 88.8 NA
12/31/96+ 33,465 0.9 2.5 108.5 .0477
</TABLE>
- ---------------
* Selected data for a share of beneficial interest outstanding throughout each
period (calculated based upon average shares outstanding)
** Does not reflect expenses that apply to the separate accounts of Anchor
National Life Insurance Company, First SunAmerica Life Insurance Company,
Phoenix Mutual Life Insurance Company and Presidential Life Insurance
Company. If such expenses had been included, total return would have been
lower for each period presented.
@ The average commission per share is derived by taking the Agency commissions
paid on equity securities trades and dividing by the number of shares
purchased and sold. This information was not required to be disclosed prior to
1996.
+ Prior to March 1, 1996, the portfolio was invested primarily in convertible
debt securities. After that date, the portfolio primarily invests in common
stock.
- ---------------------
68
<PAGE> 66
- ---------------------
ANCHOR SERIES TRUST
FINANCIAL HIGHLIGHTS* -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET DIVIDENDS DIVIDENDS
REALIZED TOTAL DECLARED FROM NET
NET ASSET NET & UNREALIZED FROM FROM NET REALIZED NET ASSET
VALUE INVEST- GAIN (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>
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Foreign Securities Portfolio
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
12/31/96 11.81 0.15 1.19 1.34 (0.21) -- 12.94 11.5
Growth Portfolio
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
12/31/96 19.48 0.20 4.57 4.77 (0.11) (0.95) 23.19 25.0
Capital Appreciation Portfolio
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
12/31/96 23.22 0.06 5.73 5.79 (0.06) (0.95) 28.00 25.1
Natural Resources Portfolio
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
12/31/96 15.12 0.22 1.89 2.11 (0.13) (0.23) 16.87 14.1
Multi-Asset Portfolio
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
12/31/96 13.04 0.35 1.36 1.71 (0.49) (0.91) 13.35 13.9
Strategic Multi-Asset Portfolio
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
12/31/96 11.78 0.25 1.41 1.66 (0.40) (0.84) 12.20 14.8
<CAPTION>
NET RATIO OF NET
ASSETS RATIO OF INVESTMENT
END OF EXPENSES INCOME (LOSS) PORTFOLIO AVERAGE
PERIOD PERIOD TO AVERAGE TO AVERAGE TURNOVER COMMISSION
ENDED (000'S) NET ASSETS NET ASSETS RATE PER SHARE@
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Foreign Securities Portfolio
12/31/92 $ 29,204 1.3% 1.4% 144.2% $ NA
12/31/93 72,579 1.3 0.5 47.7 NA
12/31/94 68,641 1.2 1.0 73.9 NA
12/31/95 53,609 1.2 1.2 33.0 NA
12/31/96 48,036 1.4 1.2 74.3 .0062
Growth Portfolio
12/31/92 279,291 0.9 0.5 37.9 NA
12/31/93 311,050 0.9 0.2 66.3 NA
12/31/94 246,149 0.8 0.2 74.8 NA
12/31/95 307,857 0.9 0.6 92.1 NA
12/31/96 366,602 0.8 0.9 51.7 .0515
Capital Appreciation Portfolio
12/31/92 83,414 0.9 0.1 92.9 NA
12/31/93 182,515 0.9 (0.2) 111.2 NA
12/31/94 229,544 0.8 (0.1) 64.0 NA
12/31/95 356,218 0.8 0.3 60.1 NA
12/31/96 567,672 0.8 0.2 69.2 .0517
Natural Resources Portfolio
12/31/92 8,796 1.3 2.1 18.7 NA
12/31/93 18,255 1.1 1.3 34.5 NA
12/31/94 21,230 1.0 1.7 36.0 NA
12/31/95 28,941 1.0 1.3 32.0 NA
12/31/96 45,329 0.9 1.3 52.5 .0409
Multi-Asset Portfolio
12/31/92 207,533 1.1 3.1 38.6 NA
12/31/93 208,900 1.1 2.6 48.2 NA
12/31/94 164,159 1.1 3.0 82.5 NA
12/31/95 168,243 1.1 3.2 85.9 NA
12/31/96 150,619 1.1 2.6 64.1 .0517
Strategic Multi-Asset Portfolio
12/31/92 79,621 1.3 1.8 57.5 NA
12/31/93 76,466 1.3 1.2 73.9 NA
12/31/94 65,357 1.3 1.8 63.7 NA
12/31/95 64,026 1.3 2.7 36.9 NA
12/31/96 57,744 1.4 2.0 51.3 .0064
</TABLE>
- ---------------
* Selected data for a share of beneficial interest outstanding throughout each
period (calculated based upon average shares outstanding)
** Does not reflect expenses that apply to the separate accounts of Anchor
National Life Insurance Company, First SunAmerica Life Insurance Company,
Phoenix Mutual Life Insurance Company and Presidential Life Insurance
Company. If such expenses had been included, total return would have been
lower for each period presented.
@ The average commission per share is derived by taking the Agency commissions
paid on equity securities trades and dividing by the number of shares
purchased and sold. This information was not required to be disclosed prior to
1996.
---------------------
69
<PAGE> 67
- ---------------------
ANCHOR SERIES TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of Anchor Series Trust
In our opinion, the accompanying statement 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 Fixed Income Portfolio, the Government & Quality Bond
Portfolio, the High Yield Portfolio, the Target '98 Portfolio, the Growth
and Income Portfolio, the Foreign Securities Portfolio, the Growth
Portfolio, the Capital Appreciation Portfolio, the Natural Resources
Portfolio, the Multi-Asset Portfolio and the Strategic Multi-Asset Portfolio
(constituting Anchor Series Trust, hereafter referred to as the "Trust") at
December 31, 1996, 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, 1996 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 13, 1997
1177 Avenue of the Americas
New York, New York 10036
- ---------------------
70
<PAGE> 83
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, 1996.
(b) Exhibits
<TABLE>
<CAPTION>
<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 Agreement Previously Filed
( 6) Distribution Agreement Not Applicable
( 7) Bonus, Profit Sharing, Not Applicable
Pension or Similar Contracts
( 8) Custodian Agreement Filed Herewith
( 9) Form of Fund Participation Agreement Previously Filed
(10) Opinion and Consent of Counsel Filed Herewith
(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 Filed Herewith
Registrant
(17) Performance Computations Not Applicable
(18) Powers of Attorney Previously Filed
(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.
<PAGE> 84
Item 26. Number of Holders of Securities
As of February 26, 1997, the number of record holders of Anchor Series
Trust was as follows:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
<S> <C> <C>
Shares of Beneficial Interest 5*
</TABLE>
* Held by Variable Separate Account of Anchor National Life Insurance
Company, FS Variable Separate Account of First SunAmerica Life
Insurance Company, Variable Annuity Account Four of Anchor National
Life Insurance Company, Variable Annuity Account One of Anchor National
Life Insurance Company and Variable Annuity Account One of 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,
2
<PAGE> 85
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 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.
3
<PAGE> 86
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 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> 87
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. 27 to
the Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment No. 27 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 27th day
of February 27, 1997.
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. 27 to the Registration Statement has been signed
below by the following persons in the capacities
and on the date indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/Peter A. Harbeck President and Trustee February 28, 1997
Peter A. Harbeck (Principal Executive
Officer)
* Treasurer February 28, 1997
Peter C. Sutton (Principal Financial
and Accounting Officer)
* Trustee February 28, 1997
S. James Coppersmith
* Trustee February 28, 1997
Samuel M. Eisenstat
* Trustee February 28, 1997
Stephen J. Gutman
*By:/s/Robert M. Zakem
Attorney-in-Fact
Robert M. Zakem
</TABLE>
<PAGE> 88
ANCHOR SERIES TRUST
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Name
<S> <C>
8 Custodian Agreement as Amended
10 Opinion and Consent of Counsel
11 Consent of Accountants
27 Financial Data Schedule
</TABLE>
<PAGE> 1
CUSTODIAN CONTRACT
Between
INTEGRATED RESOURCES SERIES TRUST
and
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Employment of Custodian and Property to be Held By It.............
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States............
2.1 Holding Securities..........................................
2.2 Delivery of Securities.....................................
2.3 Registration of Securities.................................
2.4 Bank Accounts..............................................
2.5 Availability of Federal Funds..............................
2.6 Collection of Income.......................................
2.7 Payment of Fund Monies.....................................
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased............................
2.9 Appointment of Agents......................................
2.10 Deposit of Fund Assets in Securities System................
2.10A Fund Assets Held in the Custodian's Direct Paper
System.....................................................
2.11 Segregated Account.........................................
2.12 ownership certificates for Tax Purposes
2.13 Proxies....................................................
2.14 Communications Relating to Portfolio Securities............
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States........................
3.1 Appointment of Foreign Sub-Custodians.......................
3.2 Assets to be Held...........................................
3.3 Foreign securities Depositories.............................
3.4 Segregation of Securities...................................
3.5 Agreements with Foreign Banking Institutions................
3.6 Access of Independent Accountants of the Fund...............
3.7 Reports by Custodian........................................
3.8 Transactions in Foreign Custody Account.....................
3.9 Liability of Foreign Sub-Custodians.........................
3.10 Liability of Custodian......................................
3.11 Reimbursement for Advances..................................
3.12 monitoring Responsibilities.................................
3.13 Branches of U.S. Banks......................................
4. Payments for Sales or Repurchase or Redemptions
of Shares of the Fund.............................................
5. Proper Instructions...............................................
6. Actions Permitted Without Express Authority.......................
7. Evidence of Authority.............................................
8. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income.....................
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
9. Records...........................................................
10. Opinion of Fund's Independent Accountants.........................
11. Reports to Fund by Independent Public Accountants.................
12. Compensation of Custodian.........................................
13. Responsibility of Custodian.......................................
14. Effective Period, Termination and Amendment.......................
15. Successor Custodian...............................................
16. Interpretive and Additional Provisions............................
17. Additional Funds..................................................
18. Massachusetts Law to Apply........................................
19. Prior Contracts...................................................
</TABLE>
<PAGE> 4
CUSTODIAN CONTRACT
This Contract between Integrated Resources Series Trust, a business trust
organized and existing under the laws of Massachusetts, having its principal
place of business at One Bridge Plaza, Fort Lee, New Jersey 07024, hereinafter
called the "Fund", and State Street Bank and Trust Company, a Massachusetts
trust company, having its principal place of business at 225 Franklin Street,
Boston, Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund intends to initially offer shares in twelve series, the
Aggressive Growth Portfolio, Aggressive Multi-Asset Portfolio, Convertible
Securities Portfolio, Fixed Income Portfolio, Foreign Securities Portfolio,
Government and Qualify Bond Portfolio, Growth Portfolio, High Yield Portfolio,
Money Market Portfolio, Multi-Asset Portfolio, Natural Resources Portfolio,
Target'98 (such series together with all other series subsequently established
by the Fund and made subject to this Contract in accordance with paragraph 17,
being herein referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the
<PAGE> 5
Declaration of Trust. The Fund on behalf of the Portfolio(s) agrees to deliver
to the Custodian all securities and cash of the Portfolios, and all payments of
income, payments of principal or capital distributions received by it with
respect to all securities owned by the Portfolio(s) from time to time, and the
cash consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios, ("Shares") as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall on behalf of the applicable Portfolio(s) from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian in the United States.
2.1 Holding Securities. The Custodian shall hold and physically segregate for
the account of each Portfolio all non-cash property, to be held by it in
the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository or
in a book-entry system authorized by the U.S. Department of the Treasury,
collectively referred to herein as "Securities System" and (b) commercial
paper of an issuer for which State
<PAGE> 6
Street Bank and Trust Company acts as issuing and paying agent ("Direct
Paper") which is deposited and/or maintained in the Direct Paper System of
the Custodian pursuant to Section 2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver domestic
securities owned by a Portfolio held by the Custodian or in a Securities
System account of the Custodian only upon receipt of Proper Instructions
from the Fund on behalf of the applicable Portfolio, which may be
continuing instructions when deemed appropriate by the parties, and only
in the following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any sub-custodian appointed pursuant to
Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or
<PAGE> 7
number of units; provided that, in any such case, the new
securities are to be delivered to the Custodian;
7) To the broker selling the same for examination in accordance
with "street delivery" custom;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the
Custodian will, not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any
<PAGE> 8
borrowings by the Fund on behalf of the Portfolio requiring a
pledge of assets by the Fund on behalf of the Portfolio, but
only against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Fund:
13) For delivery in accordance with the provisions of any
agreement among the Fund (on behalf of the Portfolio), the
Custodian, and a Futures commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by
the Portfolio of the Fund:
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the currently effective prospectus and statement of
additional information of the Fund, related to the Portfolio
("Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only
<PAGE> 9
upon receipt of, in addition to Proper Instructions from the
Fund on behalf of the applicable Portfolio, a certified copy
of a resolution of the Board of Trustees or of the Executive
Committee signed by an officer of the Fund and certified by
the Secretary or an Assistant Secretary, specifying the
securities of the Portfolio to be delivered, setting forth the
purpose for which such delivery is to be made, declaring such
purpose to be a proper corporate purpose, and naming the
person or persons to whom delivery of such securities shall be
made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized in
writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as the
Portfolio, or in the name or nominee name of any agent appointed pursuant
to Section 2.9 or in the name or nominee name of any sub-custodian
appointed pursuant to Article 1. All securities accepted by the Custodian
on behalf of the Portfolio under the terms of this Contract shall be in
"street name" or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio of
the Fund, subject only to draft or order by the Custodian acting pursuant
to the terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for the
account of the Portfolio, other than cash maintained by the Portfolio in a
bank account established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Funds held by the Custodian for a
Portfolio may be
<PAGE> 10
deposited by it to its credit as Custodian in the Banking Department of
the Custodian or in such other banks or trust companies as it may in its
discretion deem necessary or desirable; provided, however, that every such
bank or trust company shall be qualified to act as a custodian under the
Investment Company Act of 1940 and that each such bank or trust company
and the funds to be deposited with each such bank or trust company shall
on behalf of each applicable Portfolio be approved by vote of a majority
of the Board of Trustees of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 Availability of Federal funds. Upon mutual agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf of
a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of such
Portfolio which are deposited into the Portfolio's account.
2.6 Collection of Income. The Custodian shall collect on a timely basis all
income and other payments with respect to registered domestic securities
held hereunder to which each Portfolio shall be entitled either by law or
pursuant to custom in the securities business, and shall collect on a
timely basis all income and other payments with respect to bearer domestic
securities if, on the date of payment by the issuer, such securities are
held by the Custodian or its agent thereof and shall credit such income,
as collected, to such Portfolio's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as and
when they become due and shall collect interest when due on securities
held hereunder. Income due each Portfolio on securities loaned pursuant to
the provisions of Section 2.2
<PAGE> 11
(10) shall be the responsibility of the Fund. The Custodian will have no
duty or responsibility in connection therewith, other than to provide the
Fund with such information or data as may be necessary to assist the Fund
in arranging for the timely delivery to the Custodian of the income to
which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the Fund
on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian shall
pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
Securities System, in accordance with the conditions set forth
in Section 2.10 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.10A; (d) in the case of
repurchase agreements entered into between the Fund (on behalf
of the Portfolio) and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against delivery
of the securities either in certificate form or through an
entry crediting the
<PAGE> 12
Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing
purchase by the Portfolio of securities owned by the Custodian
along with written evidence of the agreement by the Custodian
to repurchase such securities from the Portfolio or (e) for
transfer to a time deposit account of the Fund in any bank,
whether domestic or foreign; such transfer may be effected
prior to receipt of a confirmation from a broker and/or the
applicable bank pursuant to Proper Instructions from the Fund
as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by
an officer of the Fund and certified by its Secretary
<PAGE> 13
or an Assistant Secretary, specifying the amount of such
payment, setting forth the purpose for which such payment is
to be made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be
made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and every
case where payment for purchase of domestic securities for the account of
a Portfolio is made by the Custodian in advance of receipt of the
securities purchased in the absence of specific written instructions from
the Fund on behalf of such Portfolio to so pay in advance, the Custodian
shall be absolutely liable to the Fund for such securities to the same
extent as if the securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such of
the provisions of this Article 2 as the Custodian may from time to time
direct; provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of Fund Assets in securities Systems. The Custodian may deposit
and/or maintain securities owned by a Portfolio in a clearing agency
registered with the Securities and Exchange Commission under Section 17A
of the Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the U.S. Department
of the Treasury and certain federal agencies, collectively referred to
herein as "Securities System" in accordance with applicable Federal
Reserve Board and Securities and Exchange Commission rules and
regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Portfolio
<PAGE> 14
in a Securities System provided that such securities are
represented in an account ("Account") of the Custodian in the
Securities System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a securities System shall
identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from the
Securities System that such securities have been transferred
to the Account, and (ii) the making of an entry on the records
of the Custodian to reflect such payment and transfer for the
account of the Portfolio.
4) The Custodian shall transfer securities sold for the account
of the Portfolio upon (i) receipt of advice from the
Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such transfer and
payment for the account of the Portfolio. Copies of all
advices from the Securities System of transfers of securities
for the account of the Portfolio shall identify the Portfolio,
be maintained for the Portfolio by the Custodian and be
provided to the Fund at its request.
5) Upon request, the Custodian shall furnish the Fund on behalf
of the Portfolio confirmation of each transfer to or from the
account of the Portfolio in the form of a written advice or
notice and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transactions in the Securities System for the
<PAGE> 15
account of the Portfolio;
6) The Custodian shall provide the Fund for the Portfolio with
any report obtained by the Custodian on the Securities
System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the
Securities System;
7) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case
may be, required by Article 14 hereof;
8) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting
from use of the Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from failure of
the Custodian or any such agent to enforce effectively such
rights as it may have against the Securities System. At its
election, the Fund shall be entitled to be subrogated to the
rights of the Custodian with respect to any claim against the
Securities System or any other person which the Custodian may
have as a consequence of any such loss or damage if and to the
extent that the Portfolio has not been made whole for any such
loss or damage.
2.10A Fund assets Held in the Custodian's Direct Paper System. The Custodian may
deposit and/or maintain securities owned by a Portfolio in the Direct
Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions from the Fund
on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
<PAGE> 16
Direct Paper System only if such securities are represented in an
account ("Account") of the Custodian in the Direct Paper System
which shall not include any assets held as a fiduciary, custodian or
otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the account of
the Portfolio upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to the
account of the Portfolio. The Custodian shall transfer securities
sold for the account of the Portfolio upon the making of an entry on
the records of the Custodian to reflect such transfer and receipt of
payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio, in the form of a written advice or notice, of Direct
Paper on the next business day following such transfer and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transaction in the Direct
Paper System for the Account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio with
any report on its system of internal accounting control as the Fund
may reasonably request from time to time.
2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on behalf
of each such Portfolio, into which account or accounts may be transferred
cash and/or securities, including securities maintained in an account by
the Custodian pursuant to Section 2.10 and 2.10A hereof, (i) in accordance
<PAGE> 17
with the provisions of any agreement among the Fund (on behalf of the
Portfolio), the Custodian and a broker-dealer registered under the
Exchange Act and a member of the NASD (or any futures commission merchant
registered under the Commodity Exchange Act), relating to compliance with
the rules of The Options Clearing Corporation and of any registered
national securities exchange (or the Commodity Futures Trading Commission
or any registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Portfolio, (ii) for purposes of segregating cash or
government securities in connection with options purchased, sold or
written by the Portfolio or commodity futures contracts or options thereon
purchased or sold by the Portfolio, (iii) for the purposes of compliance
by the Portfolio with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the Securities
and Exchange Commission relating to the maintenance of segregated accounts
by registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the applicable
Portfolio, a certified copy of a resolution of the Board of Trustees or of
the Executive Committee signed by an officer of the Fund and certified by
the Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such purposes to be
proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Portfolio held by it and in
connection with transfers of securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities held
hereunder, cause to be promptly executed by
<PAGE> 18
the registered holder of such securities, if the securities are registered
otherwise than in the name of the Portfolio or a nominee of the Portfolio,
all proxies, without indication of the manner in which such proxies are to
be voted, and shall promptly deliver to the Portfolio such proxies, all
proxy soliciting materials and all notices relating to such securities.
2.14 Communications Relating to Portfolio Securities The Custodian shall
transmit promptly to the Fund for each Portfolio all written information
(including, without limitation, pendency of calls and maturities of
domestic securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund on behalf
of the Portfolio and the maturity of futures contracts purchased or sold
by the Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange offers,
the Custodian shall transmit promptly to the Portfolio all written
information received by the Custodian from issuers of the securities whose
tender or exchange is sought and from the party (or his agents) making the
tender or exchange offer. If the Portfolio desires to take action with
respect to any tender offer, exchange offer or any other similar
transaction, the Portfolio shall notify the Custodian at least three
business days prior to the date on which the Custodian is to take such
action.
3. Duties of the Custodian with Respect to Property of the Fund Held Outside
of the United States.
3.1 Appointment of Foreign Sub-Custodians The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon receipt
of "Proper Instructions", as defined in Section 5 of this Contract,
together with a certified resolution of
<PAGE> 19
the Fund's Board of Trustees, the Custodian and the Fund may agree to
amend Schedule A hereto from time to time to designate additional foreign
banking institutions and foreign securities depositories to act as
sub-custodian. Upon receipt of Proper Instructions, the Fund may instruct
the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Fund may determine to be reasonably
necessary to effect the Portfolio's foreign securities transactions.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as sub-custodians
pursuant to the terms hereof. Where possible, such arrangements shall
include entry into agreements containing the provisions set forth in
Section 3.5 hereof.
3.4 Segregation of Securities. The Custodian shall identify on its books as
belonging to each applicable Portfolio of the Fund, the foreign securities
of such Portfolios held by each foreign sub-custodian. Each agreement
pursuant to which the Custodian employs a foreign banking institution
shall require that such institution establish a custody account for the
Custodian on behalf of the Fund for each applicable Portfolio of the Fund
and physically segregate in each account, securities and other assets of
the Portfolios, and, in the event that such institution deposits the
securities of one or more of the Portfolios in a foreign securities
depository, that it shall identify on its books as belonging to the
Custodian, as agent for each applicable
<PAGE> 20
Portfolio, the securities so deposited.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set forth
in Exhibit 1 hereto and shall provide that: (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution or
its creditors or agent, except a claim of payment for their safe custody
or administration; (b) beneficial ownership for the assets of each
Portfolio will be freely transferable without the payment of money or
value other than for custody or administration; (c) adequate records will
be maintained identifying the assets as belonging to each applicable
Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted under
applicable law the independent public accountants for the Fund, will be
given access to the books and records of the foreign banking institution
relating to its actions under its agreement with the Custodian; and (e)
assets of the Portfolios held by the foreign sub-custodian will be subject
only to the instructions of the Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the Fund,
the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of
any foreign banking institution employed as a foreign sub-custodian
insofar as such books and records relate to the performance of such
foreign banking institution under its agreement with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities and
other assets of the Portfolio(s) held by foreign sub-custodians, including
but not limited to an identification of entities having possession of the
Portfolio(s) securities and other assets and advices or
<PAGE> 21
notifications of any transfers of securities to or from each custodial
account maintained by a foreign banking institution for the Custodian on
behalf of each applicable Portfolio indicating, as to securities acquired
for a Portfolio, the identity of the entity having physical possession of
such securities.
3.8 Transactions in Foreign Custody Account
(a) Except as otherwise provided in paragraph (b) of this Section 3.8, the
provision of Sections 2.2 and 2.7 of this Contract shall apply, mutatis
mutandis to the foreign securities of the Fund held outside the United
States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the account
of each applicable Portfolio may be effected in accordance with the
customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering securities
to the purchaser thereof or to a dealer therefor (or an agent for such
purchaser or dealer) against a receipt with the expectation of receiving
later payment for such securities from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may be
maintained in the name of such entity's nominee to the same extent as set
forth in Section 2.3 of this Contract, and the Fund agrees to hold any
such nominee harmless from any liability as a holder of record of such
securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the
Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the
performance of its duties and to indemnify, and hold harmless, the
Custodian and the Fund from and against any loss (including reasonable
attorneys fees
<PAGE> 22
and court cost), damage, cost, expense, liability or claim arising out of
or in connection with the institution's performance of such obligations.
At the election of the Fund, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claims against a foreign
banking institution as a consequence of any such loss, damage, cost,
expense, liability or claim if and to the extent that the Fund has not
been made whole for any such loss, damage, cost, expense, liability or
claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set forth
with respect to sub-custodians generally in this Contract and, regardless
of whether assets are maintained in the custody of a foreign banking
institution, a foreign securities depository or a branch of a U.S. bank as
contemplated by paragraph 3.13 hereof, the Custodian shall not be liable
for any loss, damage, cost, expense, liability or claim resulting from
nationalization, expropriation, currency restrictions, or acts of war or
terrorism or any loss where the sub-custodian has otherwise exercised
reasonable care. Notwithstanding the foregoing provisions of this
paragraph 3.10, in delegating custody duties to State Street London Ltd.,
the Custodian shall not be relieved of any responsibility to the Fund for
any loss due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization, insurrection,
civil strife or armed hostilities) or (b) other losses (excluding a
bankruptcy or insolvency of State Street London Ltd. not caused by
political risk) due to Acts of God, nuclear incident or other losses under
circumstances where the Custodian and State Street London Ltd. Have
exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to advance
cash or securities for any purpose for the benefit of a Portfolio
including the purchase or sale of
<PAGE> 23
foreign exchange or of contracts for foreign exchange, or in the event
that the Custodian or its nominee shall incur or be assessed any taxes,
charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the
applicable Portfolio shall be security therefor and should the Fund fail
to repay the Custodian promptly, the Custodian shall be entitled to
utilize available cash and to dispose of such Portfolio's assets to the
extent necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to the
Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection with
the initial approval of this Contract. In addition, the Custodian will
promptly inform the Fund in the event that the Custodian learns of a
material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the Securities and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (U.S. dollars or the
equivalent thereof) or that its shareholders' equity has declined below
$200 million (in each case computed in accordance with generally accepted
U.S. accounting principles).
3.13 Branches of U.S. Banks
(a) Except as otherwise set forth in this Contract, the provisions hereof
shall not apply where the custody of the Portfolios' assets are maintained
in a foreign branch of a banking institution which is a "bank" as defined
by Section 2(a)(5) of the Investment Company Act of 1940 meeting the
<PAGE> 24
qualification set forth in Section 26(a) of said Act. The appointment of
any such branch as a sub-custodian shall be governed by paragraph 1 of
this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom shall
be maintained in an interest bearing account established for the Fund with
the Custodian's London branch, which account shall be subject to the
direction of the Custodian, State Street London Ltd. or both.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
5. Proper Instructions
Proper Instructions as used throughout this Contract means a
<PAGE> 25
writing signed or initialled by two or more persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Trustees of the Fund
accompanied by a detailed description of procedures approved by the Board of
Trustees, Proper instructions may include communications effected directly
between electromechanical or electronic devices provided that the Board of
Trustees and the Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios, assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three-party agreement which requires a segregated asset account in
accordance with Section 2.11.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Contract,
provided that all such payments shall be accounted for to the Fund on behalf of
the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other dealings
with the securities and property of the Portfolio except as otherwise directed
by the Board of Trustees of the Fund.
<PAGE> 26
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Trustees of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Trustees pursuant to the Declaration of Trust as described in
such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation
of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Trustees of the Fund to keep the
books of account of each Portfolio and/or compute the net asset value per share
of the outstanding shares of each Portfolio or, if directed in writing to do so
by the Fund on behalf of the Portfolio, shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of the Portfolio as described in the
Fund's currently effective prospectus related to such Portfolio and shall advise
the Fund and the Transfer Agent daily of the total amounts of such net income
and, if instructed in writing by an officer of the Fund to do so, shall advise
the Transfer Agent periodically of the division of such net income among its
various components. The calculations of the net asset value per share and the
daily income of each Portfolio shall be made at the time or times described from
time to time in the Fund's currently effective prospectus related to such
Portfolio.
9. Records
The Custodian shall (with respect to each Portfolio) create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of
<PAGE> 27
the Fund under the Investment Company Act of 1940, with particular attention to
Section 31 thereof and Rules 3la-1 and 3la-2 thereunder. All such records shall
be the property of the Fund and shall at all times during the regular business
hours of the Custodian be open for inspection by duly authorized officers,
employees or agents of the Fund and employees and agents of the Securities and
Exchange Commission. The Custodian shall, at the Fund's request, supply the Fund
with a tabulation of securities owned by each Portfolio and held by the
Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's Form
N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants.
The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian under this Contract;
such reports, shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Fund to provide reasonable assurance that any
material inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for
<PAGE> 28
its services and expenses as Custodian, as agreed upon from time to time between
the Fund on behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of a three-party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract, but shall be
kept indemnified by and shall be without liability to the Fund for any action
taken or omitted by it in good faith without negligence. It shall be entitled to
rely on and may act upon advice of counsel (who may be counsel for the Fund) on
all matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice, provided such counsel is reasonably acceptable
to the Fund. Notwithstanding the foregoing, the responsibility of the Custodian
with respect to redemptions effected by check shall be in accordance with a
separate Agreement entered into between the Custodian and the Fund. The
Custodian shall be liable for the acts or omissions of a foreign banking
institution appointed pursuant to the same extent as set forth in Article 1
hereof with respect to sub-custodians located in the United States (except as
specifically provided in Article 3.10)and, regardless of whether assets are
maintained in the custody of a foreign banking institution, a foreign securities
depository or a branch of a U.S. bank as contemplated by paragraph 3.11 hereof,
the Custodian shall not be liable for any loss, damage, cost, expense, liability
or claim resulting from, or caused by, the direction of or authorization by the
fund to maintain custody or any securities or cash of the Fund in a foreign
country including, but not limited to, losses
<PAGE> 29
resulting from nationalization, expropriation, currency restrictions, or acts of
war or terrorism.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement)
for the benefit of a Portfolio including the purchase or sale of foreign
exchange or of contracts for foreign exchange or in the event that the Custodian
or its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of this
Contract, except such as may arise from its or its nominee's own negligent
action, negligent failure to act or willful misconduct, any property at any time
held for the account of the applicable Portfolio shall be security therefor and
should the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of such Portfolio's assets to
the extent necessary to obtain reimbursement.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the party, such termination to take effect not sooner than
thirty (30) days after the date of such delivery or mailing; provided, however
that the Custodian shall not with respect to a Portfolio act under Section 2.10
hereof in the absence of receipt
<PAGE> 30
of an initial certificate of the Secretary or an Assistant Secretary that the
Board of Trustees of the Fund has approved the initial use of a particular
Securities System by such Portfolio and the receipt of an annual certificate of
the Secretary or an Assistant Secretary that the Board of Trustees has reviewed
the use by such Portfolio of such Securities System, as required in each case by
Rule 17f-4 under the Investment Company Act of 1940, as amended and that the
Custodian shall not with respect to a Portfolio act under Section 2.10A hereof
in the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Trustees has approved the initial use of
the Direct Paper System by such Portfolio and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the Board of
Trustees has reviewed the use by such Portfolio of the Direct Paper System;
provided further, however, that the Fund shall not amend or terminate this
Contract in contravention of any applicable federal or state regulations, or any
provision of the Declaration of Trust, and further provided, that the Fund on
behalf of one or more of the Portfolios may at any time by action of its Board
of Trustees (i) substitute another bank or trust company for the Custodian by
giving notice as described above to the Custodian, or (ii) immediately terminate
this Contract in the event of the appointment of a conservator or receiver for
the Custodian by the Comptroller of the Currency or upon the happening of a like
event at the direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then
<PAGE> 31
held by it hereunder and shall transfer to an account of the successor custodian
all of the securities of each such Portfolio held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of Trustees
of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating tot he duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
<PAGE> 32
In connection with the operation of this Contract, the Custodian and the
Fund on behalf of the Portfolios, may form time to time agree on such provisions
interpretive of or in addition to the provisions of this Contract as may in
their joint opinion be consistent with the general tenor of this Contract. Any
such interpretive or additional provisions shall be in a writing signed by both
parties and shall be annexed hereto, provided that no such interpretive or
additional provisions shall contravene any applicable federal or state
regulations or any provision of the Declaration of Trust of the Fund. No
interpretive or additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Contract. 17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to the Aggressive Growth Portfolio, Aggressive Multi-Asset Portfolio,
Convertible Securities Portfolio, Government and Quality Bond Portfolio, Growth
Portfolio, High Yield Portfolio, Money Market Portfolio, Multi-Asset Portfolio,
Natural Resources Portfolio, and Target '98 Portfolio with respect to which it
desires to have the Custodian render services as custodian under the terms
hereof, it shall so notify the Custodian in writing, and if the Custodian agrees
in writing to provide such services, such series of Shares shall become a
Portfolio hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of the Commonwealth of Massachusetts.
19. Prior Contracts
This Contract supersedes and terminated, as of the date hereof, all prior
contracts between the Fund on behalf of each of the Portfolios and the Custodian
relating to the custody of the Fund's assets.
<PAGE> 33
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representatives and its
seal to be hereunder affixed as of the 3rd day of August, 1988.
INTEGRATED RESOURCES SERIES TRUST
By: /s/Paul S. Feinberg
ATTEST:
/s/Vickie Riccardo-Markot
STATE STREET BANK AND TRUST COMPANY
By /s/
Executive Vice President
ATTEST:
/s/
Assistant Secretary
<PAGE> 34
AMENDMENT TO CUSTODIAN CONTRACT
Agreement made by and between State Street Bank and Trust Company (the
"Custodian") and Anchor Series Trust (the "Trust").
WHEREAS, the Custodian and the Trust are parties to a custodian contract
dated August 3, 1988 (the "Custodian Contract") governing the terms and
conditions under which the Custodian maintains custody of the securities and
other assets of the Trust; and
WHEREAS, the Custodian and the Trust desire to amend the terms and
conditions under which the Custodian maintains the Trust's securities and other
non-cash property in the custody of certain foreign sub-custodians in conformity
with the requirements of Rule 17f-5 under the Investment Company Act of 1940, as
amended;
NOW THEREFORE, in consideration of the premises and covenants contained
herein, the Custodian and the Trust hereby amend the Custodian Contract by the
addition of the following terms and provisions;
1. Notwithstanding any provisions to the contrary set forth in the
Custodian Contract, the Custodian may hold securities and other non-cash
property for all of its customers, including the Trust, with a foreign
sub-custodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers, provided however, that (i) the
records of the Custodian with respect to securities and other non-cash property
of the Trust which are maintained in such account shall identify by book-entry
those securities and other non-cash property belonging to the Trust and (ii) the
Custodian shall require that securities and other non-cash property so held by
the foreign sub-custodian be held separately from any assets of the foreign
sub-custodian or of others.
<PAGE> 35
2. Except as specifically superseded or modified herein, the terms and
provisions of the Custodian Contract shall continue to apply with full force and
effect.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed as a sealed instrument in its name and behalf by its duly authorized
representative this 20th day of May, 1996.
ANCHOR SERIES TRUST
By:/s/Robert M. Zakem
Robert M. Zakem
Title: Secretary
STATE STREET BANK AND TRUST COMPANY
By:/s/
Title:
<PAGE> 1
February 27, 1997
Anchor Series Trust
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
Ladies and Gentlemen:
This opinion is being furnished in connection with the filing by Anchor
Series Trust (the "Trust"), a Massachusetts business trust, of Post-Effective
Amendment No. 27 to the Registration Statement on Form N-1A (the "Amendment")
which definitely registers 1,494,634 shares of beneficial interest, $.01 par
value (the "Shares").
I am familiar with the proceedings taken by the Trust in connection with
the authorization, issuance and sale of the Shares. In addition, I have examined
the Trust's Declaration of Trust, its By-Laws and such other documents that have
been deemed relevant to the matters referred to in this opinion.
Based upon the foregoing, I am of the opinion that the Shares registered
by the Amendment are legally issued, fully paid and nonassessable shares of
beneficial interest of the Trust.
I hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Amendment of the Trust, and to the
filing of this opinion under the securities laws of any state.
Very truly yours,
SunAmerica Asset Management Corp.
By:/s/Robert M. Zakem
Robert M. Zakem
Senior Vice President and
General Counsel
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 27 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 13, 1997, relating to the financial statements and financial highlights
of Anchor Series Trust, which appears in such Statement of Additional
Information. We also consent to the references to us under the heading
"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
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
February 24, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000726735
<NAME> ANCHOR SERIES TRUST
<SERIES>
<NUMBER> 01
<NAME> ANCHOR SERIES TRUST MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 74,148,151
<INVESTMENTS-AT-VALUE> 74,148,151
<RECEIVABLES> 442,885
<ASSETS-OTHER> 20,440
<OTHER-ITEMS-ASSETS> 8,792
<TOTAL-ASSETS> 74,620,268
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 619,615
<TOTAL-LIABILITIES> 619,615
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 74,000,653
<SHARES-COMMON-STOCK> 74,000,653
<SHARES-COMMON-PRIOR> 93,691,683
<ACCUMULATED-NII-CURRENT> 2,155
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,155)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 74,000,653
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,727,875
<OTHER-INCOME> 0
<EXPENSES-NET> (502,456)
<NET-INVESTMENT-INCOME> 4,225,419
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,225,419
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,225,419)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 159,314,533
<NUMBER-OF-SHARES-REDEEMED> (183,230,982)
<SHARES-REINVESTED> 4,225,419
<NET-CHANGE-IN-ASSETS> (19,691,030)
<ACCUMULATED-NII-PRIOR> 721
<ACCUMULATED-GAINS-PRIOR> (721)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 432,146
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 502,456
<AVERAGE-NET-ASSETS> 86,429,130
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.05)
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<PER-SHARE-NAV-END> 1.00
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<NUMBER> 04
<NAME> ANCHOR SERIES TRUST GROWTH PORTFOLIO
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<NUMBER> 05
<NAME> ANCHOR SERIES TRUST HIGH YIELD PORTFOLIO
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<CIK> 0000726735
<NAME> ANCHOR SERIES TRUST
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<NUMBER> 06
<NAME> ANCHOR SERIES TRUST STRATEGIC MULTI ASSET
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<NUMBER> 07
<NAME> ANCHOR SERIES TRUST MULTI-ASSET PORTFOLIO
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<NAME> ANCHOR SERIES TRUST
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<NUMBER> 08
<NAME> ANCHOR SERIES TRUST CAPITAL APPRECIATION
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<NAME> ANCHOR SERIES TRUST
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<NUMBER> 09
<NAME> ANCHOR SERIES TRUST GROWTH AND INCOME PORTFOLIO
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<CIK> 0000726735
<NAME> ANCHOR SERIES TRUST
<SERIES>
<NUMBER> 10
<NAME> ANCHOR SERIES TRUST FOREIGN SECURITIES PORTFOLIO
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<NAME> ANCHOR SERIES TRUST NATURAL RESOURCES PORTFOLIO
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<NAME> ANCHOR SERIES TRUST TARGET '98
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