<PAGE> 1
ANCHOR
SERIES
TRUST
ANNUAL
REPORT
DECEMBER 31, 1997
<PAGE> 2
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DEAR ANCHOR SERIES TRUST INVESTOR:
We are pleased to present our annual report for the Anchor
Series Trust, the underlying trust for the ICAP II Variable
Annuity from Anchor National Life Insurance Company and First
SunAmerica Life Insurance Company.
The following information from Wellington Management Company,
LLP, the Subadviser for the Anchor Series Trust Portfolios,
should give you some insight into the markets over the past
twelve months and how conditions affected the performance of
your underlying investments.
ECONOMIC OVERVIEW
1997 was another extremely strong year for U.S. markets. U.S.
stocks outperformed U.S. bonds and both asset classes
outperformed international stocks. The U.S. large-cap stock
market, as measured by the S&P 500 Index, rose 33.4% in 1997.
Small cap stocks, as represented by the Russell 2000 Index, were
strong as well, albeit lagging their larger cap brethren, with a
return of 22.4%. International equity returns were weak,
returning 2.0% as measured by the Morgan Stanley All Country
Free (ex-U.S.) Index. On the fixed-income side, U.S. bonds were
also strong, as interest rates twelve months and longer fell
during the year. The bell-weather Lehman Aggregate Index
returned 9.7%, and the Lehman High Yield Index returned 12.8%.
Global bonds, as represented by the Salomon Brothers World
Government Bond Hedged Index returned 10.6% for the year.
THREE YEARS OF 20+% RETURNS
Market historians will remember the three-year stretch from
1995 to 1997 as a period of almost uninterrupted appreciation in
U.S. stock prices -- an unprecedented three straight years of
20+% returns. As always, it is impossible to predict the next
turn of events in the stock markets. However, the information
listed below helps set the stage for the economic conditions and
countervailing forces at work around the world.
WHAT'S NEXT?
The U.S. economy provided real gross domestic product growth
of 3.7% in 1997. The economy was fueled in part by low interest
rates and contained inflation (2.3% CPI) during the year. Going
forward, economic and financial turmoil in Asia have caused us
to lower growth expectations for the U.S. economy in 1998. Real
Gross Domestic Product (GDP) is now estimated to grow 2.3% on
average in the year ahead. Sharply reduced exports to Asia are
expected. In addition, the rising U.S. dollar exchange rate will
allow lower prices for imported products, bringing market share
loss to import-competing industries. The trade deficit therefore
is likely to deteriorate substantially as a result of these
cross currents. However, an extremely competitive pricing
environment will likely produce declines in inflation,
benefiting consumers. Slower global growth, a strong U.S.
dollar, intense pricing pressure and some inevitable upward
movement in wage rates will make it a more difficult year for
corporate profits in 1998. We estimate S&P 500 operating
earnings to grow 2.0% in 1998. This represents a substantial
deceleration from an expected 11% rise in 1997. This earnings
estimate is substantially below consensus view, but one that we
hold with conviction. As a result, during the first part of 1998
we should expect a steady stream of earnings estimate reductions
by analysts. Two powerful countervailing forces are at work in
the U.S. stock market: Valuations are historically high and the
profit outlook has deteriorated. However, lower
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1
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long-term interest rates and stable-to-declining short-term
rates will continue to provide some positive support to stocks
in 1998.
WILL INTEREST RATES CONTINUE TO SUPPORT STOCK AND BOND
MARKETS?
We believe the Federal Reserve will remain on the sidelines
through much of 1998. Slower U.S. economic growth, a strong U.S.
dollar and falling inflation rates will likely eliminate the
need for (and speculation about) Fed tightening. As a
consequence of the economic landscape that we expect to unfold,
the next Fed move will be to lower short-term interest rates
rather than raise them. However, we would stress that the Fed
will be a reluctant participant in any easing of monetary
conditions due to tight U.S. labor markets -- so such a move
will come later, rather than sooner.
HOW FAR WILL THE ASIAN CONTAGION SPREAD?
During the second half of 1997, international equity markets
were characterized by extreme volatility. Turmoil in Asia was
the major cause of this market volatility. The hardest hit were
the emerging markets of Asia, with South Korea, Malaysia,
Indonesia and Thailand falling between 67% and 77% in U.S.
dollar terms for the year, as measured by the Morgan Stanley
Index returns for these countries. Japan experienced market
declines as well, falling 23.5% in U.S. dollar terms for the
year as represented by the Morgan Stanley Index. Europe and
Latin America were among the strongest geographic regions
outside the U.S. in terms of equity returns in 1997, returning
24.8% and 31.6% respectively. Among the major economies, Europe
will be less affected by Asia's turmoil. Early in May, the
entrants to European Monetary Union (EMU) will be named. We
expect 11 of the 15 European Union members to join. Short-term
interest rate convergence will require big declines in Italian
and Spanish rates but small rises in German and French rates.
Continental Europe's export and investment-led growth should
trim unemployment. As 1998 unfolds, budget cutting drives should
moderate. Low inflation should prevail. In 1998, our forecast of
Europe's 2.7% real GDP growth will outpace the U.S. economic
growth rate for the first time in several years. Continental
Europe is the only major region which we believe will grow
faster in 1998 than in 1997.
ANCHOR SERIES TRUST PORTFOLIOS
Within this context, the twelve Anchor Series Trust Portfolios
provided investors with the following returns.
20+% ABSOLUTE RETURNS AND RELATIVE OUTPERFORMANCE
The Growth, Growth and Income, Capital Appreciation and
Multi-Asset Portfolios all outperformed their respective
competitive groups in 1997 and provided 20+% returns for the
year. The Growth Portfolio returned 30.4%, some 500 basis points
(5.0%) ahead of its respective Lipper competitive group of
similar variable annuity underlying funds, while lagging the
large cap S&P 500 Index for the year. The Growth and Income
Portfolio returned 28.8%, 160 basis points ahead of the Lipper
Variable Annuity Underlying Fund Growth and Income average. The
Capital Appreciation Portfolio returned 25.4% in 1997, a 400
basis point premium to its competitive group and 300 basis
points ahead of the Russell 2000 Small Cap Index. Finally, even
the high quality, U.S. balanced-oriented
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Multi-Asset Portfolio surpassed the 20% return hurdle for 1997,
returning 21.1% for the year -- a solid premium to the 18.9%
return of its Lipper competitive group average.
DOUBLE DIGIT (AND HIGH SINGLE DIGIT), CONSISTENT ASSET
CLASS RETURNS
The more aggressive, global balanced-oriented Strategic
Multi-Asset Portfolio returned 14.3% in 1997, a 270 basis point
premium over its Lipper competitive group average of 11.6%. The
High Yield Portfolio returned 11.4% for 1997, a slight
underperformance to the Lehman High Yield Index which before
expenses returned 12.8%, and a more significant shortfall to its
competitive group which returned 13.4%. The Government and
Quality Bond Portfolio returned 9.5%, a solid premium over the
Lipper competitive group average of 8.8% and in line with the
Lehman bond indices. The Fixed Income Portfolio returned 9.4%
for the year, also in line with the Lehman bond indices.
SHORT-TERM INVESTMENTS
Both the Target '98 and Money Market Portfolios slightly
exceed a 5% return for the year (5.17% and 5.07% respectively).
The Target '98 Portfolio is due to terminate on November 15,
1998 and shareholders have received separate communications
regarding this event.
TWO PORTFOLIOS IN TRANSITION
On an absolute and relative basis, two portfolios provided
disappointing returns to investors in 1997. The Foreign
Securities Portfolio returned -1.0% within a market environment
which provided a 2.0% return, as measured by the Morgan Stanley
All Country Free (ex U.S.) Index, and a Lipper competitive group
which returned 5.2%. The two major causes of this shortfall were
(1) the portfolio's exposure to Japan and Southeast Asian
securities, and (2) a slight mid cap bias during a period when
large cap stocks were favored. Wellington Management has
addressed these issues, both in terms of portfolio management
resources and the portfolio's investment strategy going forward.
The Natural Resources Portfolio was slightly behind its Lipper
competitive group with a 60 basis point underperformance. The
absolute returns, however, were disappointing with a -8.6%
return for the year. The negative returns in this portfolio were
a function of the price of the underlying commodities (gold,
oil, base metals such as copper and aluminum) collapsing.
Investors should not lose sight of the fact that even with
1997's disappointing returns, this portfolio has provided
investors an 11% return annually over the past five years.
Importantly, we strongly believe that these commodity price
levels are unsustainable over the next several years, and for
investors with long-term investment horizons, this is a buying
opportunity.
1998 OUTLOOK
During the latter part of 1997, the Southeast Asian currency
crisis became an East Asian economic crisis with global impact.
As a result, in the rest of the world, slower growth, lower
inflation and lower profits are likely to prevail. In Asia, the
countries in crisis will have little growth, or even shrinkages,
and higher inflation. Against this background, we expect
structural reforms to unfold there. We see privatizations of
state-owned firms and de-regulation, which ultimately
strengthens economies. In the U.S., we expect stable to
declining interest rates and low inflation to provide some
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balance to concerns over lower corporate profit growth, a strong
U.S. dollar and increased price competition. As mentioned
before, continental Europe is the one geographic region where we
anticipate 1998 economic growth to surpass 1997 economic growth.
Now, more than ever, long-term investors should look closely at
the allocation of their assets among the major asset classes to
determine if they are meeting their long-term investment plan,
and periodically meet with their financial representative.
Although many of the major financial markets experienced
another positive year in 1997, we are optimistic about the
prospects for further positive returns in 1998. While future
results may be less robust, and uncertain, the expectation is
for many interesting investment opportunities to be uncovered in
the various markets represented within the Anchor Series Trust
Portfolios through fundamental, proprietary research. We remain
committed to helping you achieve your long-term goals by
striving to uncover promising investment opportunities as they
arise.
That concludes the overview from Wellington Management
Company, LLP. We look forward to reporting to you once again in
six month's time and appreciate the confidence you place in us
with your investment assets.
Sincerely,
/s/ ELI BROAD
-------------------------------
Eli Broad
Chairman and Chief Executive Officer,
Anchor National Life Insurance Company
First SunAmerica Life Insurance Company
February 23, 1998
-------------------------------
Note: All performance figures quoted are for the Anchor Series
Trust. They do not reflect fees and charges associated with the
variable annuity. Past performance is no guarantee of future
results.
Investments in stocks and bonds are subject to risk, including
stock market and interest rate fluctuations. Investments in
non-U.S. stocks and bonds are subject to additional risks,
including fluctuations, political and social instability,
differing securities regulations and accounting standards and
limited public information. High-yield bonds tend to be subject
to greater price swings than higher-rated bonds and, of course,
payment of interest and principal is not assured. Mortgage-
backed securities are subject to prepayment, which can result in
reinvestment of principal at lower yields. Investments in
securities related to gold or other precious metals and minerals
are considered speculative and are impacted by a host of
worldwide economic, financial and political factors. Money
market instruments generally offer stability and income, but an
investment in these securities is not guaranteed by the U.S.
government or any other entity. There can be no assurance that
the Money Market Portfolio will be able to maintain a stable net
asset value of $1.00 per share.
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ANCHOR SERIES TRUST
MONEY MARKET PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM SECURITIES -- 100.5% AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
BANK NOTES -- 14.3%
Bank of Nova Scotia 5.83% due 10/02/98................................ $ 2,000,000 $ 1,997,512
Bankers Trust Co. 6.01% due 12/10/98.................................. 2,000,000 2,000,180
Chase Manhattan Bank 5.75% due 2/11/98................................ 2,000,000 2,000,000
International Nederlanden Bank 5.84% due 3/09/98...................... 2,000,000 2,000,073
Regions Bank 5.82% due 4/17/98........................................ 2,000,000 2,000,102
-----------
TOTAL BANK NOTES (cost $9,997,867).................................... 9,997,867
-----------
COMMERCIAL PAPER -- 63.9%
American General Finance Corp. 5.60% due 2/25/98...................... 2,000,000 1,982,889
Archer Daniels Midland Co. 5.69% due 2/26/98.......................... 2,300,000 2,279,643
Associates Corp. of North America 5.58% due 2/24/98................... 2,000,000 1,983,260
BCI Funding Corp. 5.73% due 2/25/98................................... 2,300,000 2,279,865
Beneficial Corp. 5.58% due 2/24/98.................................... 2,000,000 1,983,260
Chevron Transport Corp. 5.70% due 2/13/98............................. 2,500,000 2,482,979
Eureka Securitization Inc. 5.75% due 3/10/98.......................... 2,000,000 1,978,278
FINA Oil & Chemical Co. 5.75% due 3/26/98............................. 2,500,000 2,466,458
Ford Motor Credit Europe PLC 5.68% due 2/26/98........................ 2,500,000 2,477,911
General Motors Acceptance Corp. 5.71% due 2/25/98..................... 2,500,000 2,478,191
Government Development Bank for Puerto Rico 5.70% due 2/09/98......... 2,000,000 1,987,650
Montana Blanc Capital Corp. 5.85% due 2/25/98......................... 2,500,000 2,477,656
Morgan (J.P.) & Co., Inc. 5.70% due 4/15/98........................... 2,500,000 2,458,833
Morgan Stanley Group, Inc. 5.78% due 2/17/98.......................... 2,500,000 2,481,135
Nationsbank Corp. 5.67% due 3/20/98................................... 2,500,000 2,469,288
New York Life Capital Corp. 5.68% due 2/27/98......................... 1,300,000 1,288,309
Prudential Funding Corp. 5.55% due 1/20/98............................ 2,000,000 1,994,142
Sears Roebuck Acceptance Corp. 5.62% due 2/25/98...................... 2,400,000 2,379,393
Svenska Handelsbanken 5.54% due 1/12/98............................... 2,200,000 2,196,276
Texaco, Inc. 5.75% due 3/13/98........................................ 2,500,000 2,471,649
-----------
TOTAL COMMERCIAL PAPER (cost $44,597,065)............................. 44,597,065
-----------
CORPORATE SHORT-TERM NOTES -- 7.2%
Bank of America National Association 5.65% due 1/16/98(1)............. 3,000,000 2,999,582
Peoples Security Life Insurance Co. 5.88% due 2/01/98(1).............. 2,000,000 2,000,000
-----------
TOTAL CORPORATE SHORT-TERM NOTES (cost $4,999,582).................... 4,999,582
-----------
U.S. GOVERNMENT & AGENCIES -- 14.3%
Student Loan Marketing Association 5.62% due 1/20/98(1)
(cost $10,000,000).................................................. 10,000,000 10,000,000
-----------
TOTAL SHORT-TERM SECURITIES (cost $69,594,514)........................ 69,594,514
-----------
</TABLE>
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<TABLE>
<CAPTION>
PRINCIPAL
REPURCHASE AGREEMENT -- 0.8% AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Joint Repurchase Agreement Account (Note 3)
(cost $540,000)..................................................... $ 540,000 $ 540,000
-----------
TOTAL INVESTMENTS -- (cost $70,134,514) 100.5% 70,134,514
Liabilities in excess of other assets -- (0.5) (330,333)
------ -----------
NET ASSETS -- 100.0% $69,804,181
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</TABLE>
-----------------------------
(1) Variable rate security -- the rate reflected is as of December
31, 1997; maturity date reflects next reset date
See Notes to Financial Statements
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ANCHOR SERIES TRUST
FIXED INCOME PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES -- 98.2% AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE & MILITARY TECHNOLOGY -- 0.3%
Argo-Tech Corp. 8.63% 2007*............................................ $ 30,000 $ 29,925
K & F Industries, Inc. 9.25% 2007*..................................... 5,000 5,125
Moog, Inc., Class B 10.00% 2006........................................ 25,000 27,500
------------
62,550
------------
AUTOMOTIVE -- 0.4%
Hayes Wheels International, Inc. 11.00% 2006........................... 25,000 27,875
Johnstown America Industries, Inc. 11.75% 2005......................... 30,000 32,925
Key Plastics, Inc., Class B 10.25% 2007................................ 15,000 15,900
------------
76,700
------------
CABLE -- 1.2%
Lenfest Communications, Inc. 8.38% 2005................................ 25,000 25,688
Rifkin Acquisitions Partners L.P. 11.13% 2006.......................... 25,000 27,437
Tele-Communications, Inc. 9.25% 2002................................... 150,000 164,650
------------
217,775
------------
CHEMICALS -- 0.4%
Huntsman Corp. 9.50% 2007*............................................. 15,000 15,750
Pioneer Americas Acquisition Corp., Class B 9.25% 2007................. 20,000 20,000
Sovereign Specialty Chemicals, Inc. 9.50% 2007*........................ 5,000 5,138
Texas Petrochemicals Corp. 11.13% 2006................................. 25,000 27,000
------------
67,888
------------
COMMUNICATIONS & MEDIA -- 3.1%
Benedek Communications Corp. zero coupon 2006 (1)...................... 35,000 26,250
Chancellor Radio Broadcasting Co. 8.13% 2007*.......................... 25,000 24,500
EchoStar DBS Corp. 12.50% 2002......................................... 25,000 27,312
Granite Broadcasting Corp. 10.38% 2005................................. 25,000 26,188
Jacor Communications Co. 8.75% 2007.................................... 10,000 10,250
MobileMedia Corp. 9.38% 2007+(3)....................................... 50,000 5,750
News America Holdings, Inc. 9.25% 2013................................. 300,000 357,327
Nextel Communications, Inc. zero coupon 2007*(1)....................... 60,000 36,825
Plitt Theaters, Inc. 10.88% 2004....................................... 15,000 16,219
Sullivan Graphics, Inc. 12.75% 2005.................................... 20,000 20,200
Young Broadcasting, Inc. 9.00% 2006.................................... 25,000 25,000
------------
575,821
------------
CONSUMER DISCRETIONARY -- 2.0%
Collins & Aikman Corp. 11.50% 2006..................................... 25,000 28,094
Ford Motor Co. 9.00% 2001.............................................. 250,000 272,293
LDM Technologies, Inc., Class B 10.75% 2007............................ 20,000 21,700
Pillowtex Corp. 9.00% 2007*............................................ 5,000 5,106
Standard Pacific Corp. 8.50% 2007...................................... 15,000 14,981
Walbro Corp. 9.88% 2005*............................................... 20,000 20,300
------------
362,474
------------
CONSUMER STAPLES -- 0.2%
Revlon Worldwide Parent Ciro, Class B zero coupon 2001................. 40,000 27,900
------------
</TABLE>
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<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (continued) AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
ENERGY -- 1.9%
Cross Timbers Oil Co., Class B 9.25% 2007.............................. $ 30,000 $ 31,200
Energy Corp. America, Class A 9.50% 2007............................... 20,000 20,000
Newfield Exploration Co. 7.45% 2007*................................... 35,000 35,514
Petroleos Mexicanos 8.85% 2007......................................... 40,000 39,627
Plains Resources, Inc., Class B 10.25% 2006............................ 50,000 53,875
YPF Sociedad Anonima 8.00% 2004........................................ 160,000 165,227
------------
345,443
------------
FINANCE -- 20.0%
Abbey National First Capital 8.20% 2004................................ 250,000 273,482
Amerus Capital I 8.85% 2027............................................ 150,000 159,921
Banponce Financial Corp. 6.75% 2001.................................... 300,000 302,901
Credit National 7.00% 2005............................................. 190,000 189,525
Dime Capital Trust I, Series A 9.33% 2027.............................. 150,000 169,674
Export-Import Bank Korea 6.38% 2006.................................... 250,000 178,390
Japan Finance Corp. Municipal Enterprises 9.13% 2000................... 400,000 430,084
KFW International Finance, Inc. 9.13% 2001............................. 400,000 436,032
Ohio National Life Insurance Co. 8.50% 2026*........................... 200,000 223,548
Pindo Deli Finance Mauritius Ltd. 10.75% 2007*......................... 10,000 8,575
Security Benefit Life Co. 8.75% 2016*.................................. 200,000 224,572
Sun Canada Financial Co. 7.25% 2015*................................... 300,000 315,255
Tembec Finance Corp. 9.88% 2005........................................ 30,000 30,600
United States Bancorp Oregon 7.50% 2026................................ 400,000 432,440
US West Capital Funding, Inc. 6.95% 2037............................... 250,000 257,518
Western Financial Savings Bank 8.88% 2007.............................. 25,000 24,125
------------
3,656,642
------------
FOOD & LODGING -- 0.1%
Del Monte Foods Co. zero coupon 2007*(1)............................... 25,000 14,406
------------
GAMING -- 0.4%
Argosy Gaming Co. 13.25% 2004.......................................... 20,000 20,900
Hollywood Casino, Inc. 12.75% 2003..................................... 25,000 26,812
Riviera Holdings Corp. 10.00% 2004*.................................... 25,000 24,813
------------
72,525
------------
HEALTHCARE -- 3.1%
Allegiance Corp. 7.00% 2026............................................ 350,000 361,287
Owens & Minor, Inc. 10.88% 2006........................................ 50,000 55,500
Tenet Healthcare Corp. 7.88% 2003...................................... 120,000 121,500
Vencor, Inc. 8.63% 2007................................................ 30,000 29,925
------------
568,212
------------
INDUSTRIAL & COMMERCIAL -- 6.2%
Cincinnati Milacron, Inc. 7.88% 2000................................... 150,000 153,570
Clark Schwebel, Inc. 10.50% 2006....................................... 10,000 10,863
Columbia University Trustees 8.62% 2001................................ 500,000 537,020
Comcast Cable Communications 8.50% 2027................................ 150,000 176,229
Elgin National Industries, Inc. 11.00% 2007*........................... 20,000 20,700
International Wire Group, Inc., Class B 11.75% 2005.................... 15,000 16,387
Neenah Corp., Class B 11.13% 2007...................................... 10,000 10,975
Park Ohio Industries, Inc. 9.25% 2007*................................. 20,000 20,300
Petroliam Nasional Bhd 7.13% 2005*..................................... 200,000 190,760
Scotsman Group, Inc. 8.63% 2007........................................ 5,000 5,019
------------
1,141,823
------------
</TABLE>
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<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (continued) AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
INFORMATION TECHNOLOGY -- 0.4%
Advanced Micro Devices, Inc. 11.00% 2003............................... $ 25,000 $ 26,750
Concentric Network Corp. Delaware 12.75% 2007*......................... 5,000 5,137
Decision Holdings Corp. zero coupon 2008(1)............................ 10,000 6,500
Fairchild Semiconductor Corp. 10.13% 2007.............................. 25,000 26,250
Iron Mountain, Inc. 8.75% 2009*........................................ 10,000 10,250
------------
74,887
------------
METALS & MINERALS -- 0.3%
A.K. Steel Corp. 9.13% 2006............................................ 15,000 15,338
Acindar Industria Argentina de Aceros SA 11.25% 2004................... 10,000 9,825
Hylsa SA de CV 9.25% 2007*............................................. 25,000 24,937
------------
50,100
------------
NON-U.S. GOVERNMENT OBLIGATIONS -- 2.7%
Republic of Argentina 11.00% 2006...................................... 230,000 247,250
Republic of Columbia 7.25% 2004........................................ 180,000 171,450
Republic of Lithuania 7.13% 2002*(2)................................... 70,000 66,325
------------
485,025
------------
PAPER PRODUCTS -- 0.3%
Grupo International Durango SA de CV 12.63% 2003....................... 25,000 27,938
Repap New Brunswick, Inc. 10.63% 2005.................................. 25,000 23,750
Silgan Holdings Corp. 9.00% 2009....................................... 10,000 10,225
------------
61,913
------------
RETAIL -- 1.3%
Guitar Center Management Co., Inc. 11.00% 2006......................... 17,000 18,721
J Crew Group, Inc. zero coupon 2008*(1)................................ 15,000 7,013
Penney (J.C.) Co., Inc. 7.40% 2037..................................... 200,000 219,110
------------
244,844
------------
TELECOMMUNICATIONS -- 1.1%
Clearnet Communications, Inc. zero coupon 2005(1)...................... 25,000 19,844
Esprit Telecommunications Group PLC 11.50% 2007........................ 5,000 5,138
GCI, Inc. 9.75% 2007................................................... 25,000 25,937
Globalstar L.P. 10.75% 2004*........................................... 35,000 34,300
GST Telecommunications, Inc. 12.75% 2007............................... 20,000 20,800
Intermedia Communications, Inc. 8.88% 2007*............................ 25,000 25,687
Iridium Capital Corp., Class C 11.25% 2005*............................ 35,000 34,475
Teleport Communications Group zero coupon 2007(1)...................... 40,000 32,600
------------
198,781
------------
U.S. GOVERNMENT & AGENCIES -- 46.8%
Federal Home Loan Mortgage Corp. 6.00% 2003............................ 480,173 475,362
Federal Home Loan Participation 11.00% 2000............................ 5,286 5,650
Government National Mortgage Association 7.00% 2012 - 2023............. 971,616 986,128
Government National Mortgage Association 7.50% 2022 - 2023............. 759,048 779,845
Government National Mortgage Association 10.00% 2000................... 18,571 19,116
Government National Mortgage Association 11.25% 1998................... 1,400 1,418
Government National Mortgage Association 13.25% 1999................... 1,053 1,112
United States Treasury Bonds 10.75% 2003............................... 520,000 633,589
United States Treasury Bonds 11.88% 2003............................... 980,000 1,274,764
United States Treasury Bonds 12.00% 2013............................... 2,985,000 4,398,218
------------
8,575,202
------------
</TABLE>
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<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (continued) AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES -- 6.0%
Cleveland Electric Illuminating Co. 7.19% 2000......................... $ 160,000 $ 162,370
Niagara Mohawk Power Corp. 5.88% 2002.................................. 750,000 735,820
WorldCom, Inc. 7.55% 2004.............................................. 200,000 209,438
------------
1,107,628
------------
TOTAL BONDS & NOTES (cost $17,652,621)................................. 17,988,539
------------
PREFERRED STOCK -- 0.2% SHARES
----------------------------------------------------------------------------------------------------
INDUSTRIAL & COMMERCIAL -- 0.2%
Fairfield Manufacturing, Inc. 11.25%(2)(4)
(cost $25,875)....................................................... 25 26,750
------------
TOTAL INVESTMENTS -- (cost $17,678,496) 98.4% 18,015,289
Other assets less liabilities -- 1.6 299,933
------ ------------
NET ASSETS -- 100.0% $18,315,222
====== =============
</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) PIK ("Payment-in-Kind") payment made with additional
securities in lieu of cash
See Notes to Financial Statements
- ---------------------
10
<PAGE> 12
- ---------------------
ANCHOR SERIES TRUST
GOVERNMENT & QUALITY BOND
PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES -- 94.9% AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCE -- 13.7%
Asset Securitization Corp. 7.49% 2027................................ $ 5,000,000 $ 5,346,094
CS First Boston Corp. 7.24% 2029(1).................................. 5,000,000 5,235,156
General Electric Capital Corp. 7.50% 2035............................ 5,000,000 5,579,400
General Reinsurance Corp. 9.00% 2009................................. 5,000,000 5,991,500
Morgan (J.P.) & Co., Inc. 6.25% 2005................................. 5,000,000 4,931,900
Stanford University 6.88% 2024....................................... 5,000,000 5,001,050
-------------
32,085,100
-------------
INDUSTRIAL & COMMERCIAL -- 2.5%
Postal Square L.P. 8.95% 2022........................................ 4,758,950 5,867,690
-------------
INFORMATION & ENTERTAINMENT -- 1.9%
McDonald's Corp. 7.05% 2025.......................................... 4,370,000 4,506,314
-------------
NON-U.S. GOVERNMENT OBLIGATIONS -- 1.3%
British Columbia Province Canada 6.50% 2026.......................... 3,125,000 3,134,531
-------------
RETAIL -- 2.2%
Wal-Mart Stores, Inc. 6.75% 2023..................................... 5,000,000 5,050,650
-------------
TRANSPORTATION -- 2.6%
United Parcel Service of America, Inc. 8.38% 2020.................... 5,000,000 6,076,050
-------------
U.S. GOVERNMENT & AGENCIES -- 68.2%
Federal Home Loan Mortgage Corp. 6.00% 2008 - 2011................... 8,365,946 8,280,370
Federal Home Loan Mortgage Corp. 6.50% 2011.......................... 12,228,154 12,300,667
Federal Home Loan Mortgage Corp. 7.00% 2010 - 2011................... 16,704,635 17,010,134
Federal Home Loan Mortgage Corp. 14.75% 2010......................... 127,845 154,053
Federal National Mortgage Association 7.00% 2010 - 2011.............. 5,836,296 5,934,145
Government National Mortgage Association 6.50% 2023.................. 7,854,860 7,773,798
Government National Mortgage Association 7.00% 2009 - 2012........... 9,188,441 9,372,125
Government National Mortgage Association 10.00% 2013 - 2017.......... 2,085,713 2,300,425
Government National Mortgage Association 11.50% 2014................. 17,233 19,694
Government National Mortgage Association 12.00% 1999 - 2016.......... 80,574 86,658
Government National Mortgage Association 12.75% 2014................. 78,711 90,148
Government National Mortgage Association 13.25% 1999 - 2014.......... 19,440 22,121
Government National Mortgage Association 13.50% 2014................. 8,360 10,089
Government National Mortgage Association 13.75% 2014................. 1,407 1,611
United States Treasury Bonds 7.63% 2022.............................. 30,000,000 36,121,800
United States Treasury Notes 5.88% 1998.............................. 31,000,000 31,038,750
United States Treasury Notes 6.25% 2002.............................. 29,000,000 29,575,360
-------------
160,091,948
-------------
</TABLE>
---------------------
11
<PAGE> 13
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (continued) AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES -- 2.5%
Hydro Quebec Electric 8.40% 2022..................................... $ 5,000,000 $ 5,889,600
-------------
TOTAL INVESTMENT SECURITIES (cost $216,829,085)...................... 222,701,883
-------------
<CAPTION>
REPURCHASE AGREEMENT -- 4.2%
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Joint Repurchase Agreement Account (Note 3) (cost $9,760,000)........ 9,760,000 9,760,000
-------------
TOTAL INVESTMENTS -- (cost $226,589,085) 99.1% 232,461,883
Other assets less liabilities -- 0.9 2,161,064
------ -------------
NET ASSETS -- 100.0% $234,622,947
====== =============
</TABLE>
-----------------------------
(1) Fair valued security; see Note 2
See Notes to Financial Statements
- ---------------------
12
<PAGE> 14
- ---------------------
ANCHOR SERIES TRUST
HIGH YIELD PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES -- 91.8% AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE & MILITARY TECHNOLOGY -- 3.4%
Argo-Tech Corp. 8.63% 2007*............................................ $ 500,000 $ 498,750
K & F Industries, Inc. 9.25% 2007*..................................... 150,000 153,750
Moog, Inc., Class B 10.00% 2006........................................ 655,000 720,500
------------
1,373,000
------------
AUTOMOTIVE -- 4.0%
Federal Mogul Corp. 8.80% 2007......................................... 250,000 267,388
Hayes Wheels International, Inc. 11.00% 2006........................... 135,000 150,525
Johnstown America Industries, Inc. 11.75% 2005......................... 500,000 548,750
Key Plastics, Inc., Class B 10.25% 2007................................ 350,000 371,000
Lear Corp. 9.50% 2006.................................................. 250,000 275,000
------------
1,612,663
------------
CABLE -- 3.1%
Cablevision Systems Corp. 8.13% 2009................................... 150,000 154,500
Cablevision Systems Corp. 9.25% 2005................................... 350,000 371,000
Frontiervision Holding L.P. zero coupon 2007(1)........................ 270,000 199,800
Marcus Cable Operating Co. L.P. zero coupon 2004(1).................... 150,000 138,750
Rifkin Acquisitions Partners L.P. 11.13% 2006.......................... 350,000 384,125
------------
1,248,175
------------
CHEMICALS -- 5.7%
Acetex Corp. 9.75% 2003................................................ 350,000 362,250
Agriculture Minerals & Chemicals 10.75% 2003........................... 150,000 161,625
Buckeye Cellulose Corp. 8.50% 2005..................................... 250,000 255,625
Huntsman Corp. 9.50% 2007*............................................. 150,000 157,500
Huntsman Polymers Corp. 11.75% 2004.................................... 250,000 280,313
PCI Chemical Canada, Inc. 9.25% 2007*.................................. 60,000 59,925
Pioneer Americas Acquisition Corp., Class B 9.25% 2007................. 250,000 250,000
Sovereign Specialty Chemicals, Inc. 9.50% 2007*........................ 495,000 508,612
Texas Petrochemicals Corp. 11.13% 2006................................. 250,000 270,000
------------
2,305,850
------------
COMMUNICATIONS & MEDIA -- 7.0%
Big Flower Press Holdings 8.88% 2007................................... 125,000 124,375
Big Flower Press Holdings 8.88% 2007*.................................. 225,000 226,688
Chancellor Media Corp. 9.38% 2004...................................... 250,000 260,000
Chancellor Radio Broadcasting Co. 8.13% 2007*.......................... 250,000 245,000
EchoStar DBS Corp. 12.50% 2002......................................... 325,000 355,062
Granite Broadcasting Corp. 10.38% 2005................................. 250,000 261,875
Jacor Communications Co. 9.75% 2006.................................... 250,000 268,750
MobileMedia Corp. 9.38% 2007+(3)....................................... 500,000 57,500
Plitt Theaters, Inc. 10.88% 2004....................................... 195,000 210,844
Sullivan Graphics, Inc. 12.75% 2005.................................... 100,000 101,000
World Color Press, Inc. 9.13% 2003..................................... 250,000 260,625
Young Broadcasting, Inc. 11.75% 2004................................... 400,000 445,000
------------
2,816,719
------------
CONSUMER DISCRETIONARY -- 2.5%
Collins & Aikman Corp. 11.50% 2006..................................... 250,000 280,937
LDM Technologies, Inc., Class B 10.75% 2007............................ 250,000 271,250
</TABLE>
---------------------
13
<PAGE> 15
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (continued) AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER DISCRETIONARY (continued)
Polysindo International Financing Co. BV 11.38% 2006................... $ 250,000 $ 202,500
Standard Pacific Corp. 8.50% 2007...................................... 230,000 229,713
------------
984,400
------------
ENERGY -- 4.8%
Cross Timbers Oil Co., Class B 8.75% 2009*............................. 90,000 91,575
Cross Timbers Oil Co., Class B 9.25% 2007.............................. 250,000 260,000
Flores & Rucks, Inc. 9.75% 2006........................................ 150,000 164,625
Petroleos Mexicanos 8.85% 2007......................................... 750,000 743,010
Plains Resources, Inc., Class B 10.25% 2006............................ 500,000 538,750
Pride Petroleum Services, Inc. 9.38% 2007.............................. 120,000 129,000
------------
1,926,960
------------
FINANCE -- 6.5%
Hawthorne Financial Corp. 12.50% 2004*(2).............................. 350,000 350,000
Olympic Financial Ltd. 11.50% 2007..................................... 350,000 353,500
Pindo Deli Finance Mauritius Ltd. 10.75% 2007*......................... 355,000 304,412
Resource America, Inc. 12.00% 2004*.................................... 500,000 511,250
Southern Pacific Funding Corp. 11.50% 2004............................. 350,000 348,250
Tembec Finance Corp. 9.88% 2005........................................ 250,000 255,000
Western Financial Savings Bank 8.88% 2007.............................. 500,000 482,500
------------
2,604,912
------------
FOOD & LODGING -- 2.7%
Aurora Foods, Inc. 9.88% 2007.......................................... 65,000 68,413
Capstar Hotel Co. 8.75% 2007........................................... 250,000 257,500
Del Monte Foods Co. zero coupon 2007*(1)............................... 460,000 265,075
John Q. Hammons Hotels 8.88% 2004...................................... 500,000 511,250
------------
1,102,238
------------
GAMING -- 3.2%
Argosy Gaming Co. 13.25% 2004.......................................... 260,000 271,700
Fitzgeralds Gaming Corp. 12.25% 2004*.................................. 165,000 166,238
GB Property Funding Corp. 10.88% 2004.................................. 250,000 210,000
Hollywood Casino, Inc. 12.75% 2003..................................... 350,000 375,375
Lady Luck Gaming Finance Corp. 11.88% 2001............................. 250,000 253,750
------------
1,277,063
------------
GROCERY -- 1.1%
Homeland Stores, Inc. 10.00% 2003...................................... 500,000 450,625
------------
HEALTHCARE -- 3.1%
Dade International, Inc. 11.13% 2006................................... 190,000 211,375
Leiner Health Products Group. 9.63% 2007............................... 350,000 374,500
Owens & Minor, Inc. 10.88% 2006........................................ 350,000 388,500
Vencor, Inc. 8.63% 2007................................................ 260,000 259,350
------------
1,233,725
------------
INDUSTRIAL & COMMERCIAL -- 9.6%
Cabot Safety Acquisition Corp. 12.50% 2005............................. 350,000 393,750
Clark Schwebel, Inc. 10.50% 2006....................................... 325,000 353,031
Globo Comunicacoes SA 10.50% 2006*..................................... 250,000 237,500
Graphic Controls Corp., Class A 12.00% 2005............................ 225,000 251,156
Great Lakes Carbon Corp. 10.00% 2006................................... 500,000 537,500
International Wire Group, Inc., Class B 11.75% 2005.................... 455,000 497,088
Neenah Corp., Class B 11.13% 2007...................................... 350,000 384,125
Pierce Leahy Corp. 9.13% 2007.......................................... 125,000 130,000
Scotsman Group, Inc. 8.63% 2007........................................ 175,000 175,656
Specialty Equipment Cos., Inc. 11.38% 2003............................. 250,000 270,625
TV Azteca SA de CV, Class B 10.50% 2007................................ 250,000 260,000
</TABLE>
- ---------------------
14
<PAGE> 16
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (continued) AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL & COMMERCIAL (continued)
UCAR Global Enterprises, Inc. 12.00% 2005.............................. $ 100,000 $ 112,000
Unicco Service Co. 9.88% 2007*......................................... 250,000 250,313
------------
3,852,744
------------
INFORMATION TECHNOLOGY -- 3.6%
Advanced Micro Devices, Inc. 11.00% 2003............................... 250,000 267,500
Concentric Network Corp. Delaware 12.75% 2007*......................... 130,000 133,575
Decision Holdings Corp. zero coupon 2008(1)............................ 170,000 110,500
Fairchild Semiconductor Corp. 10.13% 2007.............................. 250,000 262,500
Iron Mountain, Inc. 8.75% 2009*........................................ 110,000 112,750
Unisys Corp., Class B 12.00% 2003...................................... 500,000 566,250
------------
1,453,075
------------
METALS & MINERALS -- 7.7%
A.K. Steel Corp. 9.13% 2006............................................ 250,000 255,625
A.K. Steel Corp. 10.75% 2004........................................... 150,000 159,750
Acindar Industria Argentina de Aceros SA 11.25% 2004................... 500,000 491,250
Amtrol, Inc. 10.63% 2006............................................... 250,000 257,500
Armco, Inc. 9.00% 2007................................................. 100,000 98,000
Bethlehem Steel Corp. 10.38% 2003...................................... 350,000 376,250
CSN Iron SA 9.13% 2007*................................................ 350,000 290,500
Nortek, Inc., Class B 9.25% 2007....................................... 240,000 244,800
NS Group, Inc. 13.50% 2003............................................. 300,000 348,000
Weirton Steel Corp. 10.88% 1999........................................ 300,000 308,250
Weirton Steel Corp. 11.38% 2004........................................ 250,000 260,000
------------
3,089,925
------------
NON-U.S. GOVERNMENT OBLIGATIONS -- 2.0%
Federal Republic of Brazil 4.50% 2014.................................. 256,559 201,318
Republic of Argentina 11.00% 2006...................................... 100,000 107,500
Republic of Argentina 11.38% 2017...................................... 250,000 274,062
Republic of Brazil 6.00% 2013.......................................... 250,000 199,463
------------
782,343
------------
PAPER PRODUCTS -- 11.6%
APP International Finance Co. 11.75% 2005.............................. 125,000 115,625
Aracruz Celulose SA 10.38% 2002........................................ 60,000 60,750
Aracruz Celulose SA 10.38% 2002*....................................... 255,000 258,187
BWay Corp. 10.25% 2007*................................................ 350,000 379,750
Calmar, Inc. Delaware, Class B 11.50% 2005............................. 350,000 371,000
Container Corp. of America 9.75% 2003.................................. 250,000 268,750
Container Corp. of America, Class A 11.25% 2004........................ 600,000 654,000
Fonda Group, Inc., Class B 9.50% 2007.................................. 250,000 235,000
Industrias Klabin de Papel e Celulose SA 11.00% 2004*.................. 250,000 237,500
Paperboard Industries International, Inc. 8.38% 2007*.................. 100,000 101,500
Repap New Brunswick, Inc. 10.63% 2005.................................. 350,000 332,500
S.D. Warren Co., Class B 12.00% 2004................................... 400,000 447,000
Silgan Holdings Corp. 9.00% 2009....................................... 750,000 766,875
Silgan Holdings Corp. 13.25% 2006...................................... 80,715 91,713
Zeta Consumer Products Corp. 11.25% 2007*.............................. 350,000 356,125
------------
4,676,275
------------
RETAIL -- 0.9%
Guitar Center Management Co., Inc. 11.00% 2006*........................ 333,000 366,716
------------
TELECOMMUNICATIONS -- 7.2%
American Communications Services zero coupon 2006(1)................... 190,000 146,300
Comcast Cellular Holdings, Inc., Class B 9.50% 2007.................... 50,000 52,000
Globalstar L.P. 10.75% 2004*........................................... 500,000 490,000
</TABLE>
---------------------
15
<PAGE> 17
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (continued) AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS (continued)
GST Telecommunications, Inc. 12.75% 2007............................... $ 165,000 $ 171,600
Hyperion Telecommunications, Inc., Class B 12.25% 2004................. 175,000 192,500
Intermedia Communications, Inc. 8.50% 2008*............................ 350,000 350,000
Intermedia Communications, Inc. 8.88% 2007*............................ 150,000 154,125
Iridium Capital Corp., Class C 11.25% 2005*............................ 350,000 344,750
McLeod, Inc. 9.25% 2007*............................................... 250,000 262,500
Microcell Telecommunications zero coupon 2007*(1)...................... CAD 220,000 85,441
Philippine Long District Telephone Co. Maine 7.85% 2007................ 250,000 217,450
Rogers Cantel, Inc. 8.30% 2007......................................... 150,000 148,875
Teleport Communications Group zero coupon 2007(1)...................... 350,000 285,250
------------
2,900,791
------------
UTILITIES -- 2.1%
Cemig 9.13% 2004*...................................................... 150,000 138,750
Korea Telecom 7.63% 2007............................................... 220,000 157,315
Texas-New Mexico Power Co. 10.75% 2003................................. 500,000 543,015
------------
839,080
------------
TOTAL BONDS & NOTES (cost $36,297,412)................................. 36,897,279
------------
PREFERRED STOCK -- 2.1% SHARES
----------------------------------------------------------------------------------------------------
COMMUNICATIONS & MEDIA -- 0.5%
Granite Broadcasting Corp. 12.75%(4)................................... 160 175,520
------------
FINANCE -- 0.7%
Superior National Insurance Group, Inc. 10.75%*(2)..................... 280 287,000
------------
INDUSTRIAL & COMMERCIAL -- 0.9%
Fairfield Manufacturing, Inc. 11.25% (2)(4)............................ 350 374,500
------------
TOTAL PREFERRED STOCK (cost $793,751).................................. 837,020
------------
WARRANTS -- 0.0%+
----------------------------------------------------------------------------------------------------
COMMUNICATIONS & MEDIA -- 0.0%
Benedek Communications Corp. 7/01/07*(2) (cost $13,800)................ 2,000 4,000
------------
TOTAL INVESTMENT SECURITIES (cost $37,104,963)......................... 37,738,299
------------
PRINCIPAL
REPURCHASE AGREEMENT -- 7.5% AMOUNT
----------------------------------------------------------------------------------------------------
Joint Repurchase Agreement Account (Note 3) (cost $3,010,000).......... $3,010,000 3,010,000
------------
TOTAL INVESTMENTS -- (cost $40,114,963) 101.4% 40,748,299
Liabilities in excess of other assets -- (1.4) (555,038)
------ ------------
NET ASSETS -- 100.0% $40,193,261
====== =============
</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) PIK ("Payment-in-kind") payment made with additional
securities in lieu of cash
- ---------------------
16
<PAGE> 18
OPEN FORWARD FOREIGN CURRENCY CONTRACTS
------------------------------------------------------------------
<TABLE>
<CAPTION>
CONTRACT IN DELIVERY GROSS UNREALIZED
TO DELIVER EXCHANGE FOR DATE APPRECIATION
--------------------------------------------------------------
<S> <C> <C> <C>
CAD 125,400 USD 91,034 10/16/98 $2,745
==============
</TABLE>
CAD -- Canadian Dollar
USD -- United States Dollar
See Notes to Financial Statements
---------------------
17
<PAGE> 19
- ---------------------
ANCHOR SERIES TRUST
TARGET '98 PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES -- 95.2% AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
SUPRANATIONALS -- 7.2%
International Bank For Reconstruction & Development zero coupon 1998.... $ 550,000 $ 537,490
-----------
U.S. GOVERNMENT & AGENCIES -- 83.9%
Federal Judiciary Office Building zero coupon 1998...................... 1,000,000 965,780
Federal National Mortgage Association zero coupon 1998.................. 1,000,000 965,740
Government Trust Certificates Series 3D zero coupon 1998................ 1,000,000 952,390
Government Trust Certificates Series T zero coupon 1998................. 2,300,000 2,190,497
Tennessee Valley Authority zero coupon 1998............................. 500,000 474,650
Treasury Investment Growth Receipts zero coupon 1998.................... 500,000 476,800
United States Treasury Note Strip Prior zero coupon 1998................ 200,000 190,636
-----------
6,216,493
-----------
UTILITIES -- 4.1%
Virginia Electric & Power Co. 9.38% 1998................................ 300,000 304,287
-----------
TOTAL INVESTMENT SECURITIES (cost $6,929,803)........................... 7,058,270
-----------
<CAPTION>
REPURCHASE AGREEMENT -- 5.0%
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Joint Repurchase Agreement Account (Note 3)
(cost $370,000)....................................................... 370,000 370,000
-----------
TOTAL INVESTMENTS -- (cost $7,299,803) 100.2% 7,428,270
Liabilities in excess of other assets -- (0.2) (15,792)
------ -----------
NET ASSETS -- 100.0% $7,412,478
====== ===========
</TABLE>
-----------------------------
See Notes to Financial Statements
- ---------------------
18
<PAGE> 20
- ---------------------
ANCHOR SERIES TRUST
GROWTH AND INCOME
PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK -- 95.3% SHARES VALUE
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER DISCRETIONARY -- 6.2%
Retail -- 6.2%
CVS Corp............................................................. 11,000 $ 704,687
Gap, Inc............................................................. 18,000 637,875
May Department Stores Co............................................. 13,000 684,938
Wal-Mart Stores, Inc................................................. 18,000 709,875
---------
2,737,375
---------
CONSUMER STAPLES -- 8.5%
Food, Beverage & Tobacco -- 3.1%
Nabisco Holdings Corp., Class A...................................... 13,000 629,688
PepsiCo, Inc......................................................... 20,000 728,750
Household Products -- 5.4%
Estee Lauder Cos., Inc., Class A..................................... 11,000 565,812
Gillette Co.......................................................... 5,000 502,188
Kimberly-Clark Corp.................................................. 14,000 690,375
Procter & Gamble Co.................................................. 8,000 638,500
---------
3,755,313
---------
ENERGY -- 7.2%
Energy Services -- 1.8%
Schlumberger Ltd..................................................... 10,000 805,000
Energy Sources -- 5.4%
Amoco Corp........................................................... 6,000 510,750
Chevron Corp......................................................... 6,000 462,000
Exxon Corp........................................................... 12,000 734,250
Royal Dutch Petroleum Co., NY Registry Shares........................ 13,000 704,438
---------
3,216,438
---------
FINANCE -- 21.6%
Banks -- 7.5%
Citicorp............................................................. 5,000 632,187
First Union Corp..................................................... 18,000 922,500
U.S. Bancorp......................................................... 8,000 895,500
Wachovia Corp........................................................ 11,000 892,375
Financial Services -- 4.4%
American Express Co.................................................. 11,000 981,750
Federal National Mortgage Association................................ 17,000 970,063
Insurance -- 9.7%
Ace Ltd.............................................................. 10,000 965,000
Allstate Corp........................................................ 11,000 999,625
American International Group, Inc.................................... 7,000 761,250
Marsh & McLennan Cos., Inc........................................... 10,000 745,625
Travelers Group, Inc................................................. 15,000 808,125
---------
9,574,000
---------
</TABLE>
---------------------
19
<PAGE> 21
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE -- 13.6%
Drugs -- 10.9%
American Home Products Corp.......................................... 7,000 $ 535,500
Bristol-Myers Squibb Co.............................................. 7,000 662,375
Johnson & Johnson Co................................................. 10,000 658,750
Pfizer, Inc.......................................................... 12,000 894,750
Pharmacia & Upjohn, Inc.............................................. 14,000 512,750
Warner-Lambert Co.................................................... 6,500 806,000
Zeneca Group PLC ADR................................................. 7,000 756,000
Health Services -- 0.8%
Columbia/HCA Healthcare Corp......................................... 12,000 355,500
Medical Products -- 1.9%
Abbott Laboratories, Inc............................................. 13,000 852,312
---------
6,033,937
---------
INDUSTRIAL & COMMERCIAL -- 6.7%
Business Services -- 1.2%
Hertz Corp., Class A................................................. 14,000 563,500
Electrical Equipment -- 3.0%
General Electric Co.................................................. 18,000 1,320,750
Machinery -- 1.1%
Caterpillar, Inc..................................................... 10,000 485,625
Transportation -- 1.4%
Union Pacific Corp................................................... 10,000 624,375
---------
2,994,250
---------
INFORMATION & ENTERTAINMENT -- 8.9%
Broadcasting & Media -- 6.2%
Gannett Co., Inc..................................................... 18,000 1,112,625
Scripps (E.W) Co., Class A........................................... 18,000 871,875
Time Warner, Inc..................................................... 12,000 744,000
Leisure & Tourism -- 2.7%
Delta Air Lines, Inc................................................. 5,000 595,000
McDonald's Corp...................................................... 13,000 620,750
---------
3,944,250
---------
INFORMATION TECHNOLOGY -- 14.4%
Communication Equipment -- 3.1%
Cisco Systems, Inc.+................................................. 12,000 669,000
Motorola, Inc........................................................ 12,000 684,750
Computers & Business Equipment -- 4.9%
EMC Corp.+........................................................... 24,000 658,500
International Business Machines Corp................................. 7,400 773,762
Xerox Corp........................................................... 10,000 738,125
Software -- 6.4%
Automatic Data Processing, Inc....................................... 13,000 797,875
BMC Software, Inc.+.................................................. 12,000 787,500
Computer Sciences Corp............................................... 6,000 501,000
Microsoft Corp.+..................................................... 6,000 775,500
---------
6,386,012
---------
</TABLE>
- ---------------------
20
<PAGE> 22
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
MATERIALS -- 3.0%
Chemicals -- 3.0%
Air Products & Chemicals, Inc........................................ 9,000 $ 740,250
du Pont (E.I.) de Nemours & Co....................................... 10,000 600,625
---------
1,340,875
---------
UTILITIES -- 5.2%
Electric Utilities -- 1.2%
Duke Energy Corp..................................................... 10,000 553,750
Gas & Pipeline Utilities -- 1.3%
Columbia Gas Systems, Inc............................................ 5,000 392,812
Peoples Energy Corp.................................................. 4,100 161,438
Telephone -- 2.7%
SBC Communications, Inc.............................................. 10,000 732,500
WorldCom, Inc.+...................................................... 16,000 484,000
---------
2,324,500
---------
TOTAL COMMON STOCK (cost $30,910,724)................................ 42,306,950
---------
<CAPTION>
PRINCIPAL
CONVERTIBLE BONDS -- 2.4% AMOUNT
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER DISCRETIONARY -- 1.2%
Retail -- 1.2%
Home Depot, Inc. 3.25% 2001.......................................... $400,000 525,500
---------
INFORMATION TECHNOLOGY -- 1.2%
Electronics -- 1.2%
Analog Devices, Inc. 3.50% 2000...................................... 400,000 557,000
---------
TOTAL CONVERTIBLE BONDS (cost $994,928).............................. 1,082,500
---------
TOTAL INVESTMENT SECURITIES (cost $31,905,652)....................... 43,389,450
---------
<CAPTION>
REPURCHASE AGREEMENT -- 0.7%
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Joint Repurchase Agreement Account (Note 3)
(cost $295,000).................................................... 295,000 295,000
---------
TOTAL INVESTMENTS -- (cost $32,200,652) 98.4% 43,684,450
Other assets less liabilities -- 1.6 732,210
------ ---------
NET ASSETS -- 100.0% $ 44,416,660
====== =========
</TABLE>
-----------------------------
+ Non-income producing securities
ADR -- American Depository Receipts
See Notes to Financial Statements
---------------------
21
<PAGE> 23
- ---------------------
ANCHOR SERIES TRUST
FOREIGN SECURITIES
PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK -- 94.1% SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
ARGENTINA -- 0.8%
Banco de Galicia y Buenos Aires SA de CV (Finance)....................... 25,000 $ 160,030
Telefonica de Argentina SA ADR (Utilities)............................... 3,700 137,825
-----------
297,855
-----------
AUSTRALIA -- 2.2%
Amcor Ltd. (Materials)................................................... 30,120 132,507
Australia & New Zealand Banking Group Ltd. (Finance)..................... 34,000 224,697
Broken Hill Proprietary Co., Ltd. (Materials)............................ 19,258 178,858
Goodman Fielder Wattie Ltd. (Consumer Staples)........................... 110,492 175,712
News Corp., Ltd. (Information & Entertainment)........................... 14,000 77,285
-----------
789,059
-----------
BRAZIL -- 1.3%
Aracruz Celulose ADR (Materials)......................................... 5,700 81,937
Centrais Eletricas Brasileiras SA ADR (Utilities)+....................... 4,500 111,893
Telecomunicacoes Brasileras SA (Utilities)............................... 2,610,000 265,432
-----------
459,262
-----------
CANADA -- 2.3%
Canadian Imperial Bank Toronto (Finance)................................. 7,800 243,434
Canadian Pacific Ltd. (Industrial & Commercial).......................... 14,400 387,950
CanWest Global Communications Corp. (Information & Entertainment)........ 10,400 187,200
-----------
818,584
-----------
CHILE -- 0.3%
Embotelladora Andina SA, Class B (Consumer Staples)...................... 5,000 97,187
-----------
CHINA -- 0.1%
China Southern Airlines Ltd. ADR (Information & Entertainment)+.......... 3,700 48,794
-----------
DENMARK -- 2.2%
Unidanmark A/S (Finance)................................................. 10,600 778,149
-----------
FINLAND -- 2.5%
Kesko (Consumer Discretionary)........................................... 20,450 323,392
Metsa Serla Oy, Class B (Materials)...................................... 32,500 253,396
Nokia Corp., Class A ADR (Information Technology)........................ 4,900 343,000
-----------
919,788
-----------
FRANCE -- 10.8%
Assurance General de France (Finance)+................................... 7,500 397,400
Banque Nationale de Paris (Finance)...................................... 7,071 375,843
Carrefour SA (Consumer Discretionary).................................... 450 234,776
Compagnie de St. Gobain (Materials)...................................... 2,097 297,904
Credit Commerce France (Finance)......................................... 3,120 213,841
Elf Aquitaine SA (Energy)................................................ 3,720 432,666
Havas SA (Information & Entertainment)................................... 5,702 410,229
Peugeot SA (Consumer Discretionary)...................................... 2,930 369,506
Rhone-Poulenc Ltd. (Healthcare).......................................... 12,585 563,748
</TABLE>
---------------------
22
<PAGE> 24
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
FRANCE (continued)
Societe Generale (Finance)............................................... 2,313 $ 315,138
Total SA, Series B (Energy).............................................. 2,656 289,055
-----------
3,900,106
-----------
GERMANY -- 5.8%
Bayer AG (Healthcare).................................................... 17,100 638,773
Degussa AG (Materials)................................................... 3,500 175,102
Karstadt AG (Consumer Discretionary)..................................... 1,050 358,434
Manitoba AG (Industrial & Commercial).................................... 1,300 376,497
Mannesmann AG (Industrial & Commercial).................................. 800 404,236
Metallgesellschaft AG (Industrial & Commercial)+......................... 8,800 160,938
-----------
2,113,980
-----------
HONG KONG -- 1.7%
Hutchison Whampoa Ltd. (Industrial & Commercial)......................... 42,000 263,415
Hysan Development Co., Ltd. (Real Estate)................................ 28,000 55,826
New World Development Co., Ltd. (Real Estate)............................ 15,000 51,878
Sun Hung Kai Properties Ltd. (Real Estate)............................... 25,100 174,913
Tingyi Holding Co. (Consumer Staples).................................... 486,000 63,345
-----------
609,377
-----------
INDIA -- 0.5%
Ranbaxy Laboratories Ltd. (Healthcare)................................... 3,300 85,140
State Bank of India GDR (Finance)*....................................... 4,400 80,080
-----------
165,220
-----------
INDONESIA -- 0.1%
PT Kalbe Farma (Healthcare).............................................. 180,000 31,909
-----------
IRELAND -- 1.9%
Allied Irish Banks PLC (Finance)......................................... 21,696 206,940
Jefferson Smurfit Group (Materials)+..................................... 177,378 492,370
-----------
699,310
-----------
ITALY -- 2.7%
First British Columbia San Paolo (Finance)*.............................. 30,700 293,290
Telecom Italia SpA (Utilities)........................................... 106,000 677,106
-----------
970,396
-----------
JAPAN -- 16.4%
Aisin Seiki Co., Ltd. (Consumer Discretionary)........................... 32,000 330,857
Bank of Tokyo-Mitsubishi Ltd. (Finance).................................. 28,000 386,000
Daiwa Securities Co., Ltd. (Finance)..................................... 20,000 68,928
Eisai Co., Ltd. (Healthcare)............................................. 23,000 350,540
Exedy Corp. (Consumer Discretionary)..................................... 5,000 37,872
Fuji Machine Manufacturing Co. (Industrial & Commercial)................. 9,000 217,125
Fujisawa Pharm Co. (Healthcare).......................................... 10,000 87,309
Fukuda Denshi (Healthcare)............................................... 6,000 61,117
Hitachi Ltd. (Information Technology).................................... 22,000 156,698
JGC Corp. (Industrial & Commercial)...................................... 41,000 86,352
Mabuchi Motor Co., Ltd. (Industrial & Commercial)........................ 3,000 152,332
Maruichi Steel Tube (Materials).......................................... 20,000 243,547
Matsumotokiyoshi (Consumer Discretionary)................................ 9,200 352,301
Matsushita Electric Industrial Co., Ltd. (Information Technology)+....... 31,000 453,473
</TABLE>
---------------------
23
<PAGE> 25
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
JAPAN (continued)
Mazda Motor Corp. (Consumer Discretionary)+.............................. 135,000 $ 320,518
Meiwa Estate Co. (Real Estate)+.......................................... 3,800 28,492
Murata Manufacturing Co. Ltd. (Information Technology)................... 5,000 125,603
Namco (Information & Entertainment)...................................... 12,600 365,735
NGK Spark Plug Co., Ltd. (Industrial & Commercial)....................... 21,000 119,017
Nomura Securities International, Inc. (Finance).......................... 6,000 79,957
Okumura Corp. (Consumer Discretionary)................................... 39,000 92,594
Otsuka Kagu (Consumer Staples)........................................... 1,300 46,795
Sakura Bank Ltd. (Finance)............................................... 69,000 197,113
Sanwa Bank Ltd. (Finance)................................................ 14,000 141,533
Shimachu Co. (Consumer Discretionary).................................... 2,500 39,251
Sony Corp. (Information & Entertainment)................................. 3,000 266,524
Sony Music Entertainment, Inc. (Information & Entertainment)............. 13,600 499,962
Square Co., Ltd. (Information Technology)................................ 4,200 116,443
Sumitomo Rubber Industries Ltd. (Consumer Discretionary)................. 56,000 236,318
Yamato Kogyo Co. (Materials)............................................. 42,000 252,508
-----------
5,912,814
-----------
MALAYSIA -- 0.1%
Renong Bhd (Industrial & Commercial)(1).................................. 56,000 25,916
Sime Darby Bhd (Industrial & Commercial)................................. 16,500 15,866
-----------
41,782
-----------
MEXICO -- 1.8%
Grupo Televisa SA de CV (Information & Entertainment).................... 9,100 177,140
Kimberly-Clark de Mexico SA de CV, Class A (Consumer Staples)............ 79,000 386,655
Panamerican Beverages, Inc., Class A ADR (Consumer Staples).............. 2,500 81,563
-----------
645,358
-----------
NETHERLANDS -- 3.2%
Elsevier NV (Information & Entertainment)................................ 13,800 223,234
Internationale Nedederlanden Groep NV (Finance).......................... 12,109 510,003
PolyGram NV (Information & Entertainment)................................ 6,700 320,519
Unilever NV PLC (Consumer Staples)....................................... 1,800 110,966
-----------
1,164,722
-----------
NEW ZEALAND -- 0.6%
Air New Zealand Ltd., Class B (Information & Entertainment).............. 34,561 69,234
Brierley Investments Ltd. (Finance)+..................................... 82,405 58,853
Carter Holt Harvey Ltd. (Materials)...................................... 56,000 86,494
-----------
214,581
-----------
NORWAY -- 1.3%
Saga Petroleum ASA, Series A (Energy).................................... 28,000 481,464
-----------
PHILIPPINES -- 0.2%
Metro Bank & Trust Co. (Finance)......................................... 9,600 64,593
-----------
PORTUGAL -- 0.3%
Manila Electric Co. (Utilities).......................................... 35,000 115,802
-----------
SINGAPORE -- 1.2%
Keppel Corp., Ltd. (Industrial & Commercial)............................. 28,500 81,839
Keppel Fels Ltd. (Energy)................................................ 66,000 184,040
Overseas Union Bank Ltd. alien shares (Finance).......................... 46,000 176,031
-----------
441,910
-----------
</TABLE>
---------------------
24
<PAGE> 26
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
---------------------------- --------------------------------------------------
<S> <C> <C>
SPAIN -- 2.9%
Banco de Santander SA (Finance).......................................... 8,800 $ 294,007
Banco Popular Espanol SA (Finance)....................................... 4,060 283,814
Endessa Nacional de Electricidad SA (Utilities).......................... 17,200 305,389
Telefonica de Espana SA ADR (Utilities).................................. 1,700 153,106
-----------
1,036,316
-----------
SWEDEN -- 4.7%
Forenings Sparbanken Ser A (Finance)..................................... 4,660 105,937
------- -----------
Hennes & Mauritz AB Class B (Consumer Discretionary)..................... 4,000 176,325
Nordbanken Holding (Finance)+............................................ 133,700 756,071
Pharmacia & Upjohn, Inc. (Healthcare).................................... 18,100 665,651
-----------
1,703,984
-----------
SWITZERLAND -- 6.5%
Ciba Specialty Chemicals AG (Materials)+................................. 1,180 140,515
Holderbank Financiere Glarus (Materials)................................. 650 530,249
Nestle SA (Consumer Staples)............................................. 449 672,640
Roche Holdings AG (Healthcare)........................................... 60 595,606
Schweizerische Bankgesellschaft (Finance)................................ 294 424,944
-----------
2,363,954
-----------
THAILAND -- 0.1%
Siam City Cement PCL alien shares (Materials)............................ 5,070 5,265
Siam Commercial Bank PCL alien shares (Finance).......................... 1,167 1,333
Thai Farmers Bank alien shares (Finance)................................. 18,400 33,437
-----------
40,035
-----------
UNITED KINGDOM -- 19.6%
Associated British Foods PLC (Consumer Staples).......................... 33,000 287,273
Bass PLC (Consumer Staples).............................................. 28,700 446,432
Billiton PLC (Materials)+*............................................... 50,300 128,884
BOC Group PLC (Materials)................................................ 23,028 378,613
British Petroleum Co. PLC (Energy)....................................... 35,000 462,999
BTR Ltd. PLC (Industrial & Commercial)................................... 110,000 332,442
Burmah Castrol PLC (Energy).............................................. 26,000 453,527
Carlton Communications PLC (Information & Entertainment)................. 53,000 409,147
Cookson Group PLC (Information Technology)............................... 106,307 343,980
Guinness PLC (Consumer Staples).......................................... 37,000 338,503
HSBC Holdings PLC (Finance).............................................. 15,200 374,989
Johnson Matthey PLC (Materials).......................................... 37,000 331,210
PowerGen PLC (Utilities)................................................. 26,914 350,113
Rank Group PLC (Information & Entertainment)............................. 66,000 367,493
Reckitt & Colman PLC (Consumer Staples).................................. 25,200 395,284
Royal & Sun Alliance Insurance Group PLC (Finance)....................... 33,181 334,084
Royal Bank of Scotland Group PLC (Finance)............................... 29,000 369,719
Zeneca Group PLC (Healthcare)............................................ 27,400 970,545
-----------
7,075,237
-----------
TOTAL COMMON STOCK (cost $33,687,700).................................... 34,001,528
-----------
</TABLE>
<TABLE>
<CAPTION>
PREFERRED STOCK -- 3.1%
----------------------------------------------------------------------------------------------------
<S> <C> <C>
BRAZIL -- 1.2%
Cemig Cia Energy MG (Utilities).......................................... 2,589,900 $ 112,525
Centrais Electricas Brasileiras SA, Series B (Utilities)................. 50,000 2,554
Cia Riograndense Telecomunicacoes (Utilities)............................ 67,600 83,285
Petroleo Brasileiros SA (Energy)......................................... 659,000 154,114
Telecomunicacoes de Sao Paulo SA (Information & Entertainment)........... 286,000 76,107
-----------
428,585
-----------
</TABLE>
---------------------
25
<PAGE> 27
<TABLE>
<CAPTION>
PREFERRED STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
GERMANY -- 1.9%
Hornbach Holding AG (Consumer Discretionary)............................. 3,600 $ 249,145
Prosieben Media AG (Information & Entertainment)+*....................... 9,710 453,398
-----------
702,543
-----------
TOTAL PREFERRED STOCK (cost $1,163,165).................................. 1,131,128
-----------
PRINCIPAL
BONDS & NOTES -- 0.0% AMOUNT
----------------------------------------------------------------------------------------------------
BRAZIL -- 0.0%
Vale Rio Doce Cia zero coupon 1999 (Materials)(1)
(cost $0).............................................................. $ 5,500 1
-----------
WARRANTS -- 0.0%+ SHARES
----------------------------------------------------------------------------------------------------
THAILAND -- 0.0%
Siam Commercial Bank 12/31/02 (Finance)(1)
(cost $0).............................................................. 1,167 0
-----------
PRINCIPAL
OPTIONS -- 0.0%+ AMOUNT
----------------------------------------------------------------------------------------------------
FOREIGN CURRENCY PUT OPTIONS
Brazilian Real Option Jan. 16, 1998/1.17(1)
(cost $2,920).......................................................... $ 4,950 1,040
-----------
TOTAL INVESTMENT SECURITIES (cost $34,853,785)........................... 35,133,697
-----------
SHORT-TERM SECURITIES -- 0.1%
----------------------------------------------------------------------------------------------------
United States Treasury Bills 5.29% due 2/12/98 (cost $49,700)............ 50,000 49,700
-----------
REPURCHASE AGREEMENT -- 2.1%
----------------------------------------------------------------------------------------------------
Joint Repurchase Agreement Account (Note 3) (cost $765,000)............ 765,000 765,000
-----------
TOTAL SHORT-TERM SECURITIES (cost $814,700).............................. 814,700
-----------
TOTAL INVESTMENTS -- (cost $35,668,485) 99.4% 35,948,397
Other assets less liabilities -- 0.6 199,859
----- -----------
NET ASSETS -- 100.0% $36,148,256
===== ===========
</TABLE>
-----------------------------
+ Non-income producing securities
* Resale restricted to qualified institutional buyers
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
(1) Fair valued security; See Note 2
See Notes to Financial Statements
- ---------------------
26
<PAGE> 28
- ---------------------
ANCHOR SERIES TRUST
GROWTH PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK -- 96.1% SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER DISCRETIONARY -- 7.1%
Automotive -- 0.5%
Goodyear Tire & Rubber Co............................................ 38,500 $ 2,449,563
Retail -- 6.6%
Arbor Drugs, Inc..................................................... 137,000 2,534,500
Barnes & Noble, Inc.+................................................ 72,600 2,423,025
CVS Corp............................................................. 33,000 2,114,062
Dayton Hudson Corp................................................... 95,000 6,412,500
Ethan Allen Interiors, Inc........................................... 35,200 1,357,400
Home Depot, Inc...................................................... 129,000 7,594,875
Office Max, Inc.+.................................................... 160,000 2,280,000
Stein Mart, Inc.+.................................................... 36,000 963,000
Wal-Mart Stores, Inc................................................. 160,000 6,310,000
-------------
34,438,925
-------------
CONSUMER STAPLES -- 7.5%
Food, Beverage & Tobacco -- 4.0%
Beringer Wine Estates Holdings, Inc., Class B+....................... 35,000 1,330,000
General Mills, Inc................................................... 45,000 3,223,125
PepsiCo, Inc......................................................... 80,000 2,915,000
Philip Morris Cos., Inc.............................................. 120,000 5,437,500
Sara Lee Corp........................................................ 120,600 6,791,288
Household Products -- 3.5%
Bush Boake Allen, Inc.+.............................................. 65,000 1,702,187
Estee Lauder Cos., Inc., Class A..................................... 37,300 1,918,619
Gillette Co.......................................................... 15,000 1,506,563
Kimberly-Clark Corp.................................................. 82,600 4,073,212
Procter & Gamble Co.................................................. 98,000 7,821,625
-------------
36,719,119
-------------
ENERGY -- 6.0%
Energy Services -- 1.6%
Diamond Offshore Drilling, Inc....................................... 40,000 1,925,000
Schlumberger Ltd..................................................... 75,000 6,037,500
Energy Sources -- 4.4%
Amoco Corp........................................................... 42,000 3,575,250
Anadarko Petroleum Corp.............................................. 26,600 1,614,288
Barrett Resources Corp.+............................................. 15,000 453,750
Chevron Corp......................................................... 75,000 5,775,000
Exxon Corp........................................................... 77,400 4,735,912
Royal Dutch Petroleum Co., NY Registry Shares........................ 60,000 3,251,250
Unocal Corp.......................................................... 45,000 1,746,562
-------------
29,114,512
-------------
FINANCE -- 19.6%
Banks -- 7.2%
Associated Banc Corp................................................. 55,000 3,031,875
Citicorp............................................................. 45,000 5,689,687
Crestar Financial Corp............................................... 30,000 1,710,000
First Commercial Corp................................................ 44,438 2,605,184
First Union Corp..................................................... 136,000 6,970,000
</TABLE>
---------------------
27
<PAGE> 29
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCE (continued)
Banks (continued)
Mercantile Bankshares Corp........................................... 73,000 $ 2,856,125
NationsBank Corp..................................................... 73,000 4,439,313
State Street Corp.................................................... 44,800 2,606,800
U.S. Bancorp......................................................... 22,000 2,462,625
Wilmington Trust Corp................................................ 42,000 2,619,750
Financial Services -- 5.0%
American Express Co.................................................. 81,000 7,229,250
Associates First Capital Corp., Class A.............................. 46,000 3,271,750
Federal National Mortgage Association................................ 144,000 8,217,000
Morgan Stanley, Dean Witter, Discover & Co........................... 92,400 5,463,150
Insurance -- 7.4%
Ace Ltd.............................................................. 57,000 5,500,500
Allstate Corp........................................................ 84,600 7,688,025
American International Group, Inc.................................... 68,250 7,422,187
Frontier Insurance Group, Inc........................................ 100,400 2,296,650
Marsh & McLennan Cos., Inc........................................... 27,000 2,013,188
Reinsurance Group America, Inc....................................... 48,150 2,049,384
Travelers Group, Inc................................................. 165,000 8,889,375
-------------
95,031,818
-------------
HEALTHCARE -- 11.2%
Drugs -- 7.1%
American Home Products Corp.......................................... 24,000 1,836,000
Covance, Inc.+....................................................... 125,000 2,484,375
Genzyme Corp.+....................................................... 80,000 2,220,000
Johnson & Johnson Co................................................. 15,000 988,125
Merck & Co., Inc..................................................... 38,000 4,037,500
Pfizer, Inc.......................................................... 118,000 8,798,375
Pharmacia & Upjohn, Inc.............................................. 121,600 4,453,600
Warner-Lambert Co.................................................... 48,000 5,952,000
Zeneca Group PLC ADR................................................. 34,000 3,672,000
Health Services -- 2.0%
Columbia/HCA Healthcare Corp......................................... 75,000 2,221,875
Shared Medical Systems Corp.......................................... 60,000 3,960,000
Tenet Healthcare Corp.+.............................................. 23,200 768,500
United Healthcare Corp............................................... 58,800 2,921,625
Medical Products -- 2.1%
Abbott Laboratories, Inc............................................. 90,000 5,900,625
Biomet, Inc.......................................................... 75,000 1,921,875
Life Technologies, Inc............................................... 77,000 2,560,250
-------------
54,696,725
-------------
INDUSTRIAL & COMMERCIAL -- 12.8%
Aerospace & Military Technology -- 2.0%
Boeing Co............................................................ 100,000 4,893,750
General Motors Corp., Class H+....................................... 40,000 1,477,500
United Technologies Corp............................................. 44,000 3,203,750
Business Services -- 3.4%
Avnet, Inc........................................................... 25,000 1,650,000
Dames & Moore, Inc................................................... 100,000 1,325,000
Foster Wheeler Corp.................................................. 67,800 1,834,837
G & K Services, Inc., Class A........................................ 79,000 3,318,000
Ionics, Inc.+........................................................ 67,000 2,621,375
</TABLE>
- ---------------------
28
<PAGE> 30
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL & COMMERCIAL (continued)
Business Services (continued)
Metromail Corp.+..................................................... 101,000 $ 1,805,375
Tetra Tech, Inc.+.................................................... 92,500 1,850,000
United States Rentals, Inc.+......................................... 96,000 2,256,000
Electrical Equipment -- 3.8%
General Electric Co.................................................. 150,000 11,006,250
Hubbell, Inc., Class B............................................... 94,000 4,635,375
Littelfuse, Inc.+.................................................... 108,000 2,686,500
Machinery -- 1.7%
Caterpillar, Inc..................................................... 56,600 2,748,637
Donaldson Co., Inc................................................... 55,000 2,478,437
MSC Industrial Direct Co., Inc. Class A+............................. 9,000 381,375
Paxar Corp.+......................................................... 87,000 1,288,688
UCAR International, Inc.+............................................ 36,000 1,437,750
Multi-Industry -- 0.8%
Minnesota Mining & Manufacturing Co.................................. 44,000 3,610,750
Transportation -- 1.1%
Air Express International Corp....................................... 91,500 2,790,750
Union Pacific Corp................................................... 43,000 2,684,813
-------------
61,984,912
-------------
INFORMATION & ENTERTAINMENT -- 6.5%
Broadcasting & Media -- 2.9%
ADVO, Inc.+.......................................................... 105,000 2,047,500
Cox Communications, Inc., Class A+................................... 81,000 3,245,063
Disney (Walt) Co..................................................... 22,000 2,179,375
Gannett Co., Inc..................................................... 110,000 6,799,375
Entertainment Products -- 0.5%
Speedway Motorsports, Inc.+.......................................... 90,000 2,233,125
Leisure & Tourism -- 3.1%
Landry's Seafood Restaurants, Inc.+.................................. 50,000 1,200,000
McDonald's Corp...................................................... 98,000 4,679,500
Mirage Resorts, Inc.................................................. 130,000 2,957,500
Southwest Airlines Co................................................ 247,500 6,094,687
-------------
31,436,125
-------------
INFORMATION TECHNOLOGY -- 19.0%
Communication Equipment -- 3.2%
3Com Corp.+.......................................................... 28,000 978,250
Andrew Corp.+........................................................ 54,000 1,296,000
Cisco Systems, Inc.+................................................. 135,000 7,526,250
Lucent Technologies, Inc............................................. 41,167 3,288,214
Motorola, Inc........................................................ 40,000 2,282,500
Computers & Business Equipment -- 3.5%
Adaptec, Inc.+....................................................... 52,600 1,952,775
EMC Corp.+........................................................... 140,000 3,841,250
Hewlett-Packard Co................................................... 77,000 4,812,500
International Business Machines Corp................................. 60,000 6,273,750
Electronics -- 3.8%
AMP, Inc............................................................. 70,000 2,940,000
Analog Devices, Inc.+................................................ 110,000 3,045,625
Dallas Semiconductor Corp............................................ 59,000 2,404,250
Intel Corp........................................................... 70,000 4,917,500
</TABLE>
---------------------
29
<PAGE> 31
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
INFORMATION TECHNOLOGY (continued)
Electronics (continued)
Maxim Integrated Products, Inc.+..................................... 42,000 $ 1,449,000
Silicon Valley Group, Inc.+.......................................... 80,000 1,810,000
Texas Instruments, Inc............................................... 40,000 1,800,000
Software -- 8.5%
American Management Systems, Inc.+................................... 123,000 2,398,500
Automatic Data Processing, Inc....................................... 112,000 6,874,000
BISYS Group, Inc.+................................................... 50,000 1,662,500
Cognos, Inc.+........................................................ 90,000 2,070,000
Computer Sciences Corp............................................... 45,000 3,757,500
DST Systems, Inc.+................................................... 59,000 2,518,563
First Data Corp...................................................... 100,000 2,925,000
Microsoft Corp.+..................................................... 60,000 7,755,000
PeopleSoft, Inc.+.................................................... 62,000 2,418,000
Policy Management Systems Corp.+..................................... 52,000 3,617,250
Sterling Software, Inc.+............................................. 78,000 3,198,000
Synopsys, Inc.+...................................................... 49,000 1,751,750
Systems & Computer Technology Corp.+................................. 12,000 595,500
-------------
92,159,427
-------------
MATERIALS -- 3.2%
Chemicals -- 1.5%
du Pont (E.I.) de Nemours & Co....................................... 72,000 4,324,500
Minerals Technologies, Inc........................................... 61,000 2,771,687
Metals & Minerals -- 0.6%
Aluminum Co. of America.............................................. 40,000 2,815,000
Paper Products -- 1.1%
Bemis Co., Inc....................................................... 23,000 1,013,438
Crown, Cork & Seal Co., Inc.......................................... 40,000 2,005,000
International Paper Co............................................... 59,000 2,544,375
-------------
15,474,000
-------------
UTILITIES -- 3.2%
Telephone -- 3.2%
AT&T Corp............................................................ 64,000 3,920,000
Century Telephone Enterprises, Inc................................... 33,000 1,643,813
SBC Communications, Inc.............................................. 87,000 6,372,750
WorldCom, Inc.+...................................................... 120,000 3,630,000
-------------
15,566,563
-------------
TOTAL INVESTMENT SECURITIES (cost $311,550,840)...................... 466,622,126
-------------
<CAPTION>
PRINCIPAL
REPURCHASE AGREEMENT -- 3.8% AMOUNT
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Joint Repurchase Agreement Account (Note 3) (cost $18,295,000)....... $18,295,000 18,295,000
-------------
TOTAL INVESTMENTS --
(cost $329,845,840) 99.9% 484,917,126
Other assets less liabilities -- 0.1 611,134
----- -------------
NET ASSETS -- 100.0% $485,528,260
===== =============
</TABLE>
-----------------------------
+ Non-income producing securities
ADR -- American Depository Receipts
See Notes to Financial Statements
- ---------------------
30
<PAGE> 32
- ---------------------
ANCHOR SERIES TRUST
CAPITAL APPRECIATION
PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK -- 90.1% SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER DISCRETIONARY -- 8.8%
Apparel & Textiles -- 0.4%
Tefron Ltd.+......................................................... 150,000 $ 3,450,000
Retail -- 8.4%
Barnes & Noble, Inc.+................................................ 400,000 13,350,000
Bed Bath & Beyond, Inc.+............................................. 400,000 15,400,000
Gadzooks, Inc.+...................................................... 150,000 3,150,000
Gap, Inc............................................................. 400,000 14,175,000
Home Depot, Inc...................................................... 195,000 11,480,625
Hot Topic, Inc.+..................................................... 130,500 2,968,875
Mercantile Stores Co., Inc........................................... 125,000 7,609,375
-------------
71,583,875
-------------
CONSUMER STAPLES -- 1.5%
Food, Beverage & Tobacco -- 1.2%
American Italian Pasta Co., Class A+................................. 175,000 4,375,000
General Cigar Holdings, Inc., Class A+............................... 175,000 3,729,687
International Home Foods, Inc.+...................................... 75,000 2,100,000
Household Products -- 0.3%
Revlon, Inc., Class A+............................................... 70,000 2,471,875
-------------
12,676,562
-------------
ENERGY -- 5.7%
Energy Services -- 5.4%
ENSCO International, Inc............................................. 450,000 15,075,000
Noble Drilling Corp.+................................................ 100,000 3,062,500
Santa Fe International Corp.......................................... 150,900 6,139,744
Transocean Offshore, Inc............................................. 400,000 19,275,000
Energy Sources -- 0.3%
Vastar Resources, Inc................................................ 76,400 2,731,300
-------------
46,283,544
-------------
FINANCE -- 11.4%
Financial Services -- 5.6%
Interra Financial, Inc............................................... 140,000 9,660,000
Legg Mason, Inc...................................................... 186,666 10,441,629
McDonald & Co. Investments, Inc...................................... 170,000 4,823,750
Morgan Keegan, Inc................................................... 330,000 8,353,125
Piper Jaffray Cos., Inc.............................................. 280,000 10,202,500
Raymond James Financial, Inc......................................... 65,000 2,579,688
Insurance -- 5.8%
Ace Ltd.............................................................. 250,000 24,125,000
Allstate Corp........................................................ 200,000 18,175,000
Transatlantic Holdings, Inc.......................................... 67,500 4,826,250
-------------
93,186,942
-------------
</TABLE>
---------------------
31
<PAGE> 33
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE -- 13.3%
Drugs -- 7.2%
Eisai Co., Ltd....................................................... 575,000 $ 8,763,498
Genzyme Corp.+....................................................... 475,000 13,181,250
Human Genome Sciences, Inc.+......................................... 40,000 1,590,000
Immunex Corp.+....................................................... 210,000 11,340,000
Pharmacia & Upjohn, Inc.............................................. 170,000 6,226,250
Warner-Lambert Co.................................................... 90,000 11,160,000
Zeneca Group PLC ADR................................................. 56,800 6,134,400
Health Services -- 4.6%
Beverly Enterprises, Inc.+........................................... 500,000 6,500,000
Columbia/HCA Healthcare Corp......................................... 280,000 8,295,000
IDX Systems Corp.+................................................... 90,000 3,330,000
Magellan Health Services, Inc.+...................................... 200,000 4,300,000
MedPartners, Inc.+................................................... 400,000 8,950,000
Vencor, Inc.+........................................................ 250,000 6,109,375
Medical Products -- 1.5%
Biomet, Inc.......................................................... 200,000 5,125,000
Perkin-Elmer Corp.................................................... 75,000 5,329,687
Physio-Control International Corp.+.................................. 115,000 1,825,625
-------------
108,160,085
-------------
INDUSTRIAL & COMMERCIAL -- 9.6%
Aerospace & Military Technology -- 2.9%
General Motors Corp., Class H+....................................... 100,000 3,693,750
Gulfstream Aerospace Corp.+.......................................... 290,000 8,482,500
Loral Space & Communications Corp.+.................................. 240,000 5,145,000
Precision Castparts Corp............................................. 100,000 6,031,250
Business Services -- 2.9%
American Residential Services, Inc.+................................. 150,000 2,343,750
Group Maintenance America Corp.+..................................... 186,000 3,127,125
Republic Industries, Inc.+(1)........................................ 320,700 7,476,319
Select Appointments Holdings PLC ADR................................. 210,000 3,832,500
Service Experts, Inc.+............................................... 124,900 3,575,262
West TeleServices Corp.+............................................. 260,000 3,120,000
Electrical Equipment -- 2.4%
General Cable Corp.+................................................. 282,900 10,237,444
Honeywell, Inc....................................................... 140,000 9,590,000
Transportation -- 1.4%
Pittston Burlington Co............................................... 139,400 3,659,250
Werner Enterprises, Inc.............................................. 380,000 7,790,000
-------------
78,104,150
-------------
INFORMATION & ENTERTAINMENT -- 13.5%
Broadcasting & Media -- 12.9%
CanWest Global Communications Corp................................... 197,200 3,549,600
Central European Media Enterprises Ltd., Class A+.................... 140,000 3,535,000
EchoStar Communications Corp., Class A+.............................. 180,000 3,015,000
Jacor Communications, Inc.+.......................................... 225,000 11,953,125
Lamar Advertising Co., Class A....................................... 150,000 5,962,500
LodgeNet Entertainment Corp.+........................................ 181,100 1,992,100
Metro Networks, Inc.+................................................ 145,000 4,748,750
MetroNet Communications Corp., Class B+.............................. 46,200 802,725
NTL, Inc.+........................................................... 146,666 4,088,315
Outdoor Systems, Inc.+............................................... 287,925 11,049,122
Pulitzer Publishing Co............................................... 92,766 5,826,864
Scripps (E.W) Co., Class A........................................... 70,000 3,390,625
</TABLE>
- ---------------------
32
<PAGE> 34
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
INFORMATION & ENTERTAINMENT (continued)
Broadcasting & Media (continued)
Tele-Communications Liberty Media Group, Class A+.................... 700,000 $ 25,375,000
Universal Outdoor Holdings, Inc.+.................................... 163,000 8,476,000
Viacom, Inc., Class B+............................................... 170,000 7,044,375
Young Broadcasting, Inc., Class A+................................... 100,000 3,875,000
Leisure & Tourism -- 0.6%
American Skiing Co.+................................................. 200,200 2,977,975
Virgin Express Holdings PLC ADR+..................................... 102,800 2,133,100
-------------
109,795,176
-------------
INFORMATION TECHNOLOGY -- 24.1%
Communication Equipment -- 3.6%
3Com Corp.+.......................................................... 175,000 6,114,063
APT Satellite Holdings Ltd. ADR+..................................... 150,000 1,762,500
CIENA Corp.+......................................................... 67,800 4,144,275
Gilat Satellite Networks Ltd.+....................................... 125,000 3,578,125
Larscom, Inc., Class A+.............................................. 150,000 1,425,000
Natural Microsystems Corp.+.......................................... 90,000 4,185,000
NICE Systems Ltd. ADR+............................................... 160,000 6,720,000
Teledata Communications, Inc.+....................................... 75,000 1,368,750
Computers & Business Equipment -- 3.7%
Adaptec, Inc.+....................................................... 150,000 5,568,750
Discreet Logic, Inc.+................................................ 150,000 3,290,625
EMC Corp.+........................................................... 650,000 17,834,375
Splash Technology Holdings, Inc.+.................................... 150,000 3,375,000
Electronics -- 4.4%
Analog Devices, Inc.+................................................ 267,300 7,400,869
Peak International Ltd.+............................................. 37,500 782,813
Philips Electronics NV-NY Shares..................................... 350,000 21,175,000
Xilinx, Inc.+........................................................ 175,000 6,135,937
Software -- 12.4%
BA Merchants Services, Inc., Class A+................................ 199,400 3,539,350
BISYS Group, Inc.+................................................... 360,000 11,970,000
BMC Software, Inc.................................................... 170,000 11,156,250
Computer Sciences Corp............................................... 190,000 15,865,000
DST Systems, Inc.+................................................... 200,000 8,537,500
Electronic Arts, Inc.+............................................... 200,000 7,562,500
First Data Corp...................................................... 315,000 9,213,750
Omtool Ltd.+......................................................... 170,000 1,742,500
Parametric Technology Corp.+......................................... 225,000 10,659,375
Policy Management Systems Corp.+..................................... 75,000 5,217,187
Rational Software Corp.+............................................. 150,000 1,706,250
Sterling Software, Inc.+............................................. 340,000 13,940,000
-------------
195,970,744
-------------
REAL ESTATE -- 1.0%
Real Estate Companies -- 1.0%
Security Capital Group, Inc., Class B+............................... 254,100 8,258,250
-------------
</TABLE>
---------------------
33
<PAGE> 35
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES -- 1.2%
Telephone -- 1.2%
Teleport Communications Group Inc., Class A+......................... 70,000 $ 3,841,250
WorldCom, Inc.+...................................................... 200,000 6,050,000
-------------
9,891,250
-------------
TOTAL COMMON STOCK (cost $559,045,302)............................... 733,910,578
-------------
PREFERRED STOCK -- 0.7%
----------------------------------------------------------------------------------------------------
INFORMATION & ENTERTAINMENT -- 0.7%
Broadcasting & Media -- 0.7%
News Corp., Ltd. ADR (cost $4,691,342)............................... 300,000 5,962,500
-------------
TOTAL INVESTMENT SECURITIES (cost $563,736,644)...................... 739,873,078
-------------
PRINCIPAL
REPURCHASE AGREEMENT -- 10.6% AMOUNT
----------------------------------------------------------------------------------------------------
Joint Repurchase Agreement Account (Note 3)
(cost $86,080,000)................................................. $86,080,000 86,080,000
-------------
TOTAL INVESTMENTS --
(cost $649,816,644) 101.4% 825,953,078
Liabilities in excess of other assets -- (1.4) (11,642,012)
----- -------------
NET ASSETS -- 100.0% $814,311,066
===== =============
</TABLE>
-----------------------------
+ Non-income producing securities
ADR -- American Depository Receipt
(1) At December 31, 1997 the Portfolio held a restricted security
amounting to 0.9% 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 following security:
<TABLE>
<CAPTION>
VALUATION
AS OF
DATE OF UNIT DECEMBER 31,
DESCRIPTION ACQUISITION COST 1997
----------- ----------- ------- ------------
<S> <C> <C> <C>
Republic Industries, Inc. 1/17/97 $33.59 $23.3125
</TABLE>
See Notes to Financial Statements
- ---------------------
34
<PAGE> 36
- ---------------------
ANCHOR SERIES TRUST
NATURAL RESOURCES
PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK -- 92.4% SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
ENERGY -- 30.3%
Energy Sources -- 30.3%
Alberta Energy Co., Ltd................................................ 40,000 $ 776,740
Amerada Hess Corp...................................................... 24,390 1,338,401
Anadarko Petroleum Corp................................................ 10,000 606,875
Apex Silver Mines Ltd.+................................................ 17,500 223,125
Barrett Resources Corp.+............................................... 30,000 907,500
Chevron Corp........................................................... 20,000 1,540,000
Enron Oil & Gas Co..................................................... 20,600 436,463
Norsk Hydro ASA ADR.................................................... 30,000 1,530,000
Northstar Energy Corp.+................................................ 30,000 209,930
PanCanadian Petroleum Ltd.............................................. 60,000 955,180
Poco Petroleum Ltd.+................................................... 60,000 529,023
Pogo Producing Co...................................................... 15,000 442,500
Talisman Energy, Inc.+................................................. 27,000 812,428
Total SA ADR........................................................... 23,193 1,287,211
Ultramar Diamond Shamrock Corp.+....................................... 20,200 643,875
Unocal Corp............................................................ 14,020 544,151
Vastar Resources, Inc.................................................. 30,000 1,072,500
YPF Sociedad Anonima ADR............................................... 38,000 1,299,125
-----------
15,155,027
-----------
MATERIALS -- 51.8%
Metals & Minerals -- 41.1%
Alcan Aluminium Ltd.................................................... 15,000 414,375
Alumax, Inc.+.......................................................... 20,200 686,800
Aluminum Co. of America................................................ 17,600 1,238,600
Ashanti Goldfields Co., Ltd. GDR....................................... 111,064 832,980
Barrick Gold Corp...................................................... 80,000 1,490,000
Billiton PLC+*......................................................... 481,400 1,233,491
Carbide/Graphite Group, Inc.+.......................................... 42,100 1,420,875
Companhia Vale do Rio Doce ADR......................................... 51,000 1,033,260
EASCO, Inc............................................................. 59,000 781,750
Freeport-McMoRan Copper & Gold, Inc. Class A........................... 72,900 1,116,281
Freeport-McMoRan Copper & Gold, Inc., Class B.......................... 10,000 157,500
Hecla Mining Co.+...................................................... 17,300 85,419
Newcrest Mining Ltd.................................................... 95,953 104,437
Newmont Gold Co........................................................ 22,600 673,763
Newmont Mining Corp.................................................... 88,150 2,589,406
Normandy Mining Ltd.................................................... 926,155 899,396
Phelps Dodge Corp...................................................... 21,500 1,338,375
Placer Dome, Inc....................................................... 90,000 1,141,875
Rio Tinto PLC+......................................................... 30,083 370,832
Stillwater Mining Co.+................................................. 36,750 615,563
Titanium Metals Corp.+................................................. 38,000 1,097,250
TVX Gold, Inc.+........................................................ 133,000 448,875
UCAR International, Inc.+.............................................. 20,750 828,703
Paper Products -- 10.7%
Bowater, Inc........................................................... 14,000 622,125
International Paper Co................................................. 15,000 646,875
</TABLE>
---------------------
35
<PAGE> 37
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
MATERIALS (continued)
Paper Products (continued)
Jefferson Smurfit Corp.+............................................... 40,000 $ 565,000
Temple-Inland, Inc..................................................... 14,500 758,531
Weyerhaeuser Co........................................................ 30,000 1,471,875
Willamette Industries, Inc............................................. 40,000 1,287,500
-----------
25,951,712
-----------
REAL ESTATE -- 10.3%
Real Estate Investment Trusts -- 10.3%
CarrAmerica Realty Corp................................................ 33,300 1,055,194
Security Capital Pacific Trust......................................... 40,000 970,000
Spieker Properties, Inc................................................ 24,000 1,029,000
Starwood Lodging Trust................................................. 18,500 1,070,687
Urban Shopping Centers, Inc............................................ 29,400 1,025,325
-----------
5,150,206
-----------
TOTAL COMMON STOCK (cost $47,274,317).................................. 46,256,945
-----------
<CAPTION>
WARRANTS -- 0.0%+
----------------------------------------------------------------------------------------------------
<S> <C> <C>
REAL ESTATE -- 0.0%
Real Estate Investment Trusts -- 0.0%
Security Capital Group, Inc., Class B 9/18/98 (cost $18,682)........... 2,105 11,051
-----------
TOTAL INVESTMENT SECURITIES (cost $47,292,999)......................... 46,267,996
-----------
<CAPTION>
PRINCIPAL
REPURCHASE AGREEMENT -- 5.6% AMOUNT
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Joint Repurchase Agreement Account (Note 3) (cost $2,800,000).......... $2,800,000 2,800,000
-----------
TOTAL INVESTMENTS --
(cost $50,092,999) 98.0% 49,067,996
Other assets less liabilities -- 2.0 985,936
----- -----------
NET ASSETS -- 100.0% $50,053,932
===== ===========
</TABLE>
-----------------------------
+ Non-income producing securities
* Resale restricted to qualified institutional buyers
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
See Notes to Financial Statements
- ---------------------
36
<PAGE> 38
- ---------------------
ANCHOR SERIES TRUST
MULTI-ASSET PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK -- 59.5% SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER DISCRETIONARY -- 4.4%
Retail -- 4.4%
CVS Corp.............................................................. 28,000 $ 1,793,750
Gap, Inc.............................................................. 37,500 1,328,906
Home Depot, Inc....................................................... 25,000 1,471,875
Wal-Mart Stores, Inc.................................................. 45,000 1,774,688
6,369,219
CONSUMER STAPLES -- 5.9%
Food, Beverage & Tobacco -- 2.1%
Coca-Cola Co.......................................................... 15,000 999,375
Nabisco Holdings Corp., Class A....................................... 20,000 968,750
PepsiCo, Inc.......................................................... 30,000 1,093,125
Household Products -- 3.8%
Estee Lauder Cos., Inc., Class A...................................... 24,000 1,234,500
Gillette Co........................................................... 12,000 1,205,250
Kimberly-Clark Corp................................................... 30,000 1,479,375
Procter & Gamble Co................................................... 20,000 1,596,250
8,576,625
ENERGY -- 4.2%
Energy Services -- 1.3%
Schlumberger Ltd...................................................... 24,000 1,932,000
Energy Sources -- 2.9%
Amoco Corp............................................................ 17,000 1,447,125
Chevron Corp.......................................................... 15,000 1,155,000
Exxon Corp............................................................ 27,000 1,652,063
6,186,188
FINANCE -- 13.1%
Banks -- 4.2%
Citicorp.............................................................. 14,000 1,770,125
First Union Corp...................................................... 36,000 1,845,000
U.S. Bancorp.......................................................... 22,000 2,462,625
Financial Services -- 3.8%
American Express Co................................................... 25,000 2,231,250
Federal National Mortgage Association................................. 33,000 1,883,062
Merrill Lynch & Co., Inc.............................................. 20,000 1,458,750
Insurance -- 5.1%
Allstate Corp......................................................... 30,000 2,726,250
American International Group, Inc..................................... 14,500 1,576,875
Marsh & McLennan Cos., Inc............................................ 20,000 1,491,250
Travelers Group, Inc.................................................. 30,000 1,616,250
19,061,437
HEALTHCARE -- 8.7%
Drugs -- 6.1%
American Home Products Corp........................................... 25,000 1,912,500
Bristol-Myers Squibb Co............................................... 10,000 946,250
Johnson & Johnson Co.................................................. 26,000 1,712,750
</TABLE>
---------------------
37
<PAGE> 39
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE (continued)
Drugs (continued)
Merck & Co., Inc...................................................... 13,000 $ 1,381,250
Pfizer, Inc........................................................... 26,000 1,938,625
Warner-Lambert Co..................................................... 8,000 992,000
Health Services -- 0.6%
Columbia/HCA Healthcare Corp.......................................... 30,000 888,750
Medical Products -- 2.0%
Abbott Laboratories, Inc.............................................. 30,000 1,966,875
Perkin-Elmer Corp..................................................... 14,000 994,875
12,733,875
INDUSTRIAL & COMMERCIAL -- 4.5%
Business Services -- 0.8%
Hertz Corp., Class A.................................................. 30,000 1,207,500
Electrical Equipment -- 2.0%
General Electric Co................................................... 40,000 2,935,000
Machinery -- 0.7%
Caterpillar, Inc...................................................... 22,000 1,068,375
Transportation -- 1.0%
Union Pacific Corp.................................................... 22,000 1,373,625
6,584,500
INFORMATION & ENTERTAINMENT -- 4.5%
Broadcasting & Media -- 2.5%
Disney (Walt) Co...................................................... 12,000 1,188,750
Gannett Co., Inc...................................................... 40,000 2,472,500
Leisure & Tourism -- 2.0%
McDonald's Corp....................................................... 40,000 1,910,000
Mirage Resorts, Inc................................................... 40,000 910,000
6,481,250
INFORMATION TECHNOLOGY -- 10.8%
Communication Equipment -- 2.1%
Cisco Systems, Inc.+.................................................. 18,000 1,003,500
Lucent Technologies, Inc.............................................. 12,315 983,661
Motorola, Inc......................................................... 18,000 1,027,125
Computers & Business Equipment -- 2.9%
EMC Corp.+............................................................ 40,000 1,097,500
International Business Machines Corp.................................. 16,000 1,673,000
Xerox Corp............................................................ 20,000 1,476,250
Electronics -- 1.5%
Analog Devices, Inc.+................................................. 45,000 1,245,937
Intel Corp............................................................ 13,000 913,250
Software -- 4.3%
Automatic Data Processing, Inc........................................ 20,000 1,227,500
Computer Sciences Corp................................................ 20,000 1,670,000
First Data Corp....................................................... 36,000 1,053,000
Microsoft Corp.+...................................................... 12,000 1,551,000
PeopleSoft, Inc.+..................................................... 20,000 780,000
15,701,723
MATERIALS -- 0.8%
Chemicals -- 0.8%
du Pont (E.I.) de Nemours & Co........................................ 20,000 1,201,250
</TABLE>
- ---------------------
38
<PAGE> 40
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES -- 2.6%
Electric Utilities -- 0.7%
Duke Energy Corp...................................................... 18,000 $ 996,750
Telephone -- 1.9%
SBC Communications, Inc............................................... 25,000 1,831,250
WorldCom, Inc.+....................................................... 30,000 907,500
3,735,500
TOTAL COMMON STOCK (cost $57,832,342)................................. 86,631,567
PRINCIPAL
BONDS & NOTES -- 37.2% AMOUNT
----------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES -- 2.0%
Aesop Funding II LLC 6.22% 2001*...................................... $1,000,000 1,003,660
Honda Auto Receivables Trust 5.95% 2003............................... 923,199 922,977
IBM Credit Receivables Lease Asset Master Trust 4.55% 2000............ 93,444 93,020
Nissan Auto Receivables Grantor 6.15% 2003............................ 930,293 935,758
2,955,415
ENERGY -- 1.0%
Husky Oil Ltd. 7.13% 2006............................................. 1,000,000 1,015,030
Mobil Oil Corp. 9.17% 2000............................................ 390,000 403,997
1,419,027
FINANCE -- 5.4%
Bankers Trust New York Corp. 8.25% 2005............................... 1,000,000 1,092,261
First Financial Caribbean Corp. 7.84% 2006............................ 450,000 473,063
Fleet Mortgage Group, Inc. 6.50% 2000................................. 1,000,000 1,007,010
General Electric Capital Corp. 6.50% 2006............................. 1,000,000 1,016,170
General Motors Acceptance Corp. 5.63% 2001............................ 1,000,000 985,830
Lumbermans Mutual Casualty Co. 9.15% 2026*............................ 1,000,000 1,156,550
Security Benefit Life Co. 8.75% 2016*................................. 1,000,000 1,122,860
United States West Capital Funding, Inc. 7.30% 2007................... 1,000,000 1,035,090
7,888,834
INDUSTRIAL & COMMERCIAL -- 2.2%
Clear Channel Communications, Inc. 7.25% 2027......................... 1,000,000 1,008,880
Northrop Grumman Corp. 8.63% 2004..................................... 1,000,000 1,118,100
TCI Communications, Inc. 6.88% 2006................................... 1,000,000 1,003,680
3,130,660
MORTGAGE-RELATED SECURITIES -- 1.7%
Asset Securitization Corp. 7.49% 2027................................. 1,000,000 1,069,219
CS First Boston Corp. 7.24% 2029(1)................................... 1,000,000 1,047,031
CS First Boston Mortgage 6.40% 2035(1)................................ 425,000 426,195
2,542,445
NON-U.S. GOVERNMENT OBLIGATIONS -- 1.8%
Quebec Province Canada 8.80% 2003..................................... 1,500,000 1,663,140
Republic of Lithuania 7.13% 2002*(1).................................. 1,000,000 947,500
2,610,640
U.S. GOVERNMENT & AGENCIES -- 21.8%
Federal Home Loan Mortgage Corp. 6.50% 2010 - 2026.................... 8,997,476 8,977,256
Federal Home Loan Mortgage Corp. 7.00% 2011........................... 2,397,173 2,441,616
Federal Home Loan Mortgage Corp. 8.50% 2001........................... 1,157,024 1,169,495
Government National Mortgage Association 6.50% 2023................... 4,020,498 3,979,006
United States Treasury Bonds 7.63% 2022............................... 6,000,000 7,224,360
</TABLE>
---------------------
39
<PAGE> 41
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (continued) AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCIES (continued)
United States Treasury Bonds 10.38% 2012.............................. $3,000,000 $ 3,986,250
United States Treasury Notes 6.00% 1999............................... 4,000,000 4,020,000
31,797,983
UTILITIES -- 1.3%
Korea Telecom 7.63% 2007.............................................. 1,000,000 715,070
Niagara Mohawk Power Corp. 5.88% 2002................................. 1,250,000 1,226,367
1,941,437
TOTAL BONDS & NOTES (cost $53,106,923)................................ 54,286,441
TOTAL INVESTMENT SECURITIES (cost $110,939,265)....................... 140,918,008
SHORT-TERM SECURITIES -- 0.2%
----------------------------------------------------------------------------------------------------
U.S. GOVERNMENT -- 0.2%
United States Treasury Bills 5.21% due 6/4/98
(cost $268,877)................................................... 275,000 268,899
REPURCHASE AGREEMENT -- 2.8%
----------------------------------------------------------------------------------------------------
Joint Repurchase Agreement Account@ (Note 3)
(cost $4,045,000)................................................... 4,045,000 4,045,000
TOTAL INVESTMENTS --
(cost $115,253,142) 99.7% 145,231,907
Other assets less liabilities -- 0.3 453,527
------
NET ASSETS -- 100.0% $145,685,434
======
</TABLE>
-----------------------------
+ Non-income producing securities
* Resale restricted to qualified institutional buyers
(1) Fair valued security; see Note 2
@ 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, 1997 APPRECIATION
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9 Long Standard & Poor's 500 Index March 1998 $2,161,125 $ 2,202,975 $ 41,850
===========
</TABLE>
See Notes to Financial Statements
- ---------------------
40
<PAGE> 42
- ---------------------
ANCHOR SERIES TRUST
STRATEGIC MULTI-ASSET
PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK -- 38.6% SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL APPRECIATION -- 15.9%
Aerospace & Military Technology -- 0.3%
Gulfstream Aerospace Corp.+............................................ 5,500 $ 160,875
Banks -- 0.0%
Metro Bank & Trust Co.................................................. 4,200 28,259
Broadcasting & Media -- 2.9%
Central European Media Enterprises, Ltd., Class A+..................... 3,500 88,375
Jacor Communications, Inc.+............................................ 4,000 212,500
Larscom Inc., Class A.................................................. 5,000 47,500
LodgeNet Entertainment Corp.+.......................................... 7,100 78,100
Metro Networks, Inc.+.................................................. 2,500 81,875
Outdoor Systems, Inc.+................................................. 6,000 230,250
Pulitzer Publishing Co................................................. 2,000 125,625
Scripps (E.W) Co., Class A............................................. 1,500 72,656
Tele-Communications Liberty Media Group, Inc., Series A+............... 8,000 290,000
Universal Outdoor Holdings, Inc.+...................................... 3,000 156,000
Viacom, Inc., Class B+................................................. 2,000 82,875
Young Broadcasting, Inc., Class A+..................................... 2,000 77,500
Business Services -- 0.8%
Republic Industries, Inc.+............................................. 4,000 93,250
Select Appointments Holdings PLC ADR................................... 5,000 91,250
Service Experts, Inc.+................................................. 4,000 114,500
West TeleServices Corp.+............................................... 12,300 147,600
Communication Equipment -- 0.9%
3Com Corp.+............................................................ 2,500 87,344
CIENA Corp.+........................................................... 1,000 61,125
Gilat Satellite Networks Ltd.+......................................... 3,000 85,875
NICE Systems Ltd. ADR+................................................. 3,500 147,000
NTL, Inc.+............................................................. 3,000 83,625
Computers & Business Equipment -- 0.9%
Adaptec, Inc.+......................................................... 1,000 37,125
Discreet Logic, Inc.+.................................................. 11,000 241,312
EMC Corp.+............................................................. 5,000 137,188
Splash Technology Holdings, Inc.+...................................... 2,100 47,250
Drugs -- 1.3%
Eisai Co., Ltd......................................................... 5,999 91,422
Genzyme Corp.+......................................................... 8,500 235,875
Human Genome Sciences, Inc.+........................................... 1,000 39,750
Immunex Corp.+......................................................... 2,400 129,600
Pharmerica Inc......................................................... 1 5
Warner-Lambert Co...................................................... 1,000 124,003
Zeneca Group PLC ADR................................................... 900 97,200
Electric Utilities -- 0.1%
Manila Electric Co..................................................... 15,000 49,630
</TABLE>
---------------------
41
<PAGE> 43
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL APPRECIATION (continued)
Electrical Equipment -- 0.3%
General Cable Corp.+................................................... 4,000 $ 144,750
Electronics -- 0.4%
Philips Electronics NV-NY Shares....................................... 3,600 217,800
Energy Services -- 0.8%
ENSCO International, Inc............................................... 6,000 201,000
Santa Fe International Corp............................................ 2,000 81,375
Transocean Offshore, Inc............................................... 3,000 144,562
Energy Sources -- 0.0%
Vastar Resources, Inc.................................................. 300 10,725
Financial Services -- 1.6%
Interra Financial, Inc................................................. 3,000 207,000
Legg Mason, Inc........................................................ 1,333 74,564
McDonald & Co. Investments, Inc........................................ 3,000 85,125
Morgan Keegan, Inc..................................................... 8,000 202,500
Piper Jaffray Cos., Inc................................................ 8,500 309,719
Health Services -- 0.4%
Beverly Enterprises, Inc.+............................................. 5,000 65,000
Columbia/HCA Healthcare Corp........................................... 3,000 88,875
MedPartners, Inc.+..................................................... 3,500 78,313
Insurance -- 1.1%
Ace Ltd................................................................ 3,500 337,750
Allstate Corp. ........................................................ 2,500 227,165
Leisure & Tourism -- 0.1%
Virgin Express Holdings PLC ADR+....................................... 3,700 76,775
Real Estate Companies -- 0.3%
Security Capital Group, Inc., Class B+................................. 4,500 146,250
Retail -- 0.9%
Bed Bath & Beyond, Inc.+............................................... 6,000 231,000
Gap, Inc............................................................... 3,500 124,024
Hot Topic, Inc.+....................................................... 4,500 102,375
Software -- 2.4%
BA Merchants Services, Inc., Class A+.................................. 2,000 35,500
BISYS Group, Inc.+..................................................... 5,000 166,250
BMC Software, Inc.+.................................................... 4,000 262,500
DST Systems, Inc.+..................................................... 3,000 128,062
Electronic Arts, Inc.+................................................. 4,000 151,250
Omtool Ltd.+........................................................... 14,000 143,500
Parametric Technology Corp.+........................................... 2,500 118,438
Policy Management Systems Corp.+....................................... 1,500 104,344
Sterling Software, Inc.+............................................... 4,000 164,000
Telephone -- 0.2%
Teleport Communications Group Inc., Class A+........................... 1,500 82,313
Transportation -- 0.2%
Werner Enterprises, Inc................................................ 6,000 123,000
-----------
8,510,123
-----------
CORE EQUITY -- 22.7%
Banks -- 1.4%
Citicorp............................................................... 2,200 278,163
First Union Corp....................................................... 4,000 205,000
U.S. Bancorp........................................................... 2,300 257,456
</TABLE>
- ---------------------
42
<PAGE> 44
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
CORE EQUITY (continued)
Broadcasting & Media -- 1.0%
Disney (Walt) Co....................................................... 1,500 $ 148,594
EchoStar Communications Corp., Class A+................................ 5,500 92,125
Gannett Co., Inc....................................................... 5,000 309,062
Business Services -- 0.3%
Hertz Corp., Class A................................................... 4,000 161,000
Chemicals -- 0.3%
du Pont (E.I.) de Nemours & Co......................................... 3,000 180,188
Communication Equipment -- 0.9%
Cisco Systems, Inc.+................................................... 3,000 167,250
Lucent Technologies, Inc............................................... 2,138 170,773
Motorola, Inc.......................................................... 2,500 142,656
Computers & Business Equipment -- 1.1%
EMC Corp.+............................................................. 5,000 137,188
International Business Machines Corp................................... 2,600 271,862
Xerox Corp............................................................. 2,500 184,531
Drugs -- 2.4%
American Home Products Corp............................................ 3,000 229,500
Bristol-Myers Squibb Co................................................ 1,500 141,937
Johnson & Johnson Co................................................... 4,000 263,500
Merck & Co., Inc....................................................... 2,000 212,500
Pfizer, Inc............................................................ 3,000 223,687
Pharmacia & Upjohn, Inc................................................ 2,500 91,563
Warner-Lambert Co...................................................... 1,100 136,398
Electrical Equipment -- 0.7%
General Electric Co.................................................... 5,400 396,225
Electronics -- 0.5%
Analog Devices, Inc.+.................................................. 5,000 138,438
Intel Corp............................................................. 1,500 105,375
Energy Services -- 0.5%
Schlumberger Ltd....................................................... 3,000 241,500
Energy Sources -- 1.1%
Amoco Corp............................................................. 2,000 170,250
Chevron Corp........................................................... 2,500 192,500
Exxon Corp............................................................. 3,500 214,156
Financial Services -- 1.5%
American Express Co.................................................... 3,500 312,375
Federal National Mortgage Association.................................. 4,500 256,781
Merrill Lynch & Co., Inc............................................... 3,000 218,813
Food, Beverage & Tobacco -- 0.8%
Coca-Cola Co........................................................... 2,000 133,250
Nabisco Holdings Corp., Class A........................................ 3,000 145,312
PepsiCo, Inc........................................................... 4,000 145,750
Health Services -- 0.3%
Columbia/HCA Healthcare Corp........................................... 5,000 148,125
Household Products -- 1.6%
Estee Lauder Cos., Inc., Class A....................................... 4,000 205,750
Gillette Co............................................................ 2,000 200,875
Kimberly-Clark Corp.................................................... 5,000 246,562
Procter & Gamble Co.................................................... 2,400 191,550
</TABLE>
---------------------
43
<PAGE> 45
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
CORE EQUITY (continued)
Insurance -- 1.8%
Allstate Corp.......................................................... 3,000 $ 272,648
American International Group, Inc...................................... 2,300 250,125
Marsh & McLennan Cos., Inc............................................. 2,600 193,863
Travelers Group, Inc................................................... 4,500 242,437
Leisure & Tourism -- 0.9%
McDonald's Corp........................................................ 6,000 286,500
Mirage Resorts, Inc.................................................... 8,000 182,000
Machinery -- 0.2%
Caterpillar, Inc....................................................... 2,500 121,406
Medical Products -- 0.9%
Abbott Laboratories, Inc............................................... 4,500 295,031
Perkin-Elmer Corp...................................................... 2,500 177,656
Retail -- 1.7%
CVS Corp............................................................... 4,000 256,250
Gap, Inc............................................................... 6,000 212,632
Home Depot, Inc........................................................ 3,700 217,838
Wal-Mart Stores, Inc................................................... 6,000 236,625
Software -- 1.8%
Automatic Data Processing, Inc......................................... 3,000 184,125
Computer Sciences Corp................................................. 3,200 267,200
First Data Corp........................................................ 6,000 175,500
Microsoft Corp.+....................................................... 1,800 232,650
PeopleSoft, Inc.+...................................................... 2,500 97,500
Telephone -- 0.6%
SBC Communications, Inc................................................ 3,000 219,750
WorldCom, Inc.+........................................................ 3,500 105,875
Transportation -- 0.4%
Union Pacific Corp..................................................... 3,000 187,313
-----------
12,083,444
-----------
TOTAL COMMON STOCK (cost $14,341,996).................................. 20,593,567
-----------
PREFERRED STOCK -- 0.8%
----------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION -- 0.3%
Finance -- 0.3%
Superior National Insurance Group, Inc. 10.75%*(1)..................... 140 143,500
BRAZIL -- 0.3%
Broadcasting & Media -- 0.0%
Telecomunicacoes de Sao Paulo SA....................................... 132,000 35,126
Electric Utilities -- 0.1%
Cemig Cia Energy MG.................................................... 1,063,900 46,224
Energy Sources -- 0.1%
Petroleo Brasileiros SA................................................ 314,000 73,432
Utilities -- 0.1%
Cia Riograndense Telecomunicacoes...................................... 28,900 35,606
-----------
190,388
-----------
</TABLE>
- ---------------------
44
<PAGE> 46
<TABLE>
<CAPTION>
PREFERRED STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
GERMANY -- 0.2%
Retail -- 0.2%
Hornbach Holding AG.................................................... 1,300 $ 89,969
-----------
TOTAL PREFERRED STOCK (cost $405,369).................................. 423,857
-----------
PRINCIPAL
BONDS & NOTES -- 25.2% AMOUNT
----------------------------------------------------------------------------------------------------
AEROSPACE & MILITARY TECHNOLOGY -- 0.3%
Argo-Tech Corp. 8.63% 2007*............................................ $ 50,000 49,875
K & F Industries, Inc. 9.25% 2007*..................................... 50,000 51,250
Moog, Inc., Class B 10.00% 2006........................................ 50,000 55,000
-----------
156,125
-----------
AUTOMOTIVE -- 0.6%
Hayes Wheels International, Inc. 11.00% 2006........................... 25,000 27,875
Johnstown America Industries, Inc. 11.75% 2005......................... 85,000 93,287
Key Plastics, Inc., Class B 10.25% 2007................................ 100,000 106,000
Lear Corp. 9.50% 2006.................................................. 100,000 110,000
-----------
337,162
-----------
CABLE -- 0.5%
Cablevision Systems Corp. 9.25% 2005................................... 100,000 106,000
Rifkin Acquisitions Partners L.P. 11.13% 2006.......................... 50,000 54,875
Tele-Communications, Inc. 9.25% 2023................................... 100,000 110,787
-----------
271,662
-----------
CHEMICALS -- 0.5%
Freedom Chemical Co. 10.63% 2006....................................... 50,000 55,000
Huntsman Polymers Corp. 11.75% 2004.................................... 25,000 28,031
Pioneer Americas Acquisition Corp., Class B 9.25% 2007................. 100,000 100,000
Sovereign Specialty Chemicals, Inc. 9.50% 2007*........................ 50,000 51,375
Texas Petrochemicals Corp. 11.13% 2006................................. 35,000 37,800
-----------
272,206
-----------
COMMUNICATIONS & MEDIA -- 0.6%
EchoStar DBS Corp. 12.50% 2002......................................... 45,000 49,162
Muzak L.P. 10.00% 2003................................................. 100,000 104,250
Young Broadcasting, Inc. 9.00% 2006.................................... 50,000 50,000
Young Broadcasting, Inc. 11.75% 2004................................... 100,000 111,250
-----------
314,662
-----------
CONSUMER DISCRETIONARY -- 0.1%
Standard Pacific Corp. 8.50% 2007...................................... 70,000 69,913
-----------
ENERGY -- 1.4%
Petroleos Mexicanos 8.85% 2007......................................... 250,000 247,670
Phillips Petroleum Co. 9.18% 2021...................................... 250,000 279,742
Plains Resources, Inc., Class B 10.25% 2006............................ 100,000 107,750
Pride Petroleum Services, Inc. 9.38% 2007.............................. 30,000 32,250
Transportadora De Gas 10.25% 2001...................................... 100,000 104,750
-----------
772,162
-----------
FINANCE -- 0.6%
First Nationwide Parent Holdings 12.50% 2003........................... 100,000 113,500
Pindo Deli Finance Mauritius Ltd. 10.75% 2007.......................... 100,000 85,750
Western Financial Savings Bank 8.88% 2007.............................. 150,000 144,750
-----------
344,000
-----------
</TABLE>
---------------------
45
<PAGE> 47
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (continued) AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
FOOD & LODGING -- 0.2%
Aurora Foods, Inc. 9.88% 2007.......................................... $ 25,000 $ 26,313
Del Monte Foods Co. zero coupon 2007*(2)............................... 100,000 57,625
-----------
83,938
-----------
GAMING -- 0.3%
Fitzgeralds Gaming Corp. 12.25% 2004*.................................. 35,000 35,263
Hollywood Casino, Inc. 12.75% 2003..................................... 100,000 107,250
-----------
142,513
-----------
HEALTHCARE -- 0.3%
Owens & Minor, Inc. 10.88% 2006........................................ 60,000 66,600
Vencor, Inc. 8.63% 2007................................................ 75,000 74,813
-----------
141,413
-----------
INDUSTRIAL & COMMERCIAL -- 0.7%
Cabot Safety Acquisition Corp. 12.50% 2005............................. 100,000 112,500
Globo Comunicacoes SA 10.50% 2006*..................................... 100,000 95,000
Graphic Controls Corp., Class A 12.00% 2005............................ 50,000 55,813
International Wire Group, Inc., Class B 11.75% 2005.................... 90,000 98,775
Scotsman Group, Inc. 8.63% 2007........................................ 35,000 35,131
-----------
397,219
-----------
INFORMATION & ENTERTAINMENT -- 0.2%
MCI Communications Corp. 7.13% 2000.................................... 90,000 91,604
-----------
INFORMATION TECHNOLOGY -- 0.5%
Decision Holdings Corp. zero coupon 2008(2)............................ 50,000 32,500
Iridium Capital Corp., Class C 11.25% 2005*............................ 100,000 98,500
Iron Mountain Inc. Delaware 8.75% 2009*................................ 35,000 35,875
Pierce Leahy Corp. 9.13% 2007.......................................... 75,000 78,000
-----------
244,875
-----------
MATERIALS -- 1.1%
A.K. Steel Corp. 9.13% 2006............................................ 150,000 153,375
A.K. Steel Corp. 10.75% 2004........................................... 100,000 106,500
Acindar Industria Argentina de Aceros SA 11.25% 2004................... 55,000 54,038
CSN Iron SA 9.13% 2007*................................................ 100,000 83,000
Nortek, Inc., Class B 9.25% 2007....................................... 70,000 71,400
Vale Rio Doce Cia zero coupon 1999(1).................................. 2,000 0
Weirton Steel Corp. 11.38% 2004........................................ 100,000 104,000
-----------
572,313
-----------
NON-U.S. GOVERNMENT OBLIGATIONS -- 0.8%
British Columbia Province Canada 6.50% 2026............................ 150,000 150,457
Republic of Argentina 8.38% 2003....................................... 150,000 143,250
Republic of Argentina 11.00% 2006...................................... 100,000 107,500
-----------
401,207
-----------
PAPER PRODUCTS -- 1.5%
Aracruz Celulose SA 10.38% 2002........................................ 100,000 101,250
Container Corp. of America 10.75% 2002................................. 225,000 246,375
Industrias Klabin de Papel e Celulose SA 11.00% 2004................... 100,000 95,000
S.D. Warren Co., Class B 12.00% 2004................................... 100,000 111,750
Silgan Holdings Corp. 9.00% 2009....................................... 250,000 255,625
-----------
810,000
-----------
RETAIL -- 0.1%
Guitar Center Management Co., Inc. 11.00% 2006*........................ 33,000 36,341
-----------
</TABLE>
- ---------------------
46
<PAGE> 48
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (continued) AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS -- 0.7%
Globalstar L.P. 10.75% 2004*........................................... $ 150,000 $ 147,000
GST Telecommunications, Inc. 12.75% 2007............................... 60,000 62,400
Microcell Telecommunications zero coupon 2007(2)....................... 160,000 62,139
Philippine Long District Telephone Co. Maine 7.85% 2007................ 100,000 86,980
-----------
358,519
-----------
U.S. GOVERNMENT & AGENCIES -- 14.2%
Government National Mortgage Association 6.00% 2009.................... 157,686 156,798
Government National Mortgage Association 6.50% 2008 - 2009............. 1,050,444 1,060,938
Government National Mortgage Association 7.50% 2022 - 2024............. 595,536 611,555
Government National Mortgage Association 8.50% 2024.................... 308,451 324,546
United States Treasury Bonds 5.88% 2004................................ 250,000 252,187
United States Treasury Bonds 6.25% 2023................................ 200,000 206,000
United States Treasury Bonds 9.25% 2016................................ 150,000 203,531
United States Treasury Notes 6.25% 2003................................ 750,000 766,995
United States Treasury Notes 6.50% 2006................................ 500,000 523,515
United States Treasury Notes 7.50% 2001................................ 750,000 795,120
United States Treasury Notes 7.75% 1999................................ 500,000 518,515
United States Treasury Notes 7.88% 1999 - 2004......................... 1,250,000 1,357,697
United States Treasury Notes 8.50% 2000................................ 750,000 791,715
-----------
7,569,112
-----------
TOTAL BONDS & NOTES (cost $12,587,045)................................. 13,386,946
-----------
WARRANTS -- 0.0%+ SHARES
----------------------------------------------------------------------------------------------------
THAILAND -- 0.0%
Siam Commercial Bank 12/31/02 (Finance)(1)
(cost $0)............................................................ 400 0
-----------
<CAPTION>
FOREIGN SECURITIES -- 28.6%
----------------------------------------------------------------------------------------------------
<S> <C> <C>
ARGENTINA -- 0.2%
Banco de Galicia y Buenos Aires SA de CV (Finance)..................... 10,300 65,932
Telefonica de Argentina SA ADR (Utilities)............................. 1,500 55,875
-----------
121,807
-----------
AUSTRALIA -- 0.7%
Amcor Ltd. (Materials)................................................. 12,811 56,360
Australia & New Zealand Banking Group Ltd. (Finance)................... 15,000 99,131
Broken Hill Proprietary Co., Ltd. (Materials).......................... 8,299 77,076
Goodman Fielder Wattie Ltd. (Consumer Staples)......................... 65,072 103,482
News Corp., Ltd. (Information & Entertainment)......................... 6,000 33,122
-----------
369,171
-----------
BRAZIL -- 0.4%
Aracruz Celulose ADR (Materials)....................................... 2,400 34,500
Centrais Eletricas Brasileiras SA-ELECTROBRAS ADR (Utilities)+......... 2,050 50,973
Telecomunicacoes Brasileras SA (Utilities)............................. 1,094,000 111,258
-----------
196,731
-----------
CANADA -- 0.7%
Canadian Imperial Bank of Toronto (Finance)............................ 3,100 96,750
Canadian Pacific Ltd. (Industrial & Commercial)+....................... 6,500 175,116
CanWest Global Communications Corp. (Information & Entertainment)...... 4,400 79,200
-----------
351,066
-----------
CHINA -- 0.0%
China Southern Airlines Ltd. ADR (Information & Entertainment)+........ 1,500 19,781
-----------
</TABLE>
---------------------
47
<PAGE> 49
<TABLE>
<CAPTION>
FOREIGN SECURITIES (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
DENMARK -- 0.6%
Unidanmark A/S (Finance)............................................... 4,650 $ 341,358
-----------
FINLAND -- 0.7%
Kesko (Consumer Discretionary)......................................... 8,700 137,580
Metsa Serla Oy, Class B (Materials).................................... 15,500 120,850
Nokia Corp., Class A ADR (Information Technology)...................... 1,800 126,000
-----------
384,430
-----------
FRANCE -- 3.1%
Assurance General de France (Finance)+................................. 3,500 185,453
Banque Nationale de Paris (Finance).................................... 2,639 140,270
Carrefour SA (Consumer Discretionary).................................. 200 104,345
Compagnie de St. Gobain (Materials).................................... 781 110,950
Credit Commerce France (Finance)....................................... 1,180 80,876
Elf Aquitaine SA (Energy).............................................. 1,700 197,724
Havas SA (Information & Entertainment)................................. 2,271 163,387
Peugeot SA (Consumer Discretionary).................................... 1,200 151,333
Rhone-Poulenc Ltd. (Healthcare)........................................ 5,536 247,986
Societe Generale (Finance)............................................. 990 134,884
Total SA, Series B (Energy)............................................ 1,152 125,374
-----------
1,642,582
-----------
GERMANY -- 2.2%
Bayer AG (Healthcare).................................................. 7,900 295,105
Degussa AG (Materials)................................................. 1,500 75,044
Karstadt AG (Consumer Discretionary)................................... 440 150,201
Manitoba AG (Industrial & Commercial).................................. 500 144,807
Mannesmann AG (Industrial & Commercial)................................ 332 167,758
Metallgesellschaft AG (Industrial & Commercial)+....................... 8,050 147,222
Prosieben Media AG (Information & Entertainment)+*..................... 3,940 183,974
-----------
1,164,111
-----------
HONG KONG -- 0.6%
Hutchison Whampoa Ltd. (Industrial & Commercial)....................... 21,000 131,707
Hysan Development Co., Ltd. (Real Estate).............................. 16,000 31,901
Peak International Ltd. (Information Technology)+...................... 2,500 52,187
Sun Hung Kai Properties Ltd. (Real Estate)............................. 9,900 68,990
Tingyi Holding Co. (Consumer Staples).................................. 200,000 26,068
-----------
310,853
-----------
INDIA -- 0.1%
Ranbaxy Laboratories Ltd. (Healthcare)................................. 1,300 33,540
State Bank India of GDR (Finance)*..................................... 1,700 30,940
-----------
64,480
-----------
INDONESIA -- 0.0%
PT Kalbe Farma (Healthcare)............................................ 73,000 12,941
-----------
IRELAND -- 0.5%
Allied Irish Banks PLC (Finance)....................................... 4,669 44,534
Jefferson Smurfit Group (Materials)+................................... 78,612 218,213
-----------
262,747
-----------
ITALY -- 0.9%
First British Columbia San Paolo (Finance)*............................ 14,900 142,346
Telecom Italia SpA (Utilities)......................................... 49,500 316,196
-----------
458,542
-----------
JAPAN -- 4.9%
Aisin Seiki Co., Ltd. (Consumer Discretionary)......................... 14,000 144,750
Bank of Tokyo-Mitsubishi Ltd. (Finance)................................ 12,000 165,429
Daiwa Securities Co., Ltd. (Finance)................................... 9,000 31,018
</TABLE>
- ---------------------
48
<PAGE> 50
<TABLE>
<CAPTION>
FOREIGN SECURITIES (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
JAPAN (continued)
Eisai Co. Ltd. (Healthcare)............................................ 9,002 $ 137,191
Exedy Corp. (Consumer Discretionary)................................... 2,100 15,906
Fuji Machine Manufacturing Co. (Industrial & Commercial)............... 5,000 120,625
Fujisawa Pharm Co. (Healthcare)........................................ 4,000 34,924
Fukuda Denshi (Healthcare)............................................. 3,000 30,558
Hitachi Ltd. (Information Technology).................................. 9,000 64,104
JGC Corp. (Industrial & Commercial).................................... 16,000 33,698
Mabuchi Motor Co., Ltd. (Industrial & Commercial)...................... 3,000 152,332
Maruichi Steel Tube (Materials)........................................ 7,000 85,242
Matsumotokiyoshi (Consumer Discretionary).............................. 3,400 130,198
Matsushita Electric Industrial Co., Ltd. (Information Technology)+..... 12,000 175,538
Mazda Motor Corp. (Consumer Discretionary) +........................... 59,000 140,078
Murata Manufacturing Co. Ltd. (Information Technology)................. 2,000 50,241
Namco (Information & Entertainment).................................... 5,000 145,133
NGK Spark Plug Co., Ltd. (Industrial & Commercial)..................... 10,000 56,675
Nomura Securities International, Inc. (Finance)........................ 3,000 39,979
Okumura Corp. (Consumer Discretionary)................................. 16,000 37,987
Otsuka Kagu (Consumer Staples)......................................... 500 17,998
Rohm Co. (Information Technology)...................................... 1,000 101,861
Sakura Bank Ltd. (Finance)............................................. 27,000 77,131
Sanwa Bank Ltd. (Finance).............................................. 5,000 50,548
Shimachu Co. (Consumer Discretionary).................................. 1,200 18,840
Sony Corp. (Information & Entertainment)............................... 1,000 88,841
Sony Music Entertainment, Inc. (Information & Entertainment)........... 5,600 205,867
Square Co., Ltd. (Information Technology).............................. 2,000 55,449
Sumitomo Rubber Industries Ltd. (Consumer Discretionary)............... 24,000 101,279
Yamato Kogyo Co. (Materials)........................................... 14,000 84,169
-----------
2,593,589
-----------
MALAYSIA -- 0.0%
Renong Bhd (Industrial & Commercial)(1)................................ 19,000 8,793
Sime Darby Bhd (Industrial & Commercial)............................... 6,250 6,010
-----------
14,803
-----------
MEXICO -- 0.5%
Grupo Televisa SA de CV (Information & Entertainment).................. 4,300 83,703
Kimberly-Clark de Mexico SA de CV, Class A (Consumer Staples).......... 32,000 156,620
Panamerican Beverages, Inc., Class A ADR (Consumer Staples)............ 1,000 32,625
-----------
272,948
-----------
NETHERLANDS -- 1.2%
Akzo Nobel NV (Healthcare)............................................. 810 139,657
Elsevier NV (Information & Entertainment).............................. 6,100 98,676
Internationale Nedederlanden Groep NV (Finance)........................ 5,371 226,214
PolyGram NV (Information & Entertainment).............................. 2,867 137,154
Unilever NV PLC (Consumer Staples)..................................... 800 49,318
-----------
651,019
-----------
NEW ZEALAND -- 0.2%
Air New Zealand Ltd., Class B (Information & Entertainment)............ 13,366 26,776
Brierley Investments Ltd. (Finance)+................................... 32,833 23,449
Carter Holt Harvey Ltd. (Materials).................................... 23,000 35,524
-----------
85,749
-----------
NORWAY -- 0.4%
Saga Petroleum ASA, Series A (Energy).................................. 11,400 196,025
-----------
</TABLE>
---------------------
49
<PAGE> 51
<TABLE>
<CAPTION>
FOREIGN SECURITIES (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
SINGAPORE -- 0.3%
Keppel Corp., Ltd. (Industrial & Commercial)........................... 11,000 $ 31,587
Keppel Fels Ltd. (Energy).............................................. 20,000 55,770
Overseas Union Bank Ltd. alien shares (Finance)........................ 20,000 76,535
-----------
163,892
-----------
SPAIN -- 1.0%
Banco de Santander SA (Finance)........................................ 3,900 130,298
Banco Popular Espanol SA (Finance)..................................... 2,700 188,743
Empresa Nacional de Electricidad SA (Utilities)........................ 7,500 133,164
Telefonica de Espana SA ADR (Utilities)................................ 700 63,044
-----------
515,249
-----------
SWEDEN -- 1.3%
Hennes & Mauritz AB Class B (Consumer Discretionary)................... 1,800 79,346
Nordbanken Holding (Finance)+.......................................... 58,100 328,554
Pharmacia & Upjohn, Inc. (Healthcare).................................. 6,700 246,401
Sparbanken Sverige AB (Finance)........................................ 1,820 41,375
-----------
695,676
-----------
SWITZERLAND -- 2.1%
Ciba Specialty Chemicals AG (Materials)+............................... 620 73,830
Holderbank Financiere Glarus (Materials)............................... 280 228,415
Nestle SA (Consumer Staples)........................................... 181 271,153
Roche Holdings AG (Healthcare)......................................... 37 367,290
Schweizerische Bankgesellschaft (Finance).............................. 131 189,346
-----------
1,130,034
-----------
THAILAND -- 0.0%
Siam City Cement PCL alien shares (Materials).......................... 563 585
Siam Commercial Bank PCL alien shares (Finance)........................ 400 457
Thai Farmers Bank alien shares (Finance)............................... 7,800 14,174
-----------
15,216
-----------
UNITED KINGDOM -- 6.0%
Associated British Foods PLC (Consumer Staples)........................ 19,000 165,400
Bank of Scotland (Finance)............................................. 12,400 112,629
Bass PLC (Consumer Staples)............................................ 11,500 178,884
Billiton PLC (Materials)+*............................................. 20,300 52,015
BOC Group PLC (Materials).............................................. 9,637 158,446
British Petroleum Co. PLC (Energy)..................................... 14,000 185,199
BTR Ltd. PLC (Industrial & Commercial)................................. 43,000 129,955
Burmah Castrol PLC (Energy)............................................ 11,600 202,343
Carlton Communications PLC (Information & Entertainment)............... 22,500 173,694
Cookson Group PLC (Information Technology)............................. 44,461 143,864
Guinness PLC (Consumer Staples)........................................ 24,000 219,569
HSBC Holdings PLC (Finance)............................................ 6,600 162,824
Johnson Matthey PLC (Materials)........................................ 16,000 143,226
PowerGen PLC (Utilities)............................................... 11,253 146,386
Rank Group PLC (Information & Entertainment)........................... 26,000 144,770
Reckitt & Colman PLC (Consumer Staples)................................ 10,800 169,407
Royal & Sun Alliance Insurance Group PLC (Finance)..................... 16,254 163,654
Royal Bank of Scotland Group PLC (Finance)............................. 12,000 152,987
Zeneca Group PLC (Healthcare).......................................... 11,700 414,430
-----------
3,219,682
-----------
TOTAL FOREIGN SECURITIES (cost $14,685,240)............................ 15,254,482
-----------
</TABLE>
- ---------------------
50
<PAGE> 52
<TABLE>
<CAPTION>
PRINCIPAL
OPTIONS -- 0.0% AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
FOREIGN CURRENCY PUT OPTIONS
Brazilian Real Option Jan. 16, 1998/1.17(1)
(cost $1,168)........................................................ $ 1,980 416
-----------
TOTAL INVESTMENT SECURITIES (cost $42,021,818)......................... 49,659,268
-----------
<CAPTION>
SHORT-TERM SECURITIES -- 0.5%
----------------------------------------------------------------------------------------------------
<S> <C> <C>
United States Treasury Bills 5.21% due 6/04/98......................... 175,000 171,117
United States Treasury Bills 5.35% due 4/30/98@........................ 75,000 73,722
-----------
TOTAL SHORT-TERM SECURITIES (cost $244,829)............................ 244,839
-----------
<CAPTION>
REPURCHASE AGREEMENT -- 6.5%
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Joint Repurchase Agreement Account (Note 3)
(cost $3,485,000).................................................... 3,485,000 3,485,000
-----------
TOTAL INVESTMENTS --
(cost $45,751,647) 100.2% 53,389,107
Liabilities in excess of other assets -- (0.2) (99,957)
------ -----------
NET ASSETS -- 100.0% $53,289,150
====== ===========
</TABLE>
-----------------------------
+ Non-income producing securities
* Resale restricted to qualified institutional buyers
ADR -- American Depository Receipts
GDR -- Global Depository Receipts
(1) Fair valued security; see Note 2
(2) Represents a zero-coupon bond which will convert to an
interest-bearing security at a later date
@ The security or a portion thereof represents collateral for the
following open futures contracts:
<TABLE>
<CAPTION>
OPEN FUTURES CONTRACTS
-----------------------------------------------------------------------------------------------------------------
NUMBER VALUE AT
OF EXPIRATION TRADE VALUE AS OF UNREALIZED
CONTRACTS DESCRIPTION DATE DATE DECEMBER 31, 1997 APPRECIATION
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
15 Long All ordinaries share price Stock March 1998 $618,206 $ 644,107 $ 25,901
Index Future -- Sydney Futures
Exchange
3 Long Deutsche Terminboerse -- Dax Stock March 1998 703,187 713,837 10,650
Index Future
7 Long Hang Seng Index Future -- Hong January 1998 460,217 484,222 24,005
Kong Futures Exchange
6 Long Marche A Terme International de March 1998 592,252 603,489 11,237
France -- CAC 40 Stock Index
Future
------------
Net Unrealized Appreciation.................................. $ 71,793
=========
</TABLE>
---------------------
51
<PAGE> 53
<TABLE>
<CAPTION>
OPEN FORWARD FOREIGN CURRENCY CONTRACTS
--------------------------------------------------------------------
CONTRACT IN DELIVERY GROSS UNREALIZED
TO DELIVER EXCHANGE FOR DATE APPRECIATION
--------------------------------------------------------------------
<S> <C> <C> <C>
CAD 91,200 USD 66,207 10/16/98 $ 1,996
DEM 29,250 USD 16,541 3/19/98 208
----------------
2,204
----------------
<CAPTION>
GROSS UNREALIZED
DEPRECIATION
--------------------------------------------------------------------
<S> <C> <C> <C>
USD 640,848 AUD 972,750 3/31/98 $ (5,545)
USD 592,594 FRF 3,509,400 3/31/98 (6,497)
USD 706,860 DEM 1,251,000 3/19/98 (8,285)
----------------
(20,327)
----------------
Net Unrealized Depreciation........... $(18,123)
================
AUD -- Australian Dollar
CAD -- Canadian Dollar
DEM -- Deutsche Mark
FRF -- French Franc
USD -- United States Dollar
</TABLE>
See Notes to Financial Statements
- ---------------------
52
<PAGE> 54
(This page intentionally left blank)
---------------------
53
<PAGE> 55
- ---------------------
ANCHOR SERIES TRUST
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<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*............................. $ -- $18,015,289 $222,701,883 $ 37,738,299
Short-term securities*....................................... 69,594,514 -- -- --
Repurchase agreements (cost equals market)................... 540,000 -- 9,760,000 3,010,000
Cash......................................................... 2,305 -- 389 2,508
Foreign currency............................................. -- -- -- --
Receivables for --
Fund shares sold........................................... 48,457 12,902 884,599 46,399
Dividends and accrued interest............................. 195,839 370,513 1,978,249 930,127
Sales of investments....................................... -- -- -- --
Variation margin on futures contracts...................... -- -- -- --
Foreign currency contracts................................. -- -- -- --
Prepaid expenses............................................. 19,289 8,554 44,473 9,319
Unrealized appreciation on forward foreign currency
contracts.................................................. -- -- -- 2,745
----------------------------------------------------------
70,400,404 18,407,258 235,369,593 41,739,397
----------------------------------------------------------
LIABILITIES:
Payables for --
Fund shares redeemed....................................... 524,394 9,692 525,433 827,043
Management fees............................................ 31,062 9,739 120,063 23,762
Purchases of investments................................... -- -- -- 652,031
Foreign currency contracts................................. -- -- -- --
Variation margin on futures contracts...................... -- -- -- --
Other accrued expenses....................................... 40,767 27,668 101,150 43,300
Unrealized depreciation on forward foreign currency
contracts.................................................. -- -- -- --
Due to custodian bank........................................ -- 44,937 -- --
----------------------------------------------------------
596,223 92,036 746,646 1,546,136
----------------------------------------------------------
NET ASSETS:.................................................. $69,804,181 $18,315,222 $234,622,947 $ 40,193,261
==========================================================
Shares of beneficial interest outstanding (unlimited shares
authorized)................................................ 69,804,181 1,379,083 16,803,116 4,798,650
Net asset value per share.................................... $ 1.00 $ 13.28 $ 13.96 $ 8.38
==========================================================
COMPOSITION OF NET ASSETS:
Capital paid in.............................................. $69,804,181 $18,301,157 $215,745,068 $ 45,337,237
Accumulated undistributed net investment income.............. 632 1,372,518 13,552,555 3,705,994
Accumulated undistributed net realized gain (loss) on
investments, futures contracts and foreign currency........ (632) (1,695,246) (547,474) (9,486,051)
Unrealized appreciation (depreciation) of investments........ -- 336,793 5,872,798 633,336
Unrealized foreign exchange gain (loss) on other assets and
liabilities................................................ -- -- -- 2,745
Unrealized appreciation on futures contracts................. -- -- -- --
----------------------------------------------------------
$69,804,181 $18,315,222 $234,622,947 $ 40,193,261
==========================================================
---------------
*Cost
Investment securities....................................... $ -- $17,678,496 $216,829,085 $ 37,104,963
==========================================================
Short-term securities....................................... $69,594,514 $ -- -- $ --
==========================================================
</TABLE>
See Notes to Financial Statements
- ---------------------
54
<PAGE> 56
<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>
$7,058,270 $43,389,450 $35,133,697 $466,622,126 $739,873,078 $46,267,996 $140,918,008 $49,659,268
-- -- 49,700 -- -- -- 268,899 244,839
370,000 295,000 765,000 18,295,000 86,080,000 2,800,000 4,045,000 3,485,000
4,763 4,927 3,028 205 570 2,781 1,566 4,842
-- -- 29,826 -- 37,432 3,569 -- 12,617
3,927 65,978 60,701 588,820 2,256,230 1,080,015 50,397 11,937
2,411 48,588 116,355 450,048 255,082 65,638 631,139 302,387
-- 1,237,889 438,262 883,348 4,714,653 -- -- 286,928
-- -- -- -- -- -- -- 5,558
-- -- 394,654 -- 37,538 -- -- 114,775
804 3,567 4,270 45,950 25,075 2,811 29,881 14,164
-- -- -- -- -- -- -- 2,204
---------------------------------------------------------------------------------------------------------------------------
7,440,175 45,045,399 36,995,493 486,885,497 833,279,658 50,222,810 145,944,890 54,144,519
---------------------------------------------------------------------------------------------------------------------------
1,977 19,269 23,474 593,369 1,206,589 101,457 50,246 42,242
4,069 26,363 28,217 291,265 426,076 30,693 124,240 45,004
-- 551,364 297,059 350,150 17,110,640 -- -- 527,668
-- -- 394,757 -- 37,432 -- -- 115,054
-- -- -- -- -- -- 450 --
21,651 31,743 103,730 122,453 187,855 36,728 84,520 105,074
-- -- -- -- -- -- -- 20,327
-- -- -- -- -- -- -- --
---------------------------------------------------------------------------------------------------------------------------
27,697 628,739 847,237 1,357,237 18,968,592 168,878 259,456 855,369
---------------------------------------------------------------------------------------------------------------------------
$7,412,478 $44,416,660 $36,148,256 $485,528,260 $814,311,066 $50,053,932 $145,685,434 $53,289,150
===========================================================================================================================
669,420 2,591,557 3,170,352 17,953,297 25,278,342 3,470,928 10,774,534 4,723,650
$ 11.07 $ 17.14 $ 11.40 $ 27.04 $ 32.21 $ 14.42 $ 13.52 $ 11.28
===========================================================================================================================
$6,961,259 $30,764,229 $33,479,349 $296,867,213 $564,921,133 $50,083,441 $ 89,396,384 $36,928,266
593,334 377,994 440,430 2,514,747 443,996 591,715 3,631,038 1,039,089
(270,582) 1,790,639 1,950,233 31,075,014 72,817,047 406,552 22,637,397 7,631,528
128,467 11,483,798 279,912 155,071,286 176,136,434 (1,025,003) 29,978,765 7,637,460
-- -- (1,668) -- (7,544) (2,773) -- (18,986)
-- -- -- -- -- -- 41,850 71,793
---------------------------------------------------------------------------------------------------------------------------
$7,412,478 $44,416,660 $36,148,256 $485,528,260 $814,311,066 $50,053,932 $145,685,434 $53,289,150
===========================================================================================================================
$6,929,803 $31,905,652 $34,853,785 $311,550,840 $563,736,644 $47,292,999 $110,939,265 $42,021,818
===========================================================================================================================
$ -- $ -- $ 49,700 $ -- $ -- $ -- $ 268,877 $ 244,829
===========================================================================================================================
</TABLE>
---------------------
55
<PAGE> 57
- ---------------------
ANCHOR SERIES TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<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........................................................ $4,312,171 $ 1,540,711 $ 14,895,280 $ 3,844,704
Dividends....................................................... -- -- -- 103,508
---------------------------------------------------------
Total income*............................................ 4,312,171 1,540,711 14,895,280 3,948,212
---------------------------------------------------------
Expenses:
Investment management fees...................................... 383,800 124,001 1,364,101 286,254
Custodian fees.................................................. 25,075 40,725 120,350 52,875
Audit and tax consulting fees................................... 15,850 10,325 24,550 13,350
Trustees' fees.................................................. 5,819 1,147 15,350 2,859
Reports to investors............................................ 4,800 1,200 16,325 2,400
Legal fees...................................................... 3,025 1,200 6,050 --
Insurance expense............................................... 1,248 305 2,995 616
Other expenses.................................................. 2,545 858 5,435 1,860
---------------------------------------------------------
Total expenses........................................... 442,162 179,761 1,555,156 360,214
---------------------------------------------------------
Net investment income............................................. 3,870,009 1,360,950 13,340,124 3,587,998
---------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCIES:
Net realized gain (loss) on investments........................... -- 2,846 (164,068) 1,614,047
Net realized foreign exchange gain (loss) on other assets and
liabilities..................................................... -- -- -- --
Net realized gain on futures contracts............................ -- -- -- --
Change in unrealized appreciation/depreciation of investments..... -- 379,729 6,917,378 (803,941)
Change in unrealized foreign exchange gain/loss on other assets
and liabilities................................................. -- -- -- 2,745
Change in unrealized appreciation/depreciation on futures
contracts....................................................... -- -- -- --
---------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign
currencies...................................................... -- 382,575 6,753,310 812,851
---------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS... $3,870,009 $ 1,743,525 $ 20,093,434 $ 4,400,849
========================================================
---------------
* Net of foreign withholding taxes on interest and dividends
of:............................................................. $ -- $ 64 $ -- $ 1,132
========================================================
</TABLE>
See Notes to Financial Statements
- ---------------------
56
<PAGE> 58
<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>
$ 691,476 $ 118,435 $ 111,267 $ 621,638 $ 3,164,654 $ 263,359 $ 4,001,965 $1,219,182
-- 596,506 898,246 5,210,878 2,063,531 785,993 1,242,698 604,796
------------------------------------------------------------------------------------------------------------------
691,476 714,941 1,009,513 5,832,516 5,228,185 1,049,352 5,244,663 1,823,978
------------------------------------------------------------------------------------------------------------------
55,542 280,911 404,182 3,049,207 4,366,046 380,856 1,501,407 563,207
20,700 30,500 192,900 128,075 217,675 44,525 75,550 203,675
10,275 12,725 11,000 41,550 64,175 13,975 18,400 13,975
714 1,872 3,539 25,397 37,627 2,845 9,560 4,341
1,200 625 625 9,075 15,125 1,825 3,650 1,825
-- -- 3,600 28,375 40,775 2,500 10,800 4,800
148 423 640 4,508 6,666 577 2,043 776
658 1,938 3,803 6,222 12,235 1,200 4,252 3,983
------------------------------------------------------------------------------------------------------------------
89,237 328,994 620,289 3,292,409 4,760,324 448,303 1,625,662 796,582
------------------------------------------------------------------------------------------------------------------
602,239 385,947 389,224 2,540,107 467,861 601,049 3,619,001 1,027,396
------------------------------------------------------------------------------------------------------------------
(17,879) 1,874,021 1,955,084 31,187,271 71,694,746 417,576 22,517,840 7,616,407
-- -- (207,950) -- (3,171) (328) 58 (11,793)
-- -- 274,991 -- 1,527,540 -- 157,744 67,891
(137,546) 7,471,248 (2,293,078) 75,254,383 78,026,936 (5,760,825) 2,368,322 (1,149,205)
-- -- (14,202) -- (7,316) (2,530) 14 (19,409)
-- -- (28,021) -- (393,750) -- 41,850 71,793
------------------------------------------------------------------------------------------------------------------
(155,425) 9,345,269 (313,176) 106,441,654 150,844,985 (5,346,107) 25,085,828 6,575,684
------------------------------------------------------------------------------------------------------------------
$ 446,814 $9,731,216 $ 76,048 $108,981,761 $151,312,846 $(4,745,058) $28,704,829 $7,603,080
==================================================================================================================
$ -- $ 4,602 $ 131,245 $ 15,798 $ 35,594 $ 31,970 $ -- $ 55,387
==================================================================================================================
</TABLE>
---------------------
57
<PAGE> 59
- ---------------------
ANCHOR SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
GOVERNMENT &
MONEY MARKET FIXED INCOME QUALITY BOND HIGH YIELD
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income..................................... $ 3,870,009 $ 1,360,950 $ 13,340,124 $ 3,587,998
Net realized gain (loss) on investments................... -- 2,846 (164,068) 1,614,047
Net realized foreign exchange gain (loss) on other assets
and liabilities......................................... -- -- -- --
Net realized gain on futures contracts.................... -- -- -- --
Change in unrealized appreciation/depreciation of
investments ............................................ -- 379,729 6,917,378 (803,941)
Change in unrealized foreign exchange gain/loss on other
assets and liabilities.................................. -- -- -- 2,745
Change in unrealized appreciation/depreciation on futures
contracts............................................... -- -- -- --
--------------------------------------------------------------
Net increase in net assets resulting from operations...... 3,870,009 1,743,525 20,093,434 4,400,849
--------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from capital gains.......................... -- -- (790,000) --
Dividends from net investment income...................... (3,870,009) (1,670,000) (13,980,000) (4,025,000)
--------------------------------------------------------------
Total dividends and distributions to shareholders......... (3,870,009) (1,670,000) (14,770,000) (4,025,000)
--------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold................................. 179,789,798 1,882,041 84,629,814 25,080,588
Proceeds from shares issued for reinvestment of dividends
and distributions....................................... 3,870,009 1,670,000 14,770,000 4,025,000
Cost of shares repurchased................................ (187,856,279) (8,053,346) (91,703,378) (34,974,896)
--------------------------------------------------------------
Net increase (decrease) in net assets resulting from
capital share transactions.............................. (4,196,472) (4,501,305) 7,696,436 (5,869,308)
--------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS................... (4,196,472) (4,427,780) 13,019,870 (5,493,459)
NET ASSETS:
Beginning of period....................................... 74,000,653 22,743,002 221,603,077 45,686,720
--------------------------------------------------------------
End of period............................................. $ 69,804,181 $ 18,315,222 $234,622,947 $ 40,193,261
==============================================================
---------------
Accumulated undistributed net investment income........... $ 632 $ 1,372,518 $ 13,552,555 $ 3,705,994
==============================================================
Shares issued and repurchased:
Sold...................................................... 179,789,798 140,887 6,117,786 2,936,419
Issued in reinvestment of dividends and distributions..... 3,870,009 130,367 1,100,596 492,656
Repurchased............................................... (187,856,279) (601,742) (6,625,026) (4,080,564)
--------------------------------------------------------------
Net increase (decrease)................................... (4,196,472) (330,488) 593,356 (651,489)
==============================================================
</TABLE>
See Notes to Financial Statements
- ---------------------
58
<PAGE> 60
<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>
$ 602,239 $ 385,947 $ 389,224 $ 2,540,107 $ 467,861 $ 601,049 $ 3,619,001 $ 1,027,396
(17,879) 1,874,021 1,955,084 31,187,271 71,694,746 417,576 22,517,840 7,616,407
-- -- (207,950) -- (3,171) (328) 58 (11,793)
-- -- 274,991 -- 1,527,540 -- 157,744 67,891
(137,546) 7,471,248 (2,293,078) 75,254,383 78,026,936 (5,760,825) 2,368,322 (1,149,205)
-- -- (14,202) -- (7,316) (2,530) 14 (19,409)
-- -- (28,021) -- (393,750) -- 41,850 71,793
- ----------------------------------------------------------------------------------------------------------------------------------
446,814 9,731,216 76,048 108,981,761 151,312,846 (4,745,058) 28,704,829 7,603,080
- ----------------------------------------------------------------------------------------------------------------------------------
-- (3,000) (3,775,000) (44,990,000) (63,555,000) (3,075,000) (20,195,000) (9,430,000)
(825,000) (865,000) (985,000) (3,085,000) (1,055,000) (535,000) (4,135,000) (1,270,000)
- ----------------------------------------------------------------------------------------------------------------------------------
(825,000) (868,000) (4,760,000) (48,075,000) (64,610,000) (3,610,000) (24,330,000) (10,700,000)
- ----------------------------------------------------------------------------------------------------------------------------------
488,918 17,209,143 14,889,890 172,256,188 594,961,738 33,911,861 15,771,917 5,143,306
825,000 868,000 4,760,000 48,075,000 64,610,000 3,610,000 24,330,000 10,700,000
(3,694,795) (15,988,972) (26,853,371) (162,312,016) (499,635,823) (24,442,072) (49,410,173) (17,201,470)
- ----------------------------------------------------------------------------------------------------------------------------------
(2,380,877) 2,088,171 (7,203,481) 58,019,172 159,935,915 13,079,789 (9,308,256) (1,358,164)
- ----------------------------------------------------------------------------------------------------------------------------------
(2,759,063) 10,951,387 (11,887,433) 118,925,933 246,638,761 4,724,731 (4,933,427) (4,455,084)
10,171,541 33,465,273 48,035,689 366,602,327 567,672,305 45,329,201 150,618,861 57,744,234
- ----------------------------------------------------------------------------------------------------------------------------------
$ 7,412,478 $ 44,416,660 $ 36,148,256 $ 485,528,260 $ 814,311,066 $ 50,053,932 $145,685,434 $53,289,150
==================================================================================================================================
$ 593,334 $ 377,994 $ 440,430 $ 2,514,747 $ 443,996 $ 591,715 $ 3,631,038 $ 1,039,089
==================================================================================================================================
41,786 1,098,773 1,175,585 6,579,872 19,642,838 2,040,810 1,110,108 410,357
75,619 53,713 389,844 1,855,461 2,046,563 215,909 1,886,047 960,503
(319,495) (1,023,740) (2,107,426) (6,287,471) (16,686,320) (1,473,329) (3,503,935) (1,380,080)
- ----------------------------------------------------------------------------------------------------------------------------------
(202,090) 128,746 (541,997) 2,147,862 5,003,081 783,390 (507,780) (9,220)
==================================================================================================================================
</TABLE>
---------------------
59
<PAGE> 61
- ---------------------
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
- ---------------------
60
<PAGE> 62
<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>
$ 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>
---------------------
61
<PAGE> 63
- ---------------------
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. These investments
will generally mature no later than November 15, 1998. (Note 9)
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> 64
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 values 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 Trust 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> 65
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, 1997, 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................................................ $ (1,523) $ 1,523 $ --
Fixed Income Portfolio................................................ 20,464 352,074 (372,538)
Government & Quality Bond Portfolio................................... 235,493 (235,493) --
High Yield Portfolio.................................................. 136,178 2,997,806 (3,133,984)
Target '98 Portfolio.................................................. -- -- --
Growth and Income Portfolio........................................... -- -- --
Foreign Securities Portfolio.......................................... 67,041 (67,041) --
Growth Portfolio...................................................... -- -- --
Capital Appreciation Portfolio........................................ (3,171) 3,171 --
Natural Resources Portfolio........................................... (328) 328 --
Multi-Asset Portfolio................................................. 27,298 (27,298) --
Strategic Multi-Asset Portfolio....................................... 28,973 (28,973) --
</TABLE>
Reclassifications are primarily due to differing book and tax treatments for
foreign currency transactions, market discount, paydowns, and expiring capital
loss carryovers.
NOTE 3. JOINT REPURCHASE AGREEMENT ACCOUNT: The Trust along with other
affiliated registered investment companies, transfers uninvested cash balances
into a single joint account, the daily aggregate balance of which is invested in
one or more repurchase agreements collateralized by U.S. Treasury or federal
agency obligations. As of December 31, 1997, each participating portfolio had a
percentage of an undivided interest in the repurchase agreement in the joint
account in which it participates. The balance in the joint repo account at
December 31, 1997 and the related repurchase agreement and collateral is as
follows:
<TABLE>
<CAPTION>
PRINCIPAL
REPURCHASE AGREEMENT DESCRIPTION AMOUNT
---------------------------------------------------------------------------------------- ------------
<S> <C>
Lehman Brothers, Inc. Repurchase Agreement
6.57% dated 12/31/97 repurchase price $131,387,939
due 1/2/98 collateralized by $215,525,000 U.S. Treasury
Strip due 5/15/08, $27,136,000 U.S. Treasury Strip due 5/15/09 and
$6,615,000 U.S. Treasury Strip due 2/15/00, approximate aggregate value $137,939,416.... $131,340,000
=============
</TABLE>
<TABLE>
<CAPTION>
LEHMAN
% OF UNDIVIDED INTEREST OWNED BY EACH PORTFOLIO BROTHERS
----------------------------------------------------------------------------------------------------------------
<S> <C>
Money Market Portfolio............................................................................ 0.4%
Fixed Income Portfolio............................................................................ 0.0%
Government & Quality Bond Portfolio............................................................... 7.4%
High Yield Portfolio.............................................................................. 2.3%
Target '98 Portfolio.............................................................................. 0.3%
Growth and Income Portfolio....................................................................... 0.2%
Foreign Securities Portfolio...................................................................... 0.6%
Growth Portfolio.................................................................................. 13.9%
Capital Appreciation Portfolio.................................................................... 65.5%
Natural Resources Portfolio....................................................................... 2.1%
Multi-Asset Portfolio............................................................................. 3.1%
Strategic Multi-Asset Portfolio................................................................... 2.7%
Other Affiliated Funds............................................................................ 1.5%
-------
100.0%
=======
</TABLE>
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.
- ---------------------
64
<PAGE> 66
At December 31, 1997, the cost of investment securities for tax purposes,
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.......... $ -- $ -- $ -- $ 70,134,514 $ 632 2005
Fixed Income Portfolio.......... 535,215 (198,422) 240,304 17,774,985 1,598,757 1998-2002
Government & Quality Bond
Portfolio..................... 6,380,434 (507,636) 5,872,798 226,589,085 -- --*
High Yield Portfolio............ 1,372,651 (739,314) 633,336 40,114,963 9,486,051 1998-2003
Target '98 Portfolio............ 128,467 -- 128,467 7,299,803 270,582 2002-2005
Growth and Income Portfolio..... 11,834,695 (350,897) 11,483,798 32,200,652 -- --***
Foreign Securities Portfolio.... 4,378,859 (4,227,215) 151,644 35,796,754 -- --
Growth Portfolio................ 160,903,091 (5,923,299) 154,979,792 329,937,334 -- --
Capital Appreciation
Portfolio..................... 199,439,463 (24,906,525) 174,532,938 651,420,140 -- --**
Natural Resources Portfolio..... 5,000,623 (6,025,626) (1,025,003) 50,092,999 -- --**
Multi-Asset Portfolio........... 31,540,440 (1,561,675) 29,978,765 115,253,142 -- --
Strategic Multi-Asset
Portfolio..................... 9,595,673 (1,993,902) 7,601,771 45,787,336 -- --**
</TABLE>
The Fixed Income and High Yield portfolios utilized capital loss carryovers of
$19,266 and $1,477,869, respectively, to partially offset the portfolios' net
taxable gains realized and recognized in the year ended December 31, 1997. In
addition $372,538 and $3,133,984, respectively, of prior year capital loss
carryover for the Fixed Income and High Yield portfolios expired as of December
31, 1997.
* Post 10/31 Capital Loss Deferrals: Government & Quality Bond $1,026,765 and
Foreign Securities $1,610,370.
** Post 10/31 Foreign Exchange Loss Deferrals: Foreign Securities $58,271,
Capital Appreciation $2,749, Natural Resources $16 and Strategic Multi-Asset
$2,841.
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> 67
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, 1997, SAAMCo received fees of $12,759,514 from
the Trust, of which SAAMCo informed the Trust that $8,931,972 was retained and
$3,827,542 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, 1997:
<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 of portfolio securities
(excluding U.S. government
securities).......................... $ -- $ 6,278,268 $ 16,185,077 $39,239,457 $ -- $20,493,720
Sales of portfolio securities
(excluding U.S. government
securities).......................... -- 4,895,117 54,770,142 45,192,672 1,129,743 19,195,055
U.S. Government Securities excluded
above were as follows:
Purchases of U.S. government
securities........................... -- 4,932,437 180,328,824 -- -- --
Sales of U.S. government securities.... -- 10,441,595 103,056,993 -- 2,151,398 --
<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 of portfolio securities
(excluding U.S. government
securities).......................... $33,638,246 $132,223,890 $484,332,732 $24,371,018 $ 46,658,591 $32,390,574
Sales of portfolio securities
(excluding U.S. government
securities).......................... 41,276,573 132,612,631 370,121,871 12,810,603 81,746,353 43,833,718
U.S. Government Securities excluded
above were as follows:
Purchases of U.S. government
securities........................... -- -- -- -- 34,216,555 --
Sales of U.S. government securities.... -- -- -- -- 27,548,425 371,474
</TABLE>
- ---------------------
66
<PAGE> 68
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, 1997, the following
portfolios of the Trust paid brokerage commissions to these affiliate companies:
<TABLE>
<CAPTION>
AMOUNT
-------
<S> <C>
Growth Portfolio............................................................... $ 250
Capital Appreciation Portfolio................................................. 20,400
Strategic Multi-Asset Portfolio................................................ 420
</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, 1997,
the Trust had accrued $123,405 for the Retirement Plan, which is included in
accrued expenses on the Statement of Assets and Liabilities and for the year
ended December 31, 1997, expensed $37,305 for the Retirement Plan, which is
included in Trustee fees and expenses on the Statement of Operations.
NOTE 9. SUBSEQUENT EVENTS: In January 1998, investors will be notified
regarding the forthcoming maturity and liquidation of the Target '98 Portfolio.
To facilitate an orderly liquidation, the shareholder will be requested to
provide instructions for the reallocation of investments by November 15, 1998.
Instructions not received by the aforementioned date will result in the
reallocation of the investment into the Money Market Portfolio.
---------------------
67
<PAGE> 69
- ---------------------
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>
Money Market Portfolio
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
12/31/97 1.00 0.05 -- 0.05 (0.05) -- 1.00 5.1
Fixed Income Portfolio
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
12/31/97 13.30 0.91 0.30 1.21 (1.23) -- 13.28 9.4
Government & Quality Bond Portfolio
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
12/31/97 13.67 0.84 0.42 1.26 (0.92) (0.05) 13.96 9.5
High Yield Portfolio
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
12/31/97 8.38 0.75 0.18 0.93 (0.93) -- 8.38 11.4
Target '98 Portfolio
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
12/31/97 11.67 0.78 (0.19) 0.59 (1.19) -- 11.07 5.2
Growth and Income Portfolio
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
12/31/97 13.59 0.15 3.74 3.89 (0.34) -- 17.14 28.8
<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>
Money Mark
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
12/31/97 69,804 0.6 5.0 -- NA
Fixed Inco
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
12/31/97 18,315 0.9 6.9 58.0 .0500
Government
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
12/31/97 234,623 0.7 6.1 75.7 NA
High Yield
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
12/31/97 40,193 0.9 8.8 101.4 .0600
Target '98
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
12/31/97 7,412 1.0 6.8 -- NA
Growth and
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
12/31/97 44,417 0.8 1.0 49.4 .0522
</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 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> 70
- ---------------------
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>
Foreign Securities Portfolio
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
12/31/97 12.94 0.11 (0.14) (0.03) (0.31) (1.20) 11.40 (1.0)
Growth Portfolio
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
12/31/97 23.19 0.16 6.76 6.92 (0.20) (2.87) 27.04 30.4
Capital Appreciation Portfolio
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
12/31/97 28.00 0.02 7.05 7.07 (0.05) (2.81) 32.21 25.4
Natural Resources Portfolio
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
12/31/97 16.87 0.20 (1.49) (1.29) (0.17) (0.99) 14.42 (8.6)
Multi-Asset Portfolio
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
12/31/97 13.35 0.34 2.36 2.70 (0.43) (2.10) 13.52 21.1
Strategic Multi-Asset Portfolio
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
12/31/97 12.20 0.23 1.48 1.71 (0.31) (2.32) 11.28 14.3
<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>
Foreign Securities Portfolio
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
12/31/97 36,148 1.4 0.9 79.9 .0056
Growth Portfolio
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
12/31/97 485,528 0.8 0.6 32.2 .0538
Capital Appreciation Portfolio
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
12/31/97 814,311 0.7 0.1 60.1 .0548
Natural Resources Portfolio
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
12/31/97 50,054 0.9 1.2 27.9 .0319
Multi-Asset Portfolio
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
12/31/97 145,685 1.1 2.4 56.5 .0546
Strategic Multi-Asset Portfolio
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
12/31/97 53,289 1.4 1.8 59.7 .0070
</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 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> 71
- ---------------------
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 Money Market Portfolio, Fixed
Income Portfolio, Government & Quality Bond Portfolio, High Yield Portfolio,
Target '98 Portfolio, Growth and Income Portfolio, Foreign Securities Portfolio,
Growth Portfolio, Capital Appreciation Portfolio, Natural Resources Portfolio,
Multi-Asset Portfolio and Strategic Multi-Asset Portfolio (constituting the 12
portfolios of Anchor Series Trust, hereafter referred to as the "Trust") at
December 31, 1997, 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, 1997 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.
As stated in Note 9 to the financial statements, Target '98 Portfolio was
designed with the expectation that it will terminate on or about November 1998.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 13, 1998
- ---------------------
70
<PAGE> 72
- ---------------------
ANCHOR SERIES TRUST
SHAREHOLDERS TAX INFORMATION (UNAUDITED)
Certain tax information regarding the Anchor Series Trust is required to be
provided to shareholders based upon each Portfolio's income and distributions
for the taxable year ended December 31, 1997. The information and distributions
reported herein may differ from the information and distributions taxable to the
shareholders for the calendar year ending December 31, 1997. The information
necessary to complete your income tax returns will be included with your Form
1099-DIV which will be sent to you under separate cover in January 1998.
During the year ended December 31, 1997 the Portfolios paid the following
dividends per share along with the percentage of ordinary income dividends that
qualified for the 70% dividends received deductions for corporations:
<TABLE>
<CAPTION>
NET NET NET QUALIFYING % FOR THE
TOTAL INVESTMENT SHORT-TERM LONG-TERM 70% DIVIDENDS
DIVIDENDS INCOME CAPITAL GAINS CAPITAL GAINS RECEIVED DEDUCTION
--------- ---------- ------------- ------------- --------------------
<S> <C> <C> <C> <C> <C>
Money Market Portfolio....................... $ -- $ -- $ -- $ -- --%
Fixed Income Portfolio....................... 1.23 1.23 -- -- --
Government & Quality Bond Portfolio.......... 0.97 0.92 0.02 0.03 --
High Yield Portfolio......................... 0.93 0.93 -- -- 2.66
Target '98 Portfolio......................... 1.19 1.19 -- -- --
Growth and Income Portfolio.................. 0.34 0.34 -- -- 80.95
Foreign Securities Portfolio................. 1.51 0.31 -- 1.20 --
Growth Portfolio............................. 3.07 0.20 0.69 2.18 36.60
Capital Appreciation Portfolio............... 2.85 0.05 1.25 1.55 30.33
Natural Resources Portfolio.................. 1.16 0.17 0.05 0.94 55.38
Multi-Asset Portfolio........................ 2.53 0.43 0.14 1.96 29.44
Strategic Multi-Asset Portfolio.............. 2.63 0.31 0.50 1.82 7.92
</TABLE>
---------------------
71
<PAGE> 73
- ---------------------
COMPARISONS: PORTFOLIOS VS. STOCKS
Wellington Management Company, LLP is pleased to provide the
following investment comments regarding the twelve Anchor Series
Trust portfolios for the fiscal year ended December 31, 1997. The
accompanying graphs compare the performance of a $10,000
investment in each portfolio (except Money Market) to a $10,000
investment in a comparable securities index over the ten year
period ended December 31, 1997. Importantly, such indices
represent "paper" portfolios and do not reflect the costs and
expenses of actual investing. To provide investors with additional
perspective we have added comparative fund averages as compiled by
Lipper Analytical Services. The Lipper averages referred to in the
following pages represent all variable annuity underlying funds
with similar objectives and are included in each portfolio's
discussion when a comparable Lipper category exists. The Lipper
returns shown include all fund expenses but exclude insurance
company expenses associated with the variable annuities. We
believe these averages may be helpful to shareholders in
evaluating the Anchor Series Trust Portfolios, since an average of
comparable funds is often a truer comparison than an unmanaged
index of securities such as the S&P 500 or the Lehman Aggregate
(which are not actively managed and are reported "gross" of all
expenses and transaction costs).
THE FOLLOWING GRAPHS AND TABLES SHOW THE PERFORMANCE OF THE
PORTFOLIOS AT THE ANCHOR SERIES TRUST LEVEL AND INCLUDE ALL TRUST
EXPENSES, BUT NO INSURANCE COMPANY EXPENSES ASSOCIATED WITH THE
VARIABLE ANNUITY AND NO CONTINGENT DEFERRED SALES CHARGE. NO
EXPENSES ARE DEDUCTED FROM THE PERFORMANCE OF THE INDEXES. ALL
DIVIDENDS ARE ASSUMED TO BE REINVESTED.
Investments in stocks and bonds are subject to risk, including
stock market and interest-rate fluctuations. Investments in
non-U.S. stocks are subject to additional risks, including
political and social instability, differing securities regulations
and accounting standards, and limited public information.
High-yield bonds tend to be subject to greater price swings than
higher-rated bonds and, of course, payment of interest and
principal is not assured. Mortgage-backed securities are subject
to prepayment, which can result in reinvestment of principal at
lower yields. Money market instruments generally offer stability
and income, but an investment in these securities, like
investments in other portfolios, is not guaranteed by the U.S.
government or any other entity. There can be no assurance that the
Money Market Portfolio will be able to maintain a stable net asset
value of $1.00 per share.
- ---------------------
The Money Market Portfolio
The Money Market Portfolio met its objectives of current income
consistent with stability of principal in fiscal year 1997,
providing a 5.07% return for the year and a constant NAV value of
$1.00. Our outlook for short-term interest rates is that the
Federal Reserve will remain on the sidelines through much of 1998.
Slower U.S. economic growth, a strong U.S. dollar and falling
inflation rates will likely eliminate the need for (and
speculation about) Fed tightening. As a consequence of the
economic landscape that we expect to unfold, the next Fed move
will probably be to lower short-term interest rates rather than
raise them. However, we would stress that the Federal Reserve will
be a reluctant participant in any easing of monetary conditions
due to tight U.S. labor markets -- so such a move will come later,
rather than sooner.
- ---------------------
72
<PAGE> 74
FIXED-INCOME PORTFOLIOS
Fixed Income Portfolio
<TABLE>
<CAPTION>
Lipper VA Corp. Lehman Brothers
Measurement Period Fixed Income Lehman Brothers Dept BBB-Rated Gov't/Corp.
(Fiscal Year Covered) Portfolio Aggregate Index Category Index
<S> <C> <C> <C> <C>
10000 10000 10000 10000
Dec-88 10703 10788 10758 10757
Dec-89 12081 12355 12043 12288
Dec-90 13004 13460 12799 13307
Dec-91 14985 15614 14950 15451
Dec-92 15959 16770 16087 16620
Dec-93 17228 18406 17968 18455
Dec-94 16672 17868 17204 17809
Dec-95 19869 21170 20665 21235
Dec-96 20350 21939 21328 21852
Dec-97 22268 24064 23463 23983
</TABLE>
Fixed Income Portfolio
Average Annual Total Returns as of 12/31/97
<TABLE>
<S> <C>
1-year 9.43%
5-year 6.89%
10-year 8.33%
</TABLE>
The Lehman Brothers Government/Corporate Index
includes Treasury and agency securities, as
well as corporate bonds and Yankee (U.S.-
dollar denominated, non U.S. issuer) issues.
The Lehman Brothers Aggregate Index combines
several Lehman Brothers Indexes which include
the government and corporate markets, agency
mortgage pass-through securities, and asset-
backed securities. The Lipper Variable Annuity
Corporate Debt BBB-Rated category includes funds
which invest at least 65% of assets in corporate
and government debt issues rated in the top four
credit rating categories.
THE FIXED INCOME PORTFOLIO returned 9.4% in 1997, in line (before
expenses) with the Lehman Government Corporate Index which
returned 9.8%, and slightly lagged the Lipper BBB category's
average return of 10.0%. The major reason for the shortfall
relative to the Lehman index was the portfolio's lower weight in
U.S. Treasuries (35% for the portfolio versus 62% for the index)
which was among the best performing fixed income sectors in 1997,
propelled by foreign investors seeking a safe haven. Relative to
the competitive group, the portfolio has an average S&P quality of
AA- with only 17% of the portfolio in securities rated below
investment grade or split rated (in part constrained by a 20%
prospectus limit). We believe this is a lower weight in high yield
bonds than is typical for other funds in this competitive group.
As of December 31, 1997 the portfolio had an effective duration of
5.5 years.
The graph represents past performance, which is not indicative of
future results.
---------------------
73
<PAGE> 75
FIXED-INCOME PORTFOLIOS (CONTINUED)
Government and Quality Bond Portfolio
<TABLE>
<CAPTION>
Lipper Variable Lipper Variable
Government and Annuity General Annuity Corp.
Measurement Period Quality Bond U.S. Gov't Debt A-Rated Lehman Brothers
(Fiscal Year Covered) Portfolio Category Category Aggregate Index
<S> <C> <C> <C> <C>
10000 10000 10000 10000
Dec-88 10876 10553 10679 10788
Dec-89 12575 11914 12023 12355
Dec-90 13554 12846 12975 13460
Dec-91 15898 14889 15138 15614
Dec-92 16995 15914 16262 16770
Dec-93 18401 17445 18018 18406
Dec-94 17835 16739 17280 17868
Dec-95 21298 19581 20541 21170
Dec-96 21914 20093 21055 21939
Dec-97 24003 21857 22983 24064
</TABLE>
Government and Quality Bond Portfolio
Average Annual Total Returns as of 12/31/97
-------------------------------------------
1-year 9.53%
5-year 7.15%
10-year 9.15%
-------------------------------------------
The Lehman Brothers Aggregate Index combines several
Lehman Brothers Indexes which include the government
and corporate markets, agency mortgage pass-through
securities, and asset-backed securities. The Lipper
Variale Annuity General U.S. Government category
includes funds which invest at least 65% of assets in
U.S. government and agency issues. The Lipper
Variable Annuity Corporate Debt A-Rated category
includes funds which invest at least 65% of assets in
corporate debt issues rated "A" or better, or
government issues.
THE GOVERNMENT AND QUALITY BOND PORTFOLIO returned 9.5% in 1997,
outperforming the Lipper General U.S. Government average of 8.8%
and in line with the Lehman Aggregate index which before any
expenses returned 9.7%. Additive to returns in 1997 was the
manager's decision to maintain a longer duration during a period
of falling interest rates (when bond prices rise). The portfolio's
commitment to Treasuries was also additive as was security
selection in the Government Mortgage-backed securities sector. The
average S&P quality of the portfolio exceeds AAA and the
portfolio's effective duration as of December 31, 1997 was 5.6
years.
The graph represents past performance, which is not indicative of
future results.
- ---------------------
74
<PAGE> 76
FIXED-INCOME PORTFOLIOS (CONTINUED)
High Yield Portfolio
<TABLE>
<CAPTION>
Lehman Brothers Lipper VA High
Measurement Period High Yield Lehman Brothers High Yield Current Yield
(Fiscal Year Covered) Portfolio Aggregate Index Index Category
<S> <C> <C> <C> <C>
10000 10000 10000 10000
Dec-88 11430 10788 11253 11300
Dec-89 11105 12355 11347 11507
Dec-90 9912 13460 10259 10819
Dec-91 13188 15614 14997 14566
Dec-92 15023 16770 17359 16910
Dec-93 17889 18406 20329 20040
Dec-94 17088 17868 20125 19428
Dec-95 20297 21170 23984 23019
Dec-96 22672 21939 26706 26135
Dec-97 25252 24064 30116 29640
</TABLE>
-----------------------------------------------
HIGH YIELD PORTFOLIO
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/97
-----------------------------------------------
1-year 11.38%
5-year 10.95%
10-year 9.71%
-----------------------------------------------
The Lehman Brothers High Yield Index covers the universe of fixed
rate, publicly issued, noninvestment grade debt registered with
the SEC. All bonds included in the Index must be U.S.
dollar-denominated and non-convertible. The Lehman Brothers
Aggregate Index covers the U.S. investment grade fixed rate bond
market, including the government and corporate markets, agency
mortgage pass-through securities, and asset-backed securities. The
Lipper Variable Annuity High Current Yield category includes funds
which aim at high (relative) current yield from fixed income
securities. There are no quality or maturity restrictions, though
these funds tend to invest in lower grade debt issues.
THE HIGH YIELD PORTFOLIO returned 11.4% in 1997, ahead of the
Lehman Aggregate return of 9.7%, in line (before expenses) with
the Lehman High Yield return of 12.8%, and behind the Lipper High
Yield average of 13.4%. The High Yield Portfolio maintains
substantial liquidity through its ownership of larger, more
seasoned securities. This is necessary in order to meet
shareholder redemptions and subscriptions which have historically
run at a high rate in this portfolio. There are times when this
high liquidity orientation benefits the portfolio competitively,
and there are times such as 1997 when the newer less-liquid issues
outperform. This was one cause of underperformance versus the
Lipper average in 1997. Also impacting returns was the portfolio's
avoidance of communications-related issues which were among the
best performing securities. The portfolio avoided this area as
many of these issuers are effectively start-up companies with
little or no cash flow to date and in management's view have been
buoyed by takeover announcements and expectations. The High Yield
Portfolio has an average S&P quality of B and an effective
duration of 4.0 years.
The graph represents past performance, which is not indicative of
future results.
---------------------
75
<PAGE> 77
FIXED-INCOME PORTFOLIOS (CONTINUED)
Target '98 Portfolio
<TABLE>
<CAPTION>
Measurement Period Lehman Brothers
(Fiscal Year Covered) Target '98 Portfolio Aggregate Index
<S> <C> <C>
10000 10000
Dec-88 10794 10454
Dec-89 12656 11973
Dec-90 12875 13043
Dec-91 15301 15131
Dec-92 16396 16251
Dec-93 18238 17835
Dec-94 17493 17315
Dec-95 20040 20514
Dec-96 20788 21260
Dec-97 21863 23319
</TABLE>
Target '98 Portfolio
Average Annual Total Returns as of 12/31/97
<TABLE>
<S> <C>
1-year 5.17%
5-year 5.92%
Since Inception (5/2/88) 8.43%
</TABLE>
The Lehman Brothers Aggregate Index combines several
Lehman Brothers Indexes which include the government
and corporate markets, agency mortgage pass-through
securities, and asset-backed securities.
THE TARGET '98 PORTFOLIO returned 5.2% in 1997, consistent with
its short-term orientation as it is due to mature on November 15,
1998. The Lehman Aggregate, a bond index of much longer maturity
and duration, returned 9.7%.
The graph represents past performance, which is not indicative of
future results.
- ---------------------
76
<PAGE> 78
BALANCED PORTFOLIOS
Multi-Asset Portfolio
<TABLE>
<CAPTION>
Lipper VA
Measurement Period Multi-Asset S&P 500 Lehman Brothers Flexible
(Fiscal Year Covered) Portfolio Composite Index Aggregate Index Category
<S> <C> <C> <C> <C>
10000 10000 10000 10000
Dec-88 10960 11661 10788 11023
Dec-89 13118 15355 12355 13306
Dec-90 13330 14878 13460 13446
Dec-91 16967 19411 15614 16867
Dec-92 18361 20890 16770 18133
Dec-93 19703 22996 18406 20317
Dec-94 19371 23300 17868 19920
Dec-95 24202 32055 21170 24799
Dec-96 27560 39415 21939 28260
Dec-97 33381 52566 24064 33607
</TABLE>
- -------------------------------------------------
MULTI-ASSET PORTFOLIO
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/97
- -------------------------------------------------
1-year 21.12%
5-year 12.70%
10-year 12.81%
- -------------------------------------------------
The S&P 500 Composite Index tracks the performance of 500 large
company stocks which are designed to represent price movements in
the U.S. equity market. Companies are chosen for market size and
liquidity so that, in aggregate, they represent a broad
distribution across industry groups. The index includes both
foreign and domestic stocks traded publicly in the U.S. Because it
is market weighted, the index will reflect changes in larger
companies more heavily than those in smaller companies. The Lehman
Brothers Aggregate Index combines several Lehman Brothers Indexes
which include the government and corporate markets, agency
mortgage pass-through securities, and asset-backed securities. The
Lipper VA Flexible category includes funds which allocate their
investments across various asset classes, including domestic
common stocks, bonds, and money market instruments, with a focus
on total return.
THE MULTI-ASSET PORTFOLIO returned 21.1% in 1997, ahead of the
Lipper Flexible average which returned 18.9%. With roughly 60% of
the portfolio's assets invested in core U.S. large cap equities,
and 40% in high quality U.S. bonds, the portfolio's returns were,
not surprisingly, between those of the S&P 500 and the Lehman
Aggregate. All components of the investment decision making
process were positive in 1997: (1) the strategic focus of 60%
large-cap core equities and 40% high quality bonds was additive as
large cap stocks outperformed small cap stocks, U.S. stocks
outperformed foreign stocks, and U.S. Treasuries were among the
best investment-grade fixed income investments; (2) the small
tactical asset allocation calls made during the year were
additive, allowing us to take profits in U.S. equities opportunely
and then get back in after the market corrections in the second
half of the year; (3) the U.S. equity component provided a 30.2%
gross return through strong stock selection; (4) the fixed income
component modestly outperformed the Lehman Aggregate. As of
December 31, 1997 the portfolio was 61% invested in
equity-oriented securities and 39% in fixed income and cash
equivalents. There are no investment strategy changes anticipated
at this time as we believe the structure described above will
continue to serve shareholders well.
The graph represents past performance, which is not indicative of
future results.
---------------------
77
<PAGE> 79
BALANCED PORTFOLIOS (CONTINUED)
Strategic Multi-Asset Portfolio
<TABLE>
<CAPTION>
Strategic Lipper VA
Measurement Period Multi- Asset S&P 500 Lehman Brothers Global Flexible
(Fiscal Year Covered) Portfolio Composite Index Aggregate Index Category
<S> <C> <C> <C> <C>
10000 10000 10000 10000
Dec-88 11491 11661 10788 11153
Dec-89 13766 15355 12355 13326
Dec-90 12724 14878 13460 12730
Dec-91 15801 19411 15614 15846
Dec-92 16423 20890 16770 16962
Dec-93 18937 22996 18406 20822
Dec-94 18447 23300 17868 20245
Dec-95 22648 32055 21170 24223
Dec-96 26002 39415 21939 28064
Dec-97 29727 52566 24064 31306
</TABLE>
- -------------------------------------------
STRATEGIC MULTI-ASSET PORTFOLIO
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/97
- -------------------------------------------
1-year 14.32%
5-year 12.60%
10-year 11.51%
- -------------------------------------------
The S&P 500 Composite Index tracks the performance of 500 large company stocks
which are designed to represent price movements in the U.S. equity market.
Companies are chosen for market size and liquidity so that, in aggregate, they
represent a broad distribution across industry groups. The index includes both
foreign and domestic stocks traded publicly in the U.S. Because it is market
weighted, the index will reflect changes in larger companies more heavily than
those in smaller companies. The Lehman Brothers Aggregate Index combines
several Lehman Brothers Indexes which include the government and corporate
markets, agency mortgage pass-through securities, and asset-backed securities.
The Lipper Variable Annuity Global Flexible category includes funds which
allocate their investments across various asset classes, including both
domestic and foreign stocks, bonds and money market instruments, with a focus
on total return. At least 25% of its portfolio is invested in securities traded
outside of the U.S., including shares of gold mines, gold-oriented mining
finance houses, gold coins, or bullion.
THE STRATEGIC MULTI-ASSET PORTFOLIO returned 14.3% in 1997,
materially ahead of the 11.6% return for its Lipper competitive
category, Global Flexible average. As with Multi-Asset, this
return was between that of the S&P 500 and the Lehman Aggregate. A
key contributor to the outperformance relative to the competitive
group was the 30+% gross performance of the U.S. core equity and
capital appreciation components. The fixed income component of the
portfolio also outperformed the Lehman Aggregate Index. As of
December 31, 1997 the portfolio was invested with 72% in equities
and 28% in fixed income and cash equivalents. International
equity-oriented securities represented 34% of the portfolio.
The graph represents past performance, which is not indicative of
future results.
- ---------------------
78
<PAGE> 80
EQUITY PORTFOLIOS
Growth and Income Portfolio
<TABLE>
<CAPTION>
Measurement Period Growth and Income S&P 500 Composite Lipper VA Growth &
(Fiscal Year Covered) Portfolio Index Income Category
<S> <C> <C> <C>
10000 10000 10000
Dec-88 11448 11661 11576
Dec-89 13132 15355 14286
Dec-90 12627 14878 13844
Dec-91 16012 19411 17728
Dec-92 19230 20890 19306
Dec-93 23465 22996 21659
Dec-94 21196 23300 21518
Dec-95 24713 32055 28381
Dec-96 29692 39415 34308
Dec-97 38232 52566 43643
</TABLE>
----------------------------------------------
THE GROWTH AND INCOME PORTFOLIO
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/97
----------------------------------------------
1-year 28.76%
5-year 14.73%
10-year 14.35%
----------------------------------------------
The S&P 500 Composite Index tracks the performance of 500 large
company stocks which are designed to represent price movements in
the U.S. equity market. Companies are chosen for market size and
liquidity so that, in aggregate, they represent a broad
distribution across industry groups. The index includes both
foreign and domestic stocks traded publicly in the U.S. Because it
is market weighted, the index will reflect changes in larger
companies more heavily than those in smaller companies. The Lipper
Variable Annuity Growth and Income category includes funds which
combine a growth of earnings orientation and an income requirement
for level and/or rising dividends.
THE GROWTH AND INCOME PORTFOLIO returned 28.8% in 1997 ahead of
the Lipper Growth and Income category, which returned 27.2%. Both
the Lipper category and the portfolio lagged the S&P 500, which
returned 33.4% for the year. Contributing to the outperformance
relative to Lipper was security selection, as well as the
portfolio's focus on U.S. large-cap, core (neither growth nor
value) investments. Income is provided through a small commitment
to convertible securities as well as a focus on dividend-paying
stocks. Prior to 1996, this portfolio was the Convertible
Securities Portfolio.
The graph represents past performance, which is not indicative of
future results.
---------------------
79
<PAGE> 81
EQUITY PORTFOLIOS (CONTINUED)
Foreign Securities Portfolio
<TABLE>
<CAPTION>
MSCI All Country Lipper VA
Measurement Period Foreign Securities Free (ex U.S.) International Fund
(Fiscal Year Covered) Portfolio Index Category
<S> <C> <C> <C>
10000 10000 10000
Dec-88 12199 12790 11531
Dec-89 15747 14329 14810
Dec-90 13739 11071 13339
Dec-91 13704 12616 14861
Dec-92 11910 11232 13865
Dec-93 15509 15152 18505
Dec-94 15007 16157 18584
Dec-95 16896 17763 20850
Dec-96 18831 18949 23900
Dec-97 18638 19336 25135
</TABLE>
----------------------------------------------
FOREIGN SECURITIES PORTFOLIO
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/97
----------------------------------------------
1-year -1.03%
5-year 9.37%
10-year 6.42%
----------------------------------------------
The MSCI All Country Free (ex-U.S.) Index includes performance of
2,124 securities listed in 45 countries, which includes the
countries contained in the MSCI EAFE Index, as well as North
American countries (excluding the U.S.) and other emerging markets
worldwide. The index covers approximately the top 60% of market
capitalization for each of the countries included within the
index. The Lipper Variable Annuity International and Lipper Mutual
Fund International categories include funds which invest assets in
securities whose primary trading markets are outside of the U.S.
THE FOREIGN SECURITIES PORTFOLIO declined -1.0% in 1997 compared
to a 2.0% return for the Morgan Stanley All Country Free (ex U.S.)
Index and a 5.2% return for the Lipper competitive group. We view
this level of underperformance as disappointing and
uncharacteristic of the management team involved in managing this
portfolio since 1994. A calendar year review shows that since
Wellington Management changed the portfolio manager in mid-1994,
our objective of outperforming the MSCI benchmark by 250-300 basis
points annually has been achieved in 1995 and 1996. Contributing
to the portfolio's underperformance in 1997 was the fact that the
portfolio had too much invested in Asia -- Japan in
particular -- and drifted towards the mid-cap range in terms of
market capitalization during the year. In hindsight, this strategy
was poorly executed. During the fourth quarter of 1997, portfolio
manager Trond Skramstad, Director of International Equity
Investments at Wellington Management, and back-up portfolio
manager Andy Offit have begun to reposition the portfolio
utilizing the Global Equity Strategy Group as a source of
investment recommendations. They have focused on the key areas
contributing to last year's underperformance, namely the Japan
allocation and the market capitalization distribution of the
portfolio, and these areas are now undergoing significant
restructuring. These investment decisions are based on the view
that the escalating turmoil in Asia will result in a significant
slowdown in global growth. Given this outlook, we believe that
larger and stronger companies are likely to do relatively better
in this environment and thus we are adding to holdings in larger
capitalization stocks. As of December 31, 1997, 66% of the
portfolio was invested in Europe, 16% in Japan, 6% in the
remaining developed markets of Asia, 7% in emerging markets, 2% in
Canada, and 3% in cash and cash equivalents.
The graph represents past performance, which is not indicative of
future results.
- ---------------------
80
<PAGE> 82
EQUITY PORTFOLIOS (CONTINUED)
Growth Portfolio
<TABLE>
<CAPTION>
Measurement Period S&P 500 Composite Lipper VA Growth
(Fiscal Year Covered) Growth Portfolio Index Category
<S> <C> <C> <C>
10000 10000 10000
Dec-88 11277 11661 11429
Dec-89 14670 15355 14727
Dec-90 14439 14878 14016
Dec-91 20333 19411 19192
Dec-92 21437 20890 20755
Dec-93 23099 22996 23238
Dec-94 22008 23300 23041
Dec-95 27801 32055 30509
Dec-96 34765 39415 36738
Dec-97 45335 52566 46055
</TABLE>
- ----------------------------------------------
THE GROWTH PORTFOLIO
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/97
- ----------------------------------------------
1-year 30.41%
5-year 16.16%
10-year 16.32%
- ----------------------------------------------
The S&P 500 Composite Index tracks the performance of 500 large company
stocks which are designed to represent price movements in the U.S. equity
market. Companies are chosen for market size and liquidity so that, in
aggregate, they represent a broad distribution across industry groups. The index
includes both foreign and domestic stocks traded publicly in the U.S. Because it
is market weighted, the index will reflect changes in larger companies more
heavily than those in smaller companies. The Lipper Variable Annuity Growth
category includes funds which normally invest in companies whose long term
earnings are expected to grow significantly faster than the earnings of the
stocks represented in the major unmanaged stock indices.
THE GROWTH PORTFOLIO returned 30.4% in 1997, well ahead of the
Lipper Growth category's average return of 25.4%. Both the Lipper
group and the portfolio lagged the 33.4% return of the S&P 500.
The portfolio was generally helped by positions in financial
services, major pharmaceuticals, energy services and retail. The
portfolio's approach of generally 80% in large capitalization
stocks and 20% in mid cap stocks was also additive to returns
relative to the Lipper group, but probably accounts for some of
the shortfall relative to the S&P 500 which is exclusively large
cap in nature. We continue to believe that this core, all-market
approach, combined with the team of specialist managers, will
serve shareholders well in the future.
The graph represents past performance, which is not indicative of
future results.
---------------------
81
<PAGE> 83
EQUITY PORTFOLIOS (CONTINUED)
Capital Appreciation Portfolio
<TABLE>
<CAPTION>
Capital Lipper VA Capital
Measurement Period Appreciation S&P 500 Composite Appreciation
(Fiscal Year Covered) Portfolio Index Category
<S> <C> <C> <C>
10000 10000 10000
Dec-88 12133 11661 11389
Dec-89 15144 15355 14508
Dec-90 12694 14878 13634
Dec-91 19820 19411 19801
Dec-92 24962 20890 21842
Dec-93 30221 22996 25179
Dec-94 29072 23300 24814
Dec-95 39121 32055 32946
Dec-96 48954 39415 38511
Dec-97 61404 52566 46771
</TABLE>
- ----------------------------------------------
CAPITAL APPRECIATION PORTFOLIO
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/97
- ----------------------------------------------
1-year 25.43%
5-year 19.72%
10-year 19.90%
- ----------------------------------------------
The S&P 500 Composite Index tracks the performance of 500 large company stocks
which are designed to represent price movements in the U.S. equity market.
Companies are chosen for market size and liquidity so that, in aggregate, they
represent a broad distribution across industry groups. The index includes both
foreign and domestic stocks traded publicly in the U.S. Because it is market
weighted, the index will reflect changes in larger companies more heavily than
those in smaller companies. The Lipper Variable Annuity Capital Appreciation
category includes funds which aim at maximum capital appreciation.
THE CAPITAL APPRECIATION PORTFOLIO returned 25.4%, well ahead of
the 21.4% return of the Lipper Capital Appreciation category. Both
the Lipper category and the portfolio underperformed large-cap
stocks as measured by the S&P 500's return of 33.4%. Performance
was aided by positive stock selection. During the latter part of
the year, as concerns about the Asian contagion increased,
management adopted a more conservative investment strategy. This
more defensive posture is characterized by an attempt to reduce
the direct exposure of the portfolio to Asian operations. And as a
result we have reduced the portfolio's weighting in technology
while finding values in companies which possess greater stability
in their business profile, less exposure to the economic cycle and
greater activity in Europe.
The graph represents past performance, which is not indicative of
future results.
- ---------------------
82
<PAGE> 84
EQUITY PORTFOLIOS (CONTINUED)
Natural Resources Portfolio
<TABLE>
<CAPTION>
Measurement Period Natural Resources S&P 500 Composite Lipper VA Natural
(Fiscal Year Covered) Portfolio Index Resources Category
<S> <C> <C> <C>
10000 10000 10000
Dec-88 11172 11661 8330
Dec-89 13219 15355 10377
Dec-90 11233 14878 9068
Dec-91 11780 19411 9271
Dec-92 12077 20890 9152
Dec-93 16442 22996 12494
Dec-94 16607 23300 12159
Dec-95 19507 32055 13684
Dec-96 22260 39415 16667
Dec-97 20348 52566 15337
</TABLE>
- ----------------------------------------------
NATURAL RESOURCES PORTFOLIO
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/97
- ----------------------------------------------
1-year -8.59%
5-year 11.00%
Since Inception (1/4/88) 7.36%
- ----------------------------------------------
The S&P 500 Composite Index tracks the performance of 500 large company stocks
which are designed to represent price movements in the U.S. equity market.
Companies are chosen for market size and liquidity so that, in aggregate, they
represent a broad distribution across industry groups. The index includes both
foreign and domestic stocks traded publicly in the U.S. Because it is market
weighted, the index will reflect changes in larger companies more heavily than
those in smaller companies. The Lipper Variable Annuity Natural Resources
category includes funds which invest more than 65% of its equity commitment in
natural resource stocks.
THE NATURAL RESOURCES PORTFOLIO returned -8.6% in 1997, slightly
behind the Lipper Natural Resources average return of -8.0%. Both
underperformed the more broadly diversified S&P 500 Index return
of 33.4%. The Natural Resources Portfolio has a prospectus
requirement to hold at least 25% of the portfolio's assets in gold
related securities. The S&P 500 Gold sector declined -34.3% in
1997, followed closely by the S&P 500 Metals Mining sector which
declined -32.8%. Likewise, Paper and Forest Products and Energy
also underperformed the broad S&P 500 Index, which contributed to
the negative performance for the portfolio, and the
underperformance relative to the S&P 500. Relative to the
competitive group, our best estimate is that this portfolio had a
lower investment in energy service companies than the competitive
group in 1997. Energy-services-related securities overall
significantly outperformed energy-sources-related securities
during the past year. While negative returns are always
disappointing, shareholders who have participated in this
portfolio over the past five years have earned an annualized
return of 11%. Perhaps more importantly, we believe the currently
low commodity prices that impacted the portfolio's returns are
artificially low and cannot stay at this level longer term. For
investors with a long-term investment horizon (3-5 years) we see
this as a buying opportunity.
The graph represents past performance, which is not indicative of
future results.
---------------------
83
<PAGE> 85
(This page intentionally left blank)
<PAGE> 86
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