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Statement of Additional Information
ANCHOR PATHWAY FUND
This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the current Prospectus of the Fund, dated
January 28, 1997. The Prospectus may be obtained by writing to the Fund at the
address below. Capitalized terms used herein but not defined have the meanings
assigned to them in the Prospectus.
P.O. Box 54299
Los Angeles, California 90054-0299
January 28, 1997
As Supplemented
April 25, 1997
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TABLE OF CONTENTS
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Topic Page
<S> <C>
The Fund ................................................................ 2
Investment Policies ..................................................... 2
Investment Restrictions ................................................. 10
Fund Officers and Trustees .............................................. 15
Investment Advisory Agreement ........................................... 17
Business Management Agreement ........................................... 18
Dividends, Distributions and Federal Taxes .............................. 19
Price of Shares ......................................................... 20
Execution of Portfolio Transactions ..................................... 21
General Information ..................................................... 23
Financial Statements .................................................... 24
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THE FUND
The Fund, organized as a Massachusetts business trust on March 23,
1987, is a diversified, open-end management investment company. It was
established to provide an exclusive funding medium for the Account.
The sole shareholder of the Fund is the Account. The Company is a
wholly-owned subsidiary of SunAmerica Life Insurance Company, an Arizona
corporation, which is, in turn, owned by SunAmerica Inc., a Maryland
corporation.
INVESTMENT POLICIES
The discussion below is intended to supplement the information
contained in the Prospectus.
GENERAL
ILLIQUID SECURITIES. Each of the Series may invest no more than 10% of
its net assets, determined as of the date of purchase, in illiquid securities
including repurchase agreements which have a maturity of longer than seven days
or in other securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale. Historically,
illiquid securities have included securities subject to contractual or legal
restrictions on resale because they have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), securities which are
otherwise not readily marketable and repurchase agreements having a maturity of
longer than seven days. Repurchase agreements subject to demand are deemed to
have a maturity equal to the notice period. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer
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or in the secondary market. Mutual funds do not typically hold a significant
amount of these restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations on resale may
have an adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might also have to
register such restricted securities in order to dispose of them, resulting in
additional expense and delay. There generally will be a lapse of time between a
mutual fund's decision to sell an unregistered security and the registration of
such security promoting sale. Adverse market conditions could impede a public
offering of such securities. When purchasing unregistered securities, the Series
will seek to obtain the right of registration at the expense of the issuer.
In recent years, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act for which there is a readily available market will not be
deemed to be illiquid under procedures adopted by the Fund's Board of Trustees.
Capital Research and Management Company ("CRMC") will monitor the liquidity of
such restricted securities. In reaching liquidity decisions, the Investment
Adviser will consider, inter alia, the following factors: (1) the frequency of
trades and quotes for the security; (2) the number of dealers wishing to
purchase or sell the security and the number of other potential purchasers; (3)
dealer undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer).
The Cash Management Series may invest in commercial paper issues which
include securities issued by major corporations without registration under the
Securities Act in reliance on the exemption from such registration afforded by
Section 3(a)(3) thereof, and commercial paper issued in reliance on the
so-called private placement exemption from registration which is afforded by
Section 4(2) of the Securities Act ("Section 4(2) paper"). In addition each
Series may invest in Section 4(2) paper. Section 4(2) paper is restricted as to
disposition under the federal securities laws in that any resale must similarly
be made in an exempt transaction. Section 4(2) paper is normally resold to other
institutional investors through or with the assistance of investment dealers who
make a market in Section 4(2) paper, thus providing liquidity. Section 4(2)
paper that is issued by a company that files reports under the Securities
Exchange Act of 1934 is generally eligible to be sold in reliance on the safe
harbor of Rule 144A described above. The Investment Adviser believes that
Section 4(2) commercial paper meets its criteria for liquidity and is quite
liquid. Each Series intends, therefore, to treat Section 4(2) commercial paper
as liquid and not subject to the investment limitation applicable to illiquid
securities.
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CASH MANAGEMENT SERIES
The Cash Management Series seeks to achieve its investment objective by
investing in a diversified selection of money market instruments. The money
market instruments in which the Series may invest include the following:
COMMERCIAL BANK OBLIGATIONS - Certificates of deposit (interest-bearing
time deposits), bankers' acceptances (time drafts drawn on a commercial bank
where the bank accepts an irrevocable obligation to pay at maturity)
representing direct or contingent obligations of commercial banks with total
assets in excess of $1 billion, based on the latest published reports, and
documented discount notes (corporate promissory discount notes accompanied by a
commercial bank guarantee to pay at maturity). The Cash Management Series may
also invest in obligations issued by commercial banks with total assets of less
than $1 billion if the principal amount of these obligations owned by the Cash
Management Series is fully insured by the U.S. Government.
SAVINGS ASSOCIATION OBLIGATIONS - Certificates of deposit
(interest-bearing time deposits) issued by savings banks or savings and loan
associations with assets in excess of $1 billion based on the latest published
reports. The Cash Management Series may also invest in obligations issued by
savings banks or savings and loan associations with total assets of less than $1
billion if the principal amount of these obligations owned by the Cash
Management Series is fully insured by the U.S. Government.
COMMERCIAL PAPER - Short-term notes (up to 9 months) issued by
corporations or governmental bodies. The Cash Management Series may only
purchase commercial paper judged by the Investment Adviser to be of suitable
investment quality. This includes commercial paper that is (a) rated in the two
highest categories by S&P and by Moody's or (b) other commercial paper deemed on
the basis of the issuer's creditworthiness to be of a quality appropriate for
the Cash Management Series. (No more than 5% of the Cash Management Series'
assets may be invested in commercial paper in the second highest rating
category; no more than the greater of 1% of the Cash Management Series' assets
or $1 million may be invested in such securities of any one issuer.) See the
Appendix contained in the Fund's prospectus for a description of the ratings.
The commercial paper in which the Cash Management Series may invest includes
variable amount master demand notes. Variable amount master demand notes permit
the Cash Management Series to invest varying amounts at fluctuating rates of
interest pursuant to the agreement in the master note. These are direct lending
obligations between the lender and borrower, they are generally not traded, and
there is no secondary market. Such instruments are payable with accrued interest
in whole or in part on demand. The amounts of the instruments are subject to
daily fluctuations as the participants increase or decrease the extent of their
participation. Investments in these instruments are limited to those that have a
demand feature enabling the Cash Management Series unconditionally to receive
the amount invested from the issuer upon seven or fewer days' notice. Generally,
the Cash Management Series attempts to invest in instruments having a one-day
notice provision. In connection with master demand note arrangements, the
Investment Adviser, subject to the direction of the trustees, monitors on an
ongoing basis, the earning power, cash flow and other liquidity ratios of the
borrower, and its ability to pay principal and interest on demand. The
Investment Adviser also considers the extent to which the variable amount master
demand notes are backed by bank letters of credit. These notes generally are not
rated by Moody's or S&P and the Cash Management Series may invest in them only
if it is determined that at the time of investment the notes are of comparable
quality to the other commercial
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paper in which the Series may invest. Master demand notes are considered to have
a maturity equal to the repayment notice period unless the Investment Adviser
has reason to believe that the borrower could not make timely repayment upon
demand.
CORPORATE BONDS AND NOTES - The Cash Management Series may purchase
corporate obligations that mature or that may be redeemed in one year or less.
These obligations originally may have been issued with maturities in excess of
one year. The Cash Management Series may invest only in corporate bonds or notes
of issuers having outstanding short-term securities rated in the top two rating
categories by S&P and Moody's. See the Appendix contained in the Fund's
prospectus for a description of investment-grade ratings by S&P and Moody's.
FLOATING RATE OBLIGATIONS - These securities have a coupon rate that
changes at least annually and generally more frequently. The coupon rate is set
in relation to money market rates. The obligations, issued primarily by banks,
other corporations, governments and semi-governmental bodies, may have a
maturity in excess of one year. In some cases, the coupon rate may vary with
changes in the yield on Treasury bills or notes or with changes in LIBOR (London
Interbank Offering Rate). The Investment Adviser considers floating rate
obligations to be liquid investments because a number of U.S. and non-U.S.
securities dealers make active markets in these securities.
ASSET ALLOCATION SERIES AND U.S. GOVERNMENT/AAA-RATED SECURITIES SERIES
GNMA CERTIFICATES, FNMA AND FHLMC MORTGAGE-BACKED OBLIGATIONS - The
Series may purchase certificates issued by the Government National Mortgage
Association (GNMA) and the U.S. Government/AAA-Rated Securities Series expects
to invest in these securities. These certificates are mortgage-backed securities
representing part ownership of a pool of mortgage loans that are issued by
lenders such as mortgage bankers, commercial banks and savings and loan
associations, and are either insured by the Federal Housing Administration or
guaranteed by the Veterans Administration. A pool of these mortgages is
assembled and, after being approved by GNMA, is offered to investors through
securities dealers. The timely payment of interest and principal on each
mortgage is guaranteed by GNMA and backed by the full faith and credit of the
United States government. Principal is paid back monthly by the borrower over
the term of the loan. Because both interest and principal payments (including
prepayments) are passed through to the holder of the certificate, GNMA
certificates are called "pass-through" securities.
The Federal National Mortgage Association ("FNMA"), a federally chartered and
privately owned corporation, issues pass-through securities representing
interest in a pool of conventional mortgage loans. FNMA guarantees the timely
payment of principal and interest, but this guarantee is not backed by the full
faith and credit of the U.S. Government. The Federal Home Loan Mortgage
Corporation ("FHLMC"), a corporate instrumentality of the U.S. Government,
issues participation certificates which represent an interest in a pool of
conventional mortgage loans. FHLMC guarantees the timely payment of interest and
the ultimate collection of principal and maintains reserves to protect holders
against losses due to default, but the certificates are not backed by the full
faith and credit of the U.S. Government. As is the case with GNMA certificates,
the actual maturity of and realized yield on particular FNMA and FHLMC
pass-through securities will vary based on the prepayment experience of the
underlying pool of mortgages.
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MORTGAGE-RELATED SECURITIES - The Series may invest in mortgage-related
securities issued by financial institutions such as commercial banks, savings
and loan associations, mortgage bankers and securities broker-dealers (or
separate trusts or affiliates of such institutions established to issue the
securities) including collateralized mortgage obligations ("CMO's") and mortgage
backed bonds. CMO's (including real estate mortgage investment conduits as
authorized under the Internal Revenue Code of 1986, as amended) are issued in
series that are made up of a group of bonds that together are fully
collateralized directly or indirectly by a pool of mortgages on which the
payments of principal and interest are dedicated to payment of principal and
interest on the bonds in the series. Each class of bonds in the series has a
different maturity than the other classes of bonds in the series and may bear a
different coupon rate. The different maturities come from the fact that all
principal payments, both regular principal payments as well as any prepayments
of principal, are passed through first to the holders of the class with the
shortest maturity until it is completely retired. Thereafter, principal payments
are passed through to the next class of bonds in the series, until all the
classes have been paid off. As a result, an acceleration in the rate of
prepayments that may be associated with declining interest rates shortens the
expected life of each class, with the greatest impact on those classes with the
shortest maturities. Similarly, should prepayments slow down, as may happen in
times of rising interest rates, the expected life of each class lengthens, again
with the greatest impact on those classes with the shortest maturities. In the
case of some CMO series, each class may receive a differing proportion of the
monthly interest and principal payments on the underlying collateral. In these
series the classes having proportionately greater interests on principal
repayments generally would be more affected by acceleration (or slowing) in the
rate of prepayments.
Mortgage-backed bonds are general obligations of the issuer fully
collateralized directly or indirectly by a pool of mortgages. The mortgages
serve as collateral for the issuer's payment obligations on the bonds, but
interest and principal payments on the mortgages are not passed through either
directly (as with GNMA certificates and FNMA and FHLMC pass-through securities)
or on a modified basis (as with CMO's). Accordingly, a change in the rate of
prepayments on the pool of mortgages could change the effective maturity of a
CMO but not that of a mortgage-backed bond (although, like many bonds,
mortgage-backed bonds can provide that they are callable by the issuer prior to
maturity).
U.S. GOVERNMENT/AAA-RATED SECURITIES SERIES AND REVERSE REPURCHASE
AGREEMENTS - Although the Government/AAA Series has no current intention of
doing so during the next twelve months, the Government/AAA Series is authorized
to enter into reverse repurchase agreements. A reverse repurchase agreement is
the sale of a security by the Government/AAA Series and its agreement to
repurchase the security at a specified time and price. The Government/AAA Series
maintains in a segregated account with the Fund's custodian liquid assets, which
will be marked to market daily, in an amount sufficient to cover its obligations
under reverse repurchase agreements with broker-dealers (but no collateral is
required on reverse repurchase agreements with banks). Under the 1940 Act,
reverse repurchase agreements may be considered borrowings by the Government/AAA
Series. The use of reverse repurchase agreements by the Government/AAA Series
creates leverage that increases the Government/AAA Series' investment risk. If
the income and gains on securities purchased with the proceeds of reverse
repurchase agreements exceed the cost of the agreements, the Government/AAA
Series' earnings and net asset value will increase faster than otherwise would
be the case; conversely, if the income and gains fail to exceed the costs,
earnings and net asset value would decline faster than otherwise would be the
case.
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U.S. GOVERNMENT/AAA-RATED SECURITIES SERIES, ASSET ALLOCATION SERIES AND
HIGH-YIELD BOND SERIES
LOANS OF PORTFOLIO SECURITIES - Although the Government/AAA Series,
Asset Allocation Series and High-Yield Bond Series have no current intention of
doing so during the next twelve months, they are authorized to lend portfolio
securities to broker-dealers or to other institutional investors whose financial
condition is monitored by CRMC. The borrower must maintain collateral with the
Fund's custodian consisting of cash, cash equivalents or U.S. Government
securities equal to at least 100% of the value of the borrowed securities, plus
any accrued interest. The Investment Adviser monitors the adequacy of the
collateral on a daily basis. The Series may at any time call a loan of its
portfolio securities and obtain the return of the loaned securities. The Series
receives any interest paid on the loaned securities and a fee or a portion of
the interest earned on the collateral. Each Series will limit its loans of
portfolio securities to an aggregate of 10% of the value of its total assets,
determined at the time any such loan is made.
PORTFOLIO TRADING OF FIXED-INCOME SECURITIES - The Series intends to
engage in portfolio trading of fixed-income securities when it is believed that
the sale of a fixed-income security owned and the purchase of another security
of better value can enhance principal and/or increase income. A security may be
sold to avoid any prospective decline in market value in light of what is
evaluated as an expected rise in prevailing yields, or a security may be
purchased in anticipation of a market rise (a decline in prevailing yields). A
security also may be sold and a comparable security purchased coincidentally in
order to take advantage of what is believed to be a disparity in the normal
yield and price relationship between the two securities.
ROLL TRANSACTIONS - Although the Asset Allocation Series, the
High-Yield Bond Series, and the U.S. Government/AAA-Rated Securities Series have
no current intention of doing so during the next 12 months, these Series may
engage in "roll" transactions. A "roll" transaction is the sale of GNMA
certificates or other securities together with a commitment to purchase similar,
but not identical securities at a future date. The Series intend to treat "roll"
transactions as two separate transactions; one involving the purchase of a
security and a separate transaction involving the sale of a security. Since the
Series do not intend to enter into "roll" transactions for financing purposes,
they may treat these transactions as not falling within the definition of
borrowing set forth in Section 2(a)(23) of the 1940 Act. The Series will
segregate liquid assets, which will be marked to market daily, in an amount
sufficient to meet their payment obligations in these transactions. Although
these transactions will not be entered into for leveraging purposes, to the
extent a Series' aggregate commitments under these transactions exceed its
holding of cash and securities that do not fluctuate in value (such as
short-term money market instruments), the Series temporarily will be in a
leveraged position, as set forth in Section 18 of the 1940 Act, (i.e., it will
have an amount greater than its net assets subject to market risk). Should the
market value of a Series' portfolio securities decline while the Series is in a
leveraged position, greater depreciation of its net assets would likely occur
than were it not in such a position. As the Series' aggregate commitments under
these transactions increase, the opportunity for leverage similarly increases.
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GROWTH SERIES, INTERNATIONAL SERIES AND HIGH-YIELD BOND SERIES
CURRENCY TRANSACTIONS -The Growth Series, International Series and
High-Yield Bond Series have the ability to enter into forward currency contracts
to protect against changes in currency exchange rates. A forward currency
contract is an obligation to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the contract agreed
upon by the parties, at a price set at the time of the contract. The Series will
segregate liquid assets which will be marked to market daily to meet its forward
contract commitments to the extent required by the Securities and Exchange
Commission.
Although it has no current intention to do so (at least during the next
12 months), the High-Yield Bond Series may also enter into exchange-traded
futures contracts relating to foreign currencies in connection with investments
in securities of foreign issuers in anticipation of, or to protect against,
fluctuations in exchange rates. In addition, forward currency contracts may be
used by the Series to purchase or sell a currency against another currency at a
future date and price as agreed upon by the parties. Although currency contracts
typically will involve the purchase and sale of a foreign currency against the
U.S. dollar, a Series also may enter into currency contracts not involving the
U.S. dollar. In connection with these futures transactions, the Fund has filed a
notice of eligibility with the Commodities Futures Trading Commission (the
"CFTC") that exempts the Series from CFTC registration as a "commodity pool
operator" as defined under the Commodities Exchange Act. Pursuant to this
notice, a Series may (i) purchase and sell futures and options thereon for bona
fide hedging purposes, as defined under CFTC regulations, without regard to the
percentage of the Series' assets committed to margin and option premiums, and
(ii) enter into non-hedging transactions, provided that the Series may not enter
into such non-hedging transactions if, immediately thereafter, the sum of the
amount of initial margin deposits on the Series' existing futures positions and
option premiums would exceed 5% of the fair value of its portfolio, after taking
into account unrealized profits and unrealized losses on any such transactions.
Although it has no current intention to do so (at least during the next
12 months), the High-Yield Bond Series may attempt to accomplish objectives
similar to those involved in its of currency contracts by purchasing put or call
options on currencies. A put option gives the Series, as purchaser, the right
(but not the obligation) to sell a specified amount of currency at the exercise
price until the expiration of the option. A call option gives the Series, as
purchaser, the right (but not the obligation) to purchase a specified amount of
currency at the exercise price until its expiration. The Series might purchase a
currency put option, for example, to protect itself during the contract period
against a decline in the U.S. dollar value of a currency in which it holds or
anticipates holding securities. If the currency's value should decline against
the U.S. dollar, the loss in currency value should be offset, in whole or in
part, by an increase in the value of the put. If the value of the currency
instead should rise against the U.S. dollar, any gain to the Series would be
reduced by the premium it had paid for the put option. A currency call option
might be purchased, for example, in anticipation of, or to protect against, a
rise in the value against the U.S. dollar of a currency in which a series
anticipates purchasing securities.
Currency options may be either listed on an exchange or traded
over-the-counter ("OTC options"). Listed options are third-party contracts
(i.e., performance of the obligations of the purchaser and seller is guaranteed
by the exchange or clearing corporation), and have standardized strike prices
and expiration dates. OTC options are two-party contracts with negotiated strike
prices
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and expiration dates. A Series will not purchase an OTC option unless it
believes that daily valuations for such options are readily obtainable. OTC
options differ from exchange-traded options in that OTC options are transacted
with dealers directly and not through a clearing corporation (which guarantees
performance). Consequently, there is a risk of non-performance by the dealer.
Since no exchange is involved, OTC options are valued on the basis of a quote
provided by the dealer. In the case of OTC options, there can be no assurance
that a liquid secondary market will exist for any particular option at any
specific time.
Certain provisions of the Internal Revenue Code may affect the extent
to which the Series may enter into forward contracts. Such transactions may also
affect, for U.S. federal income tax purposes, the character and timing of
income, gain or loss recognized by the Series.
GROWTH SERIES, ASSET ALLOCATION SERIES AND HIGH-YIELD BOND SERIES
CERTAIN RISK FACTORS RELATING TO HIGH-YIELD BONDS - The Growth Series,
Asset Allocation Series and the High-Yield Bond Series may invest in high yield
bonds. These bonds present certain risks which are discussed below:
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - High-yield bonds
are very sensitive to adverse economic changes and corporate developments.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress that would adversely
affect their ability to service their principal and interest payment
obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a bond defaulted on its obligations to pay interest
or principal or entered into bankruptcy proceedings, the Series may incur losses
or expenses in seeking recovery of amounts owed to it. In addition, periods of
economic uncertainty and changes can be expected to result in increased
volatility of market prices of high-yield bonds and the Series' net asset value.
PAYMENT EXPECTATIONS - High-yield bonds may contain redemption or call
provisions. If an issuer exercised these provisions in a declining interest rate
market, the Series would have to replace the security with a lower yielding
security, resulting in a decreased return for investors. Conversely, a
high-yield bond's value will decrease in a rising interest rate market, as will
the value of the Series' assets. If the Series experiences unexpected net
redemptions, this may force it to sell high-yield bonds without regard to their
investment merits, thereby decreasing the asset base upon which expenses can be
spread and possibly reducing the Series' rate of return.
LIQUIDITY AND VALUATION - There may be little trading in the secondary
market for particular bonds, which may affect adversely the Series' ability to
value accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield bonds, especially in a thin market.
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INVESTMENT RESTRICTIONS
The Fund has adopted certain investment restrictions for each Series
that cannot be changed without approval by a majority of its outstanding shares.
Such majority is defined as the vote of the lesser of (i) 67 percent or more of
the outstanding shares of the Series present at a meeting, if the holders of
more than 50 percent of the outstanding shares of the Series are present in
person or by proxy or (ii) more than 50 percent of the outstanding shares of the
Series.
INVESTMENT RESTRICTIONS OF THE CASH MANAGEMENT SERIES
The Cash Management Series has adopted the following restrictions that
are fundamental policies. These fundamental policies, as well as the Cash
Management Series' investment objective, cannot be changed without approval by a
majority of its outstanding shares. All percentage limitations expressed in the
following investment restrictions are measured immediately after the relevant
transaction is made. The Cash Management Series may not:
1. Invest more than 5% of the value of its total assets in the
securities of any one issuer, provided that this limitation shall apply only to
75% of the value of the Series' total assets, and, provided further, that the
limitation shall not apply to obligations of the government of the U.S. or of
any corporation organized as an instrumentality of the U.S. under a general act
of Congress. The short-term obligations of commercial banks are excluded from
this 5% limitation with respect to 25% of the Series' total assets.
2. As to 75% of its total assets, purchase more than 10% of the
outstanding voting class of securities of an issuer.
3. Invest more than 25% of the Series' total assets in the securities
of issuers in the same industry. Obligations of the U.S. Government, its
agencies and instrumentalities, are not subject to this 25% limitation on
industry concentration. In addition, the Series may, if deemed advisable, invest
more than 25% of its assets in the obligations of domestic commercial banks.
4. Make loans to others except for the purchase of the debt securities
listed above under its Investment Policies. The Series may, however, enter into
repurchase agreements.
5. Borrow money, except from banks for temporary purposes, and then in
an amount not in excess of 5% of the value of the Series' total assets.
Moreover, in the event that the asset coverage for such borrowings falls below
300%, the Series will reduce within three days the amount of its borrowings in
order to provide for 300% asset coverage.
6. Sell securities short except to the extent that the Series
contemporaneously owns or has the right to acquire at no additional cost
securities identical to those sold short.
7. Act as underwriter of securities issued by others, engage in
distribution of securities for others, or make investments in other companies
for the purpose of exercising control or management.
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The following additional restrictions are not fundamental policies and
may be changed by the Trustees without a vote of shareholders. The Cash
Management Series may not:
8. Enter into any repurchase agreement maturing in more than seven days
or invest in any other illiquid security if, as a result, more than 10% of the
Series' total assets would be so invested. Restricted securities eligible for
resale pursuant to Rule 144A under the Securities Act that have a readily
available market, and commercial paper exempted from registration under the
Securities Act pursuant to Section 4(2) of that Act that may be offered and sold
to "qualified institutional buyers" as defined in Rule 144A, which the Adviser
has determined to be liquid pursuant to guidelines established by the Trustees,
will not be considered illiquid for purposes of this limitation on illiquid
securities.
9. Pledge or hypothecate its assets.
10. Invest in puts, calls, straddles, spreads or any combination
thereof, except as permitted by the Prospectus and Statement of Additional
Information, as amended from time to time.
11. Invest in securities of other investment companies, except to the
extent permitted by applicable law and the Prospectus and Statement of
Additional Information, as amended from time to time.
Notwithstanding investment restriction Number 1 above, in order to
comply with Rule 2a-7 under the Investment Company Act of 1940, the Cash
Management Series has adopted a more restrictive policy (that may be changed by
the trustees without shareholder approval) of investing no more than 5% of its
assets (measured at the time of purchase) in the securities of any one issuer
(other than the U.S. Government); provided however, that the Cash Management
series may invest, as to 25% of its assets, more than 5% of its assets in
certain high-quality securities (as defined in the Rule) of a single issuer for
a period of up to three business days. The purchase by the Cash Management
Series of securities that have "put" or "stand-by" commitment features are not
considered "puts" for purposes of investment restriction Number 10 above.
INVESTMENT RESTRICTIONS OF THE HIGH-YIELD BOND SERIES, THE ASSET ALLOCATION
SERIES, THE GROWTH-INCOME SERIES, THE INTERNATIONAL SERIES AND THE GROWTH SERIES
The High-Yield Bond Series, the Asset Allocation Series, the
Growth-Income Series, the International Series and the Growth Series have each
adopted the following investment restrictions that are fundamental policies.
These fundamental policies, as well as each Series' investment objective, cannot
be changed without the approval of the holders of a majority of the outstanding
shares of the respective Series. All percentage limitations expressed in the
following investment restrictions are measured immediately after the relevant
transaction is made. The High-Yield Bond Series, the Asset Allocation Series,
the Growth-Income Series, the International Series and the Growth Series may
not:
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<PAGE> 12
1. Invest more than 5% of the value of the total assets of the Series
in the securities of any one issuer, provided that this limitation shall apply
only to 75% of the value of the Series' total assets and, provided further, that
the limitation shall not apply to obligations of the government of the United
States or of any corporation organized as an instrumentality of the U.S. under a
general Act of Congress. The short-term obligations of commercial banks are
excluded from this 5% limitation with respect to 25% of the Series' total
assets.
2. As to 75% of its total assets, purchase more than 10% of the
outstanding voting class of securities of an issuer.
3. Invest more than 25% of the Series' total assets in the securities
of issuers in the same industry. Obligations of the U.S. Government, its
agencies and instrumentalities are not subject to this 25% limitation on
industry concentration. The Series may, if deemed advisable, invest more than
25% of its assets in the obligations of domestic commercial banks.
4. Invest in real estate (including limited partnership interests but
excluding securities of companies, such as real estate investment trusts, which
deal in real estate or interests therein).
5. Purchase commodities or commodity contracts; except that the Asset
Allocation Series, the High-Yield Bond Series and the International Series may
engage in transactions involving currencies (including forward and futures
contracts or put and call options).
6. Make loans to others except for (a) the purchase of debt securities;
(b) entering into repurchase agreements; and (c) the lending of its portfolio
securities.
7. Borrow money, except to the extent permitted by applicable law.
8. Purchase securities on margin.
The following additional restrictions are not fundamental policies and
may be changed by the Trustees without a vote of shareholders. The High-Yield
Bond Series, the Asset Allocation Series, the Growth-Income Series, the
International Series and the Growth Series may not:
9. Enter into any repurchase agreement maturing in more than seven days
or invest in any other illiquid security if, as a result, more than 15% of the
Series' total assets would be so invested. Restricted securities eligible for
resale pursuant to Rule 144A under the Securities Act that have a readily
available market, and commercial paper exempted from registration under the
Securities Act pursuant to Section 4(2) of that Act that may be offered and sold
to "qualified institutional buyers" as defined in Rule 144A, which the Adviser
has determined to be liquid pursuant to guidelines established by the Trustees,
will not be considered illiquid for purposes of this limitation on illiquid
securities.
10. Pledge or hypothecate its assets.
11. Invest in puts, calls, straddles, spreads or any combination
thereof, except as permitted by the Prospectus and Statement of Additional
Information, as amended from time to time.
- 12 -
<PAGE> 13
12. Invest in securities of other investment companies, except to the
extent permitted by applicable law and the Prospectus and Statement of
Additional Information, as amended from time to time.
13. Invest in companies for the purpose of exercising control or
management.
14. Engage in underwriting of securities issued by others, except to
the extent it may be deemed to be acting as an underwriter in the purchase and
resale of portfolio securities.
15. Sell securities short, except to the extent permitted by applicable
law.
INVESTMENT RESTRICTIONS OF THE U.S. GOVERNMENT/AAA-RATED SECURITIES SERIES
The Government/AAA Series has adopted the following investment
restrictions that are fundamental policies. These fundamental policies, as well
as the Government/AAA Series' investment objective, cannot be changed without
approval of a majority of its outstanding shares. All percentage limitations
expressed in the following investment restrictions are measured immediately
after the relevant transaction is made. The Government/AAA Series may not:
1. Purchase any security (other than securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities ("U.S. Government
securities")) if, immediately after and as a result of such investment, more
than 5% of the value of the Government/AAA Series' total assets would be
invested in securities of the issuer.
2. Invest 25% or more of the value of its total assets in the
securities of issuers conducting their principal business activities in the same
industry, except that this limitation shall not apply to U.S. Government
securities or other securities to the extent they are backed by or represent
interests in U.S. Government securities or U.S. Government-guaranteed mortgages.
3. Invest in companies for the purpose of exercising control or
management.
4. Buy or sell real estate or commodities or commodity contracts in the
ordinary course of its business; however, the Government/AAA Series may purchase
or sell readily marketable debt securities secured by real estate or interests
therein or issued by companies which invest in real estate or interests therein,
including real estate investment trusts.
5. Engage in the business of underwriting securities of other issuers,
except to the extent that the disposal of an investment position may technically
cause the Series to be considered an underwriter as that term is defined under
the Securities Act of 1933.
6. Make loans to others except for (a) the purchase of debt securities;
(b) entering into repurchase agreements; and (c) the lending of its portfolio
securities.
- 13 -
<PAGE> 14
7. Sell securities short, except to the extent that the Government/AAA
Series contemporaneously owns or has the right to acquire at no additional cost
securities identical to those sold short.
8. Purchase securities on margin, except that the Series may obtain
necessary short-term credits for the clearance of purchases and sales of
securities.
9. Borrow money, except from banks for temporary or emergency purposes
not in excess of 5% of the value of the Government/AAA Series' total assets,
except that the Series may enter into reverse repurchase agreements.
10. Write, purchase or sell puts, calls or combinations thereof.
The following additional restrictions are not fundamental policies and
may be changed by the Trustees without a vote of shareholders. The
Government/AAA Series may not:
11. Enter into any repurchase agreement maturing in more than seven
days or invest or invest in any other illiquid security if, as a result, more
than 15% of the Series' total assets would be so invested. Restricted securities
eligible for resale pursuant to Rule 144A under the Securities Act that have a
readily available market, and commercial paper exempted from registration under
the Securities Act pursuant to Section 4(2) of that Act that may be offered and
sold to "qualified institutional buyers" as defined in Rule 144A, which the
Adviser has determined to be liquid pursuant to guidelines established by the
Trustees, will not be considered illiquid for purposes of this limitation on
illiquid securities.
12. Mortgage, pledge, or hypothecate any of its assets, provided that
this restriction shall not apply to the sale of securities pursuant to a reverse
repurchase agreement.
13. Invest in securities of other investment companies, except to the
extent permitted by applicable law and the Prospectus and Statement of
Additional Information, as amended from time to time.
- 14 -
<PAGE> 15
FUND OFFICERS AND TRUSTEES
The trustees and executive officers of the Fund and their principal
occupations for the past five years are set forth below. Unless otherwise noted,
the address of each executive officer and trustee is 1 SunAmerica Center, Los
Angeles, California 90067-6022.
<TABLE>
<CAPTION>
Name, Age and Position(s) Principal Occupation(s)
Held With the Fund During the Past Five Years
- ------------------ --------------------------
<S> <C>
Richards D. Barger* (68), Senior Partner, Law Firm of Barger & Wolen.
Trustee
Norman J. Metcalfe* (54), Vice Chairman and Chief Financial Officer, The
Trustee Irvine Company (March 1993 to December 1996);
Executive Vice President (1986-1992) and Director
(1984-1993), SunAmerica Inc.; formerly, President,
SunAmerica Investments, Inc. (1988-1992) and
Executive Vice President and Director, Anchor
National (1986-1992).
Allan L. Sher (65), Director, Board of Governors, American Stock
Trustee Exchange (1991 to present); Former Chairman
and Chief Executive Officer, Bateman, Eichler,
Hill Richards (1990-1992).
William M. Wardlaw (50), Partner, Freeman Spogli & Co., Incorporated
Trustee (1988-present).
James K. Hunt* (45), Executive Vice President, SunAmerica
Chairman of the Board Investments, Inc. (1993 to present); President,
and President SunAmerica Corporate Finance (since January
1994); Senior Vice President, SunAmerica
Investments, Inc. (1990-1993).
Scott L. Robinson (50) Senior Vice President and Controller,
Senior Vice President, Treasurer and SunAmerica Inc. (since 1991); Senior Vice
Controller President of Anchor National (since 1988); joined
SunAmerica in 1978.
</TABLE>
- 15 -
<PAGE> 16
<TABLE>
<CAPTION>
Name, Age and Position(s) Principal Occupation(s)
Held With the Fund During the Past Five Years
- ------------------ --------------------------
<S> <C>
Susan L. Harris (39) Senior Vice President (since November 1995),
Vice President, Counsel and Secretary Secretary (since 1989) and General Counsel-
Corporate Affairs (since December 1994),
SunAmerica Inc.; Senior Vice President and
Secretary, Anchor National (since 1990) and
Director (since 1991); joined SunAmerica Inc. in
1985.
Peter C. Sutton (32) Senior Vice President, SAAMCO (since April
Vice President 1997); Vice President (September 1994-March
The SunAmerica Center 1997); Treasurer, SunAmerica Mutual Funds
733 Third Avenue (since February 1996); Vice President,
New York, NY 10017-3204 SunAmerica Series Trust (since October 1994);
Controller, SunAmerica Mutual Funds (March
1993 - February 1996).
</TABLE>
- -------------------
*A Trustee who may be deemed to be an "interested person" of the Fund as that
term is defined in the 1940 Act.
The Fund pays no salaries or compensation to any of its officers, all
of whom are officers or employees of the Company or its affiliates. For the
fiscal year ended November 30, 1996, the Fund paid Trustees' fees and expenses
which totaled $49,500.
The following table sets forth information summarizing the compensation
of each Trustee of the Fund for his services as Trustee for the fiscal year
ended November 30, 1996. Trustees who are affiliated with the Company do not
receive any compensation.
COMPENSATION TABLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Pension or Total Compensation
Retirement Benefits from Registrant and
Aggregate Accrued as Part of Fund Complex Paid to
Compensation Fund Expenses* Trustees*
from Registrant
Trustee
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Richards D. Barger $13,000 N/A $22,000
- -------------------------------------------------------------------------------------------------
Frank L. Ellsworth $13,000 N/A $22,000
- -------------------------------------------------------------------------------------------------
Gordon F. Hampton $11,750 N/A $20,250
- -------------------------------------------------------------------------------------------------
Norman J. Metcalfe $11,750 N/A $20,250
- -------------------------------------------------------------------------------------------------
</TABLE>
- 16 -
<PAGE> 17
* Information is as of November 30, 1996 for the two Funds in the complex which
pay fees to these trustees (the Fund and SunAmerica Series Trust).
INVESTMENT ADVISORY AGREEMENT
The Fund is advised by CRMC of Los Angeles, California. The Amended and
Restated Investment Advisory Agreement between the Fund and the Investment
Adviser, dated March 14, 1990, provides that the Investment Adviser shall
determine what securities are purchased or sold by the Fund. The Agreement was
approved by shareholders of the Cash Management Series, the High-Yield Bond
Series, the Growth-Income Series, the Growth Series and the Government/AAA
Series on September 22, 1988, by shareholders of the Asset Allocation Series on
March 14, 1990 and by shareholders of the International Series on March 20,
1991.
The Investment Advisory Agreement provides that it will continue in
effect until September 21, 1990, unless terminated, and may be renewed from year
to year thereafter as to each Series for so long as such renewal is specifically
approved at least annually by (i) the Board of Trustees, or by the vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
each Series, and (ii) the vote of a majority of Trustees who are not parties to
the Agreement or interested persons (as defined in the 1940 Act) of any such
party, cast in person, at a meeting called for the purpose of voting on such
approval. The Agreement was last renewed on July 18, 1996. The Agreement also
provides that it may be terminated by either party without penalty upon 60 days'
written notice to the other party. The Agreement provides for automatic
termination upon assignment.
As compensation for its services, the Investment Adviser receives from
the Fund a fee, accrued daily and payable monthly, based on the net assets of
each Series. For all the Series except the International Series, the fee is
equal to 0.36% (on an annualized basis) of that portion of each Series' average
daily net assets not exceeding $30 million, plus 0.30% of that portion of the
Series' average daily net assets in excess of $30 million. The Investment
Adviser receives a fee, accrued daily and payable monthly, based on the net
assets of the International Series, at the annual rate of 0.66% of that portion
of the Series' average daily net assets not exceeding $60 million, plus 0.58% of
that portion of the Series' average daily net assets in excess of $60 million.
This fee will be reduced to the extent necessary to comply with any applicable
state expense limitations.
The following table sets forth the total advisory fees received by the
Adviser from each Fund pursuant to the Advisory Agreement for the fiscal years
ended November 30, 1996, 1995 and 1994.
- 17 -
<PAGE> 18
ADVISORY FEES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
FUND 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Series $2,478,000 $2,484,000 $2,232,000
- ---------------------------------------------------------------------------------------
International Series $1,412,000 $1,419,000 $1,501,000
- ---------------------------------------------------------------------------------------
Growth-Income Series $2,672,000 $2,478,000 $2,484,000
- ---------------------------------------------------------------------------------------
Asset Allocation Series $ 472,000 $ 461,000 $ 492,000
- ---------------------------------------------------------------------------------------
High-Yield Bond Series $ 421,000 $ 447,000 $ 497,000
- ---------------------------------------------------------------------------------------
U.S. Government/AAA-Rated Securities
Series $ 380,000 $ 449,000 $ 582,000
- ---------------------------------------------------------------------------------------
Cash Management Series $ 318,000 $ 442,000 $ 560,000
- ---------------------------------------------------------------------------------------
</TABLE>
BUSINESS MANAGEMENT AGREEMENT
The Business Manager, a wholly-owned subsidiary of Anchor National
Financial Services, Inc., provides administrative services to the Fund. The
Business Management Agreement between the Fund and the Business Manager, dated
September 1, 1987, provides that the Business Manager will manage the business
affairs of the Fund and perform the administrative functions required of a
registered investment company at all times in accordance with the organizational
documents and current prospectus of the Fund. Shareholders of the Cash
Management Series, the High-Yield Bond Series, the Growth-Income Series, the
Growth Series and the Government/AAA Series approved the Business Management
Agreement on September 22, 1988. Similar Business Management Agreements were
approved by shareholders of the Asset Allocation Series on March 14, 1990 and by
shareholders of the International Series on March 20, 1991.
As compensation for its services, the Business Manager receives a fee,
accrued daily and payable monthly, based on the net assets of each Series of the
Fund other than the International Series, at the annual rate of 0.24% of that
portion of each Series' average daily net assets not exceeding $30 million, plus
0.20% on that portion of the Series' average daily net assets in excess of $30
million. The Business Manager receives a monthly fee, accrued daily, based on
the average daily net assets of the International Series at the annual rate of
0.24%.
The following table sets forth the total administrative fees paid by
the Fund to the Business Manager pursuant to the Business Management Agreement
for the fiscal years ended November 30, 1996, 1995 and 1994.
- 18 -
<PAGE> 19
BUSINESS MANAGEMENT FEES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
FUND 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Series $1,653,000 $1,656,000 $1,488,000
- ---------------------------------------------------------------------------------------
International Series $ 564,000 $ 567,000 $ 601,000
- ---------------------------------------------------------------------------------------
Growth-Income Series $1,781,000 $1,652,000 $1,656,000
- ---------------------------------------------------------------------------------------
Asset Allocation Series $ 314,000 $ 307,000 $ 328,000
- ---------------------------------------------------------------------------------------
High-Yield Bond Series $ 281,000 $ 298,000 $ 331,000
- ---------------------------------------------------------------------------------------
U.S. Government/AAA-Rated Securities
Series $ 253,000 $ 300,000 $ 338,000
- ---------------------------------------------------------------------------------------
Cash Management Series $ 212,000 $ 295,000 $ 373,000
- ---------------------------------------------------------------------------------------
</TABLE>
The Business Management Agreements provide that they will continue in
effect until September 21, 1991, unless terminated, and may be renewed from year
to year thereafter as to each Series for as long as such renewal is specifically
approved at least annually by (i) the Board of Trustees of the Fund, or a vote
of the majority (as defined in the 1940 Act) of the outstanding voting
securities of each Series, and (ii) the vote of a majority of Trustees who are
not parties to the Management Agreement or interested persons (as defined in
said Act) of any such party, cast in person at a meeting called for the purpose
of voting on such approval. The Agreements were renewed most recently on July
19, 1996. The Business Management Agreements also provide that they may be
terminated by either party without penalty upon 60 days' written notice to the
other party. The Agreements provide for their automatic termination upon
assignment.
The Fund pays certain expenses not assumed by the Business Manager
including, but not limited to, expenses of shareholder meetings; reports to
shareholders and the printing of proxies and prospectuses; insurance premiums;
legal and auditing fees; dividend disbursement expenses; the expenses of
issuance, transfer and redemption of shares; custodian fees; printing and
preparation of registration statements; taxes; and the compensation of trustees
who are not interested persons of the Fund.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
FEDERAL TAXES - Each Series is qualified and intends to remain
qualified and elect to be treated as a regulated investment company under
Subchapter M under the Code. To remain qualified as a regulated investment
company, a Series must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stocks, securities or foreign
currencies, or other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stocks, securities or currencies; (b) derive less than 30% of its gross
income from the sale or other disposition of stock or securities or certain
foreign currencies (or options, futures or forward contracts thereon) held less
than 3 months (foreign currency gains,
- 19 -
<PAGE> 20
including those derived from options, futures and forward contracts, will not,
in any event, be characterized as short-short gains if they are directly related
to the registered investment company's investment in stocks, options or futures
thereon); (c) diversify its holdings so that, at the end of each fiscal quarter,
(i) 50% of the market value of the Series' assets is represented by cash,
government securities and other securities limited in respect of any one issuer
to 5% of the Series' net assets and to not more than 10% of the voting
securities of any one issuer (other than government securities) and (ii) not
more than 25% of the value of its assets are invested in the securities of any
one issuer (other than government securities or the securities of other
regulated investment companies; and (d) distribute at least 90% of its
investment company taxable income (including short-term capital gains).
Income received by a Series from sources within foreign countries may
be subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. It is impossible to determine in advance the effective rate of
foreign tax to which a Series will be subject, since the amount of that Series'
assets to be invested in various countries is not known. Shareholders are urged
to consult their tax advisors regarding specific questions as to Federal, state
and local taxes.
PRICE OF SHARES
The Fund is open for business on any day the NYSE is open for regular
trading. Shares are valued each day as of the close of regular trading on the
NYSE (generally, 4:00 p.m., Eastern time). Each Fund calculates the net asset
value of each class of its shares separately by dividing the total value of each
class's net assets by the shares of such class outstanding. The net asset value
of a Fund's shares will also be computed on each other day in which there is a
sufficient degree of trading in such Fund's securities that the net asset value
of its shares might be materially affected by changes in the values of the
portfolio securities; provided, however, that on such day the Trust receives a
request to purchase or redeem such Fund's shares. The days and times of such
computation may, in the future, be changed by the Trustees in the event that the
portfolio securities are traded in significant amounts in markets other than the
NYSE, or on days or at times other than those during which the NYSE is open for
trading.
Stocks and convertible bonds and debentures traded on the NYSE are
valued at the last sale price on such exchange on the day of valuation, or if
there is no sale on the day of valuation, at the last-reported bid price.
Non-convertible bonds and debentures and other long-term debt securities
normally are valued at prices obtained for the day of valuation from a bond
pricing service, when such prices are available. In circumstances where the
Investment Adviser deems it appropriate to do so, an over-the-counter or
exchange quotation (at the mean of representative quoted bid or asked prices for
such securities or, if such prices are not available, at prices for securities
of comparable maturity, quality and type) 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. U.S. Treasury
bills, and other obligations issued by the U.S. Government, its agencies or
instrumentalities, certificates of deposit issued by banks, corporate short-term
notes and other short-term investments with original or remaining maturities in
excess of 60 days are valued at the mean of representative quoted bid and asked
prices for such securities or, if such prices are not available, for securities
of comparable maturity, quality and type. Short-term securities with 60 days or
less to maturity are amortized to maturity based on their cost to the Fund if
acquired within 60 days of maturity or, if already held by the Fund, on the 60th
day, are amortized to maturity based on the value determined
- 20 -
<PAGE> 21
on the 61st day. Options on currencies purchased by the Series are valued at
their last bid price in the case of listed options or at the average of the last
bid prices obtained from dealers in the case of OTC options. Futures contracts
involving foreign currencies traded on exchanges are valued at their last sale
or settlement price as of the close of such exchanges or if no sales are
reported, at the mean between the last reported bid and asked prices. Other
securities are valued on the basis of last sale or bid price (if a last sale
price is not available) in what is, in the opinion of the Investment Adviser,
the broadest and most representative market, that may be either a securities
exchange or the over-the-counter market. Where quotations are not readily
available, securities are valued at fair value as determined in good faith by
the Board of Trustees. The fair value of all other assets is added to the value
of securities to arrive at the respective series' total assets.
The Series' liabilities including proper accruals of expense items, are
deducted from total assets.
The net asset value of the respective Series is divided by the total
number of shares outstanding (excluding treasury shares). The result, rounded to
the nearer cent, is the net asset value per share.
EXECUTION OF PORTFOLIO TRANSACTIONS
It is the policy of the Fund, in effecting transactions in portfolio
securities, to seek the best execution at the most favorable prices. The
determination of what may constitute best execution involves a number of
considerations, including the economic result to the Fund (involving both price
paid or received and any commissions and other costs), the efficiency with which
the transaction is effected where a large block is involved, the availability of
the broker to stand ready to execute potentially difficult transactions and the
financial strength and stability of the broker. Such considerations are
judgmental and are considered in determining the overall reasonableness of
brokerage commissions paid.
A factor in the selection of brokers is the receipt of research
services -- analyses and reports concerning issuers, industries, securities,
economic factors and trends -- and other statistical and factual information.
Research and other statistical and factual information provided by brokers is
considered to be in addition to and not in lieu of services required to be
performed by the Investment Adviser.
The extent to which commissions may reflect the value of research
services cannot be presently determined. To the extent that research services of
value are provided by broker-dealers with or through whom the Investment Adviser
places the Fund's portfolio transactions, the Investment Adviser may be relieved
of expenses it might otherwise bear. Research services furnished by
broker-dealers could be useful and of value to the Investment Adviser in serving
other clients as well as the Fund and research services obtained by the
Investment Adviser as a result of the placement of portfolio brokerage of other
clients could be useful and of value in serving the Fund.
Purchases and sales of money market instruments usually are principal
transactions. Normally, no brokerage commissions are paid by the Fund for such
purchases. Money market instruments are generally purchased directly from the
issuer or from an underwriter or market-maker for the securities. Purchases from
underwriters include an underwriting commission or concession and purchases from
dealers serving as market makers include the spread between the bid and asked
- 21 -
<PAGE> 22
price. In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission (although the price of the security usually includes a profit
to the dealer). Where transactions are made in the over-the-counter market, the
Fund deals with the primary market makers unless more favorable prices are
obtainable.
The policy of the Fund with respect to brokerage practices is reviewed
by the Board of Trustees from time to time. Because of the possibility of
further regulatory developments affecting the securities exchanges and brokerage
practices generally, the foregoing practices may be modified.
The following tables set forth the brokerage commissions paid by the
Funds and the amounts of the brokerage commissions which were paid to affiliated
broker-dealers by the Funds for the fiscal years ended November 30, 1996, 1995
and 1994.
1996 BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
AGGREGATE AMOUNT PAID TO PERCENTAGE PAID TO
BROKERAGE AFFILIATED BROKER- AFFILIATED BROKER-
SERIES COMMISSIONS DEALERS DEALERS
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Series $545,267 $4,076 0.75%
- ------------------------------------------------------------------------------------------------
International Series $501,956 -- --
- ------------------------------------------------------------------------------------------------
Growth-Income Series $574,225 $4,220 0.74%
- ------------------------------------------------------------------------------------------------
Asset Allocation Series
$ 79,496 $ 120 0.15%
- ------------------------------------------------------------------------------------------------
High-Yield Bond Series -- -- --
- ------------------------------------------------------------------------------------------------
U.S. Government/AAA-
Rated Securities Series -- -- --
- ------------------------------------------------------------------------------------------------
Cash Management Series -- -- --
- ------------------------------------------------------------------------------------------------
</TABLE>
- 22 -
<PAGE> 23
1995 BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
AGGREGATE AMOUNT PAID TO PERCENTAGE PAID TO
BROKERAGE AFFILIATED BROKER- AFFILIATED BROKER-
SERIES COMMISSIONS DEALERS DEALERS
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Series $531,082 $ 900 0.17%
- ------------------------------------------------------------------------------------------------
International Series $184,500 -- --
- ------------------------------------------------------------------------------------------------
Growth-Income Series $563,815 $2,262 0.40%
- ------------------------------------------------------------------------------------------------
Asset Allocation Series $168,685 $2,460 1.46%
- ------------------------------------------------------------------------------------------------
High-Yield Bond Series $ 0 -- --
- ------------------------------------------------------------------------------------------------
U.S. Government/AAA-
Rated Securities Series $ 0 -- --
- ------------------------------------------------------------------------------------------------
Cash Management Series $ 0 -- --
- ------------------------------------------------------------------------------------------------
</TABLE>
For the year ended November 30, 1994, the Fund paid brokerage
commissions of $1,767,112 as follows; $578,717, Growth Series; $296,043,
International Series; $732,992, Growth-Income Series; $158,828, Asset Allocation
Series; $532, High-Yield Bond Series; $0, U.S. Government/AAA-Rated Securities
Series, and; $0, Cash Management Series. Of the total brokerage commissions
paid, the Fund paid affiliated brokers as follows: Royal Alliance Associates,
Inc. $5,766 and SunAmerica Securities, Inc. $180 which constitute .33% and .01%,
respectively, of the total brokerage commissions paid for the period.
GENERAL INFORMATION
CUSTODIAN - State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110, serves as the Fund's custodian. In this capacity,
State Street maintains the portfolio securities held by the Fund, administers
the purchase and sale of portfolio securities and performs certain other duties.
State Street also serves as transfer agent and dividend disbursing agent for the
Fund.
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL - Price Waterhouse LLP, 1177
Avenue of the Americas, New York, New York 10036, is the Fund's independent
accountant. Price Waterhouse LLP performs an annual audit of the Fund's
financial statements and provides tax consulting, tax return preparation and
accounting services relating to filings with the Securities and Exchange
Commission. The firms of Blazzard, Grodd & Hasenauer, North Ocean Drive,
Hollywood, FL 33019 and Shereff Friedman, Hoffman & Goodman, LLP, 919 Third
Avenue, New York, NY 10022, provide legal services to the Fund.
- 23 -
<PAGE> 24
REPORTS TO SHAREHOLDERS - Contract owners are provided at least
semiannually with reports showing the investment portfolio, financial statements
and other information.
SHAREHOLDER AND TRUSTEE RESPONSIBILITY - Shareholders of a
Massachusetts business trust may, under certain circumstances, be held
personally liable as partners for the obligations of the Fund. The risk of a
shareholder incurring any financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. The Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund and provides that
notice of the disclaimer must be given in each agreement, obligation or
instrument entered into or executed by the Fund or Trustees. The Declaration of
Trust provides for indemnification of any shareholder held personally liable for
the obligations of the Fund and also provides for the Fund to reimburse the
shareholder for all legal and other expenses reasonably incurred in connection
with any such claim or liability.
Under the Declaration of Trust, the trustees or officers are not liable
for actions or failure to act; however, they are not protected from liability by
reason of their willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of their office. The Fund
provides indemnification to its trustees and officers as authorized by its
By-Laws and by the 1940 Act and the rules and regulations thereunder.
REGISTRATION STATEMENT - A registration statement has been filed with
the Securities and Exchange Commission under the Securities Act and the 1940
Act. The Prospectus and this Statement of Additional Information do not contain
all information set forth in the registration statement, its amendments and
exhibits thereto, that the Fund has filed with the Securities and Exchange
Commission, Washington, D.C., to all of which reference is hereby made.
FINANCIAL STATEMENTS
Set forth following this Statement of Additional Information are the
audited financial statements of the Fund with respect to the fiscal year ended
November 30, 1996.
- 24 -
<PAGE> 25
<PAGE> 1
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- ---------------------
ANCHOR PATHWAY FUND
GROWTH SERIES INVESTMENT PORTFOLIO -- NOVEMBER 30, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCK -- 90.9% SHARES (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL EQUIPMENT -- 35.2%
Data Processing & Reproduction -- 10.2%
3Com Corp.+.......................................................... 50,000 $ 3,756
Adobe Systems, Inc. ................................................. 250,000 9,875
Autodesk, Inc. ...................................................... 50,000 1,400
Compuserve, Inc.+.................................................... 50,000 525
Danka Business Systems PLC ADR....................................... 25,000 1,050
Data General Corp.+.................................................. 100,000 1,463
Dell Computer Corp.+................................................. 13,600 1,382
Digital Equipment Corp.+............................................. 135,000 4,961
Mentor Graphics Corp.+............................................... 120,000 1,170
Oracle Systems Corp.+................................................ 412,500 20,213
Silicon Graphics, Inc.+.............................................. 539,500 10,723
Solectron Corp.+..................................................... 230,000 13,455
Structural Dynamics Research Corp.+.................................. 150,000 2,906
Sybase, Inc.+........................................................ 400,000 7,050
Tandem Computers, Inc.+.............................................. 250,000 3,406
Electrical & Electronics -- 1.1%
Ericsson (L.M.) Telephone Co., Class B ADR........................... 158,000 4,878
General Instrument Corp.+............................................ 144,300 3,193
Nokia Corp. ADR...................................................... 20,000 1,122
Electronic Components -- 21.8%
Adaptec, Inc.+....................................................... 420,000 15,645
Analog Devices, Inc.+................................................ 515,000 16,544
Bay Networks, Inc.+.................................................. 165,000 4,414
EMC Corp.+........................................................... 200,000 6,450
Intel Corp. ......................................................... 427,600 54,252
Linear Technology Corp. ............................................. 150,000 7,069
LSI Logic Corp.+..................................................... 305,000 9,188
Maxim Integrated Products, Inc.+..................................... 120,000 5,565
Microchip Technology, Inc.+.......................................... 75,000 3,581
National Semiconductor Corp.+........................................ 125,000 3,062
Newbridge Networks Corp. ADR+........................................ 100,000 2,975
Park Electrochemical Corp. .......................................... 187,200 4,259
Rogers Corp.+........................................................ 109,200 3,003
SCI Systems, Inc.+................................................... 127,600 6,731
Texas Instruments, Inc. ............................................. 345,600 22,032
Western Digital Corp.+............................................... 39,100 2,102
Xilinx, Inc.+........................................................ 230,000 10,091
Electronic Instruments -- 0.5%
Applied Materials, Inc.+............................................. 100,000 3,813
Energy Equipment -- 1.6%
Reading & Bates Corp.+............................................... 150,000 4,350
Schlumberger Ltd. ................................................... 79,500 8,268
---------
285,922
---------
CONSUMER GOODS -- 5.6%
Beverages & Tobacco -- 1.3%
PepsiCo, Inc. ....................................................... 80,000 2,390
Philip Morris Cos., Inc. ............................................ 80,000 8,250
</TABLE>
- ---------------------
4
<PAGE> 2
<TABLE>
<CAPTION>
VALUE
COMMON STOCK (continued) SHARES (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER GOODS (continued)
Health & Personal Care -- 2.4%
Alpha Beta Technology, Inc.+......................................... 70,000 $ 647
Forest Labs, Inc.+................................................... 81,000 3,139
Genetics Institute, Inc.+............................................ 80,000 5,440
Omnicare, Inc. ...................................................... 230,000 7,015
Paragon Trade Brands, Inc.+.......................................... 45,000 1,249
Pharmacia & Upjohn, Inc. ............................................ 58,000 2,240
Recreation & Other Consumer Products -- 1.9%
Duracell International, Inc. ........................................ 25,000 1,666
Electronic Arts+..................................................... 15,300 491
Hasbro, Inc. ........................................................ 45,000 1,851
Mattel, Inc. ........................................................ 370,308 11,433
---------
45,811
---------
ENERGY -- 1.0%
Energy Sources -- 0.5%
Murphy Oil Corp. .................................................... 80,000 4,080
Utilities: Electric, Gas & Water -- 0.5%
Columbia Gas Systems, Inc. .......................................... 59,400 3,839
---------
7,919
---------
FINANCE -- 5.7%
Banking -- 1.4%
Charter One Financial, Inc. ......................................... 73,500 3,197
Commerce Bancshares, Inc. ........................................... 127,286 5,728
Norwest Corp. ....................................................... 50,000 2,338
Financial Services -- 0.9%
Federal National Mortgage Association................................ 180,000 7,425
Insurance -- 3.4%
Everest Reinsurance Holdings, Inc. .................................. 40,000 1,125
EXEL Ltd. ........................................................... 290,000 10,984
NAC Reinsurance Corp. ............................................... 55,000 2,007
Transatlantic Holdings, Inc. ........................................ 110,000 8,759
Trenwick Group, Inc. ................................................ 97,400 4,748
---------
46,311
---------
MATERIALS -- 2.9%
Agricultural Services -- 1.2%
Pioneer Hi-Bred International, Inc. ................................. 140,000 9,765
Chemicals -- 1.7%
Air Products & Chemicals, Inc. ...................................... 25,000 1,737
Great Lakes Chemical Corp. .......................................... 40,000 2,145
Valspar Corp. ....................................................... 170,000 9,754
---------
23,401
---------
SERVICES -- 39.7%
Broadcasting & Publishing -- 11.7%
Adelphia Communications Corp.+....................................... 205,000 1,358
BHC Communications, Inc., Class A+................................... 55,821 5,701
Cablevision Systems Corp., Class A+.................................. 70,000 2,109
Comcast Corp., Class A............................................... 127,500 2,135
Gaylord Entertainment Co., Class A................................... 240,000 5,130
Marvel Entertainment Group, Inc.+.................................... 44,600 123
News Corp., Ltd. ADR................................................. 680,000 14,450
Tele-Communications Liberty Media Group +............................ 282,881 7,072
Tele-Communications TCI Group, Series A+............................. 440,525 5,947
</TABLE>
---------------------
5
<PAGE> 3
<TABLE>
<CAPTION>
VALUE
COMMON STOCK (continued) SHARES (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES (continued)
Broadcasting & Publishing (continued)
Time Warner, Inc. ................................................... 821,250 $ 33,466
U.S. West Media Group+............................................... 50,000 956
Viacom, Inc., Class B+............................................... 445,000 16,799
Business & Public Services -- 14.8%
ADT Ltd.+............................................................ 100,000 2,050
Air & Water Technologies Corp., Class A+............................. 165,000 1,021
America Online, Inc.+................................................ 551,500 19,509
Apria Healthcare Group, Inc.+........................................ 150,000 2,700
Avery Dennison Corp. ................................................ 90,000 6,356
Columbia/HCA Healthcare Corp. ....................................... 133,125 5,325
CUC International, Inc.+............................................. 165,000 4,352
Ecolab, Inc. ........................................................ 100,000 3,887
Electronic Data Systems Corp. ....................................... 175,000 8,466
Federal Express Corp.+............................................... 350,000 15,487
FHP International Corp.+............................................. 174,600 6,264
Loewen Group, Inc. .................................................. 50,000 2,019
Manpower, Inc. ...................................................... 41,400 1,351
Oxford Health Plans, Inc.+........................................... 276,000 16,008
Pacificare Health Systems, Inc., Class B+............................ 35,000 2,905
United Healthcare Corp. ............................................. 305,000 13,153
USA Waste Services, Inc.+............................................ 50,000 1,613
Value Health, Inc.+.................................................. 50,000 906
WMX Technologies, Inc. .............................................. 200,000 7,200
Leisure & Tourism -- 6.0%
Carnival Corp., Class A.............................................. 50,000 1,581
Disney (Walt) Co. ................................................... 400,000 29,500
Harrah's Entertainment, Inc.+........................................ 210,000 3,728
Host Marriott Corp.+................................................. 500,000 7,625
Marriott International, Inc. ........................................ 110,000 6,132
Merchandising -- 4.0%
Barnes & Noble, Inc.+................................................ 204,400 6,388
Circuit City Stores, Inc. ........................................... 270,000 9,011
Consolidated Stores Corp.+........................................... 99,100 3,667
Home Shopping Network, Inc.+......................................... 285,000 3,206
Limited, Inc. ....................................................... 50,000 900
Spiegel, Inc., Class A............................................... 366,600 3,162
Staples, Inc.+....................................................... 112,500 2,222
Wal-Mart Stores, Inc. ............................................... 150,000 3,825
Telecommunications -- 1.1%
AirTouch Communications, Inc.+....................................... 50,000 1,281
MCI Communications Corp. ............................................ 200,000 6,100
United States Cellular Corp.+........................................ 52,000 1,456
Transportation: Airlines -- 2.1%
AMR Corp.+........................................................... 70,000 6,387
Delta Air Lines, Inc. ............................................... 10,000 753
Southwest Airlines Co. .............................................. 405,000 10,024
---------
322,766
---------
OTHER COMMON STOCK -- 0.8%........................................... 6,881
---------
TOTAL COMMON STOCK (cost $463,354)................................... 739,011
---------
</TABLE>
- ---------------------
6
<PAGE> 4
<TABLE>
<CAPTION>
VALUE
PREFERRED STOCK -- 0.7% SHARES (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES -- 0.7%
Broadcasting & Publishing -- 0.7%
News Corp., Ltd. ADR (cost $2,314)................................... 340,000 $ 5,865
---------
TOTAL INVESTMENT SECURITIES (cost $465,668).......................... 744,876
---------
<CAPTION>
PRINCIPAL
AMOUNT
SHORT-TERM SECURITIES -- 7.1% (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE SHORT-TERM NOTES -- 7.1%
Associates Corp. of North America 5.38% due 12/2/96.................. $ 5,300 5,299
General Electric Capital Corp. 5.31% due 1/8/97...................... 9,560 9,506
General Electric Capital Corp. 5.31% due 1/9/97...................... 6,000 5,966
General Electric Capital Corp. 5.75% due 12/2/96..................... 3,280 3,279
Heinz (H.J.) Co. 5.25% due 12/12/96.................................. 5,800 5,791
Heinz (H.J.) Co. 5.25% due 12/30/96.................................. 10,600 10,555
Lucent Technologies, Inc. 5.24% due 12/18/96......................... 6,000 5,985
Lucent Technologies, Inc. 5.25% due 12/17/96......................... 11,700 11,673
---------
TOTAL SHORT-TERM SECURITIES (cost $58,054)........................... 58,054
---------
TOTAL INVESTMENTS --
(cost $523,722) 98.7% 802,930
Other assets less liabilities -- 1.3 10,234
------ ---------
NET ASSETS -- 100.0% $ 813,164
====== =========
</TABLE>
-----------------------------
+ Non-income producing securities
ADR - American Depositary Receipt
See Notes to Financial Statements
---------------------
7
<PAGE> 5
O
- ---------------------
ANCHOR PATHWAY FUND
INTERNATIONAL SERIES INVESTMENT PORTFOLIO -- NOVEMBER 30, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCK, PREFERRED STOCK & WARRANTS -- 89.9% SHARES (IN THOUSANDS)
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
AUSTRALIA -- 6.4%
Australia & New Zealand Bank Group (Finance)....................... 978,309 $ 6,426
Coca-Cola Amatil Ltd. (Consumer Goods)#............................ 260,716 2,945
News Corp., Ltd. Preferred ADR (Services).......................... 33,300 575
News Corp., Ltd. ADR (Services).................................... 66,600 1,415
Western Mining Corp. Holdings Ltd. ADR (Materials)................. 738,326 4,687
---------
16,048
---------
BERMUDA -- 0.8%
Mandarin Oriental (Services)....................................... 1,328,905 2,033
---------
CANADA -- 7.8%
Bank Nova Scotia Halifax (Finance)................................. 103,400 3,581
Four Seasons Hotels, Inc. (Services)............................... 14,700 307
Imasco Ltd. (Consumer Goods)....................................... 232,000 5,763
Northern Telecom Ltd. (Services)................................... 94,000 6,180
Royal Bank of Canada (Finance)..................................... 72,000 2,673
Teck Corp. Class B (Capital Equipment)............................. 40,000 946
---------
19,450
---------
FINLAND -- 3.1%
Nokia (AB) OY Corp. Series A (Multi-industry)...................... 117,000 6,491
Nokia (AB) OY Corp. Series K (Multi-industry)...................... 20,000 1,103
---------
7,594
---------
FRANCE -- 5.2%
L'Air Liquide (Materials).......................................... 15,400 2,456
Michelin SA registered (Capital Equipment)......................... 84,000 4,308
Moet-Hennessy Louis Vuitton (Consumer Goods)....................... 3,300 836
Pathe (Services)+.................................................. 18,500 4,321
Total SA, Series B (Energy)........................................ 13,876 1,109
---------
13,030
---------
GERMANY -- 4.9%
Bayerische Motoren Werke AG (Consumer Goods)....................... 6,072 3,936
Bayerische Motoren Werke AG NV Preferred (Consumer Goods).......... 2,604 1,192
Daimler-Benz AG (Consumer Goods)+.................................. 24,200 1,580
Mannesmann AG (Capital Equipment).................................. 13,300 5,547
---------
12,255
---------
HONG KONG -- 7.6%
Hong Kong Electric Holdings (Energy)............................... 1,032,000 3,310
HSBC Holdings PLC (Finance)........................................ 154,800 3,224
Hutchison Whampoa Ltd. (Multi-industry)............................ 1,350,000 10,432
Television Broadcasting Ltd. (Services)............................ 497,000 1,909
---------
18,875
---------
IRELAND -- 1.4%
Independent Newspapers (Services).................................. 394,764 2,024
Irish Life PLC (Finance)........................................... 303,633 1,404
---------
3,428
---------
</TABLE>
- ---------------------
8
<PAGE> 6
<TABLE>
<CAPTION>
VALUE
COMMON STOCK, PREFERRED STOCK & WARRANTS (continued) SHARES (IN THOUSANDS)
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
ITALY -- 3.7%
STET (Services).................................................... 120,000 $ 510
STET Risp (Services)............................................... 240,000 738
Telecom Italia Mobile SPA (Services)............................... 3,346,050 7,869
Telecom Italia Mobile SPA-Savings Shares (Services)................ 64,800 86
Telecom Italia SpA Risp (Services)................................. 64,800 119
---------
9,322
---------
JAPAN -- 7.2%
Amway Japan Ltd. ADR (Consumer Goods).............................. 36,000 671
Banyu Pharm (Services)............................................. 105,000 1,346
Kawasaki Steel Corp. (Materials)................................... 580,000 1,818
Mitsubishi Corp. (Consumer Goods).................................. 65,000 753
Sankyo Co., Ltd. (Consumer Goods).................................. 260,000 6,962
Sony Corp. (Consumer Goods)........................................ 22,000 1,408
Suzuki Motor Corp. (Consumer Goods)................................ 179,000 1,870
Toyota Motor Corp. (Consumer Goods)................................ 115,000 3,140
---------
17,968
---------
KOREA -- 1.3%
Hanil Bank (Finance)............................................... 96,580 638
Korea Electric Power Corp. (Energy)................................ 39,000 1,247
Korea Electric Power Corp. ADR (Energy)............................ 26,000 458
Korea First Bank (Finance)+........................................ 105,000 608
Korea Mobile Telecommunications Corp. (Services)................... 350 354
---------
3,305
---------
LUXEMBOURG -- 0.6%
Safra Republic Holdings, Inc. (Finance)............................ 10,000 1,360
---------
MEXICO -- 1.9%
Cifra SA de Cv-Series C (Services)+................................ 195,500 270
Grupo Financiero Banamex-Accival SA de Cv-Series B (Finance)+...... 324,000 639
Grupo Financiero Banamex-Accival SA de Cv-Series L (Finance)+...... 26,406 48
Grupo Televisa SA de Cv ADR (Services)+............................ 35,000 954
Telefonos de Mexico SA ADR (Services).............................. 95,200 2,892
---------
4,803
---------
NETHERLANDS -- 5.7%
ABN Amro Holdings NV (Finance)..................................... 85,546 5,542
International Nederlanden Warrants 3/15/01 (Finance)+.............. 300,000 2,055
Koninklijke PTT Nederland NV (Services)............................ 20,000 749
Philips Electronics (Consumer Goods)............................... 76,000 3,072
Vereenigde Ned Uitgevers (Services)................................ 130,000 2,654
---------
14,072
---------
NEW ZEALAND -- 1.0%
Brierley Investment Ltd. (Multi-industry).......................... 2 0
Carter Holt Harvey Ltd. (Materials)................................ 1 0
Telecom Corp. of New Zealand (Services)............................ 405,280 2,136
Telecom Corp. of New Zealand ADR (Services)........................ 4,600 387
---------
2,523
---------
NORWAY -- 3.0%
Orkla AS (Multi-industry).......................................... 110,000 7,336
---------
SPAIN -- 3.7%
Banco de Santander ADR (Finance)................................... 1,500 82
Banco de Santander SA (Finance).................................... 55,500 3,008
Corporacion Mapfre SA (Finance)+................................... 1,312 67
Iberdrola SA (Energy).............................................. 142,000 1,639
</TABLE>
---------------------
9
<PAGE> 7
<TABLE>
<CAPTION>
VALUE
COMMON STOCK, PREFERRED STOCK & WARRANTS (continued) SHARES (IN THOUSANDS)
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
SPAIN (continued)
Telefonica de Espana SA (Services)................................. 130,000 $ 2,850
Telefonica de Espana SA ADR (Services)............................. 24,000 1,584
---------
9,230
---------
SWEDEN -- 10.5%
Asea AB (Capital Equipment)........................................ 24,500 2,835
Asea AB-Series B (Capital Equipment)............................... 22,000 2,529
Astra AB-Series A (Services)....................................... 184,000 8,822
Ericsson LM Telephone Co. Class B (Capital Equipment).............. 195,200 6,017
Ericsson LM Telephone Co. Class B CV ADR (Capital Equipment)....... 3,500 15
Kinnevik-Series A (Finance)........................................ 23,900 648
Kinnevik-Series B (Finance)........................................ 15,000 420
Volvo AB-Series B (Consumer Goods)................................. 220,800 4,849
---------
26,135
---------
SWITZERLAND -- 6.3%
BBC Brown Boveri, Bearer (Capital Equipment)+...................... 2,363 2,957
Ciba-Geigy AG (Materials).......................................... 6,989 8,648
Holderbank Financiere Glarus (Materials)........................... 3,886 2,805
Nestle SA (Consumer Goods)......................................... 1,250 1,357
---------
15,767
---------
UNITED KINGDOM -- 7.1%
English China Clays (Materials).................................... 305,000 918
Pearson PLC (Multi-industry)....................................... 120,000 1,483
Rentokil Group PLC (Services)...................................... 450,000 3,283
Reuters Holdings PLC (Services).................................... 208,000 2,532
Scottish Power PLC (Energy)........................................ 132,240 749
Severn Trent PLC (Energy)+......................................... 473,000 5,201
Tesco PLC (Services)............................................... 408,616 2,335
Vodafone Group PLC (Services)...................................... 105,801 459
Vodafone Group PLC ADR (Services).................................. 18,000 779
---------
17,739
---------
OTHER COMMON STOCK -- 0.7%......................................... 1,780
---------
TOTAL COMMON STOCK, PREFERRED STOCK, & WARRANTS (cost $167,760).... 224,053
---------
<CAPTION>
PRINCIPAL
AMOUNT
(DENOMINATED IN
LOCAL CURRENCY)
BONDS & NOTES -- 0.1% (IN THOUSANDS)
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
LUXEMBOURG -- 0.0%
Daimler Benz Capital 4.13% 2003.................................... 34 26
---------
FRANCE -- 0.1%
Michelin (cie Gle) 2.50% 2001...................................... 480 275
---------
TOTAL BONDS & NOTES (cost $231).................................... 301
---------
TOTAL INVESTMENT SECURITIES (cost $167,991)........................ 224,354
---------
<CAPTION>
SHORT-TERM SECURITIES -- 9.9%
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE SHORT-TERM NOTES -- 9.9%
Barclays U.S. Funding 5.28% due 1/22/97............................ $ 2,200 2,183
Halifax Building Society 5.40% due 1/03/97......................... 6,200 6,170
Canadian T-Bills 5.27% due 12/12/96................................ 5,000 4,992
Sandoz Corp. 5.33% due 12/02/96.................................... 5,000 4,999
</TABLE>
- ---------------------
10
<PAGE> 8
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM SECURITIES (continued) (IN THOUSANDS) (IN THOUSANDS)
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE SHORT-TERM NOTES (continued)
Siemens Capital Corp. 5.24% due 12/05/96........................... $ 1,300 $ 1,299
Siemens Capital Corp. 5.26% due 1/24/97............................ 5,000 4,961
---------
24,604
---------
TOTAL SHORT-TERM SECURITIES (cost $24,604)......................... 24,604
---------
TOTAL INVESTMENTS --
(cost $192,595) 99.9% 248,958
Other assets less liabilities -- 0.1 186
------ ---------
NET ASSETS -- 100.0% $ 249,144
====== =========
</TABLE>
-----------------------------
# Resale restricted to qualified institutional buyers
+ Non-income producing securities
ADR - American Depositary Receipt
See Notes to Financial Statements
---------------------
11
<PAGE> 9
O
- ---------------------
ANCHOR PATHWAY FUND
GROWTH-INCOME SERIES INVESTMENT PORTFOLIO -- NOVEMBER 30, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCK -- 87.8% SHARES (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL EQUIPMENT -- 12.0%
Aerospace & Military Technology -- 1.7%
Boeing Co. .......................................................... 20,000 $ 1,988
General Motors Corp., Class H........................................ 85,000 4,633
Litton Industries, Inc.+............................................. 40,000 1,870
Raytheon Co. ........................................................ 25,000 1,278
Sundstrand Corp. .................................................... 130,000 5,070
United Technologies Corp. ........................................... 5,000 701
Data Processing & Reproduction -- 1.7%
Adobe Systems, Inc. ................................................. 40,000 1,580
Silicon Graphics, Inc.+.............................................. 200,000 3,975
Xerox Corp. ......................................................... 210,000 10,316
Electrical & Electronics -- 1.3%
Ericsson (L.M.) Telephone Co., Class B ADR........................... 80,000 2,470
Lucent Technologies, Inc. ........................................... 44,028 2,256
Nokia Corp. ADR...................................................... 135,000 7,577
Electronic Components -- 1.3%
Linear Technology Corp. ............................................. 80,000 3,770
Texas Instruments, Inc. ............................................. 120,000 7,650
Energy Equipment -- 1.4%
Dresser Industries, Inc. ............................................ 80,000 2,620
Schlumberger Ltd. ................................................... 70,000 7,280
Western Atlas, Inc.+................................................. 45,000 3,173
Industrial Components -- 1.1%
Dana Corp. .......................................................... 50,000 1,556
Goodyear Tire & Rubber Co. .......................................... 80,000 3,880
ITT Industries, Inc. ................................................ 25,000 584
Rockwell International Corp. ........................................ 70,000 4,498
Machinery & Engineering -- 3.5%
Caterpillar, Inc. ................................................... 125,000 9,890
Crompton & Knowles Corp. ............................................ 120,000 2,205
Deere & Co. ......................................................... 190,000 8,479
Ingersoll-Rand Co. .................................................. 80,000 3,720
Parker-Hannifin Corp. ............................................... 185,000 7,516
---------
110,535
---------
CONSUMER GOODS -- 18.2%
Appliances & Household Durables -- 0.9%
Corning, Inc. ....................................................... 130,000 5,265
Philips Electronics NV ADR........................................... 75,000 3,038
Automotive -- 0.9%
Ford Motor Co. ...................................................... 130,000 4,257
General Motors Corp. ................................................ 70,000 4,034
Beverages & Tobacco -- 3.2%
Anheuser-Busch Cos., Inc. ........................................... 90,000 3,814
PepsiCo, Inc. ....................................................... 210,000 6,274
</TABLE>
- ---------------------
12
<PAGE> 10
<TABLE>
<CAPTION>
VALUE
COMMON STOCK (continued) SHARES (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER GOODS (continued)
Beverages & Tobacco (continued)
Philip Morris Cos., Inc. ............................................ 105,000 $ 10,828
Seagram Co. Ltd. .................................................... 220,000 8,992
Food & Household Products -- 2.9%
Archer-Daniels-Midland Co. .......................................... 170,000 3,740
ConAgra, Inc. ....................................................... 40,000 2,125
CPC International, Inc. ............................................. 50,000 4,162
General Mills, Inc. ................................................. 45,000 2,858
Heinz (H.J.) Co. .................................................... 70,000 2,651
Kellogg Co. ......................................................... 13,800 937
McCormick & Co., Inc. ............................................... 200,000 4,925
Unilever N. V. ...................................................... 30,000 5,194
Health & Personal Care -- 8.0%
American Home Products Corp. ........................................ 170,000 10,922
Bristol-Myers Squibb Co. ............................................ 35,000 3,981
Johnson & Johnson Co. ............................................... 60,000 3,188
Kimberly-Clark Corp. ................................................ 40,000 3,910
Merck & Co., Inc. ................................................... 155,000 12,865
Pfizer, Inc. ........................................................ 175,000 15,684
Schering-Plough Corp. ............................................... 180,000 12,825
Tambrands, Inc. ..................................................... 30,000 1,283
Warner-Lambert Co. .................................................. 120,000 8,580
Recreation & Other Consumer Products -- 2.0%
American Greetings Corp., Class A.................................... 70,000 1,977
Duracell International, Inc. ........................................ 40,000 2,665
Eastman Kodak Co. ................................................... 60,000 4,860
Polaroid Corp. ...................................................... 145,000 6,181
Stanley Works........................................................ 80,000 2,360
Textiles & Apparel -- 0.3%
V.F. Corp. .......................................................... 45,000 3,054
---------
167,429
---------
ENERGY -- 8.6%
Energy Sources -- 7.5%
Amoco Corp. ......................................................... 115,000 8,927
Atlantic Richfield Co. .............................................. 60,000 8,347
Diamond Shamrock, Inc. .............................................. 160,000 5,200
Exxon Corp. ......................................................... 50,000 4,731
Pennzoil Co. ........................................................ 70,000 3,938
Phillips Petroleum Co. .............................................. 210,000 9,476
Royal Dutch Petroleum Co. ADR........................................ 30,000 5,096
Texaco, Inc. ........................................................ 40,000 3,965
Total SA ADR......................................................... 61,338 2,477
Union Pacific Resources Group, Inc. ................................. 67,755 2,024
Unocal Corp. ........................................................ 175,000 7,131
Valero Energy Corp. ................................................. 260,000 7,800
Utilities: Electric, Gas & Water -- 1.1%
Consolidated Edison Co. of New York, Inc. ........................... 100,000 2,900
Pacific Gas & Electric Co. .......................................... 150,000 3,619
Union Electric Co. .................................................. 80,000 3,180
---------
78,811
---------
FINANCE -- 12.2%
Banking -- 7.1%
Banc One Corp. ...................................................... 118,000 5,620
Bank of New York, Inc. .............................................. 160,000 5,740
</TABLE>
---------------------
13
<PAGE> 11
<TABLE>
<CAPTION>
VALUE
COMMON STOCK (continued) SHARES (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCE (continued)
Banking (continued)
BankAmerica Corp. ................................................... 65,000 $ 6,695
CoreStates Financial Corp. .......................................... 92,500 4,983
First Chicago Corp. ................................................. 50,000 2,938
First Union Corp. ................................................... 80,000 6,110
KeyCorp.............................................................. 100,000 5,237
Morgan (J.P.) & Co., Inc. ........................................... 30,000 2,831
National City Corp. ................................................. 70,000 3,246
Northern Trust Corp. ................................................ 20,000 1,453
Norwest Corp. ....................................................... 140,000 6,545
PNC Bank Corp. ...................................................... 202,000 7,979
SunTrust Banks, Inc. ................................................ 110,000 5,582
Financial Services -- 0.9%
American Express Co. ................................................ 50,000 2,612
Associates First Capital Corp., Class A.............................. 5,000 242
Beneficial Corp. .................................................... 20,000 1,243
FINOVA Group, Inc. .................................................. 25,000 1,650
Household International, Inc. ....................................... 30,000 2,842
Insurance -- 4.2%
Aetna, Inc. ......................................................... 50,000 3,606
Allstate Corp. ...................................................... 120,000 7,230
American General Corp. .............................................. 30,000 1,234
Gallagher (Arthur J.) & Co. ......................................... 95,300 2,931
General Reinsurance Group............................................ 40,000 6,750
Liberty Corp. ....................................................... 75,000 2,859
SAFECO Corp. ........................................................ 275,500 11,468
St. Paul Cos., Inc. ................................................. 40,000 2,355
---------
111,981
---------
MATERIALS -- 10.9%
Agricultural Services -- 0.2%
Pioneer Hi-Bred International, Inc. ................................. 30,000 2,092
Chemicals -- 3.5%
Dow Chemical Co. .................................................... 40,000 3,350
du Pont (E.I.) de Nemours & Co. ..................................... 55,000 5,184
Eastman Chemical Co. ................................................ 50,000 2,856
Great Lakes Chemical Corp. .......................................... 20,000 1,073
Lyondell Petrochemical Co. .......................................... 60,000 1,350
Mallinckrodt, Inc. .................................................. 90,900 4,000
Monsanto Co. ........................................................ 150,000 5,962
PPG Industries, Inc. ................................................ 60,000 3,675
Praxair, Inc. ....................................................... 100,000 4,862
Forest Products & Paper -- 4.2%
Bowater, Inc. ....................................................... 230,000 8,654
Georgia-Pacific Corp. ............................................... 65,000 4,729
International Paper Co. ............................................. 100,000 4,250
James River Corp. ................................................... 125,000 4,000
Rayonier, Inc. ...................................................... 92,500 3,584
Union Camp Corp. .................................................... 175,000 8,597
Westvaco Corp. ...................................................... 60,000 1,695
Weyerhaeuser Co. .................................................... 75,000 3,450
Metals & Minerals -- 3.0%
Alumax, Inc.+........................................................ 40,000 1,295
Aluminum Co. of America.............................................. 240,000 15,270
</TABLE>
- ---------------------
14
<PAGE> 12
<TABLE>
<CAPTION>
VALUE
COMMON STOCK (continued) SHARES (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
MATERIALS (continued)
Metals & Minerals (continued)
Inco Ltd. ........................................................... 30,000 $ 1,046
Potash Corp. Saskatchewan, Inc. ..................................... 130,000 9,799
---------
100,773
---------
MULTI-INDUSTRY -- 1.7%
Multi-Industry -- 1.7%
AlliedSignal, Inc. .................................................. 40,000 2,930
Tenneco, Inc. ....................................................... 115,000 5,865
Textron, Inc. ....................................................... 75,000 7,153
---------
15,948
---------
SERVICES -- 22.0%
Broadcasting & Publishing -- 3.4%
Comcast Corp., Class A............................................... 23,173 388
Cox Communications, Inc., Class A+................................... 49,224 1,009
Gannett Co., Inc. ................................................... 40,000 3,140
New York Times Co., Class A.......................................... 50,000 1,869
News Corp. Ltd. ADR.................................................. 140,000 2,975
Scripps Co. (E.W.), Class A.......................................... 135,000 4,691
Tele-Communications Liberty Media Group+............................. 145,000 3,625
Time Warner, Inc. ................................................... 100,000 4,075
US West Inc. Media Group+............................................ 171,800 3,286
Viacom, Inc., Class B+............................................... 165,000 6,229
Business & Public Services -- 5.5%
ACNielsen Corp.+..................................................... 50,000 869
Alexander & Baldwin, Inc. ........................................... 180,000 4,770
Browning-Ferris Industries, Inc. .................................... 220,000 5,912
Cognizant Corp.+..................................................... 150,000 5,175
Dun & Bradstreet Corp. .............................................. 150,000 3,394
Ecolab, Inc. ........................................................ 50,000 1,944
Electronic Data Systems Corp. ....................................... 155,000 7,498
Federal Express Corp.+............................................... 60,000 2,655
Omnicom Group........................................................ 40,000 2,040
PacifiCare Health Systems, Inc., Class A+............................ 40,000 3,160
Pitney Bowes, Inc. .................................................. 30,000 1,770
WMX Technologies, Inc. .............................................. 310,000 11,160
Leisure & Tourism -- 1.3%
Disney (Walt) Co. ................................................... 140,000 10,325
Host Marriott Corp.+................................................. 110,000 1,678
Merchandising -- 3.6%
Circuit City Stores, Inc. ........................................... 182,000 6,074
Federated Department Stores, Inc.+................................... 100,000 3,412
Gap, Inc. ........................................................... 40,000 1,285
Giant Foods, Inc., Class A........................................... 100,000 3,375
May Department Stores Co. ........................................... 80,000 3,900
Mercantile Stores Co., Inc. ......................................... 60,000 3,015
Penney (J.C.) Co., Inc. ............................................. 50,000 2,688
Wal-Mart Stores, Inc. ............................................... 350,000 8,925
Telecommunications -- 5.1%
AirTouch Communications, Inc.+....................................... 81,013 2,076
Alltel Corp. ........................................................ 7,600 242
Ameritech Corp. ..................................................... 120,000 7,065
AT&T Corp. .......................................................... 470,000 18,447
MCI Communications Corp. ............................................ 260,000 7,930
SBC Communications, Inc. ............................................ 40,000 2,105
</TABLE>
---------------------
15
<PAGE> 13
<TABLE>
<CAPTION>
VALUE
COMMON STOCK (continued) SHARES (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES (continued)
Telecommunications (continued)
Telefonos de Mexico SA ADR........................................... 130,000 $ 3,949
US West, Inc. Communications Group .................................. 171,800 5,369
Transportation: Airlines -- 0.7%
AMR Corp.+........................................................... 65,000 5,931
Transportation: Rail & Road -- 2.4%
Conrail, Inc. ....................................................... 114,822 11,166
Norfolk Southern Corp. .............................................. 65,000 5,850
Union Pacific Corp. ................................................. 80,000 4,660
---------
201,101
---------
OTHER COMMON STOCK -- 2.2%........................................... 20,553
---------
TOTAL COMMON STOCK (cost $541,816)................................... 807,131
---------
<CAPTION>
PREFERRED STOCK -- 0.1%
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES -- 0.1%
Broadcasting & Publishing -- 0.1%
News Corp. Ltd. ADR (cost $1,044).................................... 80,000 1,380
---------
TOTAL INVESTMENT SECURITIES (cost $542,860).......................... 808,511
---------
<CAPTION>
PRINCIPAL
AMOUNT
SHORT-TERM SECURITIES -- 12.1% (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE SHORT-TERM NOTES -- 10.4%
Associates Corp. of North America 5.38% due 12/2/96.................. $ 5,500 5,499
Associates Corp. of North America 5.95% due 12/2/96.................. 3,400 3,399
CIT Group Holdings, Inc. 5.24% due 12/17/96.......................... 11,700 11,673
CIT Group Holdings, Inc. 5.26% due 12/19/96.......................... 7,000 6,981
Coca-Cola Co. 5.23% due 12/5/96...................................... 10,500 10,494
Heinz (H.J.) Co. 5.24% due 12/4/96................................... 5,500 5,498
Heinz (H.J.) Co. 5.25% due 12/12/96.................................. 1,290 1,289
Heinz (H.J.) Co. 5.29% due 1/3/97.................................... 12,300 12,240
Lucent Technologies, Inc. 5.24% due 12/18/96......................... 9,000 8,978
Lucent Technologies, Inc. 5.25% due 12/13/96......................... 10,200 10,182
National Rural Utilities Cooperative Finance Corp. 5.28% due
1/22/97............................................................ 17,200 17,069
Penney (J.C.) Funding Corp. 5.31% due 12/4/96........................ 2,400 2,399
---------
TOTAL CORPORATE SHORT-TERM NOTES (cost $95,700)...................... 95,701
---------
</TABLE>
- ---------------------
16
<PAGE> 14
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM SECURITIES (continued) (IN THOUSANDS) (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
FEDERAL AGENCY OBLIGATIONS -- 1.7%
Federal National Mortgage Association 5.30% due 12/19/96............. $ 2,800 $ 2,793
Federal National Mortgage Association 5.34% due 12/19/96............. 10,000 9,973
Federal National Mortgage Association 5.22% due 12/12/96............. 2,600 2,596
---------
TOTAL FEDERAL AGENCY OBLIGATIONS (cost $15,362)...................... 15,362
---------
TOTAL SHORT-TERM SECURITIES (cost $111,062).......................... 111,063
---------
TOTAL INVESTMENTS --
(cost $653,922) 100.0% 919,574
Other assets less liabilities -- 0.0 (218)
------ ---------
NET ASSETS -- 100.0% $ 919,356
====== =========
</TABLE>
-----------------------------
+ Non-income producing securities
ADR - American Depositary Receipt
See Notes to Financial Statements
---------------------
17
<PAGE> 15
O
- ---------------------
ANCHOR PATHWAY FUND
ASSET ALLOCATION SERIES INVESTMENT PORTFOLIO -- NOVEMBER 30, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCK -- 63.1% SHARES (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL EQUIPMENT -- 8.7%
Aerospace & Military Technology -- 2.1%
Boeing Co. .......................................................... 10,000 $ 994
General Motors Corp., Class H........................................ 41,000 2,235
Data Processing & Reproduction -- 0.2%
Adobe Systems, Inc. ................................................. 10,000 395
Electrical & Electronics -- 1.2%
Hubbell, Inc. ....................................................... 30,000 1,260
Nokia Corp. ADR...................................................... 10,000 561
Industrial Components -- 3.6%
Dana Corp. .......................................................... 35,000 1,090
Echlin, Inc. ........................................................ 15,000 504
Rockwell International Corp. ........................................ 60,000 3,855
Machinery & Engineering -- 1.6%
Crompton & Knowles Corp. ............................................ 60,000 1,102
Deere & Co. ......................................................... 30,000 1,339
---------
13,335
---------
CONSUMER GOODS -- 17.6%
Automotive -- 0.8%
General Motors Corp. ................................................ 20,000 1,152
Beverages & Tobacco -- 2.9%
PepsiCo, Inc. ....................................................... 80,000 2,390
Seagram Co., Ltd. ................................................... 50,000 2,044
Food & Household Products -- 2.8%
Archer-Daniels-Midland Co. .......................................... 52,500 1,155
General Mills, Inc. ................................................. 20,000 1,270
Heinz (H.J.) Co. .................................................... 30,000 1,136
McCormick & Co., Inc. ............................................... 30,000 739
Health & Personal Care -- 9.7%
American Home Products Corp. ........................................ 40,000 2,570
Bristol-Myers Squibb Co. ............................................ 15,000 1,706
Kimberly-Clark Corp. ................................................ 10,000 978
Pfizer, Inc. ........................................................ 44,000 3,943
Smithkline Beecham PLC ADR........................................... 50,000 3,444
Tambrands, Inc. ..................................................... 20,000 855
Warner-Lambert Co. .................................................. 20,000 1,430
Recreation & Other Consumer Products -- 1.4%
American Greetings Corp., Class A.................................... 30,000 848
Duracell International, Inc. ........................................ 10,000 666
Stanley Works........................................................ 20,000 590
---------
26,916
---------
ENERGY -- 7.5%
Energy Sources -- 7.5%
Amoco Corp. ......................................................... 15,000 1,164
Atlantic Richfield Co. .............................................. 15,000 2,087
Chevron Corp. ....................................................... 40,000 2,680
</TABLE>
- ---------------------
18
<PAGE> 16
<TABLE>
<CAPTION>
VALUE
COMMON STOCK (continued) SHARES (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
ENERGY (continued)
Energy Sources (continued)
Diamond Shamrock, Inc. .............................................. 20,000 $ 650
Kerr-McGee Corp. .................................................... 25,000 1,750
Phillips Petroleum Co. .............................................. 35,000 1,580
Royal Dutch Petroleum Co. ADR........................................ 6,000 1,019
Unocal Corp. ........................................................ 15,000 611
---------
11,541
---------
FINANCE -- 9.6%
Banking -- 7.2%
Citicorp............................................................. 20,000 2,185
CoreStates Financial Corp. .......................................... 20,000 1,077
First Union Corp. ................................................... 22,950 1,753
Fleet Financial Group, Inc. ......................................... 25,000 1,384
KeyCorp.............................................................. 15,000 786
NationsBank Corp. ................................................... 25,000 2,591
PNC Bank Corp. ...................................................... 30,000 1,185
Insurance -- 2.4%
American General Corp. .............................................. 15,000 617
General Reinsurance Group............................................ 10,000 1,687
SAFECO Corp. ........................................................ 35,000 1,457
---------
14,722
---------
MATERIALS -- 7.1%
Chemicals -- 3.2%
Air Products & Chemicals, Inc. ...................................... 20,000 1,390
du Pont (E.I.) de Nemours & Co. ..................................... 15,000 1,414
Mallinckrodt, Inc. .................................................. 20,000 880
PPG Industries, Inc. ................................................ 20,000 1,225
Forest Products & Paper -- 3.2%
Georgia-Pacific Corp. ............................................... 30,000 2,182
Rayonier, Inc. ...................................................... 15,500 601
Union Camp Corp. .................................................... 20,000 982
Weyerhaeuser Co. .................................................... 25,000 1,150
Metals & Minerals -- 0.7%
Aluminum Co. of America.............................................. 16,000 1,018
---------
10,842
---------
MULTI-INDUSTRY -- 2.1%
Multi-Industry -- 2.1%
Tenneco, Inc. ....................................................... 35,000 1,785
Textron, Inc. ....................................................... 15,000 1,431
---------
3,216
---------
SERVICES -- 10.5%
Business & Public Services -- 0.5%
Alexander & Baldwin, Inc. ........................................... 30,000 795
Merchandising -- 6.5%
Circuit City Stores, Inc. ........................................... 10,000 334
May Department Stores Co. ........................................... 30,000 1,463
Mercantile Stores Co., Inc. ......................................... 20,000 1,005
Penney (J.C.), Inc. ................................................. 35,000 1,881
Sears, Roebuck & Co. ................................................ 15,000 746
Wal-Mart Stores, Inc. ............................................... 80,000 2,040
Walgreen Co. ........................................................ 60,000 2,505
</TABLE>
---------------------
19
<PAGE> 17
<TABLE>
<CAPTION>
VALUE
COMMON STOCK (continued) SHARES (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES (continued)
Telecommunications -- 0.3%
AT&T Corp. .......................................................... 10,000 $ 392
Transportation: Rail & Road -- 3.2%
Conrail, Inc. ....................................................... 19,137 1,861
Norfolk Southern Corp. .............................................. 20,000 1,800
Union Pacific Corp. ................................................. 20,000 1,165
---------
15,987
---------
TOTAL COMMON STOCK (cost $67,812).................................... 96,559
---------
<CAPTION>
PRINCIPAL
AMOUNT
BONDS & NOTES -- 28.5% (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES (continued)
ASSET-BACKED SECURITIES -- 0.5%
Green Tree Financial Corp. 7.25% 2005................................ $ 715 713
---------
CONVERTIBLE BONDS -- 2.5%
Broadcasting & Publishing -- 1.6%
Turner Broadcasting Systems, Inc. zero coupon 2007#.................. 5,000 2,425
Industrial -- 0.6%
Hanson America, Inc. 2.39% 2001#..................................... 1,000 873
Telecommunications -- 0.3%
United States West, Inc. zero coupon 2011............................ 1,500 542
---------
3,840
---------
CORPORATE NONCONVERTIBLES -- 12.3%
Automotive -- 0.8%
General Motors Corp. 8.80% 2021...................................... 1,000 1,179
Broadcasting & Publishing -- 0.7%
Time Warner, Inc. 9.125% 2013........................................ 1,000 1,107
Finance -- 3.5%
Aetna Services, Inc. 6.97% 2036...................................... 500 519
Capital One Bank 7.35% 2000.......................................... 2,500 2,566
Chevy Chase Savings Bank 9.25% 2008.................................. 500 507
First Union Corp. 6.82% 2006......................................... 500 515
Irvine Property 7.46% 2006*.......................................... 500 489
Ocwen Financial Corp. 11.875% 2003................................... 250 267
Saul (B.F.) Real Estate Investment Trust 11.625% 2002................ 500 540
Industrial -- 4.9%
Acme Metals, Inc. 12.50% 2002........................................ 500 535
Allegiance Corp. 7.00% 2026.......................................... 500 517
CenCall Communications Corp. zero coupon 2004@....................... 1,000 665
Container Corp. of America 9.75% 2003................................ 500 521
Dayton Hudson Corp. 8.50% 2022....................................... 500 533
Freeport McMoRan Copper & Gold 7.20% 2026............................ 500 504
Inco Ltd. 9.60% 2022................................................. 400 448
Omnipoint Corp. 11.625% 2006#........................................ 250 263
Oryx Energy Co. 8.375% 2004.......................................... 500 528
Oryx Energy Co. 9.50% 1999........................................... 1,500 1,597
Oryx Energy Co. 10.00% 1999.......................................... 500 536
Philips Electronics NV 7.20% 2026.................................... 750 779
</TABLE>
- ---------------------
20
<PAGE> 18
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
BONDS & NOTES (continued) (IN THOUSANDS) (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE NONCONVERTIBLES (continued)
Transportation -- 2.4%
Airplanes Pass Through Trust 8.15% 2019*............................. $ 500 $ 526
Continental Airlines Pass Through Trust 6.94% 2013................... 1,000 1,004
Delta Air Lines, Inc. 10.50% 2016.................................... 500 620
Jet Equipment Trust 7.83% 2012....................................... 486 515
United Airlines Pass Through Trust 7.87% 2018........................ 500 502
USAir, Inc. 6.76% 2008............................................... 487 485
---------
18,767
---------
U.S. GOVERNMENT & AGENCIES -- 7.4%
Federal National Mortgage Association 6.53% 2006..................... 4,000 3,898
Federal National Mortgage Association 7.52% 2004..................... 2,000 2,045
Government National Mortgage Association 7.50% 2026.................. 1,485 1,506
Government National Mortgage Association 8.00% 2026.................. 2,970 3,061
Government National Mortgage Association 8.50% 2025.................. 802 839
---------
11,349
---------
UNITED STATES TREASURY -- 5.7%
10.375% Bonds 2012................................................... 5,000 6,604
7.25% Notes 2004..................................................... 2,000 2,153
---------
8,757
---------
OTHER BONDS & NOTES -- 0.1%.......................................... 217
---------
TOTAL BONDS & NOTES (cost $42,898)................................... 43,643
---------
TOTAL INVESTMENT SECURITIES (cost $110,710).......................... 140,202
---------
<CAPTION>
SHORT-TERM SECURITIES -- 8.2%
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE SHORT-TERM NOTES -- 7.5%
American Express Credit Corp. 5.25% due 12/6/96...................... 2,800 2,797
General Electric Capital Corp. 5.75% due 12/2/96..................... 2,340 2,339
Heinz (H.J.) Co. 5.24% due 12/4/96................................... 1,500 1,499
Heinz (H.J.) Co. 5.25% due 12/30/96.................................. 2,400 2,390
Lucent Technologies, Inc. 5.24% due 12/18/96......................... 2,500 2,495
---------
TOTAL CORPORATE SHORT-TERM NOTES (cost $11,521)...................... 11,520
---------
UNITED STATES TREASURY -- 0.7%
8.75% Notes due 10/15/97 (cost $1,070)............................... 1,000 1,028
---------
TOTAL SHORT-TERM SECURITIES (cost $12,591)........................... 12,548
---------
TOTAL INVESTMENTS --
(cost $123,301) 99.8% 152,750
Other assets less liabilities -- 0.2 310
------ ---------
NET ASSETS -- 100.0% $ 153,060
====== =========
</TABLE>
-----------------------------
+ Non-income producing securities
* Fair value determined by Trustees
# Resale restricted to qualified institutional buyers
@ Represents a zero-coupon bond which will convert to an
interest-bearing security at a later date
ADR - American Depositary Receipt
See Notes to Financial Statements
---------------------
21
<PAGE> 19
O
- ---------------------
ANCHOR PATHWAY FUND
HIGH-YIELD BOND SERIES INVESTMENT PORTFOLIO -- NOVEMBER 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
BONDS & NOTES -- 85.5% (IN THOUSANDS) (IN THOUSANDS)
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL EQUIPMENT -- 5.3%
Aerospace & Military Technology -- 3.3%
Coltec Industries 9.75% 1999...................................... $ 500 $ 537
Coltec Industries 9.75% 2000...................................... 3,500 3,789
Construction & Housing -- 0.4%
M.D.C. Holdings, Inc. 11.125% 2003................................ 500 505
Electrical & Electronics -- 1.6%
MagneTek, Inc. 10.75% 1998........................................ 2,000 2,060
---------
6,891
---------
CONSUMER GOODS -- 2.9%
Beverages & Tobacco -- 2.9%
Canandaigua Wine, Inc. 8.75% 2003#................................ 1,000 963
Dr. Pepper/Seven Up Cos., Inc. 10.25% 2000........................ 2,750 2,846
---------
3,809
---------
ENERGY -- 12.4%
Energy Sources -- 9.3%
Abraxas Petroleum Corp. 11.50% 2004............................... 500 516
Benton Oil & Gas Co. 11.625% 2003................................. 500 550
Dual Drilling Co. 9.875% 2004..................................... 2,000 2,160
Flores & Rucks, Inc. 13.50% 2004.................................. 1,500 1,774
Forcenergy, Inc. 9.50% 2006....................................... 1,000 1,041
Global Marine, Inc. 12.75% 1999................................... 2,000 2,150
Kelley Oil & Gas Corp. 10.375% 2006#.............................. 750 765
Triton Energy Corp. zero coupon 2000(1)........................... 1,500 1,556
Tuboscope Vetco International, Inc. 10.75% 2003................... 1,500 1,646
Utilities: Electric, Gas & Water -- 3.1%
California Energy, Inc. zero coupon 2004(1)....................... 4,000 4,140
---------
16,298
---------
FINANCE -- 0.8%
Financial Services -- 0.8%
Mesa Operating Co. 10.625% 2006................................... 1,000 1,080
---------
INDUSTRIAL & COMMERCIAL -- 2.0%
Industrial -- 2.0%
Ionica PLC 13.50% 2006#........................................... 500 527
Multicanal Participacoes SA 12.625% 2004#......................... 1,000 1,075
Newsquest Capital PLC 11.50% 2006#................................ 1,000 1,018
---------
2,620
---------
MATERIALS -- 11.3%
Chemicals -- 1.0%
Texas Petrochemical Corp. 11.125% 2006#........................... 1,250 1,337
Forest Products & Paper -- 7.1%
Container Corp. of America 9.75% 2003............................. 4,500 4,691
Fort Howard Corp. 8.25% 2002...................................... 500 501
</TABLE>
- ---------------------
22
<PAGE> 20
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
BONDS & NOTES (continued) (IN THOUSANDS) (IN THOUSANDS)
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
MATERIALS (continued)
Forest Products & Paper (continued)
Fort Howard Corp. 9.25% 2001...................................... $ 3,000 $ 3,128
Pacific Lumber Co. 10.50% 2003.................................... 1,000 1,001
Metals & Minerals -- 3.2%
A.K. Steel Corp. 10.75% 2004...................................... 500 536
Acme Metals, Inc. zero coupon 2004(1)............................. 1,750 1,768
Kaiser Aluminum & Chemical Corp. 12.75% 2003...................... 1,250 1,319
Ucar Global Enterprises, Inc. 12.00% 2005......................... 535 617
---------
14,898
---------
NON-U.S. GOVERNMENT OBLIGATIONS -- 1.1%
Republic of Argentina 6.625% 2005(2).............................. 1,470 1,270
United Mexican States 11.375% 2016................................ 40 41
United Mexican States 11.50% 2026................................. 145 152
---------
1,463
---------
SERVICES -- 49.7%
Broadcasting & Publishing -- 12.3%
American Media Operations, Inc. 11.625% 2004...................... 1,750 1,868
Bell Cablemedia PLC zero coupon 2004(1)........................... 5,000 4,275
Cablevision Systems Corp. 9.875% 2013............................. 1,000 975
Chancellor Broadcasting Co. 9.375% 2004........................... 1,500 1,496
Chancellor Broadcasting Co. 12.50% 2004........................... 250 282
Comcast UK Cable Partners Ltd. zero coupon 2007(1)................ 2,000 1,365
Heartland Wireless Communication, Inc. 13.00% 2003*............... 500 515
Infinity Broadcasting Corp. 10.375% 2002.......................... 2,250 2,396
Univision Television Group, Inc. 11.75% 2001...................... 500 526
Viacom, Inc. 7.75% 2005........................................... 1,500 1,492
Young Broadcasting, Inc. 10.125% 2005............................. 1,000 1,005
Business & Public Services -- 6.3%
Integrated Health Services, Inc. 9.625% 2002...................... 2,000 2,045
Integrated Heatlh Services, Inc. 10.75% 2004...................... 500 529
Paracelsus Healthcare Corp. 10.00% 2006........................... 1,750 1,514
Protection One Alarm Monitoring Corp. zero coupon 2005(1)......... 1,000 910
Regency Health Services, Inc. 9.875% 2002......................... 1,750 1,767
Rykoff Sexton, Inc. 8.875% 2003................................... 500 471
Universal Health Services, Inc. 8.75% 2005........................ 1,000 1,029
Food Retail -- 4.2%
Allied Supermarkets, Inc. 6.625% 1998............................. 1,200 1,196
Foodmaker, Inc. 9.25% 1999........................................ 1,400 1,421
Foodmaker, Inc. 9.75% 2002........................................ 500 497
Penn Traffic Co. 9.625% 2005...................................... 500 270
Stater Brothers Holdings, Inc. 11.00% 2001........................ 2,000 2,140
Leisure & Tourism -- 2.0%
Four Seasons Hotels, Inc. 9.125% 2000#............................ 1,000 1,016
Station Casinos, Inc. 9.625% 2003................................. 500 487
Wyndham Hotel Corp. 10.50% 2006................................... 1,000 1,060
Merchandising -- 2.6%
AnnTaylor, Inc. 8.75% 2000........................................ 500 485
Barnes & Noble, Inc. 11.875% 2003................................. 1,000 1,093
Thrifty PayLess Holdings, Inc. 12.25% 2004........................ 1,625 1,901
Telecommunications -- 20.0%
Brooks Fiber Properties, Inc. zero coupon 2006(1)................. 2,750 1,801
Cellular Communications International, Inc. zero coupon 2000...... 2,250 1,530
Centennial Cellular Corp. 8.875% 2001............................. 3,000 2,880
Comunicacion Celular SA zero coupon 2003*......................... 1,000 653
</TABLE>
---------------------
23
<PAGE> 21
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
BONDS & NOTES (continued) (IN THOUSANDS) (IN THOUSANDS)
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES (continued)
Telecommunications (continued)
International CableTel, Inc. zero coupon 2005(1).................. $ 750 $ 534
MFS Communication zero coupon 2004................................ 7,000 6,055
MobileMedia Communications, Inc. zero coupon 2003................. 1,000 445
Nextel Communications, Inc. zero coupon 2003...................... 1,000 753
Omnipoint Corp. 11.625% 2006...................................... 1,500 1,579
Paging Network, Inc. 11.75% 2002.................................. 2,200 2,376
Pricellular Wireless Corp. zero coupon 2003....................... 1,000 843
Pricellular Wireless Corp. 14.00% 2001............................ 1,000 985
Rogers Cantel Mobile Communications, Inc. 11.125% 2002............ 500 527
Teleport Communications Group 9.875% 2006......................... 500 529
Videotron Holdings PLC zero coupon 2004........................... 5,500 4,730
Transportation: Airlines -- 2.3%
USAir, Inc. 9.625% 2003........................................... 500 508
USAir, Inc. 10.00% 2003........................................... 1,000 985
USAir, Inc. 10.375% 2013.......................................... 1,500 1,530
---------
65,269
---------
TOTAL BONDS & NOTES (cost $106,841)............................... 112,328
---------
<CAPTION>
WARRANTS -- 0.0%+ SHARES
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES -- 0.0%
Broadcasting & Publishing -- 0.0%
Heartland Wireless Communication, Inc. 4/15/03*................... 3,000 6
Business & Public Services -- 0.0%
Protection One Alarm Monitoring Corp. 6/30/05*.................... 3,200 25
Telecommunications -- 0.0%
Comunicacion Celular SA 11/15/03#*................................ 1,000 6
Nextel Communications, Inc. 1/15/99............................... 500 0
---------
37
---------
TOTAL WARRANTS (cost $42)......................................... 37
---------
<CAPTION>
PRINCIPAL
AMOUNT
U.S. GOVERNMENT AND AGENCIES -- 6.9% (IN THOUSANDS)
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES TREASURY -- 6.9%
10.75% Bonds 2005................................................. $ 2,000 2,627
5.125% Notes 1998................................................. 6,500 6,442
---------
9,069
---------
TOTAL U.S. GOVERNMENT AND AGENCIES (cost $8,834).................. 9,069
---------
TOTAL INVESTMENT SECURITIES (cost $115,717)....................... 121,434
---------
</TABLE>
- ---------------------
24
<PAGE> 22
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM SECURITIES -- 5.5% (IN THOUSANDS) (IN THOUSANDS)
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE SHORT-TERM NOTES -- 2.0%
Associates Corp. of North America 5.95% due 12/2/96 (cost
$2,660)......................................................... $ 2,660 $ 2,660
---------
FEDERAL AGENCY OBLIGATIONS -- 1.2%
Federal National Mortgage Association 5.30% due 12/19/96 (cost
$1,496)......................................................... 1,500 1,496
---------
MUNICIPAL BONDS -- 2.3%
<CAPTION>
Tennessee Valley Authority 5.21% due 12/3/96 (cost $2,999)........ 3,000 2,999
<S> <C> <C>
---------
TOTAL SHORT-TERM SECURITIES (cost $7,155)......................... 7,155
---------
TOTAL INVESTMENTS --
(cost $122,872) 97.9% 128,589
Other assets less liabilities -- 2.1 2,748
------ ---------
NET ASSETS -- 100.0% $ 131,337
====== =========
</TABLE>
-----------------------------
# Resale restricted to qualified institutional buyers
* Fair value determined by Trustees
+ Non-income producing securities
(1) Represents a zero-coupon bond which will convert to an
interest-bearing security at a later date
(2) Variable rate security -- the rate reflected is as of November
30, 1996
See Notes to Financial Statements
---------------------
25
<PAGE> 23
O
- ---------------------
ANCHOR PATHWAY FUND
U.S. GOVERNMENT/
AAA-RATED SECURITIES SERIES INVESTMENT PORTFOLIO -- NOVEMBER 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
BONDS & NOTES -- 91.9% (IN THOUSANDS) (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSET-BACKED SECURITIES -- 5.2%
Green Tree Financial Corp. 6.80% 2027................................ $ 1,000 $ 1,001
Standard Credit Card Master Trust 8.88% 1999 Series 1991
Participation Certificates......................................... 4,500 4,705
---------
5,706
---------
DEVELOPMENTAL AUTHORITIES -- 4.0%
International Bank for Reconstruction & Development 7.90% 1998....... 3,000 3,084
International Bank for Reconstruction & Development 14.90% 1997...... 1,200 1,252
---------
4,336
---------
FEDERAL AGENCY OBLIGATIONS -- 26.1%++
Federal Home Loan Mortgage Corp. 6.50% 2009*......................... 2,000 1,950
Federal Home Loan Mortgage Corp. 9.00% 2021 - 2022 1,439 1,537
Federal Home Loan Mortgage Corp. 9.50% 2016.......................... 753 816
Federal Home Loan Mortgage Corp. 11.88% 2013*........................ 16 18
Federal Home Loan Mortgage Corp. 12.50% 2013*........................ 142 160
Federal National Mortgage Association 2001 STRIPS(1)................. 5,000 4,992
Federal National Mortgage Association 7.50% 2009..................... 1,530 1,566
Federal National Mortgage Association 7.70% 2004..................... 1,645 1,702
Federal National Mortgage Association 8.50% 2023..................... 1,898 1,997
Government National Mortgage Association 7.50% 2023.................. 1,320 1,344
Government National Mortgage Association 8.00% 2017.................. 1,688 1,764
Government National Mortgage Association 8.50% 2016 - 2026........... 3,657 3,842
Government National Mortgage Association 9.00% 2016 - 2017........... 782 844
Government National Mortgage Association 9.50% 2009 - 2017........... 4,942 5,409
Government National Mortgage Association 10.00% 5/15/16.............. 50 55
Government National Mortgage Association 10.50% 2016 - 2019.......... 311 347
Government National Mortgage Association 11.00% 6/20/19.............. 70 80
Government National Mortgage Association 11.50% 2010 - 2015.......... 17 20
---------
28,443
---------
INDUSTRIALS -- 1.8%
Public Service Electric & Gas Co. 7.00% 2024......................... 2,000 1,930
---------
MORTGAGE-RELATED SECURITIES -- 6.8%
CMC Securities Corp. 6.50% 2008...................................... 2,801 2,685
EQCC Home Equity Loan Trust 6.95% 2012............................... 300 303
Merrill Lynch Mortgage Investors, Inc. 6.85% 2025*................... 500 505
Morgan (J.P.) Commercial Mortgage Finance Corp. 7.35% 2010*.......... 1,000 1,037
Prudential Home Mortgage Corp. 7.50% 2022............................ 2,815 2,820
---------
7,350
---------
NON-U.S. GOVERNMENT OBLIGATIONS -- 1.0%
Ontario Province Canada 15.25% 2012.................................. 1,000 1,124
---------
</TABLE>
- ---------------------
26
<PAGE> 24
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
BONDS & NOTES (continued) (IN THOUSANDS) (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES TREASURY -- 47.0%
5.88% Bonds 2004..................................................... $ 4,000 $ 3,981
7.25% Bonds 2004..................................................... 5,000 5,379
10.38% Bonds 2009.................................................... 4,500 5,688
10.38% Bonds 2012.................................................... 12,000 15,849
10.75% Bonds 2003.................................................... 1,750 2,194
8.88% Bonds 2017..................................................... 10,700 13,626
12.00% Bonds 2013.................................................... 3,000 4,404
---------
51,121
---------
TOTAL INVESTMENT SECURITIES (cost $98,480)........................... 100,010
---------
<CAPTION>
SHORT-TERM SECURITIES -- 6.7%
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE SHORT-TERM NOTES -- 6.7%
Associates Corp. of North America 5.38% due 12/2/96.................. 3,300 3,299
General Electric Capital Corp. 5.30% due 12/5/96..................... 4,000 3,998
---------
TOTAL SHORT-TERM SECURITIES (cost $7,297)............................ 7,297
---------
TOTAL INVESTMENTS --
(cost $105,777) 98.6% 107,307
Other assets less liabilities -- 1.4 1,545
------ ---------
NET ASSETS -- 100.0% $ 108,852
====== =========
</TABLE>
-----------------------------
++ Pass-through securities are backed by a pool of mortgages or
other loans on which principal payments are periodically made.
Therefore, the effective maturity is shorter than stated
maturity.
* Fair value determined by Trustees
(1) Represents a zero-coupon bond which will convert to an
interest-bearing security at a later date
See Notes to Financial Statements
---------------------
27
<PAGE> 25
O
- ---------------------
ANCHOR PATHWAY FUND
CASH MANAGEMENT SERIES INVESTMENT PORTFOLIO -- NOVEMBER 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM SECURITIES -- 101.0% (IN THOUSANDS) (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE SHORT-TERM NOTES -- 97.4%
Albertson's, Inc. 5.27% due 1/07/97.................................. $3,000 $ 2,984
American Express Credit Corp. 5.24% due 12/24/96..................... 3,000 2,990
American General Finance Corp. 5.23% due 12/04/96.................... 1,400 1,399
Ameritech Corp. 5.29% due 1/14/97.................................... 3,000 2,981
Baltimore Gas & Electric Co. 5.23% due 12/02/96...................... 3,300 3,299
BellSouth Telecommunications, Inc. 5.22% due 12/04/96................ 3,300 3,299
Beneficial Corp. 5.31% due 1/17/97................................... 2,900 2,880
CIT Group Holdings, Inc. 5.24% due 12/17/96.......................... 2,000 1,995
Coca-Cola Co. 5.22% due 12/03/96..................................... 2,400 2,399
Commercial Credit Co. 5.30% due 1/24/97.............................. 1,400 1,389
Deere (John) Capital Corp. 5.23% due 12/26/96........................ 2,600 2,591
Disney (Walt), Co. 5.26% due 1/09/97................................. 2,400 2,386
Lilly (Eli) & Co. 5.26% due 12/02/96................................. 2,700 2,700
Ford Motor Credit Co. 5.31% due 1/08/97.............................. 1,600 1,591
Ford Motor Credit Co. 5.32% due 1/10/97.............................. 600 596
Ford Motor Credit Co. 5.34% due 1/10/97.............................. 1,100 1,094
General Electric Capital Corp. 5.25% due 12/11/96.................... 1,900 1,897
General Electric Capital Corp. 5.25% due 12/20/96.................... 1,700 1,695
General Mills, Inc. 5.24% due 12/23/96............................... 1,925 1,919
Heinz (H.J.) Co. 5.25% due 12/16/96.................................. 2,000 1,996
IBM Credit Corp. 5.25% due 12/10/96.................................. 3,500 3,495
International Bank For Reconstruction & Development Dsc Note 5.22%
due 12/30/96....................................................... 1,300 1,294
International Lease Finance Corp. 5.25% due 12/05/96................. 1,200 1,199
Kellogg Co. 5.30% due 1/02/97........................................ 3,000 2,986
Lucent Technologies, Inc. 5.24% due 12/19/96......................... 3,000 2,992
Minnesota Mining & Manufacturing Co. 5.23% due 12/16/96.............. 3,500 3,492
Motorola, Inc. 5.23% due 12/09/96.................................... 100 100
Motorola, Inc. 5.24% due 12/19/96.................................... 2,000 1,995
National Rural Utilities Cooperative Finance Corp. 5.23% due
12/12/96........................................................... 2,000 1,997
Paccar Financial Corp. 5.26% due 12/19/96............................ 3,000 2,992
PepsiCo, Inc. 5.28% due 1/16/97...................................... 2,100 2,086
Pitney Bowes Credit Corp. 5.24% due 12/09/96......................... 3,700 3,696
President & Fellows Harvard 5.24% due 12/11/96....................... 2,700 2,696
Procter & Gamble Co. 5.27% due 1/15/97............................... 3,243 3,222
SAFECO Credit Co., Inc. 5.29% due 1/22/97............................ 3,000 2,977
Southwestern Bell Telephone Co. 5.22% due 12/06/96................... 3,300 3,298
Warner Lambert Co. 5.24% due 12/09/96................................ 2,300 2,297
--------
TOTAL CORPORATE SHORT-TERM NOTES (cost $86,894)...................... 86,894
--------
</TABLE>
- ---------------------
28
<PAGE> 26
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM SECURITIES (continued) (IN THOUSANDS) (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
FEDERAL AGENCY OBLIGATIONS -- 3.6%
Federal National Mortgage Association Discount Notes 5.22% due
12/12/96........................................................... $ 900 $ 899
Federal National Mortgage Association Discount Notes 5.23% due
12/16/96........................................................... 2,300 2,295
--------
TOTAL FEDERAL AGENCY OBLIGATIONS (cost $3,194)....................... 3,194
--------
TOTAL SHORT-TERM SECURITIES (cost $90,088)........................... 90,088
--------
TOTAL INVESTMENTS --
(cost $90,088) 101.0% 90,088
Liabilities in excess of other assets -- (1.0) (852)
------ --------
NET ASSETS -- 100.0% $ 89,236
====== ========
</TABLE>
See Notes to Financial Statements
---------------------
29
<PAGE> 27
O
- ---------------------
ANCHOR PATHWAY FUND
STATEMENT OF ASSETS AND LIABILITIES
FOR THE YEAR ENDED NOVEMBER 30, 1996
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSET
GROWTH INTERNATIONAL GROWTH-INCOME ALLOCATION
SERIES SERIES SERIES SERIES
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment securities, at value*....... $744,876 $224,354 $808,511 $140,202
Short-term securities*................. 58,054 24,604 111,063 12,548
Money market accounts.................. 100 100 95 43
Cash................................... 27 1 -- 1
Foreign cash........................... -- 25 -- --
Receivables for --
Sales of investments................. 10,362 64 13 --
Dividends and accrued interest....... 245 417 1,833 906
Fund shares sold..................... 706 11 144 6
Foreign currency contracts........... -- 52 -- --
Prepaid expenses....................... 1 -- 1 --
-------------------------------------------------------------
814,371 249,628 921,660 153,706
-------------------------------------------------------------
LIABILITIES:
Payables for --
Fund shares redeemed................. 388 125 743 43
Purchases of investments............. 371 -- 1,048 500
Advisory fees........................ 194 120 222 39
Management fees...................... 130 48 148 26
Foreign currency contracts........... -- 51 -- --
Other accrued expenses................. 124 140 143 38
-------------------------------------------------------------
1,207 484 2,304 646
-------------------------------------------------------------
NET ASSETS............................. $813,164 $249,144 $919,356 $153,060
=============================================================
Shares of beneficial interest
outstanding (unlimited shares
authorized).......................... 19,232 15,763 26,038 9,431
Net asset value per share.............. $ 42.28 $ 15.81 $ 35.31 $ 16.23
=============================================================
COMPOSITION OF NET ASSETS:
Capital paid in........................ $411,699 $171,204 $511,441 $103,083
Accumulated undistributed net
investment income.................... 3,789 3,943 18,313 5,687
Accumulated undistributed net realized
gain (loss) on investments, futures,
options and foreign currency......... 118,468 17,634 123,950 14,841
Unrealized appreciation/depreciation of
investments.......................... 279,208 56,363 265,652 29,449
-------------------------------------------------------------
Net Assets $813,164 $249,144 $919,356 $153,060
=============================================================
<CAPTION>
U.S.
GOVERNMENT
HIGH-YIELD AAA-RATED CASH
BOND SECURITIES MANAGEMENT
SERIES SERIES SERIES
--------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment securities, at value*....... $121,434 $100,010 $ --
Short-term securities*................. 7,155 7,297 90,088
Money market accounts.................. 101 102 101
Cash................................... 10 314 72
Foreign cash........................... -- -- --
Receivables for --
Sales of investments................. 557 -- --
Dividends and accrued interest....... 2,166 1,241 --
Fund shares sold..................... 18 8 53
Foreign currency contracts........... -- -- --
Prepaid expenses....................... -- -- --
---------------------------------------
131,441 108,972 90,314
---------------------------------------
LIABILITIES:
Payables for --
Fund shares redeemed................. 11 38 1,003
Purchases of investments............. -- -- --
Advisory fees........................ 34 28 25
Management fees...................... 23 19 17
Foreign currency contracts........... -- -- --
Other accrued expenses................. 36 35 33
---------------------------------------
104 120 1,078
---------------------------------------
NET ASSETS............................. $131,337 $108,852 $89,236
=======================================
Shares of beneficial interest
outstanding (unlimited shares
authorized).......................... 9,484 9,461 7,841
Net asset value per share.............. $ 13.85 $ 11.51 $ 11.38
=======================================
COMPOSITION OF NET ASSETS:
Capital paid in........................ $115,245 $100,543 $84,388
Accumulated undistributed net
investment income.................... 12,657 8,429 4,848
Accumulated undistributed net realized
gain (loss) on investments, futures,
options and foreign currency......... (2,282) (1,650) --
Unrealized appreciation/depreciation of
investments.......................... 5,717 1,530 --
---------------------------------------
Net Assets $131,337 $108,852 $89,236
=======================================
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C> <C>
*Costs
Investment Securities................ $465,668 $167,991 $542,860 $110,710
=============================================================
Short-term Securities................ $58,054 $24,604 $111,062 $12,591
=============================================================
<CAPTION>
*Costs
<S> <C> <C> <C>
Investment Securities................ $115,717 $98,480 --
=======================================
Short-term Securities................ $7,155 $7,297 $90,088
=======================================
</TABLE>
See Notes to Financial Statements
- ---------------------
30
<PAGE> 28
O
- ---------------------
ANCHOR PATHWAY FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSET HIGH-YIELD
GROWTH INTERNATIONAL GROWTH-INCOME ALLOCATION BOND
SERIES SERIES SERIES SERIES SERIES
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME:
Income:
Dividends*........................... $ 4,725 $ 4,318 $ 18,473 $ 2,500 $ --
Interest............................. 3,554 1,739 4,673 4,030 13,020
--------------------------------------------------------------------------
Total income.................. 8,279 6,057 23,146 6,530 13,020
--------------------------------------------------------------------------
Expenses:
Advisory fees........................ 2,478 1,412 2,672 472 421
Management fees...................... 1,653 564 1,781 314 281
Custodian fees....................... 236 389 252 64 61
Auditing and legal fees.............. 56 20 62 15 14
Reports to investors................. 18 5 17 4 3
Trustees' fees....................... 18 5 20 3 3
Other expenses....................... 24 3 21 1 1
--------------------------------------------------------------------------
Total expenses................ 4,483 2,398 4,825 873 784
--------------------------------------------------------------------------
Net investment income................ 3,796 3,659 18,321 5,657 12,236
--------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain on investments....... 118,807 17,946 124,360 14,891 1,680
Net realized foreign exchange loss on
other assets and liabilities......... -- (15) -- -- --
Change in unrealized appreciation/
depreciation of investments.......... (22,910) 21,406 32,410 5,929 3,974
--------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments, foreign currency and
other assets and liabilities......... 95,897 39,337 156,770 20,820 5,654
--------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS...................... $ 99,693 $42,996 $ 175,091 $ 26,477 $ 17,890
==========================================================================
<CAPTION>
U.S.
GOVERNMENT/
AAA-RATED CASH
SECURITIES MANAGEMENT
SERIES SERIES
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET INVESTMENT INCOME:
Income:
Dividends*........................... $ -- $ --
Interest............................. 9,188 5,438
-----------------------
Total income.................. 9,188 5,438
-----------------------
Expenses:
Advisory fees........................ 380 318
Management fees...................... 253 212
Custodian fees....................... 59 36
Auditing and legal fees.............. 12 13
Reports to investors................. 2 2
Trustees' fees....................... 3 2
Other expenses....................... -- --
-----------------------
Total expenses................ 709 583
-----------------------
Net investment income................ 8,479 4,855
-----------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain on investments....... 118 1
Net realized foreign exchange loss on
other assets and liabilities......... -- --
Change in unrealized appreciation/
depreciation of investments.......... (2,756) --
-----------------------
Net realized and unrealized gain (loss)
on investments, foreign currency and
other assets and liabilities......... (2,638) 1
-----------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS...................... $ 5,841 $ 4,856
=======================
</TABLE>
- ---------------
* Net of foreign withholding taxes of $38; $543; $147 and $17 on Growth,
International, Growth-Income and Asset Allocation Series, respectively
See Notes to Financial Statements
---------------------
31
<PAGE> 29
O
- ---------------------
ANCHOR PATHWAY FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED NOVEMBER 30, 1996
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
ASSET HIGH-YIELD
GROWTH INTERNATIONAL GROWTH-INCOME ALLOCATION BOND
SERIES SERIES SERIES SERIES SERIES
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income.................. $ 3,796 $ 3,659 $ 18,321 $ 5,657 $ 12,236
Net realized gain on investments....... 118,807 17,946 124,360 14,891 1,680
Net realized foreign exchange loss on
other assets and liabilities......... -- (15) -- -- --
Change in unrealized appreciation/
depreciation of investments.......... (22,910) 21,406 32,410 5,929 3,974
---------------------------------------------------------------------------
Net increase in net assets resulting
from operations...................... 99,693 42,996 175,091 26,477 17,890
---------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
PAID TO SHAREHOLDERS:
Dividends from net investment income... (5,500) (7,250) (20,695) (5,985) (13,970)
Distributions from net realized gains
on investments....................... (120,665) (4,980) (55,955) (10,955) --
---------------------------------------------------------------------------
Total dividends and distributions paid
to shareholders...................... (126,165) (12,230) (76,650) (16,940) (13,970)
---------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold.............. 186,903 69,110 75,454 15,816 40,043
Proceeds from shares issued for
reinvestment of dividends and
distributions........................ 126,165 12,230 76,650 16,940 13,970
Cost of shares repurchased............. (370,707) (91,096) (213,332) (42,841) (73,186)
---------------------------------------------------------------------------
Net decrease in net assets resulting
from capital share transactions...... (57,639) (9,756) (61,228) (10,085) (19,173)
---------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS............................... (84,111) 21,010 37,213 (548) (15,253)
NET ASSETS:
Beginning of period.................... 897,275 228,134 882,143 153,608 146,590
---------------------------------------------------------------------------
End of period.......................... $ 813,164 $ 249,144 $ 919,356 $ 153,060 $ 131,337
===========================================================================
<CAPTION>
U.S.
GOVERNMENT/
AAA-RATED CASH
SECURITIES MANAGEMENT
SERIES SERIES
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................. $ 8,479 $ 4,855
Net realized gain on investments....... 118 1
Net realized foreign exchange loss on
other assets and liabilities......... -- --
Change in unrealized appreciation/
depreciation of investments.......... (2,756) --
-------------------------
Net increase in net assets resulting
from operations...................... 5,841 4,856
-------------------------
DIVIDENDS AND DISTRIBUTIONS
PAID TO SHAREHOLDERS:
Dividends from net investment income... (11,160) (7,520)
Distributions from net realized gains
on investments....................... -- (1)
-------------------------
Total dividends and distributions paid
to shareholders...................... (11,160) (7,521)
-------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold.............. 16,512 250,835
Proceeds from shares issued for
reinvestment of dividends and
distributions........................ 11,160 7,521
Cost of shares repurchased............. (48,439) (267,327)
-------------------------
Net decrease in net assets resulting
from capital share transactions...... (20,767) (8,971)
-------------------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS............................... (26,086) (11,636)
NET ASSETS:
Beginning of period.................... 134,938 100,872
-------------------------
End of period.......................... $ 108,852 $ 89,236
=========================
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C> <C> <C>
Undistributed net investment income.... $ 3,789 $ 3,943 $ 18,313 $ 5,687 $ 12,657
===========================================================================
Shares issued and repurchased:
Sold................................. 4,762 4,811 2,343 1,045 3,028
Issued in reinvestment of dividends
and distributions.................. 3,361 880 2,462 1,178 1,104
Repurchased.......................... (9,518) (6,335) (6,652) (2,849) (5,421)
---------------------------------------------------------------------------
Net decrease........................... (1,395) (644) (1,847) (626) (1,289)
============================================================================
<CAPTION>
Undistributed net investment income.... $ 8,429 $ 4,848
=========================
<S> <C> <C>
Shares issued and repurchased:
Sold................................. 1,469 22,136
Issued in reinvestment of dividends
and distributions.................. 1,030 683
Repurchased.......................... (4,300) (23,640)
------------------------
Net decrease........................... (1,801) (821)
------------------------
</TABLE>
See Notes to Financial Statements
- ---------------------
32
<PAGE> 30
O
- ---------------------
ANCHOR PATHWAY FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED NOVEMBER 30, 1995
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
U.S.
GOVERNMENT/
ASSET HIGH-YIELD AAA-RATED
GROWTH INTERNATIONAL GROWTH-INCOME ALLOCATION BOND SECURITIES
SERIES SERIES SERIES SERIES SERIES SERIES
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income.................. $ 5,324 $ 4,604 $ 20,693 $ 5,960 $ 13,821 $ 10,773
Net realized gain (loss) on
investments.......................... 120,927 7,678 55,815 11,006 (2,317) (1,413)
Net realized foreign exchange gain
(loss) on other assets and
liabilities.......................... 174 (2) -- -- -- --
Change in unrealized appreciation/
depreciation of investments.......... 134,125 12,035 160,433 22,856 13,271 11,975
Change in unrealized foreign exchange
gain (loss) on other assets and
liabilities.......................... -- (9) -- -- -- --
-------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations...................... 260,550 24,306 236,941 39,822 24,775 21,335
-------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
PAID TO SHAREHOLDERS:
Dividends from net investment income... (4,130) (4,020) (20,910) (7,070) (15,715) (14,600)
Distributions from net realized gains
on investments....................... (53,955) (8,900) (61,645) (3,970) (1,315) (730)
-------------------------------------------------------------------------------------
Total dividends and distributions paid
to shareholders...................... (58,085) (12,920) (82,555) (11,040) (17,030) (15,330)
-------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold.............. 264,548 86,003 84,337 15,947 66,944 33,236
Proceeds from shares issued for
reinvestment of dividends and
distributions........................ 58,085 12,920 82,555 11,040 17,030 15,330
Cost of shares repurchased............. (340,425) (141,673) (205,106) (44,839) (72,596) (69,001)
-------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from capital share
transactions......................... (17,792) (42,750) (38,214) (17,852) 11,378 (20,435)
-------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS............................... 184,673 (31,364) 116,172 10,930 19,123 (14,430)
NET ASSETS:
Beginning of period.................... 712,602 259,498 765,971 142,678 127,467 149,368
-------------------------------------------------------------------------------------
End of period.......................... $ 897,275 $ 228,134 $ 882,143 $ 153,608 $ 146,590 $ 134,938
===================================================================================
<CAPTION>
CASH
MANAGEMENT
SERIES
------------------------------------------------------
<S> <C>
OPERATIONS:
Net investment income.................. $ 7,516
Net realized gain (loss) on
investments.......................... 1
Net realized foreign exchange gain
(loss) on other assets and
liabilities.......................... --
Change in unrealized appreciation/
depreciation of investments.......... --
Change in unrealized foreign exchange
gain (loss) on other assets and
liabilities.......................... --
---------
Net increase in net assets resulting
from operations...................... 7,517
---------
DIVIDENDS AND DISTRIBUTIONS
PAID TO SHAREHOLDERS:
Dividends from net investment income... (6,355)
Distributions from net realized gains
on investments....................... (1)
---------
Total dividends and distributions paid
to shareholders...................... (6,356)
---------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold.............. 320,102
Proceeds from shares issued for
reinvestment of dividends and
distributions........................ 6,356
Cost of shares repurchased............. (413,143)
---------
Net increase (decrease) in net assets
resulting from capital share
transactions......................... (86,685)
---------
TOTAL INCREASE (DECREASE) IN NET
ASSETS............................... (85,524)
NET ASSETS:
Beginning of period.................... 186,396
---------
End of period.......................... $ 100,872
=========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Undistributed net investment income.... $ 5,493 $ 7,246 $ 20,687 $ 5,977 $ 13,964 $ 11,152
===================================================================================
Shares issued and repurchased:
Sold................................. 6,919 6,506 2,970 1,155 5,131 2,849
Issued in reinvestment of dividends
and distributions.................. 1,644 1,073 3,211 864 1,415 1,406
Repurchased.......................... (8,845) (10,739) (7,247) (3,268) (5,539) (5,944)
-------------------------------------------------------------------------------------
Net increase (decrease)................ (282) (3,160) (1,066) (1,249) 1,007 (1,689)
===================================================================================
<CAPTION>
Undistributed net investment income.... $ 7,513
=======
<S> <C>
Shares issued and repurchased:
Sold................................. 27,835
Issued in reinvestment of dividends
and distributions.................. 566
Repurchased.......................... (35,988)
-------
Net increase (decrease)................ (7,587)
======
</TABLE>
See Notes to Financial Statements
---------------------
33
<PAGE> 31
O
- ---------------------
ANCHOR PATHWAY FUND
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION: Anchor Pathway Fund (the
"Fund") is an entity of the type commonly known as a Massachusetts Business
Trust. Its Agreement and Declaration of Trust permits the issuance of an
unlimited number of shares ($.01 par value per share) of beneficial interest in
seven separate series, with shares of each series representing an interest in a
separate portfolio of assets and operating as a distinct fund. The Fund is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. Shares of the Fund are
offered only to Variable Separate Accounts, a separate account of Anchor
National Life Insurance Company which offers annuity contracts.
The investment objectives for each series are as follows:
The GROWTH SERIES seeks growth of capital by investing primarily in common
stocks or securities with common stock characteristics, such as convertible
preferred stocks, which demonstrate the potential for appreciation.
The INTERNATIONAL SERIES seeks long-term growth of capital by investing
primarily in securities of issuers domiciled outside the United States.
The GROWTH-INCOME SERIES seeks growth of capital and income by investing
primarily in common stocks or securities which demonstrate the potential for
appreciation and/or dividends.
The ASSET ALLOCATION SERIES seeks high total return (including income and
capital gains) consistent with preservation of capital over the long-term
through a diversified portfolio that can include common stocks and other
equity-type securities (such as convertible bonds and preferred stocks), bonds
and other intermediate and long-term fixed-income securities and money market
instruments (debt securities maturing in one year or less) in any combination.
The HIGH YIELD BOND SERIES seeks a high level of current income and secondarily
seeks capital appreciation by investing primarily in intermediate and long-term
corporate obligations, with emphasis on higher yielding, higher risk, lower
rated or unrated securities.
The U.S. GOVERNMENT/AAA-RATED SECURITIES SERIES seeks a high level of current
income consistent with prudent investment risk and preservation of capital by
investing primarily in a combination of securities guaranteed by the U.S.
Government and other debt securities rated AAA by Standard & Poor's Ratings
Services or Aaa by Moody's Investors Service, Inc. or that have not received a
rating but are determined to be of comparable quality by the investment adviser.
The CASH MANAGEMENT SERIES seeks high current yield while preserving capital by
investing in a diversified selection of high quality money market instruments.
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 these estimates.
The following is a summary of significant accounting policies consistently
followed by the Fund 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.
Nonconvertible bonds, debentures, and other long-term debt securities are valued
at prices obtained for the day of valuation from a bond pricing service or 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. 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. Short-term
securities with 60 days or less to maturity are amortized to maturity based on
their cost to the Fund if acquired within 60 days of maturity or, if already
held by the Fund 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 Fund's Trustees.
- ---------------------
34
<PAGE> 32
FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at
published rates on the following basis:
(i) market value of investment securities, other assets and liabilities -- at
the prevailing rate of exchange at the valuation date.
(ii) purchases and sales of investment securities, income and expenses -- at
the rate of exchange prevailing on the respective dates of such transactions.
Assets and liabilities denominated in foreign currencies and commitments under
forward foreign currency contracts are translated into U.S. dollars at the mean
of the quoted bid and asked prices of such currencies against the U.S. dollar.
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 Fund 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. Similarly, the Fund 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 gains and losses on other assets and liabilities and
change in unrealized foreign exchange gains and losses 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 Fund'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.
SECURITIES TRANSACTIONS, DIVIDENDS, INVESTMENT INCOME AND EXPENSES: As is
customary in the mutual fund industry, securities transactions are accounted for
on the first business day following the trade date. Interest income is accrued
daily except when collection is not expected. Dividend income is recorded on the
ex-dividend date except for certain dividends from foreign securities which are
recorded as soon as the Fund is informed after the ex-dividend date. The Fund
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 Fund are allocated among the series based upon
relative net assets. In all other respects, expenses are charged to each series
as incurred on a specific identification basis.
The Fund records dividends and distributions to its shareholders on the
ex-dividend date. The amount of dividends and distributions from net investment
income and net realized capital gains are determined and presented in accordance
with federal income tax regulations, which may differ from generally accepted
accounting principles. These "book/tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains. To the extent
distributions exceed current and accumulated earnings and profits for federal
income tax purposes, they are reported as distributions of paid-in capital. Net
investment income/loss, net realized gain/loss, and net assets were not affected
by this change.
---------------------
35
<PAGE> 33
For the year ended November 30, 1996, the reclassification arising from
book/tax differences resulted in increases (decreases) to the components of net
assets as follows, (dollars in thousands):
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED UNDISTRIBUTED PAID
NET REALIZED NET INVESTMENT IN
GAIN/(LOSS) INCOME/(LOSS) CAPITAL
<S> <C> <C> <C>
--------------------------------------------
Growth Series................................................................ $(285) $ -- $ 285
International Series......................................................... (288) 288 --
Growth-Income Series......................................................... (164) -- 164
Asset Allocation Series...................................................... (38) 38 --
High-Yield Bond Series....................................................... (427) 427 --
U.S. Government/AAA-Rated Securities Series.................................. 42 (42) --
Cash Management Series....................................................... -- -- --
</TABLE>
3. FEDERAL INCOME TAXES: It is the Fund's policy to continue to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income, including any net
realized gain on investments, to its shareholders. Therefore, no federal tax
provision is required.
The amounts of aggregate unrealized gain (loss) and the cost of investment
securities for tax purposes, including short-term securities at November 30,
1996 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE NET CAPITAL CAPITAL
UNREALIZED UNREALIZED UNREALIZED COST OF LOSS LOSS
GAIN (LOSS) GAIN INVESTMENTS CARRYOVER* UTILIZED
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------
Growth Series.................................... $303,680 $(24,514) $279,166 $523,764 $ -- $ --
International Series............................. 63,471 (7,109) 56,362 192,596 -- --
Growth-Income Series............................. 273,501 (8,082) 265,419 654,155 -- --
Asset Allocation Series.......................... 29,586 (218) 29,368 123,382 -- --
High-Yield Bond Series........................... 6,806 (1,089) 5,717 122,872 2,159,987 245,197
U.S. Government/AAA-Rated Securities Series...... 2,521 (991) 1,530 105,777 1,649,041 --
Cash Management Series........................... -- -- -- 90,088 -- --
</TABLE>
* Expire 2003-2004
** Post 10/31/96 Capital Loss Deferral; High-Yield Bond Series $121,879
4. BUSINESS MANAGER AND INVESTMENT ADVISER: Anchor Investment Adviser, Inc.
(the "Business Manager"), an indirect wholly owned subsidiary of Anchor National
Life Insurance Company, pursuant to a business management agreement, manages the
business affairs and the administration of the Fund. For these services, the
Business Manager receives a monthly fee which is accrued daily based on the
average net assets of each series of the Fund. Except for the International
Series, the business manager fee accrues at the annual rate of .24% on that
portion of each series' average daily net assets not exceeding $30,000,000 and
.20% on that portion of the series' average daily net assets in excess of
$30,000,000. The business manager fee for the International Series accrues at
the annual rate of .24% on the series' average daily net assets.
Advisory fees paid to Capital Research and Management Company (the "Investment
Adviser") are based on the net assets of each series at the following annual
rates: .36% on that portion of each series' (except for the International
Series) average daily net assets not exceeding $30,000,000 and .30% on that
portion of the series' average net assets in excess of $30,000,000. The advisory
fee for the International Series accrues at the annual rate of .66% on that
portion of the series' average daily net assets not exceeding $60,000,000 and
.58% on that portion of the series' average daily net assets in excess of
$60,000,000.
- ---------------------
36
<PAGE> 34
The Fund pays no salaries or compensation to any of its officers, all of whom
are officers or employees of SunAmerica Asset Management Corp., an affiliate of
the Business Manager, or SunAmerica Inc., the ultimate parent of the Business
Manager.
5. PURCHASES AND SALES OF SECURITIES: Information with respect to purchases and
sales of long-term securities (dollars in thousands) for the year ended November
30, 1996, was as follows:
<TABLE>
<CAPTION>
ASSET
GROWTH INTERNATIONAL GROWTH-INCOME ALLOCATION HIGH-YIELD
SERIES SERIES SERIES SERIES BOND SERIES
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases of portfolio securities........ $192,394 $ 92,019 $ 189,056 $ 56,692 $45,508
Sales of portfolio securities............ 313,937 117,795 331,619 78,078 66,071
U.S. government securities included above
were as follows:
Purchases of U.S. government
securities............................. -- -- -- 19,976 8,360
Sales of U.S. government securities...... -- -- -- 7,214 2,490
<CAPTION>
U.S.
GOVERNMENT/
AAA-RATED CASH
SECURITIES MANAGEMENT
SERIES SERIES
---------------------------
<S> <C> <C>
Purchases of portfolio securities........ $19,525 $ --
Sales of portfolio securities............ 41,213 --
U.S. government securities included above
were as follows:
Purchases of U.S. government
securities............................. 17,322 --
Sales of U.S. government securities...... 26,875 --
</TABLE>
---------------------
37
<PAGE> 35
O
- ---------------------
ANCHOR PATHWAY FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
NET REALIZED TOTAL DIVIDENDS DIVIDENDS
NET ASSET NET & UNREALIZED FROM DECLARED FROM NET NET ASSET
VALUE INVEST- GAIN (LOSS) INVEST- FROM NET REALIZED VALUE
PERIOD BEGINNING MENT ON MENT INVESTMENT GAIN ON END OF TOTAL
ENDED OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INVESTMENTS PERIOD RETURN**
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Series
11/30/92 $ 25.57 $ 0.23 $ 5.21 $ 5.44 $(0.01) $ (0.04) $ 30.96 21.29%
11/30/93 30.96 0.24@ 5.32 5.56 (0.23) (0.53) 35.76 18.26
11/30/94 35.76 0.19@ 1.04 1.23 (0.25) (2.66) 34.08 3.33
11/30/95 34.08 0.25@ 12.02 12.27 (0.20) (2.65) 43.50 37.93
11/30/96 43.50 0.18@ 5.10 5.28 (0.28) (6.22) 42.28 14.02
International Series
11/30/92 $ 10.13 $ 0.15 $(0.12) $ 0.03 $(0.14) $ (0.02) $ 10.00 0.31%
11/30/93 10.00 0.18@ 2.54 2.72 (0.14) (0.01) 12.57 27.41
11/30/94 12.57 0.22@ 0.81 1.03 (0.12) (0.22) 13.26 8.17
11/30/95 13.26 0.26@ 1.11 1.37 (0.23) (0.50) 13.90 11.18
11/30/96 13.90 0.22@ 2.46 2.68 (0.46) (0.31) 15.81 20.03
Growth-Income Series
11/30/92 $ 23.79 $ 0.64 $ 3.12 $ 3.76 $(0.72) $ (0.58) $ 26.25 16.02%
11/30/93 26.25 0.71@ 2.44 3.15 (0.63) (0.54) 28.23 12.34
11/30/94 28.23 0.69@ (0.14) 0.55 (0.76) (1.56) 26.46 2.00
11/30/95 26.46 0.71@ 7.46 8.17 (0.76) (2.23) 31.64 33.47
11/30/96 31.64 0.67@ 5.87 6.54 (0.77) (2.10) 35.31 21.88
Asset Allocation Series
11/30/92 $ 11.88 $ 0.50 $ 1.10 $ 1.60 $(0.53) $ (0.05) $ 12.90 13.80%
11/30/93 12.90 0.63@ 0.72 1.35 (0.46) (0.13) 13.66 10.76
11/30/94 13.66 0.58@ (0.69) (0.11) (0.62) (0.31) 12.62 (0.84)
11/30/95 12.62 0.55@ 3.16 3.71 (0.68) (0.38) 15.27 31.01
11/30/96 15.27 0.56@ 2.17 2.73 (0.63) (1.14) 16.23 19.34
High-Yield Bond Series
11/30/92 $ 13.91 $ 1.20 $ 0.65 $ 1.85 $(1.16) $ -- $ 14.60 14.06%
11/30/93 14.60 1.27@ 1.02 2.29 (1.22) -- 15.67 16.44
11/30/94 15.67 1.24@ (1.88) (0.64) (1.49) (0.49) 13.05 (4.70)
11/30/95 13.05 1.26@ 0.99 2.25 (1.56) (0.13) 13.61 18.97
11/30/96 13.61 1.21@ 0.56 1.77 (1.53) -- 13.85 14.05
U.S. Government/AAA-Rated Securities Series
11/30/92 $ 12.49 $ 0.85 $ 0.31 $ 1.16 $(0.78) $ -- $ 12.87 9.84%
11/30/93 12.87 0.95@ 0.61 1.56 (0.91) (0.18) 13.34 12.58
11/30/94 13.34 0.90@ (1.43) (0.53) (1.11) (0.17) 11.53 (4.17)
11/30/95 11.53 0.86@ 0.85 1.71 (1.20) (0.06) 11.98 15.95
11/30/96 11.98 0.80@ (0.21) 0.59 (1.06) -- 11.51 5.49
Cash Management Series
11/30/92 $ 11.88 $ 0.40 $(0.03) $ 0.37 $(0.75) $ -- $ 11.50 3.26%
11/30/93 11.50 0.29@ -- 0.29 (0.39) -- 11.40 2.57
11/30/94 11.40 0.40@ -- 0.40 (0.33) -- 11.47 3.56
11/30/95 11.47 0.61@ 0.01 0.62 (0.44) -- 11.65 5.53
11/30/96 11.65 0.55@ -- 0.55 (0.82) -- 11.38 4.94
<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>
Growth Series
11/30/92 $644,060 0.56% 0.88% 14.31% $ N/A
11/30/93 735,400 0.55 0.71 21.99 N/A
11/30/94 712,602 0.55 0.56 33.79 N/A
11/30/95 897,275 0.55 0.65 23.72 N/A
11/30/96 813,164 0.55 0.46 25.51 0.0561
International Series
11/30/92 $ 85,919 1.19% 1.88% 21.04% $ N/A
11/30/93 192,162 1.12 1.62 22.56 N/A
11/30/94 259,498 1.04 1.64 21.68 N/A
11/30/95 228,134 1.05 1.95 16.79 N/A
11/30/96 249,144 1.02 1.56 44.94 0.0196
Growth-Income Series
11/30/92 $777,448 0.56% 2.88% 18.81% $ N/A
11/30/93 862,716 0.55 2.60 29.22 N/A
11/30/94 765,971 0.55 2.54 32.97 N/A
11/30/95 882,143 0.55 2.52 18.81 N/A
11/30/96 919,356 0.55 2.07 23.72 0.0564
Asset Allocation Series
11/30/92 $134,100 0.63% 4.84% 21.86% $ N/A
11/30/93 166,555 0.60 4.70 22.66 N/A
11/30/94 142,678 0.59 4.47 48.53 N/A
11/30/95 153,608 0.59 4.04 53.58 N/A
11/30/96 153,060 0.58 3.74 40.97 0.0573
High-Yield Bond Series
11/30/92 $147,951 0.62% 9.40% 75.27% N/A
11/30/93 190,515 0.59 8.43 59.03 N/A
11/30/94 127,467 0.59 8.76 44.97 N/A
11/30/95 146,590 0.59 9.66 31.64 N/A
11/30/96 131,337 0.58 9.09 36.99 N/A
U.S. Government/AAA-Rated Securities Series
11/30/92 $230,798 0.59% 7.32% 47.58% N/A
11/30/93 228,569 0.58 7.19 9.14 N/A
11/30/94 149,368 0.58 7.42 16.95 N/A
11/30/95 134,938 0.59 7.49 43.43 N/A
11/30/96 108,852 0.59 7.03 17.12 N/A
Cash Management Series
11/30/92 $203,548 0.61% 3.21% --% N/A
11/30/93 192,384 0.58 2.59 -- N/A
11/30/94 186,396 0.57 3.52 -- N/A
11/30/95 100,872 0.58 5.32 -- N/A
11/30/96 89,236 0.58 4.81 -- N/A
</TABLE>
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@ Calculated based upon average shares outstanding
# The average commission per share is derived by taking the agency commissions
paid on equity securities trades and dividing by the number of
shares purchased or sold.
** Does not reflect expenses that apply to the separate accounts of Anchor
National Life Insurance Company and First SunAmerica Life Insurance
Company. If such expenses had been included, total return would have been
lower for each period presented.
See Notes to Financial Statements
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38
<PAGE> 36
O
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ANCHOR PATHWAY FUND
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholder of Anchor Pathway Fund
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 Growth Series,
International Series, Growth-Income Series, Asset Allocation Series,
High-Yield Bond Series, U.S. Government/AAA-Rated Securities Series and Cash
Management Series (constituting the Anchor Pathway Fund, hereafter referred
to as the "Fund") at November 30, 1996, the results of each of their
operations for the year then ended, the changes in each of their net assets
for each of the two years in the period then ended and the financial
highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund'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 November 30, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
January 15, 1997
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39
