ANCHOR PATHWAY FUND, 485BPOS, 1998-01-29

ANCHOR PATHWAY FUND
485BPOS, 1998-01-29

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<PAGE> 1

As filed with the Securities and Exchange Commission on January 29, 1998

File Nos. 33-14227: 811-5157

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
Pre-Effective Amendment No.[ ]
Post-Effective Amendment No. 14 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 14 [X]
(Check appropriate box or boxes)

ANCHOR PATHWAY FUND
(Exact Name of Registrant as Specified in Charter)

1 SunAmerica Center
Los Angeles, CA 90067-6022
(Address of Principal Executive Office)(Zip Code)

Registrant's telephone number, including area code: (310) 772-6000

Robert M. Zakem
Senior Vice President and General Counsel
SunAmerica Asset Management Corp.
The SunAmerica Center
733 Third Avenue - 3rd Floor
New York, NY 10017-3204
(Name and Address of Agent for Service)

Copies to:

Susan L. Harris, Esq.
Senior Vice President and General Counsel
SunAmerica Inc.
1 SunAmerica Center
Los Angeles, CA 90067-6022

Margery K. Neale, Esq.
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022

It is proposed that this filing will become effective (check appropriate box)
[X] immediately upon filing pursuant to paragraph (b)
[ ] on [date] pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of Rule 485

<PAGE> 2
CROSS REFERENCE SHEET

Item Number
in Form N-1A Caption

PART A - PROSPECTUS

1. Cover Page.........................................Cover Page

2. Synopsis - Fee Table...............................*

3. Condensed Financial Information....................Financial Highlights

4. General Description of.............................The Fund, Its Investment
Registrant Objectives and Policies;
Description of Securities
and Investment Techniques

5. Management of the Fund.............................Management

5A Management's Discussion of Fund....................#
Performance

6. Capital Stock and Other............................Dividends, Distributions
Securities and Federal Taxes;
Shareholder Voting
Rights; Shareholder
Inquiries

7. Purchase of Securities.............................Price of Shares;
Being Offered Purchases and Redemptions

8. Redemption or Repurchase...........................Purchases and Redemptions

9. Pending Legal Proceedings..........................*

PART B - STATEMENT OF ADDITIONAL INFORMATION

10. Cover Page.........................................Cover Page

11. Table of Contents..................................Table of Contents

12. General Information and History....................The Fund

13. Investment Objectives..............................Investment Policies;
and Policies Investment Restrictions

14. Management of the Fund.............................Fund Officers and
Trustees

15. Control Persons and................................The Fund
Principal Holders of Securities

16. Investment Advisory and............................Investment Advisory
Other Services Agreement; Business
Management Agreement;
General Information

17. Brokerage Allocation...............................Execution of Portfolio
and Other Practices
Transactions

18. Capital Stock and Other Securities.................*

19. Purchase, Redemption and...........................Price of Shares
Pricing of Securities Being Offered

20. Tax Status.........................................Dividends, Distributions
and Federal Taxes

21. Underwriters.......................................*

22. Calculation of Performance Data....................*

23. Financial Statements...............................Financial Statements

PART C

Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.

* Omitted from the Prospectus or Statement of Additional Information
because the item is not applicable.

# Included in the Annual Report to Shareholders for the fiscal year ended
November 30, 1997.

<PAGE> 3

ANCHOR PATHWAY FUND
P.O. BOX 54299
LOS ANGELES, CALIFORNIA 90054-0299
TELEPHONE NUMBER: (800) 445-7862

Anchor Pathway Fund ("Fund") is an open-end diversified management
investment company. The Fund consists of seven Series, each of which has its own
investment objectives and policies.

Shares of the Fund are offered only to Variable Separate Account (the
"Account"), a separate account of Anchor National Life Insurance Company
("Company") which offers annuity contracts. Such shares may also be sold to fund
variable life contracts issued by the Company in the future. The contracts
involve fees and expenses not described in this Prospectus and also may involve
certain restrictions or limitations on the allocation of purchase payments or
contract values to one or more series of the Fund. Certain Series may not be
available in connection with a particular contract. See the applicable contract
prospectus for information regarding contract fees and expenses and any
restrictions or limitations.

The 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 common stocks or securities with common stock characteristics 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, bonds and other intermediate and long-term fixed-income
securities and money market instruments in any combination.

The HIGH-YIELD BOND SERIES seeks high 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. In addition to other risks, these high-yield,
high-risk bonds (also known as "junk bonds"), are subject to greater
fluctuations in value and risk of loss of income and principal due to default by
the issuer than are investments in lower-yielding, higher-rated bonds. See pages
7-8 for more information.

The CASH MANAGEMENT SERIES seeks high current yield while preserving
capital by investing in a diversified selection of high quality money market
instruments.

YOU MAY LOSE MONEY BY INVESTING IN THE SERIES. GENERALLY, THE LIKELIHOOD OF
LOSS IS GREATER IF YOU INVEST FOR A SHORTER PERIOD OF TIME. YOUR INVESTMENT IN
THE FUND IS NOT A DEPOSIT OR OBLIGATION OF, OR INSURED, OR GUARANTEED BY, ANY
ENTITY OR PERSON INCLUDING THE U.S. GOVERNMENT AND THE FEDERAL DEPOSIT INSURANCE
CORPORATION.

This Prospectus sets forth concisely the information a prospective investor
ought to know before investing in the Fund. Please read it carefully and retain
it for future reference. Further information about the performance of the Series
of the Fund is contained in the Fund's Annual Report to Shareholders. A
Statement of Additional Information has been filed with the Securities and
Exchange Commission. The Annual Report to Shareholders and the Statement of
Additional Information may be obtained upon request and without charge by
contacting the Fund at the above address or telephone number.

------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------

THE DATE OF THIS PROSPECTUS IS JANUARY 29, 1998.

<PAGE> 4

TABLE OF CONTENTS

<TABLE>
<CAPTION>
TOPIC PAGE
-----
<S> <C>
FINANCIAL HIGHLIGHTS............................................................................... 3
THE FUND, ITS INVESTMENT OBJECTIVES AND POLICIES................................................... 5
Growth Series................................................................................. 5
International Series.......................................................................... 5
Growth-Income Series.......................................................................... 6
Asset Allocation Series....................................................................... 6
High-Yield Bond Series........................................................................ 7
U.S. Government/AAA-Rated Securities Series................................................... 8
Cash Management Series........................................................................ 8
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES................................................ 9
MANAGEMENT......................................................................................... 11
PORTFOLIO TURNOVER................................................................................. 13
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES......................................................... 14
PRICE OF SHARES.................................................................................... 14
PURCHASES AND REDEMPTIONS.......................................................................... 14
SHAREHOLDER VOTING RIGHTS.......................................................................... 15
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL.......................................................... 15
SHAREHOLDER INQUIRIES.............................................................................. 15
STATEMENT OF ADDITIONAL INFORMATION -- TABLE OF CONTENTS........................................... 16
APPENDIX
</TABLE>

2
<PAGE> 5

FINANCIAL HIGHLIGHTS*

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The Fund was established to provide an exclusive funding medium for the
annuity contracts issued by the Account. It had no operations prior to March 29,
1988. Through March 28, 1988, these contracts were funded by shares of the
American Pathway Fund. On March 29, 1988, shares of the Fund were issued in a
transaction that, in effect, transferred an equitable pro rata amount of the net
assets of American Pathway Fund (approximately 80%) to the Fund. For accounting
purposes, the Fund is considered to be the successor to the American Pathway
Fund and the financial statements of the Fund and its financial highlights are
those of the American Pathway Fund through March 28, 1988.

The following Financial Highlights for the ten years in the period ended
November 30, 1997 have been audited by Price Waterhouse LLP, independent
accountant, whose report on the financial statements containing such information
for the five years in the period ended November 30, 1997, is included in the
Fund's Annual Report to Shareholders. These financial highlights should be read
in conjunction with the other financial statements and notes thereto included in
the Annual Report of the Fund, which may be obtained along with the Statement of
Additional Information by writing to the Secretary of the Fund at the address on
the cover page of this Prospectus.

<TABLE>
<CAPTION>
Dividends Dividends
Net realized declared from
Net asset Net & unrealized Total from net net realized Net asset Net assets
Period value Invest- gain (loss) from invest- gain on value end of
ended beginning ment on investment ment Invest- end Total period
Nov. 30 period income Investments operations income ments of period Return** (000's)
- ------------------ --------- ------ ------------ ---------- --------- ------------ --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH SERIES

1988.............. $ 14.57 $0.23 $ 2.88 $ 3.11 $ (0.12) $(0.61) $ 16.95 21.83% $ 93,801
1989.............. 16.95 0.37 7.85 8.22 (0.13) (0.09) 24.95 48.76 190,185
1990.............. 24.95 0.36 (2.37) (2.01) (0.31) (1.62) 21.01 (8.60) 268,174
1991.............. 21.01 0.37 5.25 5.62 (0.77) (0.29) 25.57 26.80 458,719
1992.............. 25.57 0.23 5.21 5.44 (0.01) (0.04) 30.96 21.29 644,060
1993.............. 30.96 0.24 @ 5.32 5.56 (0.23) (0.53) 35.76 18.26 735,400
1994.............. 35.76 0.19 @ 1.04 1.23 (0.25) (2.66) 34.08 3.33 712,602
1995.............. 34.08 0.25 @ 12.02 12.27 (0.20) (2.65) 43.50 37.93 897,275
1996.............. 43.50 0.18 @ 5.10 5.28 (0.28) (6.22) 42.28 14.02 813,164
1997.............. 42.28 0.18 @ 8.30 8.48 (0.21) (6.73) 43.82 23.78 801,230

INTERNATIONAL SERIES

1990#............. $ 10.00 $0.07 $(0.39) $(0.32) $ -- $ -- $ 9.68 (3.20)% $ 13,704
1991.............. 9.68 0.16 0.38 0.54 (0.09) -- 10.13 5.59 50,654
1992.............. 10.13 0.15 (0.12) 0.03 (0.14) (0.02) 10.00 0.31 85,919
1993.............. 10.00 0.18 @ 2.54 2.72 (0.14) (0.01) 12.57 27.41 192,162
1994.............. 12.57 0.22 @ 0.81 1.03 (0.12) (0.22) 13.26 8.17 259,498
1995.............. 13.26 0.26 @ 1.11 1.37 (0.23) (0.50) 13.90 11.18 228,134
1996.............. 13.90 0.22 @ 2.46 2.68 (0.46) (0.31) 15.81 20.03 249,144
1997.............. 15.81 0.17 @ 1.78 1.95 (0.27) (1.22) 16.27 13.15 223,337

Ratio of net
Ratio of investment Average
Period expenses income Portfolio commission
ended to average to average turnover per
Nov. 30 net assets net assets rate share++++
- ------------------ ---------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C>

1988.............. 0.65% 1.30% 10.40% $ N/A
1989.............. 0.53 2.16 47.00 N/A
1990.............. 0.56 2.38 17.70 N/A
1991.............. 0.62 1.51 12.30 N/A
1992.............. 0.56 0.88 14.31 N/A
1993.............. 0.55 0.71 21.99 N/A
1994.............. 0.55 0.56 33.79 N/A
1995.............. 0.55 0.65 23.72 N/A
1996.............. 0.55 0.46 25.51 0.0561
1997.............. 0.54 0.44 29.01 0.0477

1990#............. 1.85%+ 3.21%+ 4.10% $ N/A
1991.............. 1.40 2.20 14.30 N/A
1992.............. 1.19 1.88 21.04 N/A
1993.............. 1.12 1.62 22.56 N/A
1994.............. 1.04 1.64 21.68 N/A
1995.............. 1.05 1.95 16.79 N/A
1996.............. 1.02 1.56 44.94 0.0196
1997.............. 1.04 0.99 47.45 0.0043
GROWTH-INCOME SERIES

1988.............. $ 15.52 $0.61 $ 2.82 $ 3.43 $ (0.30) $(0.18) $ 18.47 22.49% $210,992
1989.............. 18.47 0.79 5.18 5.97 (0.60) -- 23.84 32.94 364,096
1990.............. 23.84 0.74 (2.48) (1.74) (0.54) (0.85) 20.71 (7.57) 423,733
1991.............. 20.71 0.73 3.62 4.35 (0.87) (0.40) 23.79 21.14 584,668
1992.............. 23.79 0.64 3.12 3.76 (0.72) (0.58) 26.25 16.02 777,448
1993.............. 26.25 0.71 @ 2.44 3.15 (0.63) (0.54) 28.23 12.34 862,716
1994.............. 28.23 0.69 @ (0.14) 0.55 (0.76) (1.56) 26.46 2.00 765,971
1995.............. 26.46 0.71 @ 7.46 8.17 (0.76) (2.23) 31.64 33.47 882,143
1996.............. 31.64 0.67 @ 5.87 6.54 (0.77) (2.10) 35.31 21.88 919,356
1997.............. 35.31 0.66 @ 6.91 7.57 (0.75) (5.10) 37.03 24.62 950,432

1988.............. 0.61% 3.32% 12.90%
1989.............. 0.53 4.16 29.60 $ N/A
1990.............. 0.56 4.11 13.80 N/A
1991.............. 0.59 3.45 21.20 N/A
1992.............. 0.56 2.88 18.81 N/A
1993.............. 0.55 2.60 29.22 N/A
1994.............. 0.55 2.54 32.97 N/A
1995.............. 0.55 2.52 18.81 N/A
1996.............. 0.55 2.07 23.72 0.0564
1997.............. 0.54 1.88 30.06 0.0493
</TABLE>

- ------------
@ Calculated based upon average shares
outstanding.

* Information for the year ended
November 30, 1988 includes the
results of operations of American
Pathway Fund from December 1, 1987
through March 28, 1988.

** Does not reflect expenses that apply
to the separate accounts of Anchor
National Life Insurance Company. If
such expenses had been included,
total return would have been lower
for each period presented.

+ Annualized.
# Commenced operations May 9, 1990.

++++ 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.

3
<PAGE> 6

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSET ALLOCATION SERIES

1989++............ $ 10.00 $0.18 $ .82 $ 1.00 $ -- $ -- $ 11.00 10.00% $ 23,318
1990.............. 11.00 0.56 (0.73) (0.17) (0.21) -- 10.62 (1.57) 54,985
1991.............. 10.62 0.56 1.32 1.88 (0.60) (0.02) 11.88 18.66 78,271
1992.............. 11.88 0.50 1.10 1.60 (0.53) (0.05) 12.90 13.80 134,100
1993.............. 12.90 0.63 @ 0.72 1.35 (0.46) (0.13) 13.66 10.76 166,555
1994.............. 13.66 0.58 @ (0.69) (0.11) (0.62) (0.31) 12.62 (0.84) 142,678
1995.............. 12.62 0.55 @ 3.16 3.71 (0.68) (0.38) 15.27 31.01 153,608
1996.............. 15.27 0.56 @ 2.17 2.73 (0.63) (1.14) 16.23 19.34 153,060
1997.............. 16.23 0.55 @ 2.00 2.55 (0.63) (1.65) 16.50 17.86 155,446

1989++............ 0.54%+ 5.36%+ 12.80% $ N/A
1990.............. 0.65 6.48 18.10 N/A
1991.............. 0.77 5.50 16.50 N/A
1992.............. 0.63 4.84 21.86 N/A
1993.............. 0.60 4.70 22.66 N/A
1994.............. 0.59 4.47 48.53 N/A
1995.............. 0.59 4.04 53.58 N/A
1996.............. 0.58 3.74 40.97 0.0573
1997.............. 0.59 3.49 39.14 0.0507
HIGH-YIELD BOND SERIES

1988.............. $ 12.22 $1.24 $ 0.64 $ 1.88 $ (0.71) $(0.17) $ 13.22 15.92% $ 78,335
1989.............. 13.22 1.36 (0.25) 1.11 (1.16) -- 13.17 8.86 85,778
1990.............. 13.17 1.53 (1.53) 0.00 (1.09) -- 12.08 0.02 79,099
1991.............. 12.08 1.19 2.16 3.35 (1.52) -- 13.91 29.25 117,714
1992.............. 13.91 1.20 0.65 1.85 (1.16) -- 14.60 14.06 147,951
1993.............. 14.60 1.27 @ 1.02 2.29 (1.22) -- 15.67 16.44 190,515
1994.............. 15.67 1.24 @ (1.88) (0.64) (1.49) (0.49) 13.05 (4.70) 127,467
1995.............. 13.05 1.26 @ 0.99 2.25 (1.56) (0.13) 13.61 18.97 146,590
1996.............. 13.61 1.21 @ 0.56 1.77 (1.53) -- 13.85 14.05 131,337
1997.............. 13.85 1.19 @ 0.44 1.63 (1.43) -- 14.05 12.76 118,670

U.S. GOVERNMENT/AAA-RATED SECURITIES SERIES

1988.............. $ 10.47 $0.89 $ 0.12 $ 1.01 $ (0.43) $ -- $ 11.05 10.00% $ 44,586
1989.............. 11.05 0.69 0.53 1.22 (0.81) -- 11.46 11.79 85,924
1990.............. 11.46 0.78 0.00 0.78 (0.46) -- 11.78 7.15 128,369
1991.............. 11.78 0.74 0.78 1.52 (0.81) -- 12.49 13.59 192,330
1992.............. 12.49 0.85 0.31 1.16 (0.78) -- 12.87 9.84 230,798
1993.............. 12.87 0.95 @ 0.61 1.56 (0.91) (0.18) 13.34 12.58 228,569
1994.............. 13.34 0.90 @ (1.43) (0.53) (1.11) (0.17) 11.53 (4.17) 149,368
1995.............. 11.53 0.86 @ 0.85 1.71 (1.20) (0.06) 11.98 15.95 134,938
1996.............. 11.98 0.80 @ (0.21) 0.59 (1.06) -- 11.51 5.49 108,852
1997.............. 11.51 0.76 @ (0.14) 0.62 (1.03) -- 11.10 6.09 81,609

CASH MANAGEMENT SERIES

1988.............. $ 10.73 $0.64 $ 0.09 $ 0.73 $ (0.35) $ -- $ 11.11 7.03% $ 64,046
1989.............. 11.11 0.86 0.10 0.96 (0.69) -- 11.38 9.05 79,377
1990.............. 11.38 0.54 0.34 0.88 (0.48) -- 11.78 7.93 163,979
1991.............. 11.78 0.60 0.07 0.67 (0.57) -- 11.88 5.85 197,942
1992.............. 11.88 0.40 (0.03) 0.37 (0.75) -- 11.50 3.26 203,548
1993.............. 11.50 0.29 @ -- 0.29 (0.39) -- 11.40 2.57 192,384
1994.............. 11.40 0.40 @ -- 0.40 (0.33) -- 11.47 3.56 186,396
1995.............. 11.47 0.61 @ 0.01 0.62 (0.44) -- 11.65 5.53 100,872
1996.............. 11.65 0.55 @ -- 0.55 (0.82) -- 11.38 4.94 89,236
1997.............. 11.38 0.54 @ 0.01 0.55 (0.62) -- 11.31 5.03 69,226

1988.............. 0.65% 9.91% 38.30% N/A
1989.............. 0.64 10.47 36.50 N/A
1990.............. 0.66 11.50 34.90 N/A
1991.............. 0.69 10.51 24.40 N/A
1992.............. 0.62 9.40 75.27 N/A
1993.............. 0.59 8.43 59.03 N/A
1994.............. 0.59 8.76 44.97 N/A
1995.............. 0.59 9.66 31.64 N/A
1996.............. 0.58 9.09 36.99 N/A
1997.............. 0.61 8.68 64.49 N/A

1988.............. 0.70% 8.25% 54.30% N/A
1989.............. 0.59 8.35 19.40 N/A
1990.............. 0.61 8.85 26.10 N/A
1991.............. 0.66 7.96 30.90 N/A
1992.............. 0.59 7.32 47.58 N/A
1993.............. 0.58 7.19 9.14 N/A
1994.............. 0.58 7.42 16.95 N/A
1995.............. 0.59 7.49 43.43 N/A
1996.............. 0.59 7.03 17.12 N/A
1997.............. 0.63 6.93 46.17 N/A

1988.............. 0.65% 6.75% -- N/A
1989.............. 0.66 8.53 -- N/A
1990.............. 0.58 7.63 -- N/A
1991.............. 0.64 5.59 -- N/A
1992.............. 0.61 3.21 -- N/A
1993.............. 0.58 2.59 -- N/A
1994.............. 0.57 3.52 -- N/A
1995.............. 0.58 5.32 -- N/A
1996.............. 0.58 4.81 -- N/A
1997.............. 0.63 4.87 -- N/A
</TABLE>

- ------------
@ Calculated based upon average shares
outstanding.

+ Annualized.

++ Commenced operations March 31, 1989.

++++ 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.

4
<PAGE> 7

THE FUND, ITS INVESTMENT OBJECTIVES AND POLICIES

The Fund, organized as a Massachusetts business trust on March 23, 1987, is
an open-end diversified management investment company. It was established to
provide an exclusive funding medium for the annuity contracts issued by the
Account. These contracts were funded previously by shares of the American
Pathway Fund.

The Fund issues seven separate series of shares ("Series") each of which
represents a separate fully managed portfolio of securities with its own
investment objective. The Board of Trustees may establish additional series in
the future. The seven Series are the Growth Series, the International Series,
the Growth-Income Series, the Asset Allocation Series, the High-Yield Bond
Series, the U.S. Government/AAA-Rated Securities Series and the Cash Management
Series. All shares may be purchased or redeemed by the Account at net asset
value without any sales or redemption charge.

Each Series has investment objectives and certain policies set forth
herein. There can be no guarantee that any Series' investment objective[s] will
be realized or that the net return on an investment in a Series will equal or
exceed that which could have been obtained through other investment or savings
vehicles. Contract owners should carefully review the investment objectives and
policies of each Series and consider their ability to assume the risks involved
before making an investment in a Series. These risks include, but are not
limited to, the possibility of a loss of principal. Each Series has certain
investment restrictions described in the Statement of Additional Information. A
Series' fundamental investment restrictions, as well as its investment
objectives, may not be changed without a majority vote of shares of that Series.
See "Shareholder Voting Rights."

GROWTH SERIES

The investment objective of the Growth Series is growth of capital. Any
current income that may be generated by the Series is likely to be incidental to
the objective of capital growth. Ordinarily, the Series seeks to achieve this
objective by investing primarily in common stocks or securities with common
stock characteristics. When the outlook for common stocks is not considered
promising, for temporary defensive purposes a substantial portion of the assets
may be invested in securities of the U.S. Government, its agencies and
instrumentalities, cash, and money market instruments (debt securities maturing
in one year or less). Up to 10% of the Series' assets may be invested in
securities of issuers domiciled outside the U.S. and not included in the
Standard & Poor's 500 Composite Index (a broad measure of the U.S. stock
market). These securities may be denominated in currencies other than the U.S.
dollar. However, there is no requirement that the Series maintain investments in
non-U.S. issuers. See "Risks of Investing in Various Countries."

Up to 10% of the Growth Series' assets may be invested in debt securities
rated BB or below by Standard & Poor's Ratings Services, a Division of the
McGraw-Hill Companies, Inc. ("S&P") and Ba or below by Moody's Investors
Service, Inc. ("Moody's") or in unrated securities that are determined to be of
equivalent quality, provided the Series' investment adviser, Capital Research
and Management Company (the "Investment Adviser"), determines that these
securities have characteristics similar to the equity securities eligible for
purchase by the Growth Series. These securities are commonly referred to as
"junk bonds" or "high-yield, high-risk" bonds, carry a higher degree of
investment risk than higher rated bonds and are considered speculative. See the
Appendix for a description of the ratings. As of the last day of the Series'
most recent fiscal year, the Series did not hold any junk bonds.

INTERNATIONAL SERIES

The investment objective of the International Series is to achieve
long-term growth of capital by investing primarily in securities of issuers
domiciled outside the United States. The Series' investment approach is based on
the belief that economic and political developments help to create new
opportunities outside the U.S.

The Series may also invest in securities through depositary receipts which
may be denominated in various currencies. For example, the Series may purchase
American Depositary Receipts ("ADRs") which are U.S. dollar denominated
securities designed for use in the U.S. securities markets, which represent and
may be converted into the underlying security.

When prevailing market, economic, political or currency conditions warrant,
the Series may invest in securities convertible into common stocks, straight
debt securities (generally rated in the top three quality categories by S&P or
Moody's or unrated but determined to be of equivalent quality by the Investment
Adviser), government securities or nonconvertible preferred stocks. Up to 5% of
the Series' assets may also be invested in lower rated straight debt securities
(including securities commonly referred to as "junk bonds" or "high-yield,
high-risk bonds") or in unrated securities that are determined to be of

5
<PAGE> 8

equivalent quality. High-yield, high-risk bonds carry a higher degree of
investment risk than higher rated bonds and are considered speculative. See the
Appendix for a description of the various bond ratings. These securities may
also be issued by non-U.S. entities.

The Series has the ability to purchase and sell currencies to facilitate
securities transactions and to enter into forward currency contracts to hedge
against changes in currency exchange rates. See "Currency Transactions."

Under normal circumstances, the Series will invest at least 65% of its
assets in equity securities (including depositary receipts) of issuers domiciled
outside the U.S., including those domiciled in developing countries. The Series
may at times hold a portion of its assets in various currencies or in cash
equivalents which may be denominated in U.S. dollars or other currencies
(including U.S. Government securities, certificates of deposit, time deposits,
commercial paper, bankers' acceptances and other high-quality short-term debt
securities). See "Risks of Investing in Various Countries." Additionally, for
temporary defensive purposes, the Series may at times maintain all or any part
of its assets in cash and cash equivalents.

GROWTH-INCOME SERIES

The investment objective of the Growth-Income Series is growth of capital
and income. In the selection of securities for investment, the possibilities of
appreciation and potential dividends are given more weight than current yield.
Ordinarily, the Series will invest primarily in common stocks or securities with
common stock characteristics. But the Series may invest in other types of
securities, including other equity-type securities (such as convertible bonds),
bonds (and other types of fixed income securities) and money market instruments,
to the extent consistent with the Series' investment objective. See "Description
of Securities and Investment Techniques."

Up to 5% of the Growth-Income Series' assets may be invested in straight
debt securities rated BB or below by S&P and Ba or below by Moody's or in
unrated securities that are determined to be of equivalent quality by the
Investment Adviser. These securities are commonly referred to as "junk bonds" or
"high-yield, high-risk" bonds, carry a higher degree of investment risk than
higher rated bonds and are considered speculative. See the Appendix for a
description of the ratings.

Up to 10% of the Series' assets may be invested in the equity securities of
issuers domiciled outside of the U.S. and which are not included in the Standard
& Poor's 500 Composite Index (a broad measure of the U.S. stock market). These
securities may be denominated in currencies other than the U.S. dollar. See
"Risks of Investing in Various Countries."

ASSET ALLOCATION SERIES

The investment objective of the Asset Allocation Series is high total
return (including income and capital gains) consistent with preservation of
capital over the long-term. The Asset Allocation Series seeks to achieve its
objective by investing in a diversified portfolio that can include common stocks
and other equity-type securities (such as convertible bonds), bonds and other
intermediate and long-term fixed-income securities and money market instruments.

The Investment Adviser will determine the relative mix of equities,
fixed-income securities and money market instruments for the portfolio based on
its view of long-term economic and market trends and the relative risks and
opportunities for long-term total return of the different classes of assets.
Under normal conditions, the Investment Adviser expects (but is not required) to
maintain an investment mix falling within the following ranges: 40% to 80% in
equities; 20% to 50% in fixed-income securities; and 0% to 40% in money market
instruments. The Investment Adviser does not intend to make frequent shifts
within these broad ranges. Rather it intends in normal situations to make any
shifts in the Series' asset allocation gradually over time based on its views of
long-term trends and conditions.

Up to 10% of the Series' assets may be invested in the equity securities of
issuers domiciled outside of the U.S., and not included in the Standard & Poor's
500 Composite Index (a broad measure of the U.S. stock market). Up to 5% of
assets may be invested in debt securities of issuers domiciled outside the U.S.
These securities may be denominated in currencies other than the U.S. dollar.
See "Risks of Investing in Various Countries."

The Series' fixed-income investments will consist primarily of "investment
grade" bonds; that is, bonds rated BBB or better by S&P or Baa or better by
Moody's or that are unrated but considered by the Investment Adviser to be of
equivalent credit quality. Up to 25% of the Series' fixed-income assets may be
invested in securities that are below investment grade as defined above,
including securities rated as low as CC by S&P or Ca by Moody's. See "High-Yield
Bond Series" below for more information regarding the risks associated with an
investment in high-yield, high-risk bonds. The Series may also invest in

6
<PAGE> 9

notes and bonds issued by governments, their agencies or instrumentalities, or
corporations in which the principal value and interest payments vary with the
rate of inflation. See the Appendix for a description of bond ratings. During
the recent fiscal year, the approximate monthly average percentages of the
Series' net assets in the following categories based on the higher of Moody's or
S&P's ratings categories, were: Aaa/AAA -- 12.62%; Aa/AA -- 0.66%; A/A -- 1.58%;
Baa/BBB -- 6.94%; Ba/BB -- 2.18%; B/B -- 2.69%; and Caa/CCC -- 0.03%. Non-rated
investments, equity-type securities, and cash or cash equivalents amounted to
0.43%, 63.58% and 9.29%, respectively. Some or all of the non-rated securities
were determined to be of equivalent quality to securities rated by Moody's or
S&P as follows: Baa/BBB -- 0.32%.

The Series' investments in non U.S. fixed-income securities will be
primarily in securities issued or guaranteed as to principal and interest by
non-U.S. governments, their agencies, instrumentalities or by multinational
agencies. The Series may purchase and sell currencies to facilitate settlement
of trades; however, it does not currently intend to enter into forward currency
contracts.

HIGH-YIELD BOND SERIES

The primary investment objective of the Series is a high level of current
income; its secondary investment objective is capital appreciation. Under normal
market conditions the Series will be invested in fixed-income securities, with
emphasis on higher yielding, higher risk, lower rated or unrated corporate
bonds.

High-yield, high-risk bonds, commonly known as "junk bonds," generally
include any bonds rated Ba or below by Moody's and BB or below by S&P or unrated
but determined to be of equivalent quality by the Investment Adviser. Bonds
rated Ba, BB or below are considered speculative. The Series may invest without
limitation in bonds rated as low as Ca by Moody's or CC by S&P (or in bonds that
are unrated but determined to be of equivalent quality). In addition, the Series
may invest up to 10% of its total assets in bonds rated C by Moody's or D by S&P
(or in bonds that are unrated but determined by the Investment Adviser to be of
equivalent quality). See the Appendix for a description of bond ratings. During
the recent fiscal year, the approximate monthly average percentages of the
Series' net assets in the following categories based on the higher of Moody's or
S&P's ratings categories, were: Aaa/AAA -- 4.59%; Baa/BBB -- 2.16%;
Ba/BB -- 19.14%; B/B -- 54.99%; and Caa/CCC -- 0.50%. Non-rated investments,
equity-type securities, and cash or cash equivalents amounted to 1.17%, 3.75%
and 13.59%, respectively. Some or all of the non-rated securities were
determined to be of equivalent quality to securities rated by Moody's or S&P as
follows: B/B -- 0.26%; Caa/CCC -- 0.91%.

Up to 25% of the Series' assets may be invested in securities of non-U.S.
issuers, including issuers domiciled in developing countries, which are
generally denominated in currencies other than the U.S. dollar. The Series can
purchase and sell currencies to facilitate securities transactions and enter
into forward currency contracts to hedge against changes in currency exchange
rates.

Under normal market conditions, the Series will invest primarily in higher
yielding obligations which may include loan participations in addition to
corporate bonds. The Series also may invest in securities of the U.S.
Government, its agencies and instrumentalities, cash and money market
instruments. See "Description of Securities and Investment Techniques" below.

"High-yield, high-risk" bonds have speculative characteristics and involve
greater risk of default or price changes due to changes in the issuer's
creditworthiness, or they may already be in default. The market prices of these
securities may fluctuate more than higher-quality securities and may decline
significantly. It may be more difficult to dispose of, or to determine the value
of, high-yield, high-risk bonds.

High-yield, high-risk bonds may be very sensitive to adverse economic
changes and may be less sensitive to interest rate changes. In addition, periods
of economic uncertainty and changes may increase volatility of market prices and
yields of high-yield, high-risk bonds and in turn, the Series' net asset value.
High-yield, high-risk bonds may contain redemption or call provisions which, if
exercised during a period of declining interest rates, may cause the Series to
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. Furthermore, 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.

The Investment Adviser attempts to reduce the risks described above through
diversification of the portfolio and by credit analysis of each issuer, as well
as by monitoring broad economic trends and corporate and legislative
developments.

7
<PAGE> 10

In pursuing its secondary investment objective of capital appreciation, the
Series may purchase high-yield bonds that are expected by the Investment Adviser
to increase in value due to improvements in their credit quality or ratings or
anticipated declines in interest rates. In addition, the Series may invest for
this purpose up to 25% of its assets in common stocks or other equity or
equity-related securities. Equity-type securities normally will be purchased as
part of a unit with fixed-income securities or when an unusual opportunity for
capital appreciation is perceived due to an anticipated improvement in the
issuer's credit quality or ratings.

U.S. GOVERNMENT /AAA-RATED SECURITIES SERIES

The investment objective of the U.S. Government /AAA-Rated Securities
Series ("Government/AAA Series") is a high level of current income consistent
with prudent investment risk and preservation of capital. It seeks to achieve
its objective by investing in a combination of (i) securities issued or
guaranteed by the U.S. government (i.e., if backed by the full faith and credit
of the United States) and (ii) other debt securities (including corporate bonds)
rated AAA by S&P or Aaa by Moody's (or that are determined to be of comparable
quality by the Investment Adviser). The Series may purchase obligations of non-
U.S. corporations or governmental entities, provided such obligations are U.S.
dollar denominated and highly liquid. Except when the Series is in a temporary
defensive investment position, at least 65% of its total assets is invested in
these securities, including securities held subject to repurchase agreements.

The Series anticipates it will invest in Government National Mortgage
Association certificates, which are mortgage-backed securities representing part
ownership of a pool of mortgage loans on which timely payment of interest and
principal is guaranteed by the U.S. Government. The Government/AAA Series also
may invest in securities issued by U.S. Government agencies or instrumentalities
that are not backed by the full faith and credit of the U.S. Government;
short-term debt securities of private issuers (including certificates of
deposit, bankers' acceptances, and commercial paper rated A-1 by S&P or Prime-1
by Moody's); and securities representing a direct or indirect interest in a pool
of mortgages issued by financial institutions, such as commercial banks, savings
and loan associations, mortgage bankers and securities broker-dealers. In
addition, the Series may invest in notes and bonds issued by governments, their
agencies or instrumentalities, or corporations in which the principal value and
interest payments vary with the rate of inflation. The Government/AAA Series may
not purchase any security, other than a U.S. Government security, not rated AAA
by S&P or Aaa by Moody's (or that has not received a rating but is determined to
be of comparable quality by the Investment Adviser). However, if the rating of a
security currently held by the Series is reduced below AAA (or Aaa), the Series
is not required to dispose of the security.

CASH MANAGEMENT SERIES

The investment objective of the Cash Management Series is high current
yield while preserving capital. It seeks to achieve this objective by investing
in high quality money market instruments that mature, or may be redeemed or
resold, in 13 months or less (25 months or less in the case of U.S. Government
securities). The Series invests only in such instruments that are determined, in
accordance with procedures established by the Fund's Board of Trustees, to
present minimal credit risks. The Series' investments may include, but are not
limited to, commercial paper rated in the highest rating category by Moody's and
S&P, instruments issued, guaranteed or insured by the U.S. Government, its
agencies or instrumentalities as to the payment of principal and interest, and
other securities rated in the highest two categories by either Moody's or S&P,
provided the issuer has commercial paper rated in the highest rating category by
Moody's or S&P. The Series also may enter into repurchase agreements. See
"Description of Securities and Investment Techniques" below.

Although there is no guarantee that the Series' investment objective will
be achieved, investments in the Cash Management Series should present the least
market risk of any of the Series because it invests only in high-quality
short-term debt obligations. However, an investment in this Series is subject to
the risks of changes in market interest rates and the economy as a whole. Also,
the return on an investment in the Cash Management Series should not be the same
as the return on an investment in a money market fund available directly to the
public even where gross yields are equivalent, due to fees imposed at the
contract level.

8
<PAGE> 11

DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES

EQUITY SECURITIES -- Equity securities represent an ownership position in a
company. These securities include common and preferred stocks and securities
with equity conversion or purchase rights. The prices of equity securities
fluctuate based on changes in the financial condition of their issuers and on
market and economic conditions. The Series' results will be related to the
overall market for these securities. Growth-oriented, equity-type securities may
involve large price swings and potential for loss, particularly in the case of
smaller capitalization stocks.

DEBT SECURITIES -- Bonds and other debt securities are used by issuers to
borrow money. Issuers pay investors interest and must repay the amount borrowed
at maturity. Some debt securities, such as zero coupon bonds, do not pay current
interest but are purchased at a discount from their face values. The prices of
debt securities fluctuate depending on such factors as interest rates, credit
quality and maturity. In general, their prices decline when interest rates rise
and vice versa.

INFLATION-INDEXED BONDS -- The Government/AAA Series, High-Yield Bond
Series and Asset Allocation Series may invest in inflation-indexed bonds issued
by governments, their agencies or instrumentalities, or corporations. The
principal value of this type of bond is periodically adjusted according to
changes in the rate of inflation. The interest rate is generally fixed at
issuance; however, interest payments are based on an inflation adjusted
principal value. For example, in a period of falling inflation, principal value
will be adjusted downward, reducing the interest payable.

Repayment of the original bond principal upon maturity (as adjusted for
inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds,
even during a period of deflation. However, the current market value of the
bonds is not guaranteed, and will fluctuate. The Series may also invest in other
bonds which may or may not provide a similar guarantee. If a guarantee of
principal is not provided, the adjusted principal value of the bond repaid at
maturity may be less than the original principal.

OTHER SECURITIES -- Certain securities have both equity and debt
characteristics, such as non-convertible preferred stocks and convertible
securities. These securities may at times resemble equity more than debt and
vice versa. Non-convertible preferred stocks are similar to debt in that they
have a stated dividend rate akin to the coupon of a bond or note even though
they are often classified as equity securities. The prices and yields of
non-convertible preferred stocks generally move with changes in interest rates
and the issuer's credit quality, similar to the factors affecting debt
securities.

Bonds, preferred stocks, and other securities may sometimes be converted
into common stock or other securities at a stated exchange ratio. These
securities prior to conversion pay a fixed rate of interest or a dividend.
Because convertible securities have both debt and equity characteristics, their
value varies in response to many factors, including the value of the underlying
equity, general market and economic conditions, convertible market valuations,
as well as changes in interest rates, credit spreads, and the issuer's credit
quality.

U.S. GOVERNMENT SECURITIES -- Securities guaranteed by the U.S. Government
include: (1) direct obligations of the U.S. Treasury (such as Treasury bills,
notes and bonds) and (2) federal agency obligations guaranteed as to principal
and interest by the U.S. Treasury (such as GNMA certificates and Federal Housing
Administration debentures). For these securities, the payment of principal and
interest is unconditionally guaranteed by the U.S. Government. They are of the
highest possible credit quality. These securities are subject to variations in
market value due to fluctuations in interest rates, but if held to maturity,
will be paid in full.

Certain securities issued by the U.S. Government instrumentalities and
certain federal agencies are neither direct obligations of, nor are they
guaranteed by, the Treasury. However, they involve federal sponsorship in one
way or another. For example some are backed by specific types of collateral;
some are supported by the issuer's right to borrow from the Treasury; some are
supported by the discretionary authority of the Treasury to purchase certain
obligations of the issuer; and others are supported only by the credit of the
issuing government agency or instrumentality. These agencies and
instrumentalities include, but are not limited to Federal Land Banks, Farmers
Home Administration, Central Bank for Cooperatives, Federal Intermediate Credit
Banks and Federal Home Loan Banks.

PASS-THROUGH SECURITIES -- These securities involve various debt
obligations backed by a pool of mortgages or other assets including loans on
single family residences, home equity loans, mortgages on commercial buildings,
credit card receivables, and leases on airplanes or other equipment. Principal
and interest payments made on the underlying asset pools backing these
obligations are typically passed through to investors. Pass-through securities
may have either fixed or adjustable coupons and include those discussed below.

"Mortgage-backed securities" are issued both by U.S. government agencies,
including the Government National Mortgage Association (GNMA), the Federal
National Mortgage Association (FNMA), and the Federal Home Loan Mortgage
Corporation (FHLMC), and by private entities. The payment of principal on
securities issued by U.S. government agencies is

9
<PAGE> 12

guaranteed by the full faith and credit of the U.S. government (in the case of
GNMA securities) or the issuer (in the case of FNMA and FHLMC securities).
However, the guarantees do not apply to the market price and yields of these
securities, which vary with changes in interest rates.

Mortgage-backed securities issued by private entities are structured
similarly to mortgage-backed securities issued by GNMA, FNMA, and FHLMC. These
securities and the underlying mortgages are not guaranteed by government
agencies. In addition, these securities generally are structured with one or
more types of credit enhancement. Mortgage-backed securities do not affect the
rights of borrowers to prepay their underlying mortgages. Prepayments can alter
the effective maturity, and therefore the value, of these instruments.

"Collateralized mortgage obligations" (CMOs) are also backed by a pool of
mortgages or mortgage loans, which are divided into two or more separate bond
issues. CMOs issued by U.S. government agencies are backed by agency mortgages,
which privately issued CMOs may be backed by either government agency mortgages
or private mortgages. Payments of principal and interest are passed-through to
each bond at varying schedules resulting in bonds with different coupons,
effective maturities, and sensitivities to interest rates. In fact, some CMOs
may be structured in a way that when interest rates change, the impact of
changing prepayment rates on these securities' effective maturities is
magnified.

"Commercial mortgage-backed securities" are backed by mortgages of
commercial property, such as hotels, office buildings, retail stores, hospitals,
and other commercial buildings. These securities may have a lower prepayment
risk than other mortgage-related securities because commercial mortgage loans
generally prohibit or impose penalties on prepayments of principal. In addition,
commercial mortgage-related securities often are structured with some form of
credit enhancement to protect against potential losses on the underlying
mortgage loans. Many of the risks of investing in commercial mortgage-backed
securities reflect the risks of investing in the real estate securing the
underlying mortgage loans, including the effects of local and other economic
conditions on real estate markets, the ability of tenants to make loan payments,
and the ability of a property to attract and retain tenants.

"Asset-backed securities" are backed by other assets such as credit card,
automobile or consumer loan receivables, retail installment loans, or
participations in pools of leases. Credit support for these securities may be
based on the underlying asset and/or provided through credit enhancements by a
third party. The values of these securities are sensitive to changes in the
credit quality of the underlying collateral, the credit strength of the credit
enhancement, changes in interest rates, and at times the financial condition of
the issuer. Some asset-backed securities also may receive prepayments which can
change the securities' effective maturities.

MONEY MARKET INSTRUMENTS. -- These are shorter-term debt securities
maturing in one year or less including (1) commercial bank obligations
(certificates of deposit, interest bearing time deposits, bankers' acceptances
(time drafts on a commercial bank where the bank accepts an irrevocable
obligation to pay at maturity)), (2) savings association obligations
(certificates of deposit issued by mutual savings banks or savings and loan
associations), (3) commercial paper (short-term notes (up to 9 months) issued by
corporations or governmental bodies), and (4) corporate bonds and notes
(corporate obligations that mature, or that may be redeemed, in one year or
less). Although certain floating or variable rate obligations (securities whose
coupon rate that changes at least annually and generally more frequently) have
maturities in excess of one year, they are also considered short-term debt
securities.

FORWARD COMMITMENTS -- Each Series may enter into commitments to purchase
or sell securities at a future date. When a Series agrees to purchase such
securities it assumes the risk of any decline in value of the securities
beginning on the date of the agreement. When a Series agrees to sell such
securities, it does not participate in further gains or losses with respect to
the securities beginning on the date of the agreement. If the other party to
such transaction fails to deliver or pay for the securities, the Series could
miss a favorable price or yield opportunity, or could experience a loss.

The Asset Allocation, High-Yield Bond and Government/AAA Series also may
enter into "roll" transactions which consist of 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 assumes the rights and risks
of ownership, including the risk of price and yield fluctuations as of the time
of the agreement.

RESTRICTED AND ILLIQUID SECURITIES -- Each of the Series may invest no more
than 15% (10% in the case of the Cash Management Series) of its net assets,
determined as of the date of purchase, in illiquid securities. Securities with
legal or contractual restrictions on resale that are not actively traded outside
the U.S. will be considered illiquid unless they have been specifically
determined to be liquid under procedures adopted by the Series' Board of
Trustees, taking into account factors such as the frequency and volume of
trading, the commitment of dealers to make markets and the availability of
qualified investors, all of which can change from time to time. The Series may
incur certain additional costs in disposing of illiquid securities.

10
<PAGE> 13

Restricted securities which the Board of Trustees, or the Investment Adviser
pursuant to guidelines established by the Board of Trustees, has determined to
be marketable, such as securities eligible for resale pursuant to Rule 144A
promulgated under the Securities Act of 1933, as amended, or certain private
placements of commercial paper issued in reliance on an exemption from such Act
pursuant to Section 4(2) thereof, may be deemed to be liquid for purposes of
this restriction. To the extent that, for a period of time, qualified
institutional buyers cease purchasing such restricted securities pursuant to
Rule 144A, the Series' investing in such securities may have the effect of
increasing the level of illiquidity in the Series' portfolio during such period.
See "Illiquid and Restricted Securities" in the Statement of Additional
Information for a further discussion of investments in such securities.

RISKS OF INVESTING IN VARIOUS COUNTRIES -- The Growth, International,
Growth-Income, Asset Allocation and the High-Yield Bond Series may invest in
securities of issuers domiciled outside the U.S. which may be denominated in
currencies other than the U.S. dollar.

Investing outside the U.S. involves special risks, particularly in certain
developing countries, caused by, among other things, fluctuating currency
values; different accounting, auditing, and financial reporting regulations and
practices in some countries; changing local and regional economic, political,
and social conditions; expropriation or confiscatory taxation; greater market
volatility; differing securities market structures; and various administrative
difficulties such as delays in clearing and settling portfolio transactions or
in receiving payment of dividends. However, in the opinion of the Investment
Adviser, investing outside the U.S. also can reduce certain portfolio risks due
to greater diversification opportunities.

Additional costs could be incurred in connection with the Series'
investment activities outside the U.S. Brokerage commissions are generally
higher outside the U.S., and the Series will bear certain expenses in connection
with their currency transactions. Furthermore, increased custodian costs may be
associated with the maintenance of assets in certain jurisdictions.

The U.S. Government/AAA-Rated Securities Series may purchase obligations of
non-U.S. corporations or governmental entities, provided they are U.S. dollar
denominated and highly liquid. Accordingly, while the risks mentioned above are
still present, they are present to a lesser extent.

An additional 15% of a Series' non-U.S. assets may be invested in
securities of issuers located in any one of the following countries: Australia,
Canada, France, Japan, the United Kingdom or Germany. This policy is not deemed
a fundamental policy and therefore may be changed without shareholder approval.

CURRENCY TRANSACTIONS -- The Growth Series, the International Series and
the High-Yield Bond Series may purchase and sell currencies to facilitate
securities transactions and to enter into forward currency contracts to hedge
against changes in currency exchange rates. The Growth-Income Series and Asset
Allocation Series may purchase and sell currencies to facilitate transactions in
securities denominated in currencies other than the U.S. dollar, but they have
no current intention of entering into forward contracts. While entering into
forward transactions could minimize the risk of loss due to a decline in the
value of the hedged currency, it could also limit any potential gain which might
result from an increase in the value of the currency. The Series will not
generally attempt to protect against all potential changes in exchange rates.

MANAGEMENT

The Fund's Board of Trustees is responsible for the overall supervision of
the operations of the Fund and performs various duties imposed on trustees of
investment companies by the Investment Company Act of 1940, as amended ("1940
Act"). The Board has retained others to provide certain services to the Fund.

INVESTMENT ADVISER -- Capital Research and Management Company, a large and
experienced investment management organization founded in 1931, is the
investment adviser to the Fund. Capital Research and Management Company, a
wholly owned subsidiary of The Capital Group Companies, Inc., is headquartered
at 333 South Hope Street, Los Angeles, CA 90071. Capital Research and Management
Company manages the investment portfolios and business affairs of the Fund.

The compensation paid to the Investment Adviser for the most recent fiscal
year as a percentage of average net assets amounted to the following: Growth
Series -- .30%, International Series -- .60%, Growth-Income Series -- .30%,
Asset Allocation Series -- .31%, High-Yield Bond Series -- .31%, U.S.
Government/AAA Rated Series -- .32% and Cash Management Series -- .32%.

MULTIPLE PORTFOLIO COUNSELOR SYSTEM -- The basic investment philosophy of
the Investment Adviser is to seek fundamental values at reasonable prices, using
a system of multiple portfolio counselors in managing mutual fund assets. Under
this system, the portfolios of the managed Series are divided into segments
which are managed by individual counselors. Each counselor decides how their
segment will be invested (within the limits provided by each Series' objectives
and by the Investment Adviser's investment committee). In addition, the
Investment Adviser's research professionals make investment decisions with
respect to a portion of each Series' portfolio.

11
<PAGE> 14

The primary individual portfolio counselors for the Fund are listed below:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
YEARS OF EXPERIENCE
IN THE
INVESTMENT INDUSTRY

WITH CAPITAL
YEARS OF EXPERIENCE AS RESEARCH AND
PORTFOLIO COUNSELOR MANAGEMENT
PORTFOLIO COUNSELORS FOR THE SERIES COMPANY OR
FOR THE FUND PRIMARY TITLE(S) INDICATED (APPROXIMATE) ITS AFFILIATES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Timothy D. Armour Chairman and Chief Executive Asset Allocation Series -- 1 year 15
Officer, Capital Research
Company.*
- ------------------------------------------------------------------------------------------------------------------------
David C. Barclay Senior Vice President and High-Yield Bond Series -- 10
Director, Capital Research 9 years
Company*
- ------------------------------------------------------------------------------------------------------------------------
Alan N. Berro Senior Vice President, Capital Growth-Income Series -- 1 year 7
Research Company*
- ------------------------------------------------------------------------------------------------------------------------
Martial Chaillet Senior Vice President, Capital International Series -- 5 years 26
Research Company*
- ------------------------------------------------------------------------------------------------------------------------
Gordon Crawford Senior Vice President and Growth Series -- 4 years (plus 5 27
Director, Capital Research and years as a research professional
Management Company prior to becoming a portfolio
counselor for the Series)
- ------------------------------------------------------------------------------------------------------------------------
James E. Drasdo Senior Vice President and Growth Series -- 12 years 21
Director, Capital Research and
Management Company
- ------------------------------------------------------------------------------------------------------------------------
James K. Dunton Senior Vice President and Growth-Income Series -- since the 36
Director, Capital Research and Series began operations in 1984
Management Company
- ------------------------------------------------------------------------------------------------------------------------
Abner D. Goldstine Senior Vice President and Asset Allocation Series -- since 30
Director, Capital Research and the series began operations in
Management Company 1989; High- Yield Bond
Series -- less than 1 year
- ------------------------------------------------------------------------------------------------------------------------
Alwyn Heong Vice President-Investment International Series -- 2 years 6
Management Group, Capital Research
and Management Company
- ------------------------------------------------------------------------------------------------------------------------
Claudia P. Huntington Senior Vice President, Capital Growth-Income Series -- 4 years 20
Research Company* (plus 5 years as a research
professional prior to becoming
portfolio counselor for the
series)
- ------------------------------------------------------------------------------------------------------------------------
Robert W. Lovelace Executive Vice President and International Series -- 13
Director, Capital Research 4 years
Company*
- ------------------------------------------------------------------------------------------------------------------------
Robert G. O'Donnell Senior Vice President and Growth-Income Series -- 23
Director, Capital Research and 8 years (plus 1 year as a research
Management Company professional prior to becoming a
portfolio counselor for the
Series)
- ------------------------------------------------------------------------------------------------------------------------
Donald D. O'Neal Vice President, Capital Research Growth Series -- 7 years (plus 4 12
and Management Company years as a research professional
prior to becoming a portfolio
counselor for the Series)
- ------------------------------------------------------------------------------------------------------------------------

* Company affiliated with Capital Research and Management Company.
- ------------------------------------------------------------------------------------------------------------------------

PORTFOLIO COUNSELORS TOTAL
FOR THE FUND YEARS
- ------------------------------------
<S> <C>
Timothy D. Armour 15

- ------------------------------------
David C. Barclay 17

- ------------------------------------
Alan N. Berro 12

- ------------------------------------
Martial Chaillet 26

- ------------------------------------
Gordon Crawford 27

- ------------------------------------
James E. Drasdo 26

- ------------------------------------
James K. Dunton 36

- ------------------------------------
Abner D. Goldstine 46

- ------------------------------------
Alwyn Heong 6

- ------------------------------------
Claudia P. Huntington 22

- -------------------------
Robert W. Lovelace 13

- -----------------------------------
Robert G. O'Donnell 26

- -----------------------------------
Donald D. O'Neal 12

- ------------------------------------------------------------------------------------------------------------------------
* Company affiliated with Capital Research and Management Company.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

12
<PAGE> 15

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
YEARS OF EXPERIENCE
IN THE
INVESTMENT INDUSTRY

PORTFOLIO COUNSELORS TOTAL
FOR THE FUND YEARS
- -------------------------------------
<S> <C>
Victor M. Parachini 36

- -------------------------------------
John H. Smet 16

- -------------------------------------
Susan M. Tolson 10

- -------------------------------------

</TABLE>

BUSINESS MANAGER -- The Fund's business manager is SunAmerica Asset
Management Corp. ("SAAMCo"), located at The SunAmerica Center, 733 Third Avenue,
New York, New York 10017 (the "Business Manager"). The Business Manager is a
corporation organized on August 26, 1982 under the laws of the State of
Delaware. SAAMCo is an indirect wholly-owned subsidiary of Anchor National Life
Insurance Company, which is an indirect subsidiary of SunAmerica Inc., an
investment grade financial services company which as of December 31, 1997, had
over $52 billion in assets. During the fiscal year ended November 30, 1997,
Anchor Investment Adviser, Inc., an indirect wholly-owned subsidiary of Anchor
National Life Insurance Company, served as business manager of the Fund through
July 14, 1997, until succeeded by SAAMCo on July 15, 1997. Pursuant to the
Business Management Agreements, the Business Manager manages the business
affairs and the administration of the Fund. For providing these services, the
Business Manager receives a monthly fee, accrued daily, 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, and 0.20% of that portion of each 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%. For the fiscal year ended November 30, 1997,
the Series paid to the Business Manager (including its predecessor, Anchor
Investment Adviser, Inc.) a fee equal to the following percentages of average
daily net assets; Growth Series -- .20%, International Series -- .24%,
Growth-Income Series -- .20%, Asset Allocation Series -- .21%, High-Yield Bond
Series -- .21%, U.S. Government/AAA-Rated Series -- .21% and Cash Management
Series -- .22%. The Fund pays certain expenses not assumed by the Business
Manager, including, but not limited to: expenses of shareholder meetings, the
expense of reports to existing shareholders, insurance premiums, legal and
auditing fees, dividend disbursement expenses, the expense of the issuance,
transfer and redemption of its shares, custodian fees, printing and preparation
of registration statements, prospectuses and proxies, taxes, and compensation of
Board of Trustees who are not interested persons of the Fund.

CUSTODIAN, TRANSFER AGENT AND DIVIDEND PAYING AGENT -- State Street Bank
and Trust Company ("State Street"), 225 Franklin Street, Boston, Massachusetts
02110, is the Fund's custodian, transfer agent and dividend paying agent. State
Street maintains custody of the Fund's securities and cash and the records of
the shareholder's account. State Street also performs other related shareholder
service functions.

PORTFOLIO TURNOVER

Portfolio changes will be made without regard to the length of time
particular investments may have been held. High portfolio turnover involves
correspondingly greater transaction costs in the form of dealer spreads or
brokerage commissions, and may result in the realization of net capital gains,
which are taxable when distributed to shareholders. Fixed-income securities are
generally traded on a net basis and usually neither brokerage commissions nor
transfer taxes are involved. A Series portfolio turnover rate would equal 100%
if each security in the Series' portfolio were replaced once per year.

PORTFOLIO TRANSACTIONS -- Orders for the Fund's portfolio securities
transactions are placed by Capital Research and Management Company which strives
to obtain the best available prices, taking into account the costs and quality
of executions. There is no agreement or commitment to place orders with any
broker-dealer. Fixed-income securities are generally traded on a "net" basis
with a dealer acting as principal for its own account without a stated
commission, although the price of the

13
<PAGE> 16

security usually includes a profit to the dealer. In underwritten offerings,
securities are usually purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. On occasion, securities may be purchased directly from
an issuer, in which case no commissions or discounts are paid.

Subject to the above policy, when two or more brokers are in a position to
offer comparable prices and executions, preference may be given to brokers that
have sold Contracts or have provided investment research, statistical and other
related services for the benefit of the Fund and/or of other funds served by
Capital Research and Management Company.

DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES

It is the Fund's policy to distribute to the shareholders (the variable
separate account) all of its investment income and capital gains realized during
each fiscal year. Each Series of the Fund is subject to asset diversification
regulations prescribed by the U.S. Treasury Department under the Internal
Revenue Code of 1986, as amended (the "Code"). In general, these regulations
effectively provide that, as of the end of each calendar quarter or within 30
days thereafter, no more than 55% of the total assets of the Series may be
represented by any one investment, no more than 70% by any two investments, no
more than 80% by any three investments, and no more than 90% by any four
investments. For this purpose, all securities of the same issuer are considered
a single investment, but each U.S. agency or instrumentality is treated as a
separate issuer. There are also alternative diversification tests which may be
satisfied by the Series under the regulation. Each Series of the Fund intends to
comply with the diversification regulations. If a Series fails to comply with
these regulations, the contracts invested in that Series will not be treated as
annuity, endowment or life insurance contracts under the Code.

Each Series of the Fund intends to operate as a "regulated investment
company" under the Code. In any fiscal year in which a Series so qualifies and
distributes to shareholders its net investment income and realized capital
gains, the Series itself is relieved of federal income tax.

See the applicable contract prospectus for information regarding the
federal income tax treatment of the contracts and distributions to the separate
accounts.

PRICE OF SHARES

The Fund is open for business on any day the NYSE is open for regular
trading. Shares of each Series of the Fund are sold at the net asset value per
share calculated once daily at the close of regular trading on the NYSE
(generally, 4:00 p.m. Eastern time). Each Series calculates its net asset value
per share by dividing the total value of its net assets by the number of shares
outstanding. Assets are generally valued at their market value, where available,
except that short-term securities with 60 days or less to maturity are valued on
an amortized cost basis. For a complete description of the procedures involved
in valuing various Fund assets, see the Statement of Additional Information.

PURCHASES AND REDEMPTIONS

Shares of the Fund currently are offered only to the Variable Separate
Account. At present, Fund shares are used as the investment vehicle for annuity
contracts only. The Company may issue variable life contracts that also will use
the Fund as the underlying investment. The offering of Fund shares to variable
annuity and variable life separate accounts is referred to as "mixed funding."
It may be disadvantageous for variable annuity separate accounts and variable
life separate accounts to invest in the Fund simultaneously. Although neither
the Company nor the Fund currently foresees such disadvantages either to
variable annuity or variable life contract owners, the Board of Trustees of the
Fund, based upon information provided by the Company, would monitor events in
order to determine, should a material conflict arise, what action, if any, need
be taken in response thereto. All shares may be purchased or redeemed by the
separate account without any sales or redemption charges at the next computed
net asset value. Purchases and redemptions are made subsequent to corresponding
purchases and redemptions of units of the separate account without delay.

Except in extraordinary circumstances and as permissible under the 1940
Act, the redemption proceeds are paid on or before the seventh day following the
request for redemption.

14
<PAGE> 17

SHAREHOLDER VOTING RIGHTS

All shares of the Fund have equal voting rights and may be voted in the
election of Trustees and on other matters submitted to the vote of the
shareholders. Shareholders' meetings ordinarily will not be held unless required
by the 1940 Act. As permitted by Massachusetts law, there normally will be no
shareholders' meetings for the purpose of electing Trustees unless and until
such time as fewer than a majority of the Trustees holding office have been
elected by shareholders. At that time, the Trustees then in office will call a
shareholders' meeting for the election of Trustees. The Trustees must call a
meeting of shareholders for the purpose of voting upon the removal of any
Trustee when requested to do so by the record holders of 10 percent of the
outstanding shares of the Fund. A Trustee may be removed after the holders of
record of not less than two-thirds of the outstanding shares have declared that
the Trustee be removed either by declaration in writing or by votes cast in
person or by proxy. Except as set forth above, the Trustees shall continue to
hold office and may appoint successor Trustees, provided that immediately after
the appointment of any successor Trustee, at least two-thirds of the Trustees
have been elected by the shareholders. Shares do not have cumulative voting
rights. Thus, holders of a majority of the shares voting for the election of
Trustees can elect all the Trustees. No amendment may be made to the Declaration
of Trust without the affirmative vote of a majority of the outstanding shares of
the Fund, except that amendments to conform the Declaration to the requirements
of applicable federal laws or regulations or the regulated investment company
provisions of the Code may be made by the Trustees without the vote or consent
of shareholders. If not terminated by the vote or written consent of a majority
of its outstanding shares, the Fund will continue indefinitely.

In matters affecting only a particular Series, the matter shall have been
effectively acted upon by a majority vote of that Series even though: (1) the
matter has not been approved by a majority vote of any other Series; or (2) the
matter has not been approved by a majority vote of the Fund as a whole.

INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL

Price Waterhouse LLP has been selected as independent accountants for the
Fund. The firms of Blazzard, Grodd & Hasenauer and Shereff, Friedman, Hoffman &
Goodman, LLP provide legal services to the Fund.

SHAREHOLDER INQUIRIES

Shareholder inquiries should be directed to Anchor National Life Insurance
Company, Annuity Service Center, P.O. Box 54299, Los Angeles, California
90054-0299, telephone number (800) 445-7862.

15
<PAGE> 18

STATEMENT OF ADDITIONAL INFORMATION

TABLE OF CONTENTS

<TABLE>
<CAPTION>
TOPIC PAGE
- --------------------------------------------------------------------------------------------------- ----
<S> <C>
The Fund........................................................................................... B- 2
Investment Policies................................................................................ B- 2
Investment Restrictions............................................................................ B-10
Fund Officers and Trustees......................................................................... B-15
Investment Advisory Agreement...................................................................... B-17
Business Management Agreement...................................................................... B-18
Dividends, Distributions and Federal Taxes......................................................... B-19
Price of Shares.................................................................................... B-20
Execution of Portfolio Transactions................................................................ B-21
General Information................................................................................ B-24
Financial Statements............................................................................... B-24
</TABLE>

16
<PAGE> 19

APPENDIX

DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS

COMMERCIAL PAPER RATINGS -- Moody's Investors Service, Inc. employs the
designations "Prime-1", "Prime-2" and "Prime-3" to indicate commercial paper
having the highest capacity for timely repayment. Issuers rated Prime-1 have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structures with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
Issues rated Prime-2 have a strong capacity for repayment of short-term
promissory obligations. This will normally be evidenced by many of the
characteristics cited above, but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.

Standard & Poor's Ratings Services' ratings of commercial paper are graded
into four categories ranging from "A" for the highest quality obligations to "D"
for the lowest. A -- Issues assigned its highest rating are regarded as having
the greatest capacity for timely payment. Issues in this category are delineated
with numbers 1, 2, and 3 to indicate the relative degree of safety. A-1 -- This
designation indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics will be denoted with a plus (+) sign
designation. A-2 -- Capacity for timely payments on issues with this designation
is strong. However, the relative degree of safety is not as high as for issues
designated "A-1".

CORPORATE DEBT SECURITIES -- Moody's Investors Service, Inc. rates the
long-term debt securities issued by various entities from "Aaa" to "C".
Aaa -- Best quality. These securities carry the smallest degree of investment
risk and are generally referred to as "gilt edge". Interest payments are
protected by a larger, or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of these issues. Aa -- High quality by all standards. They are rated
lower than the best bond because margins of protection may not be as large as in
Aaa securities, fluctuation of protective elements may be of greater amplitude,
or there may be other elements present that make the long-term risks appear
somewhat greater. A -- Upper medium grade obligations. These bonds possess many
favorable investment attributes. Factors giving security to principal and
interest are considered adequate, but elements may be present that suggest a
susceptibility to impairment sometime in the future. Baa -- Medium grade
obligations. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and, in fact, have speculative
characteristics as well. Ba -- Have speculative elements; future cannot be
considered as well assured. The protection of interest and principal payments
may be very moderate and thereby not well safeguarded during both good and bad
times over the future. Bonds in this class are characterized by uncertainty of
position. B -- Generally lack characteristics of the desirable investment;
assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small. Caa -- Of poor standing.
Issues may be in default or there may be present elements of danger with respect
to principal or interest. Ca -- Speculative in a high degree; often in default
or have other marked shortcomings. C -- Lowest rated class of bonds; can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.

Standard & Poor's Ratings Services rates the long-term securities debt of
various entities in categories ranging from "AAA" to "D" according to quality.
AAA -- Highest rating. Capacity to pay interest and repay principal is extremely
strong. AA -- High grade. Very strong capacity to pay interest and repay
principal. Generally, these bonds differ from AAA issues only in a small degree.
A -- Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions than debt in higher rated categories. BBB -- Regarded as
having adequate capacity to pay interest and repay principal. These bonds
normally exhibit adequate protection parameters, but adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal than for debt in higher rated categories. BB, B,
CCC, CC, C -- Regarded, on balance, as predominately speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of the
obligation. BB indicated the lowest degree of speculation and C the highest
degree of speculation. While this debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions. C1 -- Reserved for income bonds on which
no interest is being paid. D -- In default and payment of interest and/or
repayment of principal is in arrears.
<PAGE> 20
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 29, 1998. 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 29, 1998

<PAGE> 21
TABLE OF CONTENTS

Topic Page

The Fund................................................................... B-2
Investment Policies........................................................ B-2
Investment Restrictions.................................................... B-10
Fund Officers and Trustees................................................. B-15
Investment Advisory Agreement.............................................. B-17
Business Management Agreement.............................................. B-18
Dividends, Distributions and Federal Taxes................................. B-19
Price of Shares............................................................ B-20
Execution of Portfolio Transactions........................................ B-21
General Information........................................................ B-24
Financial Statements....................................................... B-24

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, wholly-owned by SunAmerica Inc., a Maryland
corporation.

INVESTMENT POLICIES

The discussion below is intended to supplement the information
contained in the Prospectus.

GENERAL

ILLIQUID AND RESTRICTED SECURITIES. Each of the Series may invest no
more than 15% (10% in the case of the Cash Management Series) of its net assets,
determined as of the date of purchase, in illiquid securities 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. 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 or in the secondary market. Mutual funds do not
typically hold a significant amount of these restricted or

B-2
<PAGE> 22

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.
The Investment Adviser, 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.

B-3
<PAGE> 23
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) and
documented discount notes (corporate promissory discount notes accompanied by a
commercial bank guarantee 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. 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

B-4
<PAGE> 24
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 foreign
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 - Each
Series may purchase certificates issued by the Government National Mortgage
Association ("GNMA") and the U.S. Government/AAA-Rated Securities Series
("Government/AAA Series") expects to invest substantially 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, savings and loan associations and securities broker-dealers
(or separate trusts or affiliates of such institutions established to issue
these securities), 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

B-5
<PAGE> 25
realized yield on particular FNMA and FHLMC pass-through securities will
vary based on the prepayment experience of the underlying pool of mortgages.

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 ("CMOs") and
mortgage-backed bonds. CMOs (including real estate mortgage investment conduits
as authorized under the Internal Revenue Code of 1986, as amended (the "Code"))
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 CMOs). 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
segregates 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 Investment Company Act of 1940, as amended (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

B-6
<PAGE> 26

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.

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, or equivalent collateral that is equal to
at least 102% of the market value, determined daily, of the loaned securities.
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 - The Government/AAA Series, the Asset Allocation
Series and the High-Yield Bond 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.

B-7
<PAGE> 27
GROWTH SERIES, ASSET ALLOCATION SERIES, INTERNATIONAL SERIES AND
HIGH-YIELD BOND SERIES

CURRENCY TRANSACTIONS -The Growth Series, Asset Allocation 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. An exchange traded futures
contract relating to foreign currency is similar to a forward foreign currency
contract but has a standardized size and exchange rate. 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 Commodity 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, these Series will observe certain CFTC guidelines with
respect to its futures transactions that, among other things, limit initial
margin deposits in connection with the use of futures contracts and related
options for purposes other than "hedging" (as defined by CFTC rules) to 5% of a
Series' net assets.

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 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

B-8
<PAGE> 28
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 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, GROWTH-INCOME SERIES, INTERNATIONAL SERIES, ASSET ALLOCATION
SERIES AND HIGH-YIELD BOND SERIES

CERTAIN RISK FACTORS RELATING TO HIGH-YIELD, HIGH-RISK BONDS - The
Growth Series, Growth-Income Series, International Series, Asset Allocation
Series and the High-Yield Bond Series may invest in high-yield, high-risk bonds.
These bonds present certain risks which are discussed below:

SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - High-yield,
high-risk 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, high-risk 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.

WARRANTS AND RIGHTS - Warrants are usually issued together with bonds
or preferred stocks. Warrants generally entitle the holder to buy a
proportionate amount of common stock at a specified price, usually higher than
the current market price. Warrants may be issued with an expiration date or in
perpetuity. Rights are similar to warrants except that they normally entitle the

B-9
<PAGE> 29

holder to purchase common stock at a lower price than the current market price.
Rights generally expire in less than four weeks.

HIGH-YIELD BOND SERIES

LOAN PARTICIPATIONS - Loan participations, which can also include loan
assignments, typically involve loans made by a syndicate of banks to U.S. and
non-U.S. corporate or governmental borrowers for a variety of purposes which may
be secured or unsecured, and will vary in term and legal structure. Typically,
price quotations with respect to loan participations are available from the
originating bank (the bank that makes the underlying loan). The originating bank
also serves as the market maker for the resale of loan participations. When
purchasing such instruments, the Series may assume the credit risks associated
with the original bank lender as well as the credit risks associated with the
borrower. In addition, if the loan is foreclosed, the Series could be part owner
of any collateral, and could bear the costs and liabilities of owning and
disposing of the collateral. Loan participations generally are not rated by
major rating agencies and may not be protected by the securities laws. Also loan
participations may be liquid or illiquid. To the extent these instruments are
illiquid, the Series may have difficulty determining their value or selling the
instruments as generally there is no secondary market. The Series will purchase
these instruments only to the extent that such a purchase would be consistent
with its investment policies regarding debt securities and/or illiquid
securities.

In determining whether to purchase a particular loan participation, the
Investment Adviser will take into account all relevant factors including the
instrument's potential volatility, liquidity and risks (including whether the
Series could be put in an undesirable position as lender and/or owner of the
collateral).

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

B-10
<PAGE> 30
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.

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.

B-11
<PAGE> 31

Notwithstanding investment restriction Number 1 above, in order to
comply with Rule 2a-7 under the 1940 Act, 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:

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).

B-12
<PAGE> 32
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. 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:

B-13
<PAGE> 33
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.

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.

B-14
<PAGE> 34
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.

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* (69), Senior Partner, Law Firm of Barger & Wolen.
Trustee

Norman J. Metcalfe* (55), Vice Chairman and Chief Financial Officer, The
Trustee Irvine Company (March 1993 to December
1996); Executive Vice President (1986 to 1992)
and Director (1984 to 1993), SunAmerica Inc.

Allan L. Sher (66), Director, Board of Governors, American Stock
Trustee Exchange (1991 to present).

William M. Wardlaw (51), Partner, Freeman Spogli & Co., Incorporated
Trustee (privately owned merchant banking firm) (1988-
present).

James K. Hunt* (46), Executive Vice President, SunAmerica
Chairman of the Board Investments, Inc. (1993 to present); President,
and President SunAmerica Corporate Finance (since January
1994).

Scott L. Robinson (51) Senior Vice President and Controller,
Senior Vice President, Treasurer and SunAmerica Inc. (since 1991); Senior Vice
Controller President of Anchor National Life Insurance
Company ("Anchor National") (since 1988);
joined SunAmerica Inc. in 1978.
</TABLE>

B-15
<PAGE> 35

<TABLE>
<CAPTION>
Name, Age and Position(s) Principal Occupation(s)
Held With the Fund During the Past Five Years
- ------------------ --------------------------
<S> <C>
Susan L. Harris (40) 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 (33) 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 to February 1996).

Robert M. Zakem, 40 Senior Vice President and General Counsel,
Vice President and Assistant Secretary SAAMCo (since April 1993); Executive Vice
The SunAmerica Center President, General Counsel and Director,
733 Third Avenue SunAmerica Capital Services, Inc. ("SACS")
New York, NJ 10017-3204 (since February 1993); Vice President, General
Counsel and Assistant Secretary, SunAmerica
Fund Services, Inc. ("SAFS") (since January
1994), Vice President, SunAmerica Series Trust
and Seasons Series Trust; Assistant Secretary,
SunAmerica Series Trust (since September
1993); Assistant Secretary, Seasons Series Trust
(since April 1997); Secretary, SunAmerica
Mutual Funds and Anchor Series Trust; formerly
Vice President and Associate General Counsel,
SAAMCo (March 1992 to April 1993).

</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, 1997, the Fund paid Trustees' fees and expenses
which totaled $47,500.

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, 1997. Trustees who are affiliated with the Company do not
receive any compensation.

B-16
<PAGE> 36
COMPENSATION TABLE

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Pension or Total Compensation
Retirement from Registrant and
Aggregate Benefits Accrued Fund Complex Paid to
Compensation as Part of Fund Trustees*
from Registrant Expenses*
Trustee
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Richards D. Barger $13,000 N/A $23,000
- ----------------------------------------------------------------------------------------------------------------------
Frank L. Ellsworth $ 3,250 N/A $ 5,500
- ----------------------------------------------------------------------------------------------------------------------
Norman J. Metcalfe $13,000 N/A $23,000
- ----------------------------------------------------------------------------------------------------------------------
Alan L. Sher $ 9,750 N/A $17,500
- ----------------------------------------------------------------------------------------------------------------------
William M. Wardlaw $ 8,500 N/A $15,250
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

* Information is as of November 30, 1997 for the three Funds in the complex (the
Fund, SunAmerica Series Trust and Seasons Series Trust) which pay fees to these
Trustees.

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 Investment Advisory Agreement continues in effect with respect to
each Series from year to year provided that such continuance 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 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.

B-17
<PAGE> 37

The following table sets forth the total advisory fees received by the
Adviser from each Series pursuant to the Investment Advisory Agreement for the
fiscal years ended November 30, 1997, 1996 and 1995.

ADVISORY FEES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
FUND 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Series $2,411,000 $2,478,000 $2,484,000
- --------------------------------------------------------------------------------------------------------------------------------
International Series $1,504,000 $1,412,000 $1,419,000
- --------------------------------------------------------------------------------------------------------------------------------
Growth-Income Series $2,809,000 $2,672,000 $2,478,000
- --------------------------------------------------------------------------------------------------------------------------------
Asset Allocation Series $ 481,000 $ 472,000 $ 461,000
- --------------------------------------------------------------------------------------------------------------------------------
High-Yield Bond Series $ 394,000 $ 421,000 $ 447,000
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Government/AAA-Rated $ 292,000
Securities Series $ 380,000 $ 449,000
- --------------------------------------------------------------------------------------------------------------------------------
Cash Management Series $ 264,000 $ 318,000 $ 442,000
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>

BUSINESS MANAGEMENT AGREEMENT

The Business Manager, an indirect wholly-owned subsidiary of Anchor
National Life Insurance Company, which is an indirect subsidiary of SunAmerica
Inc., provides administrative services to the Fund. The Business Management
Agreement between the Fund and the Business Manager, dated July 15, 1997,
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.

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 and its predecessor, Anchor Investment Adviser,
Inc., pursuant to the Business Management Agreement for the fiscal years ended
November 30, 1997, 1996 and 1995.

B-18
<PAGE> 38
BUSINESS MANAGEMENT FEES

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
FUND 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Series $1,607,000 $1,653,000 $1,656,000
- --------------------------------------------------------------------------------------------------------------------------------
International Series $ 602,000 $ 564,000 $ 567,000
- --------------------------------------------------------------------------------------------------------------------------------
Growth-Income Series $1,873,000 $1,781,000 $1,652,000
- --------------------------------------------------------------------------------------------------------------------------------
Asset Allocation Series $ 320,000 $ 314,000 $ 307,000
- --------------------------------------------------------------------------------------------------------------------------------
High-Yield Bond Series $ 263,000 $ 281,000 $ 298,000
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Government/AAA-Rated $ 195,000
Securities Series $ 253,000 $ 300,000
- --------------------------------------------------------------------------------------------------------------------------------
Cash Management Series $ 176,000 $ 212,000 $ 295,000
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The Business Management Agreement provides that it will continue in
effect until September 21, 1999, unless terminated, and may be renewed from year
to year thereafter as to each Series provided that such continuance 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 Business Management 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 its 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) 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

B-19
<PAGE> 39
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 (c) 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

Shares of the Fund are currently offered only to the Variable Separate
Account. The Fund is open for business on any day the NYSE is open for regular
trading. The price paid for shares is the net asset value per share calculated
once daily at the close of regular trading on the NYSE (generally, 4:00 p.m.,
Eastern time). Each Series calculates the net asset value of its shares
separately by dividing the total value of its net assets by its shares
outstanding.

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.
Non-convertible bonds, debentures, other long-term debt securities and
short-term securities with original or remaining maturities in excess of 60
days, are normally valued at prices obtained for the day of valuation from a
bond pricing service of a major dealer in bonds, when such prices are available;
however, in circumstances in which the Investment Adviser deems it appropriate
to do so, an over-the-counter or exchange quotation at the mean of
representative bid or asked prices may be used. Securities traded primarily on
securities exchanges outside the United States are valued at the last sale price
on such exchanges on the day of valuation, or if there is no sale on the day of
valuation, at the last-reported bid price. If a security's price is available
from more than one foreign exchange, a Series uses the exchange that is the
primary market for the security. 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. Options
traded on national securities exchanges are valued as of the close of the
exchange on which they are traded. Futures and options traded on commodities
exchanges are valued at their last sale price as of the close of such exchange.
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 in accordance with procedures adopted 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.

A Series' liabilities, including proper accruals of expense items, are
deducted from total assets.

B-20
<PAGE> 40
EXECUTION OF PORTFOLIO TRANSACTIONS

Orders for the Fund's portfolio securities transactions are placed by
the Investment Adviser. The Investment Adviser strives to obtain the best
available prices in its portfolio transactions taking into account the costs and
promptness of executions. When circumstances relating to a proposed transaction
indicate that a particular broker (either directly or through their
correspondent clearing agents) is in a position to obtain the best price and
execution, the order is placed with that broker. This may or may not be a broker
who has provided investment research statistical, or other related services to
the Investment Adviser or has sold shares of the Fund or other Funds served by
the Investment Adviser or Business Manager. The Fund does not consider that it
has an obligation to obtain the lower available commission rate to the exclusion
of price, service and qualitative considerations.

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.

There are occasions on which portfolio transactions for the Fund may be
executed as part of concurrent authorizations to purchase or sell the same
security for other Funds served by the Investment Adviser, or for trusts or
other accounts served by affiliated companies of the Investment Adviser.
Although such concurrent authorizations potentially could be either advantageous
or disadvantageous to the Fund, they are effected only when the Investment
Adviser believes that to do so is in the interest of the Fund. When such
concurrent authorizations occur, the objective is to allocate the executions in
an equitable manner. The Fund does not intend to pay a mark-up in exchange for
research in connection with principal transactions.

Purchases and sales of money market and other fixed income 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 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 Series deals with the primary market
makers unless more favorable prices are obtainable.

B-21
<PAGE> 41
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 Series and the amounts of the brokerage commissions which were paid to
affiliated broker-dealers by the Series for the fiscal years ended November 30,
1997, 1996 and 1995.

1997 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 $447,407 $ 1,175 0.26%
- --------------------------------------------------------------------------------------------

International Series $593,093 -- --
- --------------------------------------------------------------------------------------------

Growth-Income Series $645,724 $10,961 1.70%
- --------------------------------------------------------------------------------------------

Asset Allocation Series $ 78,768 $ 1,250 1.59%
- --------------------------------------------------------------------------------------------

High-Yield Bond Series -- -- --
- --------------------------------------------------------------------------------------------

U.S. Government/AAA-Rated
- --------------------------------------------------------------------------------------------

Securities Series -- -- --
- --------------------------------------------------------------------------------------------

Cash Management Series -- -- --
- --------------------------------------------------------------------------------------------
</TABLE>

B-22

<PAGE> 42
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>

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>

B-23

<PAGE> 43
GENERAL INFORMATION

CUSTODIAN - State Street Bank and Trust Company ("State
Street"), 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 accountants. 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, 943 Coast Road East,
Westport, CT 06881 and Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third
Avenue, New York, NY 10022, provide legal services to the Fund.

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
Registrant's fiscal year ended November 30, 1997.

B-24

<PAGE> 44

<PAGE> 1

O
- ---------------------

ANCHOR PATHWAY FUND
GROWTH SERIES INVESTMENT PORTFOLIO -- NOVEMBER 30, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCK -- 91.0% SHARES (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL EQUIPMENT -- 26.3%
Aerospace & Military Technology -- 0.3%
Gulfstream Aerospace Corp.+.......................................... 70,000 $ 2,056

Data Processing & Reproduction -- 10.1%
3Com Corp.+.......................................................... 120,000 4,350
Adobe Systems, Inc................................................... 155,000 6,510
Ascend Communications, Inc.+......................................... 54,500 1,359
Compaq Computer Corp................................................. 131,250 8,195
Computer Associates International, Inc............................... 30,000 1,562
Data General Corp.+.................................................. 200,000 3,587
Digital Equipment Corp.+............................................. 75,000 3,694
Mentor Graphics Corp.+............................................... 120,000 1,140
Netscape Communications Corp.+....................................... 218,750 6,234
Oracle Systems Corp.+................................................ 590,000 19,654
PeopleSoft, Inc.+.................................................... 40,000 2,617
Siebel Systems, Inc.+................................................ 517 22
Silicon Graphics, Inc.+.............................................. 739,500 9,706
Solectron Corp.+..................................................... 260,000 9,474
Sybase, Inc.+........................................................ 214,400 3,002

Electrical & Electronics -- 1.2%
Ericsson (L.M.) Telecommunications Co., Class B ADR.................. 158,000 6,389
Nextlevel Systems, Inc............................................... 69,300 918
Nokia Corp., Class A ADR............................................. 30,000 2,494

Electronic Components -- 14.3%
Adaptec, Inc.+....................................................... 220,000 10,890
Advanced Micro Devices, Inc.+........................................ 75,000 1,636
Analog Devices, Inc.+................................................ 486,666 15,269
Bay Networks, Inc.+.................................................. 30,000 902
Intel Corp........................................................... 281,200 21,828
LSI Logic Corp.+..................................................... 320,000 7,440
Microchip Technology, Inc.+.......................................... 65,000 2,275
Newbridge Networks Corp.+............................................ 100,000 4,213
Park Electrochemical Corp............................................ 187,200 4,914
Rogers Corp.+........................................................ 109,200 4,457
SCI Systems, Inc.+................................................... 200,000 9,162
Texas Instruments, Inc............................................... 627,200 30,890
Xilinx, Inc.+........................................................ 20,000 691

Energy Equipment -- 0.4%
Schlumberger Ltd..................................................... 40,000 3,293
---------
210,823
---------
CONSUMER GOODS -- 6.0%
Beverages & Tobacco -- 1.2%
PepsiCo, Inc......................................................... 80,000 2,950
Philip Morris Cos., Inc.............................................. 160,000 6,960
</TABLE>

---------------------
A-1
<PAGE> 2

<TABLE>
<CAPTION>
VALUE
COMMON STOCK (continued) SHARES (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER GOODS (continued)
Health & Personal Care -- 3.2%
Alpha Beta Technology, Inc.+......................................... 70,000 $ 206
Avon Products, Inc................................................... 15,000 867
BioChem Pharma, Inc.+................................................ 60,000 1,530
Dura Pharmaceuticals, Inc.+.......................................... 60,000 2,632
Forest Labs, Inc.+................................................... 60,000 2,685
Gillette Co.......................................................... 20,000 1,846
Medtronic, Inc....................................................... 15,600 745
Omnicare, Inc........................................................ 230,000 6,641
Pharmacia & Upjohn, Inc.............................................. 58,000 1,958
Shared Medical Systems Corp.......................................... 58,000 3,712
Universal Health Services, Inc.+..................................... 60,000 2,621

Recreation & Other Consumer Products -- 1.3%
Electronic Arts, Inc.+............................................... 100,000 3,350
Mattel, Inc.......................................................... 180,000 7,211

Textiles & Apparel -- 0.3%
Nike, Inc., Class B.................................................. 35,000 1,704
Nine West Group, Inc.+............................................... 30,000 816
---------
48,434
---------
ENERGY -- 2.5%
Energy Sources -- 2.3%
Murphy Oil Corp...................................................... 80,000 4,400
Oryx Energy Co.+..................................................... 200,000 5,400
Pogo Producing Co.................................................... 36,500 1,145
Talisman Energy, Inc.+............................................... 40,000 1,168
Union Texas Petroleum Holdings, Inc.................................. 275,000 5,999

Utilities: Electric, Gas & Water -- 0.2%
KN Energy, Inc....................................................... 40,000 1,870
---------
19,982
---------
FINANCE -- 4.9%
Banking -- 1.5%
Charter One Financial, Inc........................................... 77,175 4,572
Norwest Corp......................................................... 100,000 3,744
Washington Mutual, Inc............................................... 54,000 3,733

Financial Services -- 1.4%
Capital One Financial Corp........................................... 50,000 2,265
Federal Home Loan Mortgage Corp...................................... 20,000 825
Federal National Mortgage Association................................ 150,000 7,922

Insurance -- 2.0%
Aetna, Inc........................................................... 30,000 2,261
Everest Reinsurance Holdings, Inc.................................... 40,000 1,518
EXEL Ltd............................................................. 130,000 7,995
Transatlantic Holdings, Inc.......................................... 60,000 4,286
---------
39,121
---------
MATERIALS -- 1.1%
Chemicals -- 1.1%
Air Products & Chemicals, Inc........................................ 25,000 1,917
Valspar Corp......................................................... 218,200 6,628
---------
8,545
---------
</TABLE>

- ---------------------
A-2
<PAGE> 3

<TABLE>
<CAPTION>
VALUE
COMMON STOCK (continued) SHARES (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES -- 45.2%
Broadcasting & Publishing -- 19.3%
Adelphia Communications Corp.+....................................... 205,000 $ 2,973
BHC Communications, Inc., Class A+................................... 55,821 7,006
Cablevision Systems Corp., Class A+.................................. 70,000 5,736
Comcast Corp., Class A............................................... 360,000 10,080
Cox Communications, Inc., Class A+................................... 270,000 9,163
HSN, Inc.+........................................................... 178,250 7,954
News Corp., Ltd. ADR................................................. 680,000 14,747
Tele-Communications Liberty Media Group, Inc., Series A+............. 504,025 17,011
Tele-Communications, Inc., Series A+................................. 569,982 13,056
Time Warner, Inc..................................................... 843,750 49,148
Viacom, Inc., Class B+............................................... 515,000 18,025

Business & Public Services -- 11.0%
America Online, Inc.+................................................ 566,500 42,771
Avery Dennison Corp.................................................. 80,000 3,350
Columbia/HCA Healthcare Corp......................................... 168,125 4,960
CUC International, Inc.+............................................. 165,000 4,744
Ecolab, Inc.......................................................... 50,000 2,550
Electronic Data Systems Corp......................................... 105,000 3,990
Federal Express Corp.+............................................... 250,000 16,766
Manpower, Inc........................................................ 41,400 1,392
Pacificare Health Systems, Inc+...................................... 2,877 148
Quorum Health Group, Inc.+........................................... 1,500 36
USA Waste Services, Inc.+............................................ 120,000 3,967
Waste Management, Inc................................................ 141,912 3,494

Leisure & Tourism -- 8.4%
Carnival Corp., Class A.............................................. 50,000 2,703
Disney (Walt) Co..................................................... 320,000 30,380
Harrah's Entertainment, Inc.+........................................ 160,000 3,210
HFS, Inc.+........................................................... 155,000 10,637
Host Marriott Corp.+................................................. 500,000 10,406
King World Productions, Inc.+........................................ 75,000 4,078
Marriott International, Inc.......................................... 50,000 3,622
Mirage Resorts, Inc.+................................................ 100,000 2,375

Merchandising -- 2.2%
Barnes & Noble, Inc.+................................................ 110,000 3,403
Consolidated Stores Corp.+........................................... 175,000 8,509
Limited, Inc......................................................... 96,500 2,322
Spiegel, Inc., Class A+.............................................. 366,600 1,971
Woolworth Corp.+..................................................... 77,800 1,683

Telecommunications -- 1.2%
AirTouch Communications, Inc.+....................................... 50,000 1,963
Tele-Communications TCI Ventures Group, Series A+.................... 325,000 7,353

Transportation: Airlines -- 3.1%
AMR Corp.+........................................................... 70,000 8,483
Delta Air Lines, Inc................................................. 10,000 1,114
Southwest Airlines Co................................................ 607,500 14,846
---------
362,125
---------
OTHER COMMON STOCK -- 5.0%........................................... 40,187
---------
TOTAL COMMON STOCK (cost $437,869)................................... 729,217
---------
</TABLE>

---------------------
A-3
<PAGE> 4
<TABLE>
<CAPTION>
VALUE
PREFERRED STOCK -- 0.9% SHARES (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES -- 0.9%
Broadcasting & Publishing -- 0.9%
News Corp., Ltd. ADR (cost $2,313)................................... 340,000 $ 6,715
---------
RIGHTS -- 0.3%
--------------------------------------------------------------------------------------------------------
CAPITAL EQUIPMENT -- 0.3%
Data Processing & Reproduction -- 0.3%
Structural Dynamics Research Corp. (cost $2,154)..................... 150 2,503
---------
TOTAL INVESTMENT SECURITIES (cost $442,336).......................... 738,435
---------

<CAPTION>
PRINCIPAL
AMOUNT
SHORT-TERM SECURITIES -- 7.4% (IN THOUSANDS)
<S> <C> <C>
--------------------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES -- 7.4%
Abbott Laboratories, Inc. 5.56% due 12/22/97......................... $ 6,900 6,878
AI Credit Corp. 5.47% due 12/5/97.................................... 7,400 7,396
Bell Atlantic Financial Services 5.52% due 12/16/97.................. 15,000 14,965
Emerson Electric Co. 5.50% due 12/19/97.............................. 8,200 8,177
General Mills, Inc. 5.62% due 1/9/98................................. 4,000 3,976
Hershey Foods Corp. 5.51% due 12/22/97............................... 6,200 6,180
IBM Credit Corp. 5.51% due 12/12/97.................................. 3,400 3,394
Wal-Mart Stores, Inc. 5.49% due 12/1/97.............................. 8,400 8,400
---------
TOTAL SHORT-TERM SECURITIES (cost $59,366)........................... 59,366
---------
TOTAL INVESTMENTS --
(cost $501,702) 99.6% 797,801
Other assets less liabilities -- 0.4 3,429
------ ---------
NET ASSETS -- 100.0% $ 801,230
====== =========
</TABLE>

-----------------------------

+ Non-income producing security

ADR -- American Depository Receipt

See Notes to Financial Statements

- ---------------------
A-4
<PAGE> 5

O
- ---------------------

ANCHOR PATHWAY FUND
INTERNATIONAL SERIES INVESTMENT PORTFOLIO -- NOVEMBER 30, 1997
<TABLE>
<CAPTION>
VALUE
COMMON & PREFERRED STOCK -- 82.7% SHARES (IN THOUSANDS)
<S> <C> <C>
--------------------------------------------------------------------------------------------------------

<CAPTION>
<S> <C> <C>
ARGENTINA -- 1.1%
Telefonica de Argentina SA ADR (Services)............................ 75,400 $ 2,493
---------
AUSTRALIA -- 4.3%
Australia & New Zealand Bank Group (Finance)......................... 550,000 3,771
Brambles Industries Ltd. (Services).................................. 100,000 1,912
Coca-Cola Amatil Ltd. (Consumer Goods)............................... 262,517 1,954
Westpac Banking Corp., Ltd. (Finance)................................ 300,000 1,883
---------
9,520
---------
BRAZIL -- 3.4%
Centrais Eletricas Brasileiras S/A-Eletrobras ADR (Energy)........... 183,000 4,495
Companhia Energetica de Sao Paulo ADR (Energy)....................... 85,000 1,678
Companhia Paranaense de Energia-Copel (Energy)....................... 118,055,000 1,458
---------
7,631
---------
CANADA -- 5.5%
Bank of Nova Scotia (Finance)........................................ 103,400 4,486
Imasco Ltd. (Multi-industry)......................................... 82,000 2,928
Northern Telecom Ltd. (Capital Equipment)............................ 47,000 4,221
Teck Corp., Class B (Materials)...................................... 40,000 581
---------
12,216
---------
FINLAND -- 0.7%
Nokia (AB) OY Corp., Series K (Capital Equipment).................... 20,000 1,606
---------
FRANCE -- 3.6%
France Telecom SA+ (Services)........................................ 80,000 2,938
Moet-Hennessy Louis Vuitton (Consumer Goods)......................... 8,500 1,466
Total SA, Class B (Energy)........................................... 33,876 3,558
---------
7,962
---------
GERMANY -- 4.0%
Bayerische Motoren Werke AG (Consumer Goods)......................... 6,072 4,534
Bayerische Motoren Werke AG NV Preferred (Consumer Goods)............ 2,604 1,366
Mannesmann AG (Services)............................................. 6,300 2,933
---------
8,833
---------
HONG KONG -- 6.8%
Hong Kong Electric Holdings+ (Energy)................................ 1,032,000 3,491
Hong Kong Telecommunications Ltd. (Services)......................... 1,370,000 2,605
Hutchison Whampoa Ltd. (Multi-industry).............................. 1,350,000 8,994
---------
15,090
---------
INDONESIA -- 0.7%
PT Indosat ADR (Services)............................................ 49,100 1,099
PT Indosat (Services)................................................ 199,000 451
---------
1,550
---------
</TABLE>

---------------------
A-5
<PAGE> 6

<TABLE>
<CAPTION>
VALUE
COMMON & PREFERRED STOCK (continued) SHARES (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
ITALY -- 3.6%
Seat SpA-RNC+ (Services)............................................. 240,000 $ 62
Seat SpA+ (Services)................................................. 120,000 48
Telecom Italia Mobile SpA (Services)................................. 1,673,050 6,774
Telecom Italia Mobile SpA-RNC (Services)............................. 64,800 142
Telecom Italia SpA (Services)........................................ 240,000 946
---------
7,972
---------
JAPAN -- 13.0%
Amway Japan Ltd. ADR (Services)...................................... 36,000 315
Fuji Bank Ltd. (Finance)............................................. 320,000 1,718
Mazda Motor Corp.+ (Consumer Goods).................................. 645,000 1,804
Minebea Co., Ltd. (Capital Equipment)................................ 300,000 3,338
Mitsubishi Corp. (Services).......................................... 65,000 507
Sankyo Co., Ltd. (Consumer Goods).................................... 260,000 8,291
Shohkoh Fund & Co. (Finance)......................................... 34,100 9,699
Suzuki Motor Corp. (Consumer Goods).................................. 179,000 1,950
Tokyo Electron Ltd. (Capital Equipment).............................. 40,000 1,533
---------
29,155
---------
KOREA -- 0.4%
Korea Electric Power Corp. (Energy).................................. 39,000 440
Korea Electric Power Corp. ADR (Energy).............................. 26,000 236
Korea Mobile Telecommunications Corp. (Services)..................... 360 117
Samsung Electronics (Consumer Goods)................................. 1,097 39
---------
832
---------
LUXEMBOURG -- 0.9%
Safra Republic Holdings, Inc. (Finance).............................. 20,000 2,020
---------
MEXICO -- 3.2%
Cifra SA de CV, Series A (Services).................................. 23,911 47
Cifra SA de CV, Series C+ (Services)................................. 195,500 378
Grupo Financiero Banamex-Accival SA de CV, Series B+ (Finance)....... 324,000 714
Grupo Financiero Banamex-Accival SA de CV, Series L+ (Finance)....... 26,406 52
Grupo Televisa SA de CV ADR+ (Services).............................. 35,000 1,295
Telefonos de Mexico SA ADR (Services)................................ 95,200 4,712
---------
7,198
---------
NETHERLANDS -- 1.4%
Vereenigde Ned Uitgevers (Services).................................. 130,000 3,114
---------
PHILIPPINES -- 0.9%
Philippine Long Distance Telephone Co. (Services).................... 40,000 961
Philippine Long Distance Telephone Co. ADR (Services)................ 40,000 990
---------
1,951
---------
SPAIN -- 6.1%
Telefonica de Espana SA (Services)................................... 400,000 11,535
Telefonica de Espana SA ADR (Services)............................... 24,000 2,076
---------
13,611
---------
SWEDEN -- 3.3%
Astra AB, Class A (Consumer Goods)................................... 150,000 2,603
Ericsson LM Telecommunications Co., Class B (Capital Equipment)...... 95,200 3,884
Ericsson LM Telecommunications Co., Class B CV ADR (Capital
Equipment)......................................................... 3,500 20
Kinnevik, Series A (Multi-industry).................................. 23,900 433
Kinnevik, Series B (Multi-industry).................................. 15,000 286
</TABLE>

- ---------------------
A-6
<PAGE> 7

<TABLE>
<CAPTION>
VALUE
COMMON & PREFERRED STOCK (continued) SHARES (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
SWEDEN (continued)
Modern Times Group MTG AB, Class A+ (Services)....................... 23,900 $ 149
Modern Times Group MTG AB, Class B ADR+ (Services)................... 3,000 96
---------
7,471
---------
SWITZERLAND -- 6.1%
Nestle SA (Consumer Goods)........................................... 1,250 1,840
Novartis AG (Consumer Goods)......................................... 7,454 11,909
---------
13,749
---------
UNITED KINGDOM -- 12.8%
Bank of Scotland (Finance)........................................... 930,500 7,905
British Aerospace PLC (Capital Equipment)............................ 140,000 3,821
Kingfisher PLC (Services)............................................ 225,000 3,101
Lloyds TSB Group PLC (Finance)....................................... 550,000 6,270
Reckitt & Colman PLC (Consumer Goods)................................ 180,000 2,624
Rentokil Initial PLC (Services)...................................... 900,000 3,792
Scottish Power PLC (Energy).......................................... 132,240 1,072
---------
28,585
---------
OTHER COMMON STOCK -- 0.9%........................................... 1,997
---------
TOTAL COMMON & PREFERRED STOCK (cost $153,331)....................... 184,556
---------
PRINCIPAL
AMOUNT
SHORT-TERM SECURITIES -- 17.3% (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES -- 15.1%
Bayer Corp. 5.57% due 1/20/98........................................ $ 5,000 4,961
Caisse D Amortissement 5.60% due 2/13/98............................. 6,000 5,930
Deutsche Bank Financial, Inc. 5.49% due 1/06/98...................... 4,000 3,978
France Telecom 5.55% due 12/04/97.................................... 5,000 4,998
General Electric Capital Corp. 5.80% due 12/01/97.................... 1,300 1,300
Heinz (H.J.) Co. 5.55% due 1/08/98................................... 5,000 4,971
Rank Xerox Capital Europe PLC 5.55% due 1/14/98...................... 6,000 5,959
Telstra Corp. Ltd. 5.55% due 1/21/98................................. 1,600 1,588
---------
33,685
---------
FEDERAL AGENCY OBLIGATIONS -- 2.2%
Federal Home Loan Mortgage Discount Notes 5.45% due 12/11/97......... 5,000 4,992
---------
TOTAL SHORT-TERM SECURITIES (cost $38,677)........................... 38,677
---------
TOTAL INVESTMENTS --
(cost $192,008) 100.0% 223,233
Other assets less liabilities -- 0.0 104
----- ---------
NET ASSETS -- 100.0% $ 223,337
===== =========

</TABLE>

-----------------------------

+ Non-income producing security

ADR -- American Depository Receipt

---------------------
A-7
<PAGE> 8

<TABLE>
<CAPTION>
OPEN FORWARD FOREIGN CURRENCY CONTRACTS
---------------------------------------------------------------------
GROSS UNREALIZED
CONTRACT IN DELIVERY APPRECIATION
TO DELIVER EXCHANGE FOR DATE (IN THOUSANDS)
---------------------------------------------------------------------
<S> <C> <C> <C>
JPY 1,118,700,000 USD 9,117,359 2/12/98 $246
====
</TABLE>

-----------------------------

<TABLE>
<S> <C>
JPY -- Japanese Yen USD -- United States Dollar
</TABLE>

See Notes to Financial Statements

- ---------------------
A-8
<PAGE> 9

O
- ---------------------

ANCHOR PATHWAY FUND
GROWTH-INCOME SERIES INVESTMENT PORTFOLIO -- NOVEMBER 30, 1997
<TABLE>
<CAPTION>
VALUE
COMMON STOCK -- 84.8% SHARES (IN THOUSANDS)
<S> <C> <C>
--------------------------------------------------------------------------------------------------------

<CAPTION>
<S> <C> <C>
CAPITAL EQUIPMENT -- 11.3%
Aerospace & Military Technology -- 2.1%
Boeing Co............................................................ 40,000 $ 2,125
General Motors Corp., Class H........................................ 85,000 5,695
Raytheon Co.......................................................... 25,000 1,398
Sundstrand Corp...................................................... 130,000 6,671
United Technologies Corp............................................. 46,800 3,507

Data Processing & Reproduction -- 2.5%
3Com Corp.+.......................................................... 130,000 4,712
Adobe Systems, Inc................................................... 40,000 1,680
Oracle Systems Corp.+................................................ 150,000 4,997
Silicon Graphics, Inc.+.............................................. 294,400 3,864
Xerox Corp........................................................... 110,000 8,546

Electrical & Electronics -- 1.6%
Ericsson (L.M.) Telecommunications Co., Class B ADR.................. 80,000 3,235
Nokia Corp., Class A ADR............................................. 110,000 9,144
York International Corp.............................................. 64,800 3,001

Energy Equipment -- 1.0%
Schlumberger Ltd..................................................... 75,000 6,174
Western Atlas, Inc.+................................................. 50,000 3,478

Industrial Components -- 0.4%
Dana Corp............................................................ 50,000 2,337
Echlin, Inc.......................................................... 40,000 1,268

Machinery & Engineering -- 3.7%
Caterpillar, Inc..................................................... 230,000 11,026
Crompton & Knowles Corp.............................................. 120,000 3,180
Deere & Co........................................................... 190,000 10,414
Ingersoll-Rand Co.................................................... 120,000 4,905
New Holland NV....................................................... 100,000 2,506
Parker-Hannifin Corp................................................. 72,000 3,204
---------
107,067
---------
CONSUMER GOODS -- 15.0%
Automotive -- 1.0%
Chrysler Corp........................................................ 100,000 3,431
Ford Motor Co........................................................ 150,200 6,459

Beverages & Tobacco -- 3.1%
PepsiCo, Inc......................................................... 210,000 7,744
Philip Morris Cos., Inc.............................................. 255,000 11,092
Seagram Co. Ltd...................................................... 220,000 7,109
UST, Inc............................................................. 100,000 3,087

Food & Household Products -- 1.4%
CPC International, Inc............................................... 25,000 2,584
General Mills, Inc................................................... 25,000 1,850
McCormick & Co., Inc................................................. 200,000 5,300
Unilever NV.......................................................... 60,000 3,484
</TABLE>

---------------------
A-9
<PAGE> 10

<TABLE>
<CAPTION>
VALUE
COMMON STOCK (continued) SHARES (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER GOODS (continued)
Health & Personal Care -- 8.2%
American Home Products Corp.......................................... 59,600 $ 4,165
Astra AB ADR......................................................... 200,000 3,400
Avon Products, Inc................................................... 74,900 4,330
Glaxo Holdings PLC ADR............................................... 150,000 6,853
Guidant Corp......................................................... 90,000 5,782
Johnson & Johnson Co................................................. 60,000 3,776
Kimberly-Clark Corp.................................................. 40,000 2,083
Merck & Co., Inc..................................................... 125,000 11,820
Pfizer, Inc.......................................................... 225,000 16,369
Schering-Plough Corp................................................. 205,000 12,851
Warner-Lambert Co.................................................... 50,000 6,994

Recreation & Other Consumer Products -- 0.6%
Harley-Davidson, Inc................................................. 200,000 5,288

Textiles & Apparel -- 0.7%
Nike, Inc., Class B.................................................. 50,000 2,434
V.F. Corp............................................................ 90,000 4,157
---------
142,442
---------
ENERGY -- 10.8%
Energy Sources -- 8.3%
Amoco Corp........................................................... 100,000 9,000
Ashland, Inc......................................................... 48,800 2,278
Atlantic Richfield Co................................................ 160,000 13,040
Kerr-McGee Corp...................................................... 50,000 3,316
Murphy Oil Corp...................................................... 50,000 2,750
Norsk Hydro ASA ADR.................................................. 50,000 2,591
Pennzoil Co.......................................................... 37,100 2,472
Phillips Petroleum Co................................................ 60,000 2,906
Pioneer Natural Resources Co......................................... 20,000 639
Repsol SA ADR........................................................ 150,000 6,469
Texaco, Inc.......................................................... 180,000 10,170
Total SA ADR......................................................... 96,338 5,064
Ultramar Diamond Shamrock Corp....................................... 331,600 10,093
Valero Energy Corp................................................... 260,000 8,157

Utilities: Electric, Gas & Water -- 2.5%
Consolidated Edison Co. of New York, Inc............................. 100,000 3,775
DPL, Inc............................................................. 180,000 4,725
Duke Energy Corp..................................................... 95,000 4,940
GPU, Inc............................................................. 100,000 3,950
Union Electric Co.................................................... 80,000 3,185
Williams Cos., Inc................................................... 52,200 2,789
---------
102,309
---------
FINANCE -- 11.1%
Banking -- 7.9%
Banc One Corp........................................................ 30,000 1,541
Bank of New York Cos., Inc........................................... 160,000 8,600
Bank Tokyo Mitsubishi Ltd. ADR....................................... 100,000 1,450
BankAmerica Corp..................................................... 40,000 2,920
Chase Manhattan Corp................................................. 35,000 3,802
Citicorp............................................................. 30,000 3,598
CoreStates Financial Corp............................................ 58,000 4,484
First Chicago Corp................................................... 45,100 3,529
First Union Corp..................................................... 100,000 4,875
Hibernia Corp., Class A.............................................. 200,000 3,625
</TABLE>

- ---------------------
A-10
<PAGE> 11

<TABLE>
<CAPTION>
VALUE
COMMON STOCK (continued) SHARES (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCE (continued)
Banking (continued)
Huntington Bancshares, Inc........................................... 83,600 $ 2,842
KeyCorp.............................................................. 85,000 5,732
Marshall & Ilsley Corp............................................... 125,300 6,657
Morgan (J.P.) & Co., Inc............................................. 30,000 3,426
Northern Trust Corp.................................................. 40,000 2,490
Norwest Corp......................................................... 280,000 10,483
Sakura Bank Ltd...................................................... 35,000 1,260
SunTrust Banks, Inc.................................................. 50,000 3,550

Financial Services -- 0.8%
Associates First Capital Corp., Class A.............................. 5,000 321
Beneficial Corp...................................................... 20,000 1,553
FINOVA Group, Inc.................................................... 50,000 2,356
Household International, Inc......................................... 30,000 3,780

Insurance -- 2.4%
Allstate Corp........................................................ 50,000 4,294
Gallagher (Arthur J.) & Co........................................... 44,800 1,601
General Reinsurance Group Corp....................................... 50,000 9,925
Liberty Corp......................................................... 75,000 3,375
St. Paul Co., Inc.................................................... 40,000 3,200
---------
105,269
---------
MATERIALS -- 10.0%
Chemicals -- 4.2%
Dow Chemical Co...................................................... 50,000 4,938
du Pont (E.I.) de Nemours & Co....................................... 100,000 6,056
Lyondell Petrochemical Co............................................ 60,000 1,526
Mallinckrodt, Inc.................................................... 64,300 2,379
Millenium Chemicals, Inc............................................. 100,000 2,300
Monsanto Co.......................................................... 150,000 6,553
PPG Industries, Inc.................................................. 75,000 4,346
Praxair, Inc......................................................... 147,600 6,485
Witco Corp........................................................... 120,000 5,175

Forest Products & Paper -- 4.0%
Bowater, Inc......................................................... 160,000 7,180
Fort James Corp...................................................... 125,000 4,891
Georgia-Pacific Corp................................................. 65,000 5,549
International Paper Co............................................... 100,000 4,744
Sonoco Products Co................................................... 75,000 2,461
Union Camp Corp...................................................... 175,000 10,511
Westvaco Corp........................................................ 60,000 1,957
Weyerhaeuser Co...................................................... 25,000 1,320

Metals & Minerals -- 1.8%
Aluminum Co. of America.............................................. 125,900 8,467
Potash Corp. Saskatchewan, Inc....................................... 110,000 8,655
---------
95,493
---------
MULTI-INDUSTRY -- 1.7%
Multi-Industry -- 1.7%
AlliedSignal, Inc.................................................... 80,000 2,970
FMC Corp.+........................................................... 75,000 5,480
Tenneco, Inc......................................................... 90,000 3,898
Textron, Inc......................................................... 70,000 4,139
---------
16,487
---------
</TABLE>

---------------------
A-11
<PAGE> 12
<TABLE>
<CAPTION>
VALUE
COMMON STOCK (continued) SHARES (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES -- 23.9%
Broadcasting & Publishing -- 4.3%
Gannett Co., Inc..................................................... 80,000 $ 4,645
Harte Hanks Communications Co........................................ 200,000 6,900
Houston Industries, Inc.............................................. 29,700 1,648
Media General, Inc................................................... 109,800 4,680
News Corp. Ltd. ADR.................................................. 140,000 3,036
Tele-Communications Liberty Media Group, Inc., Series A+............. 217,500 7,341
Time Warner, Inc..................................................... 100,000 5,825
Viacom, Inc., Class B+............................................... 200,000 7,000

Business & Public Services -- 6.9%
Alexander & Baldwin, Inc............................................. 180,000 4,860
Avery Dennison Corp.................................................. 100,000 4,187
Browning-Ferris Industries, Inc...................................... 255,800 9,129
Cognizant Corp....................................................... 130,000 5,574
Electronic Data Systems Corp......................................... 280,000 10,640
Hertz Corp........................................................... 361,600 14,261
Ikon Office Solutions, Inc........................................... 200,000 6,088
Manpower, Inc........................................................ 75,000 2,522
Pitney Bowes, Inc.................................................... 30,000 2,522
Waste Management, Inc................................................ 241,912 5,957

Leisure & Tourism -- 1.6%
Disney (Walt) Co..................................................... 140,000 13,291
Host Marriott Corp.+................................................. 110,000 2,290

Merchandising -- 5.1%
Cardinal Health, Inc................................................. 22,600 1,712
Circuit City Stores, Inc............................................. 225,000 7,383
Federated Department Stores, Inc.+................................... 120,000 5,467
Gap, Inc............................................................. 100,000 5,369
Giant Foods, Inc., Class A........................................... 150,000 5,062
Lowe's Co., Inc...................................................... 50,000 2,297
Penney (J.C.) Co., Inc............................................... 192,000 12,336
Wal-Mart Stores, Inc................................................. 225,000 8,986

Telecommunications -- 4.8%
AirTouch Communications, Inc.+....................................... 81,013 3,180
Ameritech Corp....................................................... 135,000 10,403
AT&T Corp............................................................ 305,000 17,042
SBC Communications, Inc.............................................. 40,000 2,913
Telefonos de Mexico SA ADR........................................... 80,000 3,960
U.S. West Communications Group....................................... 171,800 7,763

Transportation: Rail & Road -- 1.2%
Norfolk Southern Corp................................................ 195,000 6,203
Union Pacific Corp................................................... 80,000 4,800
---------
227,272
---------
OTHER COMMON STOCK -- 1.0%........................................... 9,710
---------
TOTAL COMMON STOCK (cost $521,402)................................... 806,049
---------

<CAPTION>
PREFERRED STOCK -- 0.2%
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES -- 0.2%
Broadcasting & Publishing -- 0.2%
News Corp. Ltd. ADR (cost $1,044).................................... 80,000 1,580
---------
</TABLE>

- ---------------------
A-12
<PAGE> 13

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
CONVERTIBLE BONDS -- 0.3% (IN THOUSANDS) (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES -- 0.3%
Business & Public Services -- 0.3%
CUC International, Inc. 3.00% 2002 (cost $2,994)..................... $ 3,000 $ 3,383
---------
TOTAL INVESTMENT SECURITIES (cost $525,440).......................... 811,012
---------
SHORT-TERM SECURITIES -- 14.1%
--------------------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES -- 13.2%
Abbott Laboratories, Inc. 5.48% due 12/3/97.......................... 11,300 11,297
AI Credit Corp. 5.53% due 12/10/97................................... 5,900 5,892
Bell Atlantic Network Funding 5.53% due 12/3/97...................... 5,000 4,998
Coca-Cola Co. 5.52% due 1/12/98...................................... 12,300 12,221
Electronic Data Systems Corp. 5.55% due 12/19/97..................... 10,000 9,972
Emerson Electric Co. 5.52% due 12/5/97............................... 5,900 5,896
General Electric Capital Corp. 5.80% due 12/1/97..................... 11,150 11,150
Hershey Foods Corp. 5.51% due 12/22/97............................... 12,400 12,360
Kimberly-Clark Corp. 5.50% due 12/11/97.............................. 11,500 11,482
Motorola, Inc. 5.52% due 12/22/97.................................... 9,500 9,469
Penney (J.C.) Funding Corp. 5.50% due 12/9/97........................ 16,700 16,680
Sara Lee Corp. 5.46% due 12/22/97.................................... 9,000 8,971
Sara Lee Corp. 5.53% due 12/3/97..................................... 5,000 4,999
---------
125,387
---------
FEDERAL AGENCY OBLIGATIONS -- 0.9%
Federal Home Loan Mortgage Discount Notes 5.50% due 12/30/97......... 3,475 3,460
Federal Home Loan Mortgage Discount Notes 5.55% due 1/23/98.......... 5,000 4,959
---------
8,419
---------
TOTAL SHORT-TERM SECURITIES (cost $133,806).......................... 133,806
---------
TOTAL INVESTMENTS --
(cost $659,246) 99.4% 944,818
Other assets less liabilities -- 0.6 5,614
----- ---------
NET ASSETS -- 100.0% $ 950,432
===== =========

</TABLE>

-----------------------------

+ Non-income producing security

ADR -- American Depository Receipt

See Notes to Financial Statements

---------------------
A-13
<PAGE> 14

O
- ---------------------

ANCHOR PATHWAY FUND
ASSET ALLOCATION SERIES INVESTMENT PORTFOLIO -- NOVEMBER 30, 1997

<TABLE>
<CAPTION>
VALUE
COMMON STOCK -- 60.5% SHARES (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL EQUIPMENT -- 11.6%
Aerospace & Military Technology -- 3.9%
Boeing Co............................................................ 35,000 $ 1,859
General Motors Corp., Class H........................................ 41,000 2,747
Raytheon Co.......................................................... 25,000 1,399

Data Processing & Reproduction -- 1.4%
International Business Machines Corp................................. 20,000 2,191

Electrical & Electronics -- 2.1%
Hubbell, Inc., Class B............................................... 30,000 1,363
Nokia Corp., Class A ADR............................................. 10,000 831
York International Corp.............................................. 25,000 1,158

Electronic Components -- 1.1%
AMP, Inc............................................................. 40,000 1,738

Industrial Components -- 2.0%
Dana Corp............................................................ 35,000 1,636
Genuine Parts Co..................................................... 45,000 1,440

Machinery & Engineering -- 1.1%
Deere & Co........................................................... 30,000 1,644
---------
18,006
---------
CONSUMER GOODS -- 10.7%
Automotive -- 0.8%
General Motors Corp.................................................. 20,000 1,220

Beverages & Tobacco -- 1.8%
PepsiCo, Inc......................................................... 40,000 1,475
UST, Inc............................................................. 40,000 1,235

Food & Household Products -- 1.4%
General Mills, Inc................................................... 30,000 2,220

Health & Personal Care -- 6.7%
Gillette Co.......................................................... 9,040 835
Pfizer, Inc.......................................................... 60,000 4,365
SmithKline Beecham PLC ADR........................................... 50,000 2,481
Warner-Lambert Co.................................................... 20,000 2,797
---------
16,628
---------
ENERGY -- 8.9%
Energy Sources -- 8.2%
Amoco Corp........................................................... 15,000 1,350
Atlantic Richfield Co................................................ 20,000 1,630
Chevron Corp......................................................... 20,000 1,604
Kerr-McGee Corp...................................................... 30,000 1,989
Murphy Oil Corp...................................................... 35,000 1,925
Phillips Petroleum Co................................................ 35,000 1,695
</TABLE>

- ---------------------
A-14
<PAGE> 15

<TABLE>
<CAPTION>
VALUE
COMMON STOCK (continued) SHARES (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
ENERGY (continued)
Energy Sources (continued)
Royal Dutch Petroleum Co. ADR........................................ 24,000 $ 1,264
Ultramar Diamond Shamrock Corp....................................... 40,000 1,218

Utilities: Electric, Gas & Water -- 0.7%
MCN Corp............................................................. 30,000 1,146
---------
13,821
---------
FINANCE -- 7.7%
Banking -- 5.3%
BankAmerica Corp..................................................... 30,000 2,190
Citicorp............................................................. 15,000 1,799
CoreStates Financial Corp............................................ 20,000 1,546
Fleet Financial Group, Inc........................................... 25,000 1,652
KeyCorp.............................................................. 15,000 1,012

Insurance -- 2.4%
American General Corp................................................ 15,000 808
General Reinsurance Group Corp. ..................................... 10,000 1,985
USF&G Corp........................................................... 50,000 1,009
---------
12,001
---------
MATERIALS -- 11.3%
Chemicals -- 5.4%
Air Products & Chemicals, Inc........................................ 25,000 1,917
Dow Chemical Co...................................................... 15,000 1,481
du Pont (E.I.) de Nemours & Co....................................... 30,000 1,817
PPG Industries, Inc.................................................. 25,000 1,448
Praxair, Inc......................................................... 40,000 1,758

Forest Products & Paper -- 4.0%
Georgia-Pacific Corp................................................. 30,000 2,561
Sonoco Products Co................................................... 21,700 712
Union Camp Corp...................................................... 20,000 1,201
Weyerhaeuser Co...................................................... 32,600 1,722

Metals: Steel -- 0.6%
Allegheny Teldyne, Inc............................................... 35,000 901

Metals & Minerals -- 1.3%
Aluminum Co. of America.............................................. 30,000 2,018
---------
17,536
---------
MULTI-INDUSTRY -- 1.1%
Multi-Industry -- 1.1%
Textron, Inc......................................................... 30,000 1,774
---------
SERVICES -- 9.2%
Business & Public Services -- 2.1%
Alexander & Baldwin, Inc............................................. 30,000 810
Avery Dennison Corp.................................................. 30,000 1,256
Rentokil Initial PLC ADR............................................. 30,000 1,253

Merchandising -- 5.0%
Circuit City Stores, Inc............................................. 6,800 223
Giant Foods, Inc., Class A........................................... 30,000 1,013
Penney (J.C.), Inc................................................... 35,000 2,249
Wal-Mart Stores, Inc................................................. 60,000 2,396
Walgreen Co.......................................................... 60,000 1,931
</TABLE>

---------------------
A-15
<PAGE> 16

Transportation: Rail & Road -- 1.2%
Union Pacific Corp................................................... 30,000 1,800
---------
14,313
---------
OTHER COMMON STOCK -- 0.0%........................................... 39
---------
TOTAL COMMON STOCK (cost $64,096).................................... 94,118
---------
PREFERRED STOCK -- 0.8%
--------------------------------------------------------------------------------------------------------
SERVICES -- 0.8%
Broadcasting & Publishing -- 0.8%
Adelphia Communications Corp.+#...................................... 5,000 580
American Radio Systems Corp.+#....................................... 5,264 615
---------
TOTAL PREFERRED STOCK (cost $1,028).................................. 1,195
---------
PRINCIPAL
AMOUNT
BONDS & NOTES -- 29.3% (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS -- 0.2%
Broadcasting & Publishing -- 0.2%
Time Warner, Inc. zero coupon 2013................................... $ 500 251
---------
CORPORATE BONDS -- 17.4%
Energy Sources -- 1.4%
Oryx Energy Co. 9.50% 1999........................................... 1,500 1,573
Oryx Energy Co. 10.00% 1999.......................................... 500 523

Finance -- 6.4%
Advanta Corp., Series D 6.57% 2000................................... 1,325 1,301
Asset Backed Securities Investment Trust, Series 1997-D, Class A
6.79% 2003*#....................................................... 1,000 1,005
Barnett Capital I 8.06% 2026......................................... 500 529
Capital One Bank 6.97% 2002.......................................... 2,250 2,260
Capital One Bank 8.13% 2000.......................................... 500 517
Central Fidelity Capital Trust I, Series A 6.76% 2027(1)............. 500 506
Chevy Chase Savings Bank 9.25% 2008.................................. 500 510
First Plus Home Loan Trust, Series 1997-1, Class A6 6.95% 2015....... 500 506
Green Tree Financial Group, Series 1995-A, Class A 7.25% 2005........ 599 599
IMC Home Equity Loan Trust, Series 1996-2, Class A2 6.78% 2011....... 401 401
Irvine Property 7.46% 2006*.......................................... 500 503
Ocwen Financial Corp. 11.88% 2003.................................... 250 280
Saul (B.F.) Real Estate Investment Trust, Class B 11.63% 2002........ 500 535
Socgen Real Estate Co. LLC, Series A 7.64% 2049#(1).................. 500 505

Industrial -- 5.6%
Allegiance Corp. 7.00% 2026.......................................... 500 513
CenCall Communications Corp. zero coupon 2004@....................... 1,000 874
CLN Holdings, Inc. zero coupon 2001.................................. 250 159
Container Corp. of America 9.75% 2003................................ 500 537
Dayton Hudson Corp. 8.50% 2022....................................... 500 535
Esat Holdings Ltd. zero coupon 2007*@................................ 500 350
Freeport McMoRan Copper & Gold 7.20% 2026............................ 500 489
Globo Comunicacoes Participacoes Ltda., Class B 10.50% 2006#......... 400 375
Gruma Sa de CV 7.63% 2007#........................................... 250 243
Hyundai Semiconductor 8.63% 2007#.................................... 425 361
</TABLE>

- ---------------------
A-16
<PAGE> 17
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
BONDS & NOTES (continued) (IN THOUSANDS) (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (continued)
Industrial (continued)
Inco Ltd. 9.60% 2022................................................. $ 400 $ 453
Omnipoint Corp. 11.63% 2006.......................................... 250 265
Owens Illinois, Inc. 8.10% 2007...................................... 250 265
Pan Pacific Industrial Investment PLC zero coupon 2007#.............. 1,000 363
Royal Caribbean Cruises Ltd. 7.00% 2007.............................. 500 501
Time Warner Pass Through Asset Trust 6.10% 2001#..................... 500 487
Time Warner, Inc. 9.13% 2013......................................... 1,000 1,176
United Defense Industries, Inc. 8.75% 2007#.......................... 300 298
Wharf International Finance Ltd. 7.63% 2007.......................... 500 483

Telecommunications -- 1.5%
Cei Citicorp Holdings SA 11.25% 2007*#............................... 500 430
Consorcio Ecuatoriano de Telecommunicaciones 14.00% 2002*#........... 250 252
Iridium Capital Corp., Series A 13.00% 2005.......................... 250 257
Qwest Communications International, Inc. zero coupon 2007#........... 500 323
Tele-Communications, Inc. 9.25% 2023................................. 500 550
United States West Capital Funding, Inc. 6.95% 2037.................. 500 509

Transportation -- 2.5%
Airplanes Pass Through Trust, Series 1, Class C 8.15% 2019*.......... 500 529
Continental Airlines 6.90% 2018...................................... 250 254
Continental Airlines Pass Through Trust, Series 1996-A 6.94% 2013.... 980 1,001
Delta Air Lines, Inc. 10.50% 2016.................................... 500 645
Jet Equipment Trust, Class B 7.83% 2012#............................. 474 510
United Airlines Pass Through Trust, Series 1996, Class A2 7.87%
2019............................................................... 500 533
USAir, Inc., Class A 6.76% 2008...................................... 475 485
---------
27,058
---------
NON-U.S. GOVERNMENT OBLIGATIONS -- 0.3%
Republic of Argentina 11.75% 2007#................................... 500 473
---------
U.S. GOVERNMENT & AGENCIES -- 4.6%
Federal National Mortgage Association 6.53% 2006..................... 1,500 1,478
Federal National Mortgage Association 7.52% 2004..................... 2,000 2,030
Government National Mortgage Association 8.00% 2026.................. 2,859 2,955
Government National Mortgage Association 8.50% 2025.................. 648 678
---------
7,141
---------
UNITED STATES TREASURY -- 6.8%
7.50% Bonds 2016..................................................... 250 288
10.75% Bonds 2003.................................................... 5,000 6,113
3.63% Notes 2002..................................................... 2,000 2,004
7.25% Notes 2004..................................................... 2,000 2,147
---------
10,552
---------
TOTAL BONDS & NOTES (cost $44,641)................................... 45,475
---------

WARRANTS -- 0.0%+ SHARES
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES -- 0.0%
Telecommunications -- 0.0%
Esat Holdings Ltd. 2/1/07*#.......................................... 500 15
Iridium World Communications, Inc. 7/15/05#.......................... 250 35
---------
TOTAL WARRANTS (cost $15)............................................ 50
---------
TOTAL INVESTMENT SECURITIES (cost $109,780).......................... 140,838
---------
</TABLE>

---------------------
A-17
<PAGE> 18
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM SECURITIES -- 8.7% (IN THOUSANDS) (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE SHORT-TERM NOTES -- 8.7%
Abbott Laboratories, Inc. 5.54% due 12/18/97......................... $ 1,700 $ 1,695
AI Credit Corp. 5.50% due 12/11/97................................... 1,500 1,498
American Express Credit Corp. 5.53% due 12/22/97..................... 1,300 1,296
Duke Energy Co. 5.56% due 12/9/97.................................... 1,275 1,273
Ford Motor Credit Co. 5.55% due 12/2/97.............................. 2,000 2,000
General Electric Capital Corp. 5.80% due 12/1/97..................... 3,300 3,300
Lucent Technologies, Inc. 5.51% due 12/1/97.......................... 2,500 2,500
---------
TOTAL SHORT-TERM SECURITIES (cost $13,562)........................... 13,562
---------
TOTAL INVESTMENTS --
(cost $123,342) 99.3% 154,400
Other assets less liabilities -- 0.7 1,046
------ ---------
NET ASSETS -- 100.0% $ 155,446
====== =========

</TABLE>

-----------------------------

+ Non-income producing security

* Fair valued security; see Note 2

# 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 Depository Receipt

(1) Variable rate security; rate as of November 30, 1997

See Notes to Financial Statements

- ---------------------
A-18
<PAGE> 19

O
- ---------------------

ANCHOR PATHWAY FUND
HIGH-YIELD BOND SERIES INVESTMENT PORTFOLIO -- NOVEMBER 30, 1997

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
BONDS & NOTES -- 87.1% (IN THOUSANDS) (IN THOUSANDS)
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL EQUIPMENT -- 3.7%
Aerospace & Military Technology -- 0.9%
Derlan Manufacturing, Inc. 10.00% 2007............................ $ 1,000 $ 1,050

Construction & Housing -- 1.3%
Mcdermott, Inc. 9.38% 2002........................................ 1,500 1,595

Electronic Components -- 1.5%
Flextronics International Ltd. 8.75% 2007#........................ 1,750 1,738
---------
4,383
---------
CONSUMER GOODS -- 2.8%
Beverages & Tobacco -- 2.8%
Canandaigua Wine, Inc. 8.75% 2003................................. 1,000 1,004
Dr. Pepper Bottling Co., Inc. 10.25% 2000......................... 1,750 1,776
Standard Commercial Tobacco Co., Inc. 8.88% 2005#................. 500 504
---------
3,284
---------
CONSUMER SERVICES -- 1.5%
Food Retail -- 1.5%
Bruno's, Inc. 10.50% 2005......................................... 500 175
Quality Food Centers, Inc. 8.70% 2007............................. 500 538
Randalls Food Markets, Inc. 9.38% 2007#........................... 1,000 1,015
---------
1,728
---------
ENERGY -- 9.3%
Energy Sources -- 5.2%
Abraxas Petroleum Corp. 11.50% 2004............................... 500 540
Benton Oil & Gas Co. 9.38% 2007#.................................. 1,500 1,513
Benton Oil & Gas Co. 11.63% 2003.................................. 500 551
Forcenergy, Inc. 8.50% 2007....................................... 500 501
Forcenergy, Inc. 9.50% 2006....................................... 1,250 1,316
Kelley Oil & Gas Corp. 10.38% 2006................................ 750 791
Lomak Petroleum, Inc. 8.75% 2007.................................. 500 500
Ocean Energy, Inc. 8.88% 2007..................................... 500 518

Utilities: Electric, Gas & Water -- 4.1%
California Energy, Inc. 10.25% 2004............................... 4,000 4,371
Globalstar LP 11.38% 2004......................................... 500 501
---------
11,102
---------
FINANCE -- 0.7%
Financial Services -- 0.7%
ITT Publimedia BV 9.38% 2007#..................................... 250 260
PTC International Finance BV zero coupon 2007#@................... 1,000 636
---------
896
---------
</TABLE>

---------------------
A-19
<PAGE> 20

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
BONDS & NOTES (continued) (IN THOUSANDS) (IN THOUSANDS)
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL & COMMERCIAL -- 2.9%
Industrial -- 2.9%
CLN Holdings, Inc. zero coupon 2001............................... $ 500 $ 318
Comcast Cellular Holdings, Inc. 9.50% 2007........................ 1,500 1,552
Consumers International, Inc. 10.25% 2005#........................ 500 544
Newsquest Capital PLC 11.00% 2006................................. 900 1,000
---------
3,414
---------
MATERIALS -- 9.9%
Chemicals -- 2.0%
Key Plastics, Inc. 10.25% 2007.................................... 1,000 1,040
Texas Petrochemicals Corp. 11.13% 2006............................ 1,250 1,375

Forest Products & Paper -- 5.4%
Anchor Glass Container Corp. 11.25% 2005#......................... 500 540
Container Corp. of America 9.75% 2003............................. 4,500 4,837
Pacific Lumber Co. 10.50% 2003.................................... 1,000 1,030

Metals & Minerals -- 2.5%
A.K. Steel Corp. 9.13% 2006....................................... 750 773
A.K. Steel Corp. 10.75% 2004...................................... 500 535
Kaiser Aluminum & Chemical Corp. 12.75% 2003...................... 1,000 1,070
UCAR Global Enterprises, Inc. 12.00% 2005......................... 500 560
---------
11,760
---------
NON-U.S. GOVERNMENT OBLIGATIONS -- 1.3%
Republic of Argentina 6.69% 2005.................................. 960 851
Republic of Argentina 11.38% 2017................................. 500 529
United Mexican States 11.38% 2016................................. 200 226
---------
1,606
---------
SERVICES -- 55.0%
Broadcasting & Publishing -- 9.6%
American Media Operations, Inc. 11.63% 2004....................... 1,750 1,899
Cablevision Systems Corp. 8.13% 2009#............................. 500 509
Cablevision Systems Corp. 9.88% 2013.............................. 1,000 1,085
Chancellor Media Corp. 8.75% 2007................................. 1,000 1,010
Chancellor Media Corp. 9.38% 2004................................. 1,500 1,564
Fox Liberty Networks LLC 8.88% 2007#.............................. 250 248
Gray Communications Systems, Inc. 10.63% 2006..................... 1,500 1,597
Heartland Wireless Communication, Inc. 13.00% 2003*#.............. 500 175
Katz Media Corp. 10.50% 2007...................................... 500 551
Sun Media Corp. 9.50% 2007#....................................... 500 531
Sun Media Corp. 9.50% 2007#....................................... 450 479
TransWestern Publishing Company LP 9.63% 2007#.................... 250 254
Viacom, Inc. 7.75% 2005........................................... 1,500 1,512

Business & Public Services -- 10.8%
Allied Waste North America, Inc. 10.25% 2006#..................... 2,000 2,180
Integrated Health Services, Inc. 9.25% 2008#...................... 750 748
Integrated Health Services, Inc. 9.50% 2007#...................... 1,825 1,843
Mariner Health Group, Inc. 9.50% 2006............................. 385 393
Omnipoint Corp. 11.63% 2006....................................... 1,750 1,855
Paracelsus Healthcare Corp. 10.00% 2006........................... 2,000 2,080
Printpack, Inc. 10.63% 2006....................................... 500 530
Protection One Alarm Monitoring Corp. zero coupon 2005............ 1,000 1,095
Sun Healthcare Group, Inc. 9.50% 2007#............................ 500 508
</TABLE>

- ---------------------
A-20
<PAGE> 21

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
BONDS & NOTES (continued) (IN THOUSANDS) (IN THOUSANDS)
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES (continued)
Business & Public Services (continued)
Tenet Healthcare Corp. 8.00% 2005................................. $ 500 $ 505
Unison Healthcare Corp. 13.00% 2006#.............................. 650 527
Universal Health Services, Inc. 8.75% 2005........................ 500 525

Food Retail -- 0.9%
Foodmaker, Inc. 9.25% 1999........................................ 1,000 1,022

Leisure & Tourism -- 6.8%
AMF Bowling Worldwide, Series B 10.875% 2006...................... 750 816
AMF Bowling Worldwide, Series B zero coupon 2006@................. 1,250 972
Boyd Gaming Corp. 9.25% 2003...................................... 500 518
Boyd Gaming Corp. 9.50% 2007...................................... 1,250 1,287
Friendly Ice Cream Corp. 10.50% 2007.............................. 500 504
Rio Hotel and Casino, Inc. 9.50% 2007............................. 750 793
Station Casinos, Inc. 9.63% 2003.................................. 1,500 1,500
Sun International Ltd. 9.00% 2007................................. 500 515
Wyndham Hotel Corp. 10.50% 2006................................... 1,000 1,165

Merchandising -- 0.8%
Loehmann's, Inc. 11.88% 2003...................................... 1,000 1,010

Telecommunications -- 23.4%
Brooks Fiber Properties, Inc. 10.00% 2007......................... 1,000 1,140
Cellnet Data Systems, Inc. zero coupon 2007#@(1).................. 1,000 509
Cellular Communications International, Inc. zero coupon 2000...... 1,000 785
Cellular Communications International, Inc. zero coupon 2000(1)... 2,250 1,811
Cellular Communications of Puerto Rico, Inc. 10.00% 2007.......... 500 490
Centennial Cellular Corp. 8.88% 2001.............................. 3,000 3,045
COLT Telecom Group PLC 8.88% 2007#................................ 1,000 567
Comcast UK Cable Partners Ltd. zero coupon 2007@.................. 2,000 1,595
Comunicacion Celular SA zero coupon 2003*@........................ 1,000 755
Consorcio Ecuatoriano de Telecommunicaciones 14.00% 2002*#........ 500 505
Esat Holdings Ltd. zero coupon 2007*@............................. 500 350
Hermes Europe Railtel BV 11.50% 2007*#............................ 500 549
Intercel, Inc. zero coupon 2006@.................................. 500 357
Intermedia Communications, Inc. zero coupon 2007@................. 1,000 685
International CableTel, Inc. zero coupon 2005@.................... 750 611
McCaw International Ltd. zero coupon 2007@........................ 1,000 588
Mobile Telecommunication Technologies Corp. 13.50% 2002........... 500 571
MobileMedia Communications, Inc. zero coupon 2003@................ 1,000 115
Multicanal Participacoes SA 12.63% 2004........................... 1,000 957
Nextel Communications, Inc. zero coupon 2007#@.................... 2,750 1,588
Nextlink Communications, Inc. 9.63% 2007.......................... 500 505
NTL, Inc. 10.00% 2007............................................. 500 524
Orion Network Systems, Inc. 11.25% 2007........................... 1,275 1,439
Pricellular Wireless Corp. zero coupon 2003@...................... 1,000 1,001
Pricellular Wireless Corp. 14.00% 2001............................ 1,000 1,105
RBS Participacoes SA 11.00% 2007*#................................ 500 453
RCN Corp. 10.00% 2007#............................................ 500 501
TCI Communications, Inc. 6.38% 1999............................... 500 499
Teleport Communications Group 9.88% 2006.......................... 500 550
</TABLE>

---------------------
A-21
<PAGE> 22

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
BONDS & NOTES (continued) (IN THOUSANDS) (IN THOUSANDS)
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES (continued)
Telecommunications (continued)
Telewest Communications PLC zero coupon 2007@..................... $ 1,000 $ 763
Videotron Holdings PLC zero coupon 2004@.......................... 2,000 1,890
Worldcom, Inc. 9.38% 2004......................................... 871 922

Transportation -- 2.7%
USAir, Inc. 9.63% 2003............................................ 1,250 1,344
USAir, Inc. 10.00% 2003........................................... 1,000 1,015
USAir, Inc. 10.38% 2013........................................... 750 836
---------
65,225
---------
TOTAL BONDS & NOTES (cost $99,640)................................ 103,398
---------
COMMON STOCK -- 0.0% SHARES
-----------------------------------------------------------------------------------------------------
SERVICES -- 0.0%
Telecommunications -- 0.0%
Nextel Communications, Inc., Class A+* (cost $25)................. 1,549 39
---------
PREFERRED STOCK -- 4.9%
-----------------------------------------------------------------------------------------------------
SERVICES -- 4.9%
Broadcasting & Publishing -- 4.9%
American Radio Systems Corp....................................... 20,934 2,444
Chancellor Media Corp............................................. 28,588 3,359
---------
TOTAL PREFERRED STOCK (cost $5,018)............................... 5,803
---------
WARRANTS -- 0.2%+
-----------------------------------------------------------------------------------------------------
SERVICES -- 0.2%
Broadcasting & Publishing -- 0.0%
Heartland Wireless Communication, Inc. 4/15/00 *#................. 3,000 0

Business & Public Services -- 0.0%
Protection One Alarm Monitoring Corp. 6/30/05*.................... 3,200 35

Telecommunications -- 0.2%
Comunicacion Celular SA 11/15/03*................................. 1,000 60
Esat Holdings Ltd. 2/1/07*........................................ 500 15
Globalstar Telecommunications 2/15/04#............................ 500 60
McCaw International 4/15/07....................................... 1,000 2
Nextel Communications, Inc. 4/25/99............................... 500 0
Orion Network Systems, Inc. 1/15/07*.............................. 1,275 20
---------
TOTAL WARRANTS (cost $99)......................................... 192
---------
</TABLE>

- ---------------------
A-22
<PAGE> 23

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
U.S. GOVERNMENT AND AGENCIES -- 1.8% (IN THOUSANDS) (IN THOUSANDS)
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES TREASURY -- 1.8%
6.63% Notes 2002.................................................. $ 1,000 $ 1,029
8.00% Notes 2001.................................................. 1,000 1,066
---------
TOTAL U.S. GOVERNMENT AND AGENCIES (cost $2,066).................. 2,095
---------
TOTAL INVESTMENT SECURITIES (cost $106,847)....................... 111,527
---------
SHORT-TERM SECURITIES -- 3.7%
-----------------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES -- 3.7%
Abbott Laboratories, Inc. 5.56% due 12/22/97...................... 1,400 1,395
General Electric Capital Corp. 5.80% due 12/1/97.................. 3,000 3,000
---------
TOTAL SHORT-TERM SECURITIES (cost $4,395)......................... 4,395
---------

TOTAL INVESTMENTS --
(cost $111,242) 97.7% 115,922
Other assets less liabilities -- 2.3 2,748
------ ---------
NET ASSETS -- 100.0% $ 118,670
====== =========

</TABLE>

-----------------------------

+ Non-income producing security

* Fair valued security; see Note 2

# Resale restricted to qualified institutional buyers

@ Represents a zero-coupon bond which will convert to an
interest-bearing security at a later date

(1) Bond issued as a part of a unit which includes an equity
component
<TABLE>
<CAPTION>
OPEN FORWARD FOREIGN CURRENCY CONTRACTS
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------
GROSS UNREALIZED
CONTRACT IN DELIVERY APPRECIATION
TO DELIVER EXCHANGE FOR DATE (IN THOUSANDS)

-----------------------------

<TABLE>
<S> <C> <C> <C> <C> <C>
DEM -- Deutsche Mark USD -- United States Dollar
</TABLE>
See Notes to Financial Statements

---------------------
A-23
<PAGE> 24

O
- ---------------------

ANCHOR PATHWAY FUND
U.S. GOVERNMENT/
AAA-RATED SECURITIES SERIES INVESTMENT PORTFOLIO -- NOVEMBER 30, 1997

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
BONDS & NOTES -- 88.7% (IN THOUSANDS) (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSET-BACKED SECURITIES -- 9.4%++
EQCC Home Equity Loan Trust, Series 1996-A, Class A2 6.95% 2012...... $ 300 $ 301
Green Tree Financial Corp., Series 1995-9, Class A5 6.80% 2027....... 1,000 1,007
Standard Credit Card Master Trust, Series 1991-3, Class A 8.88%
1999............................................................... 4,500 4,573
UCFC Loan Trust, Series 1996-D1, Class A5 6.92% 2018................. 1,750 1,772
---------
7,653
---------
FEDERAL AGENCY OBLIGATIONS -- 22.3%++
Federal Home Loan Mortgage Corp. 6.50% 2009*......................... 2,000 1,954
Federal Home Loan Mortgage Corp. 9.00% 2021 - 2022................... 1,143 1,228
Federal Home Loan Mortgage Corp. 9.50% 2016.......................... 540 579
Federal Home Loan Mortgage Corp. 11.88% 2013......................... 13 14
Federal Home Loan Mortgage Corp. 12.50% 2013......................... 111 122
Federal National Mortgage Association 6.85% 2026*.................... 1,095 1,075
Federal National Mortgage Association 7.50% 2009..................... 1,300 1,332
Federal National Mortgage Association 8.50% 2023..................... 1,580 1,667
Government National Mortgage Association 8.00% 2017.................. 1,438 1,506
Government National Mortgage Association 8.50% 2016 - 2026........... 3,180 3,339
Government National Mortgage Association 9.00% 2016 - 2017........... 679 735
Government National Mortgage Association 9.50% 2009 - 2017........... 3,998 4,332
Government National Mortgage Association 10.00% 2016................. 36 39
Government National Mortgage Association 10.50% 2016 - 2019.......... 213 240
Government National Mortgage Association 11.00% 2019................. 47 54
Government National Mortgage Association 11.50% 2010 - 2015.......... 14 16
---------
18,232
---------
MORTGAGE-RELATED SECURITIES -- 10.0%++
Asset Backed Securities Investment Trust, Series 1997-D, Class A
6.79% 2003*........................................................ 750 754
DLJ Mortgage Acceptance Corp., Series 1996-CF2, Class A1B 7.29%
2021............................................................... 3,800 3,946
Merrill Lynch Mortgage Investors, Inc., Series 1995-C3, Class A2
6.85% 2025*........................................................ 500 507
Merrill Lynch Mortgage Investors, Inc., Series 1997-C1, Class A1
6.95% 2029*........................................................ 975 996
Morgan (J.P.) Commercial Mortgage Finance Corp., Series 1995-C1,
Class A2 7.39% 2010*............................................... 1,000 1,044
Prudential Home Mortgage Corp., Series 1992-33, Class A12 7.50%
2022............................................................... 901 899
---------
8,146
---------
UNITED STATES TREASURY -- 47.0%
8.88% Bonds 2017..................................................... 10,700 14,044
10.38% Bonds 2012.................................................... 2,500 3,300
10.75% Bonds 2003.................................................... 14,000 17,117
12.00% Bonds 2013.................................................... 1,000 1,463
7.25% Notes 2004..................................................... 2,250 2,415
---------
38,339
---------
TOTAL INVESTMENT SECURITIES (cost $70,554)........................... 72,370
---------
</TABLE>

- ---------------------
A-24
<PAGE> 25

<PAGE> 26

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM SECURITIES -- 10.5% (IN THOUSANDS) (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE SHORT-TERM NOTES -- 10.5%
Bell Atlantic Financial Services 5.59% due 12/02/97.................. $ 2,700 $ 2,700
General Electric Capital Corp. 5.80% due 12/01/97.................... 2,770 2,770
Sara Lee Corp. 5.54% due 12/15/97.................................... 2,100 2,095
Wal-Mart Stores, Inc. 5.50% due 12/01/97............................. 1,000 1,000
---------
TOTAL SHORT-TERM SECURITIES(cost $8,565)............................. 8,565
---------
TOTAL INVESTMENTS --
(cost $79,119) 99.2% 80,935
Other assets less liabilities -- 0.08 674
------ ---------
NET ASSETS -- 100.00% $ 81,609
====== =========

</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 valued security; see Note 2

See Notes to Financial Statements

- ---------------------
A-25
<PAGE> 27

O
- ---------------------

ANCHOR PATHWAY FUND
CASH MANAGEMENT SERIES INVESTMENT PORTFOLIO -- NOVEMBER 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM SECURITIES -- 100.9% (IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
--------------------------------------------------------------------------------------------------------

<CAPTION>
<S> <C> <C>
CORPORATE SHORT-TERM NOTES -- 74.2%
Associates Corp. of North America 5.75% due 12/01/97................. $ 340 $ 340
Bell Atlantic Financial Services 5.68% due 1/16/98................... 2,000 1,985
Beneficial Corp. 5.50% due 12/19/97.................................. 1,500 1,496
Coca-Cola Co. 5.55% due 1/09/98...................................... 2,000 1,988
Commercial Credit Co. 5.50% due 12/15/97............................. 1,000 998
CPC International, Inc. 5.52% due 12/16/97........................... 1,100 1,097
Deere (John) Capital Corp. 5.52% due 12/11/97........................ 2,500 2,496
Disney (Walt), Co. 5.60% due 1/08/98................................. 2,000 1,988
du Pont (E.I.) de Nemours & Co. 5.51% due 12/26/97................... 1,000 996
Duke Power Co. 5.48% due 12/04/97.................................... 2,000 1,999
Ford Motor Credit Co. 5.50% due 12/18/97............................. 2,100 2,095
Gannett, Inc. 5.55% due 1/08/98...................................... 1,900 1,889
General Electric Capital Corp. 5.70% due 1/20/98..................... 1,800 1,786
Gillette Co. 5.48% due 12/05/97...................................... 2,000 1,999
Heinz (H.J.) Co. 5.48% due 12/10/97.................................. 2,000 1,997
Hershey Foods Corp. 5.51% due 12/22/97............................... 1,900 1,894
IBM Credit Corp. 5.52% due 12/12/97.................................. 2,000 1,997
International Lease Finance Corp. 5.55% due 1/05/98.................. 2,000 1,989
Lucent Technologies, Inc. 5.53% due 1/02/98.......................... 2,000 1,990
Monsanto Co. 5.48% due 12/09/97...................................... 2,000 1,998
Motorola, Inc. 5.50% due 12/04/97.................................... 2,400 2,399
Penney (J.C.) Funding Corp. 5.70% due 1/12/98........................ 2,000 1,987
Pfizer, Inc. 5.50% due 12/02/97...................................... 2,000 2,000
Pitney Bowes Credit Corp. 5.60% due 1/09/98.......................... 2,000 1,988
Vermont American Corp. 5.48% due 12/01/97............................ 1,800 1,800
Wal-Mart Stores, Inc. 5.50% due 12/01/97............................. 2,000 2,000
Xerox Corp. 5.48% due 12/03/97....................................... 2,200 2,199
Yale University 5.50% due 12/23/97................................... 2,000 1,993
--------
TOTAL CORPORATE SHORT-TERM NOTES (cost $51,383)...................... 51,383
--------
FEDERAL AGENCY OBLIGATIONS -- 26.7%
Federal Home Loan Mortgage Discount Notes 5.40% due 12/05/97......... 1,000 999
Federal Home Loan Mortgage Discount Notes 5.40% due 12/10/97......... 1,800 1,798
Federal Home Loan Mortgage Discount Notes 5.45% due 12/11/97......... 2,400 2,396
Federal Home Loan Mortgage Discount Notes 5.45% due 12/17/97......... 1,100 1,097
Federal Home Loan Mortgage Discount Notes 5.46% due 12/03/97......... 560 560
Federal Home Loan Mortgage Discount Notes 5.47% due 12/22/97......... 1,600 1,595
Federal Home Loan Mortgage Discount Notes 5.48% due 12/11/97......... 800 799
Federal Home Loan Mortgage Discount Notes 5.50% due 1/09/98.......... 1,100 1,093
Federal National Mortgage Association Discount Notes 5.47% due
12/23/97........................................................... 1,100 1,096
Federal National Mortgage Association Discount Notes 5.48% due
12/04/97........................................................... 2,500 2,499
Federal National Mortgage Association Discount Notes 5.49% due
12/19/97........................................................... 2,530 2,523
Federal National Mortgage Association Discount Notes 5.50% due
12/18/97........................................................... 2,000 1,995
--------
TOTAL FEDERAL AGENCY OBLIGATIONS (cost $18,450)...................... 18,450
--------
TOTAL SHORT-TERM SECURITIES (cost $69,833)........................... 69,833
--------
TOTAL INVESTMENTS --
(cost $69,833) 100.9% 69,833
Liabilities in excess of other assets -- (0.9) (607)
------ --------
NET ASSETS -- 100.0% $ 69,226
========
======
</TABLE>

See Notes to Financial Statements

---------------------
A-26
<PAGE> 28

O
- ---------------------

ANCHOR PATHWAY FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1997

(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
U.S.
GOVERNMENT/
ASSET HIGH-YIELD AAA-RATED CASH
GROWTH INTERNATIONAL GROWTH-INCOME ALLOCATION BOND SECURITIES MANAGEMENT
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment
securities, at
value*............ $738,435 $ 184,556 $ 811,012 $ 140,838 $ 111,527 $72,370 $ --
Short-term
securities*....... 59,366 38,677 133,806 13,562 4,395 8,565 69,833
Cash................ 43 85 14 33 1,074 10 2
Foreign cash........ -- 81 -- -- -- -- --
Receivables for --
Sales of
investments..... 3,576 -- 5,099 310 672 -- --
Fund shares
sold............ 955 3 195 17 13 7 489
Dividends and
accrued
interest........ 205 320 1,702 850 2,231 766 --
Foreign currency
contracts....... -- 138 -- -- -- -- --
Prepaid expenses.... 10 3 12 2 1 1 1
Unrealized
appreciation on
forward foreign
currency
contracts......... -- 246 -- -- 8 -- --
---------------------------------------------------------------------------------------------------------
802,590 224,109 951,840 155,612 119,921 81,719 70,325
---------------------------------------------------------------------------------------------------------
LIABILITIES:
Payables for --
Purchases of
investments..... 782 294 148 -- 1,075 -- --
Advisory fees..... 199 111 233 40 30 22 21
Fund shares
redeemed........ 139 32 755 53 75 27 1,018
Management fees... 133 44 156 26 20 14 14
Foreign currency
contracts....... -- 138 -- -- -- -- --
Other accrued
expenses.......... 107 153 116 47 51 47 46
---------------------------------------------------------------------------------------------------------
1,360 772 1,408 166 1,251 110 1,099
---------------------------------------------------------------------------------------------------------
NET ASSETS.......... $801,230 $ 223,337 $ 950,432 $ 155,446 $ 118,670 $81,609 $ 69,226
=========================================================================================================
Shares of beneficial
interest
outstanding
(unlimited shares
authorized)..... 18,283 13,728 25,669 9,421 8,447 7,351 6,122
Net asset value per
share............. $ 43.82 $ 16.27 $ 37.03 $ 16.50 $ 14.05 $ 11.10 $ 11.31
=========================================================================================================
COMPOSITION OF NET
ASSETS:
Capital paid in..... $353,948 $ 134,704 $ 481,082 $ 100,727 $ 100,272 $76,776 $ 65,246
Accumulated
undistributed net
investment
income............ 3,479 2,541 17,464 5,374 11,153 6,345 3,981
Accumulated
undistributed net
realized
gain (loss) on
investments,
futures,
options and
foreign
currency........ 147,704 54,624 166,314 18,287 2,557 (3,328) (1)
Unrealized
appreciation on
investments....... 296,099 31,225 285,572 31,058 4,680 1,816 --
Unrealized foreign
exchange gain
on other assets
and
liabilities..... -- 243 -- -- 8 -- --
---------------------------------------------------------------------------------------------------------
Net Assets...... $801,230 $ 223,337 $ 950,432 $ 155,446 $ 118,670 $81,609 $ 69,226
=========================================================================================================
- ---------------
* Cost
Investment
securities.... $442,336 $ 153,331 $ 525,440 $ 109,780 $ 106,847 $70,554 $ --
=========================================================================================================
Short-term
securities.... $59,366 $38,677 $133,806 $13,562 $4,395 $8,565 $69,833
=========================================================================================================
</TABLE>

See Notes to Financial Statements

---------------------
A-27
<PAGE> 29

O
- ---------------------

ANCHOR PATHWAY FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1997

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
U.S.
GOVERNMENT/
ASSET HIGH-YIELD AAA-RATED CASH
GROWTH INTERNATIONAL GROWTH-INCOME ALLOCATION BOND SECURITIES MANAGEMENT
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET INVESTMENT
INCOME:
Income:
Interest.......... $ 4,254 $ 1,338 $ 6,426 $ 4,168 $ 11,300 $ 6,902 $ 4,498
Dividends*........ 3,561 3,746 16,087 2,126 331 -- --
---------------------------------------------------------------------------------------------------------
Total
income... 7,815 5,084 22,513 6,294 11,631 6,902 4,498
---------------------------------------------------------------------------------------------------------
Expenses:
Advisory fees..... 2,411 1,504 2,809 481 394 292 264
Management fees... 1,607 602 1,873 320 263 195 176
Custodian fees.... 203 421 235 68 54 41 31
Reports to
investors....... 53 29 63 15 17 15 15
Auditing and legal
fees............ 25 31 26 21 25 24 24
Trustees' fees.... 16 5 19 3 2 2 1
Other expenses.... 15 6 17 5 4 3 2
---------------------------------------------------------------------------------------------------------
Total
expenses... 4,330 2,598 5,042 913 759 572 513
---------------------------------------------------------------------------------------------------------
Net investment
income............ 3,485 2,486 17,471 5,381 10,872 6,330 3,985
---------------------------------------------------------------------------------------------------------
REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS AND
FOREIGN
CURRENCIES:
Net realized gain
(loss) on
investments....... 146,719 54,711 166,979 18,372 5,128 (1,673) (1)
Net realized foreign
exchange loss
on other assets
and
liabilities..... -- (19) (1) -- -- -- --
Change in unrealized
appreciation/
depreciation of
investments....... 16,891 (25,138) 19,920 1,609 (1,037) 286 --
Change in unrealized
foreign exchange
gain/loss on other
assets and
liabilities....... -- 243 -- -- 8 -- --
---------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain
(loss) on
investments and
foreign
currencies........ 163,610 29,797 186,898 19,981 4,099 (1,387) (1)
---------------------------------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS RESULTING
FROM OPERATIONS... $167,095 $ 32,283 $ 204,369 $ 25,362 $ 14,971 $ 4,943 $ 3,984
=========================================================================================================
</TABLE>

- ---------------
* Net of foreign withholding taxes of $33; $436; $138 and $12 on Growth,
International, Growth-Income and Asset Allocation Series, respectively.

See Notes to Financial Statements

- ---------------------
A-28
<PAGE> 30

O
- ---------------------

ANCHOR PATHWAY FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED NOVEMBER 30, 1997

(DOLLARS AND SHARES IN THOUSANDS)

<TABLE>
<CAPTION>
U.S.
GOVERNMENT/
ASSET HIGH-YIELD AAA-RATED CASH
GROWTH INTERNATIONAL GROWTH-INCOME ALLOCATION BOND SECURITIES MANAGEMENT
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment
income............ $ 3,485 $ 2,486 $ 17,471 $ 5,381 $ 10,872 $ 6,330 $ 3,985
Net realized gain
(loss) on
investments....... 146,719 54,711 166,979 18,372 5,128 (1,673) (1)
Net realized foreign
exchange loss
on other assets
and
liabilities..... -- (19) (1) -- -- -- --
Change in unrealized
appreciation/
depreciation of
investments..... 16,891 (25,138) 19,920 1,609 (1,037) 286 --
Change in unrealized
foreign exchange
gain/loss on other
assets and
liabilities....... -- 243 -- -- 8 -- --
----------------------------------------------------------------------------------------------------------
Net increase in net
assets resulting
from
operations........ 167,095 32,283 204,369 25,362 14,971 4,943 3,984
----------------------------------------------------------------------------------------------------------
DIVIDENDS AND
DISTRIBUTIONS PAID
TO SHAREHOLDERS:
Dividends from net
investment
income............ (3,795) (3,950) (18,320) (5,690) (12,665) (8,435) (4,852)
Distributions from
net realized gains
on investments.... (118,520) (17,640) (124,190) (14,930) -- -- --
----------------------------------------------------------------------------------------------------------
Total dividends and
distributions paid
to shareholders... (122,315) (21,590) (142,510) (20,620) (12,665) (8,435) (4,852)
----------------------------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares
sold.............. 136,992 78,283 69,784 15,741 36,139 10,319 244,501
Proceeds from shares
issued for
reinvestment of
dividends and
distributions..... 122,315 21,590 142,510 20,620 12,665 8,435 4,852
Cost of shares
repurchased....... (316,021) (136,373) (243,077) (38,717) (63,777) (42,505) (268,495)
----------------------------------------------------------------------------------------------------------
Net decrease in net
assets resulting
from capital share
transactions...... (56,714) (36,500) (30,783) (2,356) (14,973) (23,751) (19,142)
----------------------------------------------------------------------------------------------------------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS............ (11,934) (25,807) 31,076 2,386 (12,667) (27,243) (20,010)
NET ASSETS:
Beginning of
period............ 813,164 249,144 919,356 153,060 131,337 108,852 89,236
----------------------------------------------------------------------------------------------------------
End of period....... $ 801,230 $ 223,337 $ 950,432 $ 155,446 $ 118,670 $ 81,609 $ 69,226
==========================================================================================================
</TABLE>

- ---------------

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulated
undistributed net
investment
income............ $ 3,479 $ 2,541 $ 17,464 $ 5,374 $ 11,153 $ 6,345 $ 3,981
==========================================================================================================
Shares issued and
repurchased:
Sold.............. 3,275 4,723 2,012 994 2,669 949 21,803
Issued in
reinvestment of
dividends and
distributions... 3,424 1,442 4,590 1,438 990 816 444
Repurchased....... (7,648) (8,200) (6,971) (2,442) (4,696) (3,875) (23,966)
----------------------------------------------------------------------------------------------------------
Net decrease........ (949) (2,035) (369) (10) (1,037) (2,110) (1,719)
==========================================================================================================
</TABLE>

See Notes to Financial Statements

---------------------
A-29
<PAGE> 31

O
- ---------------------

ANCHOR PATHWAY FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED NOVEMBER 30, 1996

(DOLLARS AND SHARES IN THOUSANDS)

<TABLE>
<CAPTION>
U.S.
GOVERNMENT/
ASSET HIGH-YIELD AAA-RATED CASH
GROWTH INTERNATIONAL GROWTH-INCOME ALLOCATION BOND SECURITIES MANAGEMENT
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment
income............ $ 3,796 $ 3,659 $ 18,321 $ 5,657 $ 12,236 $ 8,479 $ 4,855
Net realized gain on
investments....... 118,807 17,946 124,360 14,891 1,680 118 1
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 (2,756) --
----------------------------------------------------------------------------------------------------------
Net increase in net
assets resulting
from operations... 99,693 42,996 175,091 26,477 17,890 5,841 4,856
----------------------------------------------------------------------------------------------------------
DIVIDENDS AND
DISTRIBUTIONS
PAID TO
SHAREHOLDERS:
Dividends from net
investment
income............ (5,500) (7,250) (20,695) (5,985) (13,970) (11,160) (7,520)
Distributions from
net realized gains
on investments.... (120,665) (4,980) (55,955) (10,955) -- -- (1)
----------------------------------------------------------------------------------------------------------
Total dividends and
distributions paid
to shareholders... (126,165) (12,230) (76,650) (16,940) (13,970) (11,160) (7,521)
----------------------------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares
sold.............. 186,903 69,110 75,454 15,816 40,043 16,512 250,835
Proceeds from shares
issued for
reinvestment of
dividends and
distributions..... 126,165 12,230 76,650 16,940 13,970 11,160 7,521
Cost of shares
repurchased....... (370,707) (91,096) (213,332) (42,841) (73,186) (48,439) (267,327)
----------------------------------------------------------------------------------------------------------
Net decrease in net
assets resulting
from capital share
transactions...... (57,639) (9,756) (61,228) (10,085) (19,173) (20,767) (8,971)
----------------------------------------------------------------------------------------------------------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS............ (84,111) 21,010 37,213 (548) (15,253) (26,086) (11,636)
NET ASSETS:
Beginning of
period............ 897,275 228,134 882,143 153,608 146,590 134,938 100,872
----------------------------------------------------------------------------------------------------------
End of period....... $ 813,164 $ 249,144 $ 919,356 $ 153,060 $ 131,337 $ 108,852 $ 89,236
==========================================================================================================
</TABLE>

- ---------------

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulated
undistributed net
investment
income ........... $ 3,789 $ 3,943 $ 18,313 $ 5,687 $ 12,657 $ 8,429 $ 4,848
==========================================================================================================
Shares issued and
repurchased:
Sold.............. 4,762 4,811 2,343 1,045 3,028 1,469 22,136
Issued in
reinvestment of
dividends and
distributions... 3,361 880 2,462 1,178 1,104 1,030 683
Repurchased....... (9,518) (6,335) (6,652) (2,849) (5,421) (4,300) (23,640)
----------------------------------------------------------------------------------------------------------
Net decrease........ (1,395) (644) (1,847) (626) (1,289) (1,801) (821)
==========================================================================================================
</TABLE>

See Notes to Financial Statements

- ---------------------
A-30
<PAGE> 32

O
- ---------------------

ANCHOR PATHWAY FUND
NOTES TO FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION: Anchor Pathway Fund (the
"Fund") is 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 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, other long-term debt securities, and
short-term securities with original or remaining maturities in excess of 60 days
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 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.

---------------------

A-31
<PAGE> 33

FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained
in U.S. dollars. 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, forward foreign currency contracts, 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.

FORWARD FOREIGN CURRENCY CONTRACTS: Certain funds may enter into forward
foreign currency contracts ("forward contracts") to attempt to protect
securities and related receivables and payables against changes in future
foreign exchange rates. A forward contract is an agreement between two parties
to buy or sell currency at a set price on a future date. The market value of the
contract will fluctuate with changes in currency exchange rates. The contract is
marked-to-market daily using the forward rate and the change in market value is
recorded by the Fund as unrealized gain or loss. Upon settlement date, the Fund
records either realized gains or losses when the contract is closed equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. Risks may arise upon entering into these
contracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar. Forward contracts involve elements of risk
in excess of the amount reflected in the Statement of Assets and Liabilities.
The Trust bears the risk of an unfavorable change in the foreign exchange rate
underlying the forward contract.

SECURITIES TRANSACTIONS, DIVIDENDS, INVESTMENT INCOME AND EXPENSES: Securities
transactions are recorded on a trade date basis. 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.
Funds 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
their relative net asset values or other appropriate allocation methods. 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 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. Net investment income/loss, net realized gain/loss, and net
assets are not affected.

- ---------------------

A-32
<PAGE> 34

For the year ended November 30, 1997, 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.............................................................. $ 1,037 $ -- $(1,037)
International Series....................................................... (62) 62 --
Growth-Income Series....................................................... (424) -- 424
Asset Allocation Series.................................................... 4 (4) --
High-Yield Bond Series..................................................... (289) 289 --
U.S. Government/AAA-Rated Securities Series................................ (5) 21 (16)
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,
1997, were as follows (dollars in thousands):
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE NET
UNREALIZED UNREALIZED UNREALIZED COST OF CAPITAL LOSS
GAIN (LOSS) GAIN INVESTMENTS CARRYOVER*+
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------
Growth Series.................................... $ 326,990 $ (31,165) $ 295,825 $ 501,976 $ --
International Series............................. 42,235 (11,524) 30,711 192,522 --
Growth-Income Series............................. 292,929 (7,275) 285,654 659,164 --
Asset Allocation Series.......................... 31,930 (872) 31,058 123,342 --
High-Yield Bond Series........................... 6,547 (1,867) 4,680 111,242 --
U.S. Government/AAA-Rated Securities Series**.... 2,186 (226) 1,960 78,975 3,232
Cash Management Series........................... -- -- -- 69,833 1

CAPITAL LOSS
UTILIZED
------------
<S> <C>

Growth Series.................................... $ --
International Series............................. --
Growth-Income Series............................. --
Asset Allocation Series.......................... --
High-Yield Bond Series........................... 2,160
U.S. Government/AAA-Rated Securities Series**.... --
Cash Management Series........................... --
</TABLE>

* Expire 2003-2005
** Post 10/31/97 Capital Loss Deferral: U.S. Government/AAA-Rated Securities
Series $73
+ Net capital loss carryover reported as of November 30, 1997, which are
available to the extent provided in regulations to offset future capital
gains. To the extent that these carryovers are used to offset future capital
gains, it is probable that the gains so offset will not be distributed.

4. BUSINESS MANAGER AND INVESTMENT ADVISER: SunAmerica Asset Management Corp.
(the "Business Manager"), an indirect wholly-owned subsidiary of Anchor National
Life Insurance Company, which is an indirect subsidiary of SunAmerica Inc.,
pursuant to a business management agreement, manages the business affairs and
the administration of the Fund. During the fiscal year ended November 30, 1997,
Anchor Investment Adviser, Inc., an indirect wholly-owned subsidiary of Anchor
National Life Insurance Company, served as business manager of the Fund through
July 14, 1997, until succeeded by SunAmerica Asset Management Corp. on July 15,
1997. For providing 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.

---------------------

A-33
<PAGE> 35

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, 1997, 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........ $206,486 $ 105,870 $ 239,596 $ 44,778 $68,713
Sales of portfolio securities............ 372,190 175,763 422,506 62,100 78,410
U.S. government securities excluded above
were as follows:
Purchases of U.S. government
securities............................. -- -- -- 10,233 4,616
Sales of U.S. government securities...... -- -- -- 13,033 11,477

U.S.
GOVERNMENT
AAA-RATED CASH
SECURITIES MANAGEMENT
SERIES SERIES
--------------------------
<S> <C> <C>

Purchases of portfolio securities........ $ 7,465 $ --
Sales of portfolio securities............ 9,864 --
U.S. government securities excluded above
were as follows:
Purchases of U.S. government
securities............................. 31,310 --
Sales of U.S. government securities...... 50,113 --
</TABLE>

6. TRANSACTIONS WITH AFFILIATES: The following series incurred brokerage
commissions (dollars in thousands) with an affiliated broker:

<TABLE>
<CAPTION>
ROYAL ALLIANCE
ASSOCIATES, INC.
<S> <C>
------------
Growth Series $ 1
Growth-Income Series 11
Asset Allocation Series 1
</TABLE>

- ---------------------

A-34
<PAGE> 36

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
11/30/93 $ 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
11/30/97 42.28 0.18 8.30 8.48 (0.21) (6.73) 43.82 23.78

International Series
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
11/30/97 15.81 0.17 1.78 1.95 (0.27) (1.22) 16.27 13.15

Growth-Income Series
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
11/30/97 35.31 0.66 6.91 7.57 (0.75) (5.10) 37.03 24.62

Asset Allocation Series
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
11/30/97 16.23 0.55 2.00 2.55 (0.63) (1.65) 16.50 17.86

High-Yield Bond Series
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
11/30/97 13.85 1.19 0.44 1.63 (1.43) -- 14.05 12.76

U.S. Government/AAA-Rated Securities Series
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
11/30/97 11.51 0.76 (0.14) 0.62 (1.03) -- 11.10 6.09

Cash Management Series
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
11/30/97 11.38 0.54 0.01 0.55 (0.62) -- 11.31 5.03

<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#
- -------------------------------------------------------------------------------------------------------------------------------

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
11/30/97 801,230 0.54 0.44 29.01 0.0477

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
11/30/97 223,337 1.04 0.99 47.45 0.0043

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
11/30/97 950,432 0.54 1.88 30.06 0.0493

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
11/30/97 155,446 0.59 3.49 39.14 0.0507

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
11/30/97 118,670 0.61 8.68 64.49 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
11/30/97 81,609 0.63 6.93 46.17 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
11/30/97 69,226 0.63 4.87 -- N/A
</TABLE>

- ---------------

@ Calculated based upon average shares outstanding

# The average commission per share is derived by dividing the agency
commissions paid on equity securities trades by the number of shares
purchased or sold.

** Does not reflect expenses that apply to the separate accounts of Anchor
National Life Insurance Company. If such expenses had been included, total
return would have been lower for each period presented.

See Notes to Financial Statements

---------------------

A-35
<PAGE> 37

O
- ---------------------

ANCHOR PATHWAY FUND
REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees and Shareholder of Anchor Pathway Fund

In our opinion, the accompanying statements of assets and liabilities, including
the investment portfolios, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of 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, 1997, the results of each of their operations for the year then
ended, the changes in each of their net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the 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, 1997 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
January 13, 1998

- ---------------------

A-36
<PAGE> 38

O
- ---------------------

ANCHOR PATHWAY FUND
SHAREHOLDER TAX INFORMATION (UNAUDITED)

Certain tax information regarding the Anchor Pathway Fund is required to be
provided to the shareholder based upon each Fund's income and distributions for
the year ended November 30, 1997.

During the year ended November 30, 1997 the Funds paid the following dividends
per share along with the percentage of ordinary income dividends that qualified
for the 70% dividends received deductions for corporations:
<TABLE>
<CAPTION>
NET NET NET
TOTAL INVESTMENT SHORT-TERM LONG-TERM
DIVIDENDS INCOME CAPITAL GAINS CAPITAL GAINS
--------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Growth Series.................................. $6.94 $ .21 $ .80 $5.93
International Series........................... 1.49 .27 .13 1.09
Growth-Income Series........................... 5.85 .75 .37 4.73
Asset Allocation Series........................ 2.28 .63 .28 1.37
High-Yield Bond Series......................... 1.43 1.43 -- --
U.S. Government/AAA-Rated Securities Series.... 1.03 1.03 -- --
Cash Management Series......................... .62 .62 -- --

<CAPTION>
QUALIFYING %
FOR THE
70% DIVIDENDS
RECEIVED DEDUCTION
------------------
<S> <C>
Growth Series.................................. 22.68%
International Series........................... --
Growth-Income Series........................... 63.81
Asset Allocation Series........................ 28.84
High-Yield Bond Series......................... 2.61
U.S. Government/AAA-Rated Securities Series.... --
Cash Management Series......................... --
</TABLE>

The International Series makes an election under Internal Revenue Code Section
853 to pass through foreign taxes paid by the International Series to its
shareholder. The total amount of foreign taxes passed through to the shareholder
for the fiscal year ended November 30, 1997 was $403,820. The gross foreign
source income for information reporting is $4,362,866.

---------------------

A-37

<PAGE> 45
PART C

OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(a) Financial Statements

The following financial statements are included in Part A of the
Registration Statement:

Financial Highlights

The following financial statements are included in Part B of the
Registration Statement.

Financial Statements for Anchor Pathway Fund -- with respect
to Registrant's fiscal year ended November 30, 1997.

(b) Exhibits

( 1) Declaration of Trust, as Amended ................ Previously Filed
( 2) By-Laws ......................................... Previously Filed
( 3) Voting Trust Agreement .......................... Not Applicable
( 4) Shares of Beneficial Interest ................... Not Applicable
( 5) (a) Investment Advisory and Management
Agreement Previously Filed
(b) Business Management Agreements .............. Herewith
( 6) Distribution Agreement .......................... Not Applicable
( 7) Bonus, Profit Sharing,
Pension or Similar Contracts ................ Not Applicable
( 8) Custodian Agreement ............................. Previously Filed
( 9) Form of Fund Participation Agreement ............ Previously Filed
(10) Opinion and Consent of Counsel to the
Investment Adviser .......................... Previously Filed
(11) (a) Consent of Independent Accountants .......... Herewith
(12) Financial Statements Omitted from
Item 23 ..................................... Not Applicable
(13) Initial Capitalization Agreement ................ Not Applicable
(14) Model Plan ...................................... Not Applicable
(15) Rule 12b-1 Plan ................................. Not Applicable
(16) Persons under Common Control with
Registrant .................................. Previously Filed
(17) Performance Computations ........................ Not Applicable
(18) Powers of Attorney .............................. Previously Filed
(27) Financial Data Schedules ........................ Herewith

All previously filed exhibits are specifically incorporated herein by
reference.

Item 25. Persons Controlled by or Under Common Control with Registrant

Previously Filed.

<PAGE> 46
Item 26. Number of Holders of Securities

As of December 31, 1997, the number of record holders of Anchor Pathway
Fund was as follows:

Title of Class Number of Record Holders

Shares of Beneficial Interest 1*

* Held by the Variable Separate Account of Anchor National Life
Insurance Company.

Item 27. Indemnification

Article VI of the Registrant's By-Laws relating to the indemnification
of officers and trustees is quoted below:

ARTICLE VI

INDEMNIFICATION

The Fund shall provide any indemnification required by
applicable law and shall indemnify trustees, officers, agents and
employees as follows:

(a) the Fund shall indemnify any director or officer of the Fund who
was or is a party or is threatened to be made a party of any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than action by
or in the right of the Fund) by reason of the fact that such Person is
or was such Trustee or officer or an employee or agent of the Fund, or
is or was serving at the request of the Fund as a director, officer,
employee or agent of another corporation, partnership, joint venture,
Fund or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such Person in connection with such action, suit or
proceeding, provided such Person acted in good faith and in a manner
such Person reasonably believed to be in or not opposed to the best
interests of the Fund, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such Person's conduct
was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the Person did not reasonably believe his or her
actions to be in or not opposed to the best interests of the Fund, and,
with respect to any criminal action or proceeding, had reasonable cause
to believe that such Person's conduct was unlawful.

<PAGE> 47
(b) The Fund shall indemnify any Trustee or officer of the Fund who was
or is a part or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the Fund to
procure a judgment in its favor by reason of the fact that such Person
is or was such Trustee or officer or an employee or agent of the Fund,
or is or was serving at the request of the Fund as a director, officer,
employee or agent of another corporation, partnership, joint venture,
Fund or other enterprise, against expenses (including attorneys' fees),
actually and reasonably incurred by such Person in connection with the
defense or settlement of such action or suit if such Person acted in
good faith and in a manner such Person reasonably believed to be in or
not opposed to the best interests of the Fund, except that no
indemnification shall be made in respect of any claim, issue or matter
as to which such Person shall have been adjudged to be liable for
negligence or misconduct in the performance of such Person's duty to
the Fund unless and only to the extent that the court in which such
action or suit was brought, or any other court having jurisdiction in
the premises, shall determine upon application that, despite the
adjudication of liability but in view of all circumstances of the case,
such Person is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper.

(c) To the extent that a Trustee or officer of the Fund has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subparagraphs (a) or (b) above or in defense
of any claim, issue or matter therein, such Person shall be indemnified
against expenses (including attorneys' fees) actually and reasonably
incurred by such Person in connection therewith, without the necessity
for the determination as to the standard of conduct as provided in
subparagraph (d).

(d) Any indemnification under subparagraph (a) or (b) (unless ordered
by a court) shall be made by the Fund only as authorized in the
specific case upon a determination that indemnification of the Trustee
or officer is proper in view of the standard of conduct set forth in
subparagraph (a) or (b). Such determination shall be made (i) by the
Board by a majority vote of a quorum consisting of Trustees who were
disinterested and not parties to such action, suit or proceedings, or
(ii) if such a quorum of disinterested Trustees so directs, by
independent legal counsel in a written opinion, and any determination
so made shall be conclusive and binding upon all parties.

(e) Expenses incurred in defending a civil or criminal action, writ or
proceeding may be paid by the Fund in advance of the final disposition
of such action, suit or proceeding, as authorized in the particular
case, upon receipt of an undertaking by or on behalf of the Trustee or
officer to repay such amount unless it shall ultimately be determined
that such

<PAGE> 48
Person is entitled to be indemnified by the Fund as authorized herein.
Such determination must be made by disinterested Trustees or
independent legal counsel.

Prior to any payment being made pursuant to this paragraph, a majority
of quorum of disinterested, non-party Trustees of the Fund, or an
independent legal counsel in a written opinion, shall determine, based
on a review of readily available facts that there is reason to believe
that the indemnitee ultimately will be found entitled to
indemnification.

(f) Agents and employees of the Fund who are not Trustees or officers
of the Fund may be indemnified under the same standards and procedures
set forth above, in the discretion of the Board.

(g) Any indemnification pursuant to this Article shall not be deemed
exclusive of any other rights to which those indemnified may be
entitled and shall continue as to a Person who has ceased to be a
Trustee or officer and shall inure to the benefit of the heirs,
executors and administrators of such a Person.

(h) Nothing in the Declaration or in these By-Laws shall be deemed to
protect any Trustee or officer of the Fund against any liability to the
Fund or to its Shareholders to which such Person would otherwise be
subject by reason of willful malfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of such
Person's office.

(i) The Fund shall have power to purchase and maintain insurance on
behalf of any Person against any liability asserted against or incurred
by such Person, whether or not the Fund would have the power to
indemnify such Person against such liability under the provisions of
this Article. Nevertheless, insurance will not be purchased or
maintained by the Fund if the purchase or maintenance of such insurance
would result in the indemnification of any Person in contravention of
any rule or regulation and/or interpretation of the Securities and
Exchange Commission.

* * * * * * * * * * * * * *

The Investment Advisory Agreement provides that in absence of
willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of office on the part of the
Investment Adviser (and its officers, directors, agents, employees,
controlling persons, shareholders and any other person or entity
affiliated with the Investment Adviser to perform or assist in the
performance of its obligations under each Agreement) the Investment
Adviser shall not be subject to liability to the Fund or to any
shareholder of the Fund for any act or omission in the course of, or
connected with, rendering services, including

<PAGE> 49
without limitation, any error of judgment or mistake or law or for any
loss suffered by any of them in connection with the matters to which
each Agreement relates, except to the extent specified in Section 36(b)
of the Investment Company Act of 1940 concerning loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation
for services.

SunAmerica Inc., the parent of Anchor National Life Insurance
Company, provides, without cost to the Fund, indemnification of
individual trustees. By individual letter agreement, SunAmerica Inc.
indemnifies each trustee to the fullest extent permitted by law against
expenses and liabilities (including damages, judgments, settlements,
costs, attorney's fees, charges and expenses) actually and reasonably
incurred in connection with any action which is the subject of any
threatened, asserted, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, investigative or otherwise and
whether formal or informal to which any trustee was, is or is
threatened to be made a party by reason of facts which include his
being or having been a trustee.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be permitted to
trustees, officers and controlling persons of the Registrant pursuant
to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act
and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.

Item 28. Business and other Connections of Investment Adviser

Information concerning the business and other connections of Capital
Research and Management Company ("CRMC") is incorporated herein by reference
from CRMC's Form ADV (File No. 801-8055), which is currently on file with the
Securities and Exchange Commission.

Item 29. Principal Underwriters

There is no Principal Underwriter for the Registrant.

<PAGE> 50
Item 30. Location of Accounts and Records

State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, acts as custodian, transfer agent and dividend
paying agent. It maintains books, records and accounts pursuant to the
instructions of the Fund.

Capital Research and Management Company, the Investment Adviser, is
located at 333 South Hope Street, Los Angeles, California 90071. It
maintains the books, accounts and records required to be maintained
pursuant to Section 31(a) of the Investment Company Act of 1940 and the
rules promulgated thereunder.

SunAmerica Asset Management Corp., the Business Manager, is located at
733 Third Avenue, New York, New York 10017. It maintains the books,
accounts and records required to be maintained pursuant to Section
31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder.

Item 31. Management Services

None.

Item 32. Undertakings

(c) Registrant hereby undertakes to furnish an investor to whom a
prospectus is delivered with a copy of Registrant's latest annual
report to shareholders, upon request and without charge.

<PAGE> 51
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,
(the "1933 Act") and the Investment Company Act of 1940, as amended, Registrant
certifies that it meets all of the requirements for effectiveness of this
Post-Effective Amendment No. 14 to the Registration Statement (the
"Post-Effective Amendment") pursuant to Rule 485(b) under the 1933 Act and that
Registrant has duly caused this Post-Effective Amendment to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
and State of New York, on the 27th day of January, 1998.

ANCHOR PATHWAY FUND

By: /s/ Peter C. Sutton
Peter C. Sutton
Vice President

Pursuant to the requirements of the 1933 Act, the Post-Effective
Amendment No. 14 to the Registrant's Registration Statement on Form N-1A has
been signed below by the following persons in the capacities and on the date
indicated.

* Chairman, President January 27, 1998
James K. Hunt and Trustee
(Principal Executive Officer)

* Senior Vice President, January 27, 1998
Scott L. Robinson Treasurer and Controller
(Principal Financial and
Accounting Officer)

* Trustee January 27, 1998
Richards D. Barger

* Trustee January 27, 1998
Norman J. Metcalfe

* Trustee January 27, 1998
Allan L. Sher

* Trustee January 27, 1998
William M. Wardlaw

*By: /s/ Robert M. Zakem
Attorney-in-Fact
Robert M. Zakem

<PAGE> 52
ANCHOR PATHWAY FUND

EXHIBIT INDEX

Exhibit No. Name

5(b) Business Management Agreement

11 Consent of Price Waterhouse

27 Financial Data Schedules

<PAGE> 1
BUSINESS MANAGEMENT AGREEMENT

THIS AGREEMENT is entered into this 15th day of July 1997, by and
between Anchor Pathway Fund (the "Trust"), a Massachusetts business trust
registered as a management investment company under the Investment Company Act
of 1940, as amended("1940 Act") and SunAmerica Asset Management Corp. (the
"Business Manager").

WITNESSETH:

WHEREAS, the Trust is authorized to issue shares in separate series,
with each such series representing interest in a separate portfolio of
securities and other assets, and intends initially to offer shares of seven
series designated The Cash Management Series, The High-Yield Bond Series, The
Growth-Income Series, the Growth Series, the U. S. Government
Guaranteed/AAA-Rated Securities Series, the International Series and the Asset
Allocation Series (the "Series").

WHEREAS, the Trust desires that Business Manager shall act as business
manager of the Trust and provide the administrative services necessary to
administer the affairs of the Trust, and the Business Manager desires to so act,

NOW, THEREFORE, in consideration of the mutual convenants and promises
contained herein, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the Business Manager and the Trust agree as
follows:

1. The Trust hereby employs Business Manager to manage the business
affairs and the administration of the Trust, subject to the general supervision
of the Board of Trustees of the Trust, for the period and on the terms herein
set forth. The Business Manager hereby accepts such employment and agrees to
render the services and assume the obligations set forth herein, for the
compensation herein provided. The Business Manager shall, for all purposes
herein, be deemed an independent contractor and not an agent of the Trust or the
Series.

2. It is understood and agreed that this Agreement shall take effect on
September 22, 1997 provided that prior to that date, the terms of this Agreement
have been approved by a vote of a majority of the members of the Board of
Trustees of the Trust, including a majority of the Trustees who are not parties
to this 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.

3. Business Manager shall:

a. manage the business affairs of the Trust and perform the
administrative functions required of a registered investment company at
all times in accordance with

<PAGE> 2
the Declaration of Trust, By-laws, Registration Statement and current
Prospectus of the Trust;

b. if desired by the Board of Trustees, permit officers,
directors and employees of the Business Manager to serve without
compensation from the Trust as officers, Trustees, employees or agents
of the Trust;

c. arrange for the presentation and evaluation of contracts
for (I) custodianship of the Trust's assets, (ii) a registrar and
transfer agent for Trust shares, (iii) a dividend disbursing agent,
(iv) the daily pricing of Trust shares and (vi) appropriate fidelity
and liability bond coverages;

d. oversee the work of the custodian, dividend disbursing
agent, transfer agent and accountants on behalf of the Trust to assure
compliance with the Declaration of Trust, By-Laws and the 1940 Act;

e. assist the Trust in maintaining books and records,
financial information, reporting to shareholders, conducting meetings
of Trustees and shareholders and filings with the Securities and
Exchange Commission; and

f. provide adequate facilities and office space and qualifies
employees necessary to conduct the operations of the Trust.

4. The services of the Business Manager to the Trust hereunder are not
to be deemed exclusive, and the Business Manager shall be free to render similar
services to others so long as its services hereunder be not impaired thereby.

5. (a) Each series of the Trust, except for the International Series,
shall pay the Business Manager as full compensation for all services rendered
hereunder a fee which shall be accrued daily and paid monthly at an annual rate
of:

(i) 0.24% of that portion of the average daily net assets of each
series of the Trust not exceeding $30 million; and

(ii) 0.20% of average daily net assets of each series of the Trust
in excess of $30 million.

(b) The International Series shall pay the Business Manager as full
compensation for all services rendered hereunder a fee, which shall be accrued
daily and paid monthly, at an annual rate of 0.24% of the average daily net
assets of the International Series.

The average net assets are to be computed in the manner used for the
determination of the offering price of shares of the Trust. The fee for each
month shall be payable to the Business Manager not later than the tenth day of
the following month.

<PAGE> 3
The fee shall be accrued daily at 1/365th of the applicable annual rate
set forth above. The net assets of the Series shall be determined in the manner
and on the dates set forth in the prospectus of the Trust and, on days on which
the net assets are not determined, shall be as of the last preceding day on
which the net assets shall have been determined.

Upon any termination of this Agreement on a day other than the last day
of the month, the fee for the period from the beginning of the month in which
termination occurs to the date of termination shall be prorated according to the
proportion which such period bears to the full month.

6. Except to the extent expressly assumed by the Business Manager
herein, and as provided in paragraph 8 below, the Trust shall be responsible to
pay all costs and expenses in connection with its operations not expressly
assumed by the Business Manager. Without limiting the generality of the
foregoing, such costs and expenses to be incurred by the Trust shall include the
following: investment advisory fees; subsequent registration and filing fees
with Federal and state agencies; any required Blue Sky expenses; expenses of
shareholder's meetings; the expense of reports to existing shareholders;
expenses of printing shareholder reports; proxies and prospectuses; insurance
premiums; legal and auditing fees; dividend disbursement expenses; the expense
of the issuance, transfer, and redemption of Trust shares; custodian fees;
printing and preparation of registration statements; taxes; compensation of
Trustees who are not interested persons of the Trust; association dues; and
costs of stationery, forms and certificates prepared exclusively for the Trust.

7. It is understood and agreed that the services provided to the Trust
by the Business Manager pursuant to this Agreement do not include the service of
principal underwriter for the Trust's shares, insofar as the Trust will not
utilize such a person to distribute its shares.

8. It is understood and agreed that Capital Research and Management
Company (the "Adviser") has agreed to provide supervision of the portfolios of
the Series and to determine what securities or other property shall be
purchased, held or sold by each Series, pursuant to a written investment
advisory contract with the Trust. The Adviser has also agreed to provide
adequate facilities and qualified personnel for the placement of orders for the
purchase, or other acquisition, and sale, or other disposition, of portfolio
securities for the Series.

9. Applicable state expense guarantee limitations will be observed in
regard to fees payable to Business Manager.

10. It is understood that Trustees, officers, agents and stockholders
of the Trust are or may be interested in the Business Manager as directors,
officers, stockholders, or otherwise and that directors, officers, agents and
stockholders of the Business Manager are or may be interested in the Trust as
Trustees, officers, stockholders or otherwise, that the Business Manager may be
interested in the Trust and that the existence of any such dual interest shall
not affect the validity hereof or of any transactions hereunder except as

<PAGE> 4
otherwise provided in the Declaration of Trust for the Trust and Articles of
Incorporation of the Business Manager or by specific provision of applicable
law.

11. This agreement shall, unless sooner terminated as hereinafter
provided, remain in effect for a period of two years from the date hereof.
Thereafter, this Agreement shall continue in effect from year to year as to each
Series only so long as such continuance is specifically approved at least
annually by affirmative vote of the Board of Trustees of the Trust, or by
affirmative vote of a majority of the outstanding shares of each Series entitled
to be cast and, in either event, by a majority of those members of the Board who
are not parties to the Agreement or "interested persons" of any such party, cast
in person at a meeting called for the purpose of voting on such continuance. Any
continuance of this Agreement with respect to a Series by the vote of a majority
of the outstanding voting securities of that Series, or by the Trustees of the
Trust which shall include a majority of the non-interested Trustees, shall be
effective to continue this Agreement with respect to that Series notwithstanding
(a) that such continuance has not been so approved as to any other Series or (b)
that such continuance has not been approved by the vote of a majority of the
outstanding voting securities of the Trust as a whole.

12. This Agreement may be terminated as to any Series or the entire
Trust at any time on 60 days' written notice, without the payment of any
penalty, by the Board of Trustees of the Trust, by the vote of a majority of the
outstanding shares of such Series or the Trust, or by the Business Manager;
provided, however, that this Agreement may not be terminated by Business Manager
unless another business management agreement has been approved by the Trust in
accordance with the 1940 Act.

13. This Agreement shall terminate automatically in the event of its
assignment by either party. For the purpose of this paragraph, the term
"Assignment" shall have the meaning set forth in section 2(a)(4) of the 1940
Act.

14. This Agreement may be modified by mutual consent; however, such
consent on the part of the Trust requires the vote of a majority of the
outstanding voting securities of each Series of the Trust upon recommendation by
a vote of a majority of the Board of Trustees which shall include a vote of a
majority of the Trustees who are not interested persons of the Trust (other than
as Trustees) or the Business Manager and who have no direct or indirect interest
in the operations of the Trust, this Agreement, or the Business Manager, cast in
person at a meeting called for that purpose.

15. The Business Manager assumes no responsibility under the Agreement
other than to render the services called for hereunder. The Business Manager
shall be liable, in carrying out its duties under this Agreement (a) for actions
and omissions constituting violations of the 1940 Act, the 1933 Act or other
Federal securities laws, (b) in circumstances where the Business Manager has
failed to conform to reasonable business standards, and (C) by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of its duties and
obligations hereunder (disabling conduct). The Business Manager shall have no
liability to the Trust, or its shareholders or creditors pursuant to (C) above,
provided it is determined

<PAGE> 5
by reasonable and fair means, including (a) a final decision on the merits by a
court or other body before whom the proceeding was brought that the Business
Manager was not liable by means of disabling conduct, or (b) in the absence of
such a decision, a reasonable determination, based upon a review of the facts,
that Business Manager was not liable by reason of disabling conduct, by (I) the
vote of a majority of a quorum of Trustees who are neither "interested persons"
of the Trust as defined in Section 2(a) (19) of the 1940 Act nor parties to the
proceeding, or (ii) an independent legal counsel in a written opinion.

16. The Business Manager and the Trust agree to maintain and preserve
for such period or periods as the Securities and Exchange Commission may
prescribe by rules and regulations, such accounts, books and other documents as
constitute the records forming the basis for all reports, including financial
statements required to be filed pursuant to the 1940 Act and for the Trust
auditor's certification relating thereto. The Business Manager and the Trust
agree that all accounts, books and other records maintained and preserved by
each as required hereby shall be subject at any time, and from time to time, to
such reasonable periodic, special and other examinations by the Securities and
Exchange Commission, and The Trust's auditors, the Trust or any representative
of the Trust, or any governmental agency or other instrumentality having
regulatory authority over the Trust. It is expressly understood and agreed that
the books and records maintained by the Business Manager on behalf of the Trust
shall, at all times, remain the property of the Trust. Moreover, the Trust
agrees to supply the Business Manager with copies of all documents filed with
the Securities and Exchange Commission, and with such other information relating
to the Trust's affairs as the Business Manager may reasonably request.

17. The obligations of the Trust under this Contract are not binding
upon any of the Trustees, officers, employees, agents or shareholders of the
Trust individually, but bind only the Trust estate. The Business Manager agrees
to look solely to the assets of the Trust or each Series for the satisfaction of
any liability in respect of the Trust or such Series under this Contract and
will not seek recourse against such Trustees, officers, employees, agents, or
shareholders, or any of them, or any of their personal assets for such
satisfaction.

18. This writing constitutes the entire agreement between the parties
and no conditions or warranties shall be implied herefrom unless expressly set
forth herein.

19. This Agreement is executed and delivered in the State of California
and shall be governed by the laws of such state and the 1940 Act.

<PAGE> 6
IN WITNESS WHEREOF, the Business Manager and the Trust have executed
this Agreement on the day first written above.

ANCHOR PATHWAY FUND

By: /s/ Susan L. Harris
---------------------------------
Susan L. Harris
Vice President & Secretary

Attest:

/s/ Robert M. Zakem
- ----------------------------------------
Robert M. Zakem
Vice President and Assistant Secretary

SUNAMERICA ASSET MANAGEMENT CORP.

By: /s/ Peter A. Harbeck
---------------------------------
Peter A. Harbeck
President

Attest:

/s/ Robert M. Zakem
- ----------------------------------------
Robert M. Zakem
Assistant Secretary

<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 14 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
January 13, 1998, relating to the financial statements and financial highlights
of Anchor Pathway Fund, which appears in such Statement of Additional
Information and to the incorporation by reference of our report into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "General Information -
Independent Accountants and Legal Counsel" in such Statement of Additional
Information and to the references to us under the headings "Financial
Highlights" and "Independent Accountants and Legal Counsel" in such Prospectus.

/s/Price Waterhouse
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
January 23, 1998

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<NAME> ANCHOR PATHWAY HIGH YIELD BOND FUND

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<NUMBER> 005
<NAME> ANCHOR PATHWAY U.S. GOVERNMENT/AAA

<S> <C>
<PERIOD-TYPE> 12-MOS
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<PERIOD-START> DEC-01-1996
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</TABLE>

<ARTICLE> 6
<CIK> 0000814150
<NAME> ANCHOR PATHWAY SERIES
<SERIES>
<NUMBER> 006
<NAME> ANCHOR PATHWAY ASSET ALLOCATION

<S> <C>
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</TABLE>

<ARTICLE> 6
<CIK> 0000814150
<NAME> ANCHOR PATHWAY SERIES
<SERIES>
<NUMBER> 007
<NAME> ANCHOR PATHWAY INTERNATIONAL

<S> <C>
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</TABLE>