ANCHOR PATHWAY FUND, 485APOS, 1998-11-30

ANCHOR PATHWAY FUND
485APOS, 1998-11-30

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<PAGE> 1

As filed with the Securities and Exchange Commission on November 30, 1998

Securities Act File No. 33-14227

Investment Company Act File Act No. 811-5157

============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

PRE-EFFECTIVE AMENDMENT NO. [ ]

[X]
POST-EFFECTIVE AMENDMENT NO. 15

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]

AMENDMENT NO. 15

(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 for Agent for Service)

Copy 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.

Swidler Berlin Shereff Friedman, LLP

919 Third Avenue
New York, NY 10022

<PAGE> 2

Approximate Date of Proposed Public Offering: As soon as practicable
after this Registration Statement becomes effective.

It is proposed that this filing will become effective (check appropriate
box)

[ ] immediately upon filing pursuant to paragraph (b)

[ ] on (date) pursuant to paragraph (b)

[X] 60 days after filing pursuant to paragraph (a)(1)

[ ] on (date) pursuant to paragraph (a)(1)

[ ] 75 days after filing pursuant to paragraph (a)(2)

[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.

If appropriate, check the following box:

[ ] This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.

<PAGE> 3

__________________, 1999
PROSPECTUS

ANCHOR PATHWAY FUND

- GROWTH SERIES
- INTERNATIONAL SERIES
- GROWTH-INCOME SERIES
- ASSET ALLOCATION SERIES
- HIGH-YIELD BOND SERIES
- U.S. GOVERNMENT/AAA-RATED SECURITIES SERIES
- CASH MANAGEMENT SERIES

The Securities and Exchange Commission has
not approved or disapproved these securities
or passed upon the adequacy of this prospectus.
Any representation to the contrary is a criminal
offense.

[Logo]

<PAGE> 4
TABLE OF CONTENTS

<TABLE>
<S> <C>
FUND HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

ACCOUNT INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

MORE INFORMATION ABOUT THE SERIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Investment Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Investment Terminology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Risk Terminology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

</TABLE>

2
<PAGE> 5
FUND HIGHLIGHTS
The following questions and answers are designed to give you an overview of
Anchor Pathway Fund (the "Fund"), and to provide you information about the
Fund's seven investment portfolios, or "Series," and their investment goals and
principal strategies. More complete investment information is provided in the
chart, under "More Information About the Series," which is on page 14, and the
glossary that follows on page 18.
Q: What are the Series' investment goals and strategies?

A: Each Series operates as a separate mutual fund, and has its own
investment goal and a strategy for pursuing it. These goals and
strategies may be changed without shareholder approval, but you will
be notified of any change.

<TABLE>
<CAPTION>
Series Investment Goal Principal Investment Strategy
------ --------------- -----------------------------
<S> <C> <C>
Growth Series growth of capital invests primarily in common stocks or
securities with common stock characteristics
that demonstrate the potential for
appreciation.

International long-term growth of capital invests primarily in common stocks or
Series securities with common stock characteristics
of issuers that are domiciled outside the
U.S., including those domiciled in
developing countries.

Growth-Income growth of capital and invests primarily in common stocks or
Series income securities with common stock characteristics
that demonstrate the potential for solid
growth and dividends.

Asset Allocation high total return invests in a diversified portfolio of common
Series (including income and stocks, bonds and money market instruments;
capital gains) consistent under normal market conditions the portfolio
with preservation of will include: 40%-80% in equity securities,
capital over the long-term 20%-50% in fixed-income securities, and 0%
to 40% in money market instruments.

High-Yield Bond high current income with invests primarily in intermediate and
Series capital appreciation as a long-term corporate debt securities, with
secondary objective emphasis on higher yielding, higher risk,
lower rated or unrated corporate bonds,
which are commonly known as "junk bonds."

</TABLE>

3
<PAGE> 6
<TABLE>

Series Investment Goal Principal Investment Strategy
------ --------------- -----------------------------
<S> <C> <C>
U.S. Government high current income invests primarily in a combination of
/AAA-Rated consistent with prudent securities issued or guaranteed by the U.S.
Securities Series investment risk and government (i.e., backed by the full faith
preservation of capital and credit of the U.S.) and other debt
securities rated in the highest rating
category (or that are determined to be of
comparable quality by the Investment
Adviser).

Cash Management high current yield while invests primarily in high quality money
Series preserving capital market instruments.

</TABLE>
[Margin note: "growth" companies are considered to have a historical
record of above-average growth rate; to have significant growth
potential; to have above-average earnings growth or value or the
ability to sustain earnings growth; to offer proven or unusual
products or services; or to operate in industries experiencing
increasing demand.]
Q: What are the principal risks of investing in the Fund?

A: The Growth, International and Growth-Income Series invest primarily in
equity securities. In addition, the Asset Allocation Series invests
significantly in equities. As with any equity fund, the value of your
investment in any of these Series may fluctuate in response to stock
market movements.

The High-Yield Bond and U.S. Government/AAA-Rated Securities Series
invest primarily in bonds. In addition, the Asset Allocation Series
invests significantly in bonds. As a result, as with any bond fund,
the value of your investment in these Series may go up or down in
response to changes in interest rates or defaults (or even the
potential for future default) by bond issuers. In addition, with
respect to the Growth, International, Growth-Income, High-Yield Bond
and U.S. Government/AAA Rated Securities Series there is a risk the
securities selected for any of these Series will underperform the
markets generally.

While an investment in the Cash Management Series should present the
least market risk of any of the Series, since it invests only in
high-quality short-term debt obligations, you should be aware that an
investment in the Cash Management Series is subject to the risks that
the value of its investments may be subject to changes in interest
rates. You should also be aware that the return on an investment in
the Cash Management Series should not be the same as a return on an
investment in a money market fund available directly to the public,
even where gross yields are equivalent, due to fees at the contract
level. The Cash Management Series will comply with Rule 2a-7 under the
Investment Company Act of 1940 to the extent applicable to funds that
do not seek to maintain a stable net asset value of $1.00.

[Margin note: "High-quality" instruments have a very strong capacity
to pay interest and repay principal; they reflect the issuers' high
creditworthiness and low risk of default.]

All of the Series may invest to some degree in foreign securities.
These securities may be denominated in currencies other than U.S.
dollars. Investing outside the U.S. presents

4
<PAGE> 7
special risks, particularly in certain developing countries. While
investing internationally may reduce your risk by increasing the
diversification of your investment, the value of your investment may
be affected by fluctuating currency values, changing local and
regional economic, political and social conditions, and greater market
volatility. In addition, foreign securities may not be as liquid as
domestic securities.

The High-Yield Bond Series invests primarily in "junk bonds," which
are considered speculative. The Growth, International, Growth-Income
and Asset Allocation Series may also invest in junk bonds. While the
Fund's Investment Adviser seeks to diversify the Series and to engage
in a credit analysis of each junk bond issuer in which it invests,
junk bonds carry a substantial risk of default or they may already be
in default. The market price for junk bonds may fluctuate more than
higher-quality securities and may decline significantly. In addition,
it may be more difficult for a Series to dispose of junk bonds or to
determine their value. Junk bonds may contain redemption or call
provisions that, if exercised during a period of declining interest
rates, may force a Series to replace the security with a lower
yielding security, which would decrease the return on such Series.

In addition, shares of a Series are not bank deposits and are not
guaranteed or insured by any bank, government entity or the Federal
Deposit Insurance Corporation. As with any mutual fund, there is no
guarantee that a Series will be able to achieve its investment goals.
If the value of the assets of a Series goes down, you could lose
money.

Q: How have the Series performed historically?

A: The following Risk/Return Bar Charts and Tables provide some
indication of the risks of investing in the Series by showing changes
in the Series' performance from year to year, and compare the Series'
average annual returns to those of an appropriate market index. Sales
loads are not reflected in the bar chart. If these amounts were
reflected, returns would be less than those shown. Of course, past
performance is not necessarily an indication of how a Series will
perform in the future.

5
<PAGE> 8
GROWTH SERIES

During the 10-year period shown in the bar chart, the highest return
for a quarter was 20.78% (quarter ended 03/31/91) and the lowest return for a
quarter was -18.38% (quarter ended 09/30/90). The Fund's year-to-date return
as of _____________, 1998 was ___%.

<TABLE>
<CAPTION>
Average Annual Total Returns (as of the Return
calendar year ended December 31, 1997) Past One Past Five Past Ten Since
Year Years Years Inception***
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Series 28.14% 18.73% 18.62% 17.60%
- ---------------------------------------------------------------------------------------------------
S&P 500(R) Index*
- ---------------------------------------------------------------------------------------------------
Consumer Price Index**
- ---------------------------------------------------------------------------------------------------
</TABLE>

* The S&P 500(R) is the Standard & Poor's Composite 500 Stock Price
Index, a widely recognized, unmanaged index of common stock prices.

** The Consumer Price Index (or Cost of Living Index) is published by the
U.S. Bureau of Labor Statistics and is a statistical measure of
periodic change in the price of goods and services in major
expenditure groups.

*** Inception date is March 23, 1987.

6
<PAGE> 9
INTERNATIONAL SERIES
<TABLE>
<CAPTION>
1990+ 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
- -3.03% 6.99% 0.71% 34.48% -0.72% 13.43% 21.43% 12.13%
</TABLE>

+ From date of inception of May 9, 1990.

During the 8-year period shown in the bar chart, the highest return
for a quarter was 16.31% (quarter ended 06/30/97) and the lowest return for a
quarter was -8.52% (quarter ended 12/31/97). The Fund's year-to-date return as
of __________, 1998 was _____%.

<TABLE>
<CAPTION>
Average Annual Total Returns (as of the calendar Return
year ended December 31, 1997) Past One Past Five Past Ten Since
Year Years Years Inception***
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Series 12.13% 15.58% N/A 10.53%
- ---------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital International (MSCI) EAFE
Index*
- ---------------------------------------------------------------------------------------------------------------
Consumer Price Index**
- ---------------------------------------------------------------------------------------------------------------
</TABLE>

* The MSCI EAFE Index is an arithmetic, market value-weighted average of
performance of over 900 securities on the stock exchanges of countries
in Europe, Australia and the Far East.

*** Inception date is May 9, 1990.

7
<PAGE> 10
GROWTH-INCOME SERIES

During the 10-year period shown in the bar chart, the highest return
for a quarter was 15.83% (quarter ended 03/31/89) and the lowest return for a
quarter was -14.05% (quarter ended 03/31/90). The Fund's year-to-date return
as of ______, 1998 was _____%.

<TABLE>
<CAPTION>
Average Annual Total Returns (as of the Return
calendar year ended December 31, 1997) Past One Past Five Past Ten Since
Year Years Years Inception***
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth-Income Series 28.09% 18.44% 16.45% 16.5%
- ---------------------------------------------------------------------------------------------------
S&P 500(R) Index*
- ---------------------------------------------------------------------------------------------------
Consumer Price Index**
- ---------------------------------------------------------------------------------------------------
</TABLE>

* The S&P 500(R) is the Standard & Poor's Composite 500 Stock Price
Index, a widely recognized, unmanaged index of common stock prices.

*** Inception date is March 23, 1987.

8
<PAGE> 11
ASSET ALLOCATION SERIES
<TABLE>
<CAPTION>
1989+ 1990 1991 1992 1993 1994 1995 1996 1997
<C> <C> <C> <C> <C> <C> <C> <C> <C>
11.33% -0.27% 21.16% 10.11% 10.52% -0.52% 30.86% 15.77% 20.65%
</TABLE>
+ From date of inception of March 31, 1989.

During the 9-year period shown in the bar chart, the highest return
for a quarter was 11.02% (quarter ended 06/30/97) and the lowest return for a
quarter was -7.50% (quarter ended 09/30/90). the Fund's year-to-date return as
of ________________, 1998 was ______%.

<TABLE>
<CAPTION> Return
Average Annual Total Returns (as of the Past One Past Five Past Ten Since
calendar year ended December 31, 1997) Year Years Years Inception****
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Allocation Series 20.65% 14.98% N/A 13.28%
- ----------------------------------------------------------------------------------------------------------------
S&P 500(R) Index*
- ----------------------------------------------------------------------------------------------------------------
Salomon Brothers Broad Investment-Grade (BIG)
Bond Index**
- ----------------------------------------------------------------------------------------------------------------
Consumer Price Index***
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* The S&P 500(R) is the Standard & Poor's Composite 500 Stock Price
Index of 500 Stocks, a widely recognized, unmanaged index of common
stock prices.

** The Salomon Brothers Broad Investment-Grade Bond Index is a
market-weighted index that contains approximately 4700 individually
priced investment grade corporate bonds rated "BBB" or better, U.S.
Treasury/ agency issues and Mortgage pass through securities.

*** The Consumer Price Index (or Cost of Living Index) is published by the
U.S. Bureau of Labor Statistics and is an statistical measure of
periodic change in the price of goods and services in major
expenditure groups.

**** Inception date is March 31, 1989.

9
<PAGE> 12
HIGH-YIELD BOND SERIES

During the 10-year period shown in the bar chart, the highest return
for a quarter was 12.10% (quarter ended 03/31/91) and the lowest return for a
quarter was -5.30%(quarter ended 09/30/90). The Fund's year-to-date return as
of ____________, 1998 was ____ %.

<TABLE>
<CAPTION>
Average Annual Total Returns Return
(as of the calendar year ended Past One Past Five Past Ten Since
December 31, 1997) Year Years Years Inception****
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
High-Yield Bond Series 12.82% 11.16% 12.04% 12.90%
- -------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Long-Term High-Yield Index*
- -------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Broad Investment-Grade (BIG) Bond
Index**
- -------------------------------------------------------------------------------------------------------------------------------
Consumer Price Index***
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

* The Salomon Brothers Long-Term High-Yield Index generally represents
the performance of high debt securities during various market
conditions.

** The Salomon Brothers Broad Investment-Grade Bond Index is a
market-weighted index that contains approximately 4700 individually
priced investment grade corporate bonds rated "BBB" or better, U.S.
Treasury/agency issues and mortgage pass-through securities.

*** The Consumer Price Index (or Cost of Living Index) is published by the
U.S. Bureau of Labor Statistics and is a statistical measure of
periodic change in the price of goods and services in major
expenditure groups.

**** Inception date is March 23, 1987.

10
<PAGE> 13
U.S. GOVERNMENT/AAA-RATED SECURITIES SERIES

During the 10-year period shown in the bar chart, the highest return
for a quarter was 8.78% (quarter ended 03/31/89) and the lowest return for a
quarter was -3.03% (quarter ended 03/31/94). The Fund's year-to-date return as
of ____________, 1998 was ____ %.

<TABLE>
<CAPTION>
Average Annual Total Returns (as of the Return
calendar year ended December 31, Past One Past Five Past Ten Since
1997) Year Years Years Inception***
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government/AAA-Rated Securities 8.27% 6.81% 8.63% 8.57%
Series
- -----------------------------------------------------------------------------------------------------
Salomon Brothers Treasury/
Government-Sponsored/Mortgage Index*
- -----------------------------------------------------------------------------------------------------
Consumer Price Index**
- -----------------------------------------------------------------------------------------------------
</TABLE>

* Description of Index to be provided by amendment.

*** Inception date is March 23, 1987.

11
<PAGE> 14
CASH MANAGEMENT SERIES

During the 10-year period shown in the bar chart, the highest return
for a quarter was 2.23% (quarter ended 06/30/89) and the lowest return for a
quarter was 0.19% (quarter ended 12/31/88). The Fund's year-to-date return as
of ____________, 1998 was _____%.

<TABLE>
<CAPTION>
Average Annual Total Returns (as of the Return
calendar year ended December 31, Past One Past Five Past Ten Since
1997) Year Years Years Inception*
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash Management Series 5.03% 4.36% 5.44% 5.92%
- -----------------------------------------------------------------------------------------------------
Insert Broad Based Market Index
- -----------------------------------------------------------------------------------------------------
Insert Broad Based Market Index
- -----------------------------------------------------------------------------------------------------
</TABLE>

* Inception date is March 23, 1987.

12
<PAGE> 15
FINANCIAL HIGHLIGHTS

The Financial Highlights table for each Series is intended to help you
understand the Series' financial performance for the past 5 years. Certain
information reflects financial results for a single Series share. The total
returns in each table represent the rate that an investor would have earned on
an investment in the Series (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers
LLP, whose report, along with each Series' financial statements, are included
in the Statement of Additional Information (SAI), which is available upon
request.

[TO BE FILED BY AMENDMENT]

ACCOUNT INFORMATION

Shares of the Series are not offered directly to the public. Instead, shares
are currently offered only to the Variable Separate Account, which is a
separate account of Anchor National Life Insurance Company. So if you would
like to invest in a Series, you must purchase a variable annuity contract from
Anchor National. You should be aware that the contracts involve fees and
expenses that are not described in this Prospectus, and that the contracts also
may involve certain restrictions and limitations. Certain Series may not be
available in connection with a particular contract. You will find information
about purchasing a variable annuity contract in the prospectus that offers the
contracts, which accompanies this Prospectus.

TRANSACTION POLICIES

VALUATION OF SHARES The net asset value per share (NAV) for each Series is
determined each business day at the close of regular trading on the New York
Stock Exchange (generally 4:00 p.m., Eastern time) by dividing its net assets
by the number of its shares outstanding. Investments for which market
quotations are readily available are valued at market. All other securities
and assets are valued at "fair value" following procedures approved by the
Trustees.

The International Series may invest to a large extent in securities that are
primarily listed on foreign exchanges that trade on weekends or other days when
the Fund does not price its shares. As a result, the value of this Series'
shares may change on days when the Fund is not open for purchases or
redemptions.

BUY AND SELL PRICES The Variable Separate Account buys and sells shares of a
Series at NAV, without any sales or other charges.

EXECUTION OF REQUESTS The Fund is open on those days when the New York Stock
Exchange is open for regular trading. Buy and sell requests are executed at
the next NAV to be calculated after the request is accepted by the Fund. If
the order is received by the Fund before the Fund's close of business
(generally 4:00 p.m., Eastern time), the order will receive that day's closing
price. If the order is received after that time, it will receive the next
business day's closing price.

In unusual circumstances, a Series may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to seven business
days or longer, as allowed by federal securities laws.

DIVIDEND POLICIES AND TAXES

13
<PAGE> 16
DISTRIBUTIONS Each Series annually declares and distributes substantially all
of its net investment income in the form of dividends and capital gains
distributions.

DISTRIBUTION REINVESTMENT The dividends and distributions will be reinvested
automatically in additional shares of the same Series on which they were paid.

TAXABILITY OF A SERIES Each Series intends to continue to qualify as a
regulated investment company under the Internal Revenue Code of 1986, as
amended. As long as each Series is qualified as a regulated investment
company, it will not be subject to federal income tax on the earnings that it
distributes to its shareholders.

MORE INFORMATION ABOUT THE SERIES

INVESTMENT STRATEGIES

Each Series has its own investment goal and a strategy for pursuing it. The
chart summarizes information about each Series' investment strategy. We have
included a glossary to define the investment and risk terminology used in the
chart and throughout this Prospectus.

14
<PAGE> 17

GROWTH INTERNATIONAL GROWTH-INCOME ASSET ALLOCATION
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
What is the growth of capital long-term growth growth of capital high total return
Series' investment of capital and income (including income
goal? and capital gains)
consistent with
preservation of
capital over the
long-term

What are the common stocks or common stocks or common stocks or common stocks,
Series' principal securities with securities with securities with bonds and money
investments (under common stock common stock common stock market
normal market characteristics characteristics characteristics instruments;
conditions)? that demonstrate of issuers that demonstrate under normal
the potential for domiciled outside the potential for market conditions
appreciation the U.S. solid growth and the portfolio
dividends will include:
40%-80% in
equity securities;
20%-50% in fixed
income securities;
and 0%-40% in
money market
instruments

What are the - stock market - stock market - stock and bond - stock and bond
Series' principal volatility volatility market volatility market volatility
risks? - securities - securities - securities - securities
selection selection selection selection
- foreign exposure - interest rate
- illiquidity fluctuations
- issuer default
- credit quality

What other
investment
strategies can the
Series use?

- - Types of Fixed
income securities:

U.S. government Yes Yes Yes Yes
securities

</TABLE>
<TABLE>
<CAPTION>

GOVERNMENT/AAA CASH
HIGH-YIELD BOND -RATED SECURITIES MANAGEMENT
-----------------------------------------------------------------------
<S> <C> <C> <C>
What is the high current high current high current yield
Series' investment income with income consistent while preserving
goal? capital with prudent capital
appreciation as a investment risk
secondary and preservation
objective of capital

What are the intermediate and securities issued high quality
Series' principal long-term or guaranteed by money market
investments (under corporate debt the U.S. instruments
normal market securities, with government; (i.e.,
conditions)? emphasis on higher backed by the full
yielding, higher faith and credit
risk, lower rated of the U.S.), and
or unrated other debt
corporate bonds securities rated
(junk bonds) in the highest
rating category
(or that are
determined to be
of comparable
quality by the
Investment Adviser)

What are the - bond market - bond market - interest rate
Series' principal volatility volatility fluctuations
risks? - securities - interest rate - securities
selection fluctuations selection
- interest rate - prepayment
fluctuations - securities
- issuer default selection
credit quality
- illiquidity

What other
investment
strategies can the
Series use?

- - Types of Fixed
income securities:

U.S. government Yes a principal
securities investment (see
above)

</TABLE>

15
<PAGE> 18

GROWTH INTERNATIONAL GROWTH-INCOME ASSET ALLOCATION
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment grade Yes Yes Yes Yes
corporate bonds

Junk bonds Yes (up to 10%) Yes (up to 5%) Yes (up to 5%) Yes
(up to 25% of
fixed-income
securities)

Inflation-indexed No No No Yes
bonds

Pass-through Yes Yes Yes Yes
securities

- - Common stocks a principal a principal a principal a principal
investment (see investment (see investment (see investment (see
above) above) above) above)

- - Convertible Yes Yes Yes Yes
securities

- - Non-convertible Yes Yes Yes Yes
preferred stocks

- - Warrants Yes Yes Yes Yes

- - Short-term Yes Yes Yes Yes
investments

- - Defensive Yes Yes Yes Yes
investments

- - Foreign securities Yes (up to 10%) a principal Yes (up to 10%) Yes (up to 10% in
investment (see equity securities,
above) up to 5% in debt
securities)

Currency Yes Yes Yes Yes
transactions

- - Illiquid securities Yes (up to 15%) Yes (up to 15%) Yes (up to 15%) Yes (up to 15%)

</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT/AAA CASH
HIGH-YIELD BOND -RATED SECURITIES MANAGEMENT
---------------------------------------------------------
<S> <C> <C> <C>
Investment grade Yes a principal Yes
corporate bonds investment (see
above)

Junk bonds a principal No No
investment
(see above)

Inflation-indexed Yes Yes No
bonds

Pass-through Yes Yes Yes
securities

- - Common stocks Yes (up to 25%) No No

- - Convertible Yes No No
securities

- - Non-convertible Yes No No
preferred stocks

- - Warrants Yes No No

- - Short-term Yes Yes a principal
investments investment (see
above)

- - Defensive Yes Yes No
investments

- - Foreign securities Yes (up to 25%) Yes (only U.S. Yes
dollar denominated
highly-liquid
obligations)

Currency Yes No No
transactions

- - Illiquid securities Yes (up to 15%) Yes (up to 15%) Yes(up to 10%)
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>

GROWTH INTERNATIONAL GROWTH-INCOME
-----------------------------------------------------------
<S> <C> <C> <C>

What other - interest rate - interest rate - interest rate
potential risks can fluctuations fluctuations fluctuations
affect the Series? - foreign exposure - illiquidity - foreign exposure
- illiquidity hedging - illiquidity
- prepayment - prepayment - hedging
- prepayment
</TABLE>

<TABLE>
<CAPTION>
GOVERNMENT/AAA CASH
ASSET ALLOCATION HIGH-YIELD BOND -RATED SECURITIES MANAGEMENT
------------------------------------------------------------------------
<C> <C> <C> <C>

What other - foreign exposure - foreign exposure
potential risks can - illiquidity - prepayment
affect the Series? - prepayment

</TABLE>

17
<PAGE> 20
GLOSSARY
INVESTMENT TERMINOLOGY
FIXED INCOME SECURITIES, which issuers use to borrow money, provide consistent
interest or dividend payments. They include corporate bonds, notes, debentures,
preferred stocks, convertible securities, U.S. government securities and
mortgage-backed and asset-backed securities. The issuer of a senior fixed
income security is obligated to make payments on this security ahead of other
payments to security holders.
U.S. GOVERNMENT SECURITIES are issued or guaranteed by the U.S. government, its
agencies and instrumentalities. Some U.S. government securities are issued or
unconditionally guaranteed by the U.S. Treasury. They are of the highest
possible credit quality. While these securities are subject to variations in
market value due to fluctuations in interest rates, they will be paid in full
if held to maturity. Other U.S. government securities are neither direct
obligations of, nor guaranteed by, the U.S. 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.

An INVESTMENT GRADE fixed income security is rated in one of the top four
ratings categories by a debt rating agency (or is considered of comparable
quality by the Investment Adviser).

[Margin note: The two best-known debt rating agencies are Standard & Poor's
Rating Services, a Division of The McGraw-Hill Companies, Inc. and Moody's
Investors Service, Inc. "Investment grade" refers to any security rated "BBB"
or above by Standard & Poor's or "Baa" or above by Moody's.]
A JUNK BOND is a high yield, high risk bond that does not meet the credit
quality standards of investment grade securities.
The principal value of an INFLATION-INDEXED BOND is periodically adjusted
according to changes in the rate of inflation.
PASS-THROUGH SECURITIES involve various debt obligations that are backed by a
pool of mortgages or other assets. Principal and interest payments made on the
underlying asset pools are typically passed through to investors. Types of
pass-through securities include "mortgage-backed securities," "collateralized
mortgage obligations," "commercial mortgage-backed securities," and "asset-
backed securities."
EQUITY SECURITIES include common and preferred stocks, convertible securities,
warrants and rights.

COMMON STOCKS are units of ownership of a public corporation.

CONVERTIBLE SECURITIES are securities (such as bonds or preferred stocks) that
may be converted into common stock or other securities of the same or a
different company.

WARRANTS are rights to buy common stock of a company at a specified price
during the life of the warrant.

18
<PAGE> 21
SHORT-TERM INVESTMENTS include money market securities such as short-term U.S.
government obligations, repurchase agreements, commercial paper, bankers'
acceptances and certificates of deposit. These securities provide a Series
with sufficient liquidity to meet redemptions and cover expenses.

DEFENSIVE INVESTMENTS include cash and money market instruments. A Series may
make temporary defensive investments in response to adverse market, economic,
political or other conditions, and such investments may protect a Series during
a market downturn. When a Series takes a defensive position, it may miss out
on investment opportunities over the short term that could have resulted from
investing in accordance with its principal investment strategy.

FOREIGN SECURITIES are issued by companies located outside of the United
States, including developing countries. Foreign securities may include
American Depositary Receipts (ADRs) or other similar securities that convert
into foreign securities.

CURRENCY TRANSACTIONS include the purchase and sale of currencies to facilitate
securities transactions, and forward currency contracts, which are used to
hedge against changes in currency exchange rates.

ILLIQUID SECURITIES are subject to legal or contractual restrictions that may
make them difficult to sell. A security that cannot easily be sold within
seven days will generally be considered illiquid. Certain restricted
securities (such as Rule 144A securities) are not generally considered illiquid
because of their established trading market.

RISK TERMINOLOGY

MARKET VOLATILITY: The stock and/or bond markets as a whole could go up or
down (sometimes dramatically). This could affect the value of the securities in
a Series' portfolio.

SECURITIES SELECTION: A strategy used by a Series, or securities selected by
its portfolio manager, may fail to produce the intended return.

INTEREST RATE FLUCTUATIONS: Volatility of the bond market is due principally
to changes in interest rates. As interest rates rise, bond prices typically
fall; and as interest rates fall, bond prices typically rise. Longer-term and
lower coupon bonds tend to be more sensitive to changes in interest rates.

CREDIT QUALITY: The creditworthiness of the issuer is always a factor in
analyzing fixed income securities. An issuer with a lower credit rating will be
more likely than a higher rated issuer to default or otherwise become unable to
honor its financial obligations. This type of issuer will typically issue
JUNK BONDS. In addition to the risk of default, junk bonds may be more
volatile, less liquid, more difficult to value and more susceptible to adverse
economic conditions or investor perceptions than other bonds.

PREPAYMENT: Prepayment risk is the possibility that the principal of the loans
underlying mortgage-backed or other asset-backed securities may be prepaid at
any time. As a general rule, prepayments increase during a period of falling
interest rates and decrease during a period of rising interest rates. As a
result of prepayments, in periods of declining interest rates a Series may be
required to reinvest its assets in securities with lower interest rates. In
periods of increasing interest

19
<PAGE> 22
rates, prepayments generally may decline, with the effect that the securities
subject to prepayment risk held by a Series may exhibit price characteristics
of longer-term debt securities.

FOREIGN EXPOSURE: Investments in foreign countries are subject to a number of
risks. A principal risk is that fluctuations in the exchange rates between the
U.S. dollar and foreign currencies may negatively affect an investment. In
addition, there may be less publicly available information about a foreign
company and it may not be subject to the same uniform accounting, auditing and
financial reporting standards as U.S. companies. Foreign governments may not
regulate securities markets and companies to the same degree as in the U.S.
Foreign investments will also be affected by local political or economic
developments and governmental actions. Consequently, foreign securities may be
less liquid, more volatile and more difficult to price than U.S. securities.
These risks may heighten when the issuer is in a developing market.

ILLIQUIDITY: Certain securities may be difficult or impossible to sell at the
time and the price that the seller would like.

HEDGING: Hedging is a strategy in which the Investment Adviser uses a
derivative security to reduce certain risk characteristics of an underlying
security or portfolio of securities. While hedging strategies can be very
useful and inexpensive ways of reducing risk, they are sometimes ineffective
due to unexpected changes in the market. Examples of hedging strategies are:
- Long Hedge - Strategy in which an investor locks in a future price on
a security / index by buying a futures contract.
- Neutral Hedge - Strategy that is designed to provide the highest
expected return on a portfolio of securities assuming that the
price of a particular investment in the portfolio remains constant.
- Perfect Hedge - a hedge whose change in value is equal to the change
in value of the underlying security, positive or negative.
- Short Hedge - Strategy designed to reduce the risk of a decline in
value of a security / index without requiring ownership of that
security.

MANAGEMENT

INVESTMENT ADVISER Capital Research and Management Company selects and manages
the investments of each Series. For the fiscal year ended November 30, 1998
each Series paid the Investment Adviser a fee equal to the following percentage
of average daily net assets:

<TABLE>
<CAPTION>
Fund Fee
---- ---
<S> <C>
Growth
International
Growth-Income
Asset Allocation
High-Yield Bond
Government/AAA
Cash Management

</TABLE>

The Investment Adviser is headquartered at 333 South Hope Street, Los Angeles,
California 90071.

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.

20
<PAGE> 23
Under this system, the portfolios of the Series are divided into segments
managed by individual counselors. Each counselor decides how his or her
segment will be invested, within the limits prescribed by each Series'
investment goal and 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. The primary
portfolio counselor for each series is set forth in this following table.

21
<PAGE> 24

<TABLE>
<CAPTION>
YEARS OF EXPERIENCE
IN THE INVESTMENT INDUSTRY
- ---------------------------------------------------------------------------------------------------------------------------
WITH CAPITAL
YEARS OF EXPERIENCE AS RESEARCH
PORTFOLIO COUNSELOR AND
FOR THE SERIES MANAGEMENT
PORTFOLIO COUNSELORS INDICATED COMPANY OR TOTAL
FOR THE FUND PRIMARY TITLE(s) (APPROXIMATE) ITS AFFILIATES YEARS

- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Timothy D. Armour Chairman and Chief Executive Asset Allocation Series 16 16
Officer, Capital Research - 2 Year
Company*
- ---------------------------------------------------------------------------------------------------------------------------
David C. Barclay Senior Vice President and High-Yield Bond Series 11 18
Director, Capital Research Company* - 10 years
- ---------------------------------------------------------------------------------------------------------------------------
Alan N. Berro Senior Vice President, Capital Growth-Income Series - 8 13
Research Company* 2 years
- ---------------------------------------------------------------------------------------------------------------------------

Martial Chaillet Senior Vice President, Capital International Series - 26 26
Research Company* 6 years
- ---------------------------------------------------------------------------------------------------------------------------
Gordon Crawford Senior Vice President and Growth Series - 5 28 28
Director, Capital Research and years (plus 5 years as
Management Company a research professional
prior to becoming a
portfolio counselor for
the Series)
- ---------------------------------------------------------------------------------------------------------------------------
James E. Drasdo Senior Vice President and Growth Series - 13 years 22 27
Director, Capital Research and
Management Company
- ---------------------------------------------------------------------------------------------------------------------------
James K. Dunton Senior Vice President and Growth-Income Series - 37 37
Director, Capital Research and since the Series began
Management Company operations in 1984
- ---------------------------------------------------------------------------------------------------------------------------
Abner D. Goldstine Senior Vice President and Asset Allocation Series 30 46
Director, Capital Research and since the series began
Management Company operations in 1989; High-
Yield Bond Series - less
than 1 year
- ---------------------------------------------------------------------------------------------------------------------------
Alwyn Heong Vice President-Investment International Series - 3 7 10
Management Group, Capital years
Research and Management Company
- ---------------------------------------------------------------------------------------------------------------------------
Claudia P. Huntington Senior Vice President, Capital Growth-Income Series - 5 21 23
Research and Management Company years (plus 5 years as a
research professional prior
to becoming portfolio
counselor for the series)
- ---------------------------------------------------------------------------------------------------------------------------
Robert W. Lovelace Executive Vice President and International Series - 5 13 13
Director, Capital Research Company* years
- ---------------------------------------------------------------------------------------------------------------------------
Robert G. O'Donnell Senior Vice President and Growth-Income Series - 9 24 27
Director, Capital Research and years (plus 1 year as a
Management Company research professional prior
to becoming a portfolio
counselor for the Series)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

22
<PAGE> 25

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Donald D. O'Neal Vice President, Capital Research Growth Series - 7 13 13
and Management Company years (plus 4 years as
a research professional prior
to becoming a portfolio
counselor for the Series)
- ---------------------------------------------------------------------------------------------------------------------------
Victor M. Parachini Senior Vice President, Capital Asset Allocation Series 22 37
Research and Management Company - 2 years
- ---------------------------------------------------------------------------------------------------------------------------
John H. Smet Vice President, Capital Research Government/AAA Series 16 17
and Management Company - 6 years
- ---------------------------------------------------------------------------------------------------------------------------
Susan M. Tolson Senior Vice President and High-Yield Bond Series 9 11
Director, Capital Research and - less than 1 year
Management Company
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Company affiliated with Capital Research and Management Company.

BUSINESS MANAGER SunAmerica Asset Management Corp. manages the business affairs
and the administration of the Fund. The Business Manager receives a monthly
fee, accrued daily, based on the average daily 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% thereafter. The Business Manager receives a monthly fee, accrued daily,
based on the average daily net assets the International Series, at the annual
rate of 0.24%.

The Business Manager is located in The SunAmerica Center, 733 Third Avenue, New
York, New York 10017.

YEAR 2000 Many computer and computer-based systems cannot distinguish
the year 2000 from the year 1900 because of the way systems encode and
calculate dates (commonly known as the "Year 2000 Issue"). The Year 2000 Issue
could potentially have an adverse impact on the handling of security trades,
the payment of interest and dividends, pricing and account services. We
recognize the importance of the Year 2000 Issue and are taking appropriate
steps necessary in preparation for the year 2000. The Fund's management fully
anticipates that their systems will be adapted in time for the year 2000, and
to further this goal they have coordinated a plan to repair, adapt or replace
their systems as necessary. They have also obtained representations from their
outside service providers that they are doing the same. The Fund's management
completed their plan significantly by the end of the 1998 calendar year and
expects to perform appropriate systems testing during the 1999 calendar year.
If the problem has not been fully addressed, however, the Fund could be
negatively impacted. The Year 2000 Issue could also have a negative impact on
the companies in which the Fund invests, which could hurt the Fund's investment
returns.

23
<PAGE> 26
(OUTSIDE BACK COVER)

FOR MORE INFORMATION

The following documents contain more information about the Series and
are available free of charge upon request:

ANNUAL/SEMI-ANNUAL REPORTS. Contain financial
statements, performance data and information on
portfolio holdings. The annual report also contains
a written analysis of market conditions and
investment strategies that significantly affected a
Series' performance for the most recently completed
fiscal year.

STATEMENT OF ADDITIONAL INFORMATION (SAI). Contains
additional information about the Series' policies,
investment restrictions and business structure. This
prospectus incorporates the SAI by reference.

You may obtain copies of these documents or ask questions about the
Series by contacting:

Anchor National Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
1-800-445-7862

Information about the Series (including the SAI) can be reviewed and copied at
the Public Reference Room of the Securities and Exchange Commission,
Washington, D.C. Call (800) SEC-0330 for information on the operation of the
Public Reference Room. Information about the Series is also available on the
Securities and Exchange Commission's web-site at http://www.sec.gov and copies
may be obtained upon payment of a duplicating fee by writing the Public
Reference Section of the Securities and Exchange Commission, Washington, D.C.
20549-6009.

You should rely only on the information contained in this prospectus. No one
is authorized to provide you with any different information.

[Logo]

Anchor National Life Insurance Company
1 SunAmerica Center
Los Angeles, California 90067-6022
INVESTMENT COMPANY ACT
File No. 811-5157

<PAGE> 27
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
______________. This Statement of Additional Information incorporates the
Prospectus by reference. The Prospectus may be obtained without charge by
writing to the Fund at the address below or by calling (800) 445-7862.
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

[date]

<PAGE> 28

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Topic Page
<S> <C>
The Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-2
Investment Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-2
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-15
Fund Officers and Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-20
Investment Advisory Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-24
Business Management Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-25
Dividends, Distributions and Federal Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . B-27
Shareholder Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-28
Price of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-28
Execution of Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-29
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-33
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-34
</TABLE>

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 a funding medium for Variable Separate Account (the
"Account"), a separate account of Anchor National Life Insurance Company (the
"Company"). The sole shareholder of the Fund is the Account. 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 would monitor events in
order to identify any material conflicts to determine what action, if any,
should be taken in response thereto. Shares of the Fund may be offered to
separate accounts of other life insurance companies that are affiliates of the
Company.

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. SunAmerica Inc. has agreed to merge
with and into American International Group, Inc., the leading U.S.-based
international insurance organization.

INVESTMENT POLICIES

B-2
<PAGE> 29

The investment objective and policies of each of the Series
are described in the Fund's Prospectus. Certain types of securities in which
the Series may invest and certain investment practices the Series may employ,
which are described under "More Information About the Series" in the
Prospectus, are discussed more fully below. The stated percentage limitations
are applied to an investment at the time of purchase unless indicated
otherwise.

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 that are
otherwise not readily marketable and repurchase agreements having a maturity of
longer than seven days. Securities that 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 other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted
securities in order to dispose of them, resulting in additional expense and
delay. There generally will be a lapse of time between a mutual fund's
decision to sell an unregistered security and the registration of such security
promoting sale. Adverse market conditions could impede a public offering of
such securities. When purchasing unregistered securities, the Series will seek
to obtain the right of registration at the expense of the issuer.

In recent years, a large institutional market has developed
for certain securities that are not registered under the Securities Act,
including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal restrictions on resale
to the general public or to certain institutions may not be indicative of the
liquidity of such investments.

Restricted securities eligible for resale pursuant to Rule
144A under the Securities Act for which there is a readily available market
will not be deemed to be illiquid under procedures adopted by the Fund's Board
of Trustees. Capital Research and Management Company ("CRMC" or the
"Investment Adviser"), 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

B-3
<PAGE> 30

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
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, as amended, 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.

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 changes at least annually and generally more frequently) have
maturities in excess of one year, they are also considered short-term debt
securities. For more information on money market intruments, see "Cash
Management Series" below.

FIXED INCOME SECURITIES - Fixed income securities are broadly
characterized as those that provide for periodic payments to the holder of the
security at a stated rate. Most fixed income securities, such as bonds,
represent indebtedness of the issuer and provide for repayment of principal at
a stated time in the future. Others do not provide for repayment of a
principal amount, although they may represent a priority over common
stockholders in the event of the issuer's liquidation. Many fixed income
securities are subject to scheduled retirement, or may be retired or "called"
by the issuer prior to their maturity dates. The interest rate on certain
fixed income securities, known as "variable rate obligations," is determined by
reference to or is a percentage of an objective standard, such as a bank's
prime rate, the 90-day Treasury bill rate, or the rate of return on commercial
paper or bank certificates of deposit, and is periodically adjusted. Certain
variable rate obligations may have a demand feature entitling the holder to
resell the securities at a predetermined amount. The interest rate on certain
fixed income securities, called "floating rate instruments," changes whenever
there is a change in a designated base rate.

B-4
<PAGE> 31

The market values of fixed income securities tend to vary
inversely with the level of interest rates -- when interest rates rise, their
values will tend to decline; when interest rates decline, their values
generally will tend to rise. The potential for capital appreciation with
respect to variable rate obligations or floating rate instruments will be less
than with respect to fixed-rate obligations. Long-term instruments are
generally more sensitive to these changes than short-term instruments. The
market value of fixed income securities and therefore their yield are also
affected by the perceived ability of the issuer to make timely payments of
principal and interest.

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 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.

Up to 5% of the International Series' assets may be invested
in straight debt securities rated BB or below by S&P or Ba or below by Moody's
or in unrated securities that are determined to be of equivalent quality.

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 equivalent quality by the
Investment Adviser.

Up to 25% of the Asset Allocation Series' fixed-income assets
may be invested in securities rated BB or below by S&P or Ba or below by
Moody's, including securities rated as low as CC by S&P or Ca by Moody's.

The High-Yield Bond 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).

The U.S.Goverment/AAA- Rated Securities Series(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

B-5
<PAGE> 32

of a security currently held by the Series is reduced below AAA (or Aaa), the
Series is not required to dispose of the security.

The Cash Management Series invests only in high-quality
short-term debt obligations.

See "Certain Risks Relates to High-Yield, High-Risk Bonds,"
below.

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.

CASH MANAGEMENT SERIES

The Cash Management Series seeks to achieve its investment
objective by investing in a diversified selection of money market instruments.
The other Series may also invest to various degrees in money market
instruments. The money market instruments in which a 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.

B-6
<PAGE> 33
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 purchase
commercial paper only if 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 at the end of this Statement of Additional
Information 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 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 attached hereto
for a description of investment-grade ratings by S&P and Moody's.

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<PAGE> 34
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 - The Asset
Allocation Series and Government/AAA Series will - and each Series may -
purchase certificates issued by the Government National Mortgage Association
("GNMA"). The 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 interests 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 that
represent an interest in a pool of conventional mortgage loans. FHLMC
guarantees the timely payment of interest and the ultimate collection of
principal and maintains reserves to protect holders against losses due to
default, but the certificates are not backed by the full faith and credit of
the U.S. Government. As is the case with GNMA certificates, the actual
maturity of and realized yield on particular FNMA and FHLMC pass-through
securities will vary based on the prepayment experience of the underlying pool
of mortgages.

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

B-8
<PAGE> 35

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, Farmer's
Home Administration, Central Bank for Cooperatives, Federal Intermediate Credit
Banks and Federal Home Loan Banks.

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 - 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

B-9
<PAGE> 36

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 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 AND RISKS OF
INVESTING IN VARIOUS COUNTRIES - 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 described below (under "Risks of Investing in
Various Countries") are still present, they are present to a lesser extent.

ASSET ALLOCATION SERIES, HIGH-YIELD BOND SERIES AND U.S. GOVERNMENT/AAA-RATED
SECURITIES SERIES

LOANS OF PORTFOLIO SECURITIES - The Asset Allocation
Series, High-Yield Bond Series and Government/AAA Series are authorized to
lend portfolio securities to broker-dealers or to other institutional investors
whose financial condition is monitored by the Investment Adviser. 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. Each 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
intend 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.

B-10
<PAGE> 37

ROLL TRANSACTIONS - The Asset Allocation Series, the
High-Yield Bond Series and the Government/AAA Series, may engage in "roll"
transactions. A "roll" transaction is the sale of mortgage-backed securities 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. To the
extent the Series do not 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.

INFLATION-INDEXED BONDS - The Asset Allocation Series,
High-Yield Bond Series, and Government/AAA Series may invest in
inflation-indexed bonds issued by governments, their agencies or
instrumentalities and 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 that 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.

GROWTH SERIES, INTERNATIONAL SERIES, GROWTH-INCOME SERIES, ASSET ALLOCATION
SERIES, AND HIGH-YIELD BOND SERIES

CURRENCY TRANSACTIONS -The Growth Series, International
Series, Growth-Income Series, Asset Allocation 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

B-11
<PAGE> 38

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 (the "Commission").

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' assets.

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 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

B-12
<PAGE> 39
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, INTERNATIONAL SERIES, GROWTH-INCOME SERIES, ASSET ALLOCATION
SERIES AND HIGH-YIELD BOND SERIES

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

B-13
<PAGE> 40

expiration date or in perpetuity. Rights are similar to warrants except that
they normally entitle the holder to purchase common stock at a lower price than
the current market price. Rights represent a preemptive right of stockholders
to purchase additional shares of a stock at the time of a new issuance before
the stock is offered to the general public, allowing the stockholder to retain
the same ownership percentage after the new stock offering. Rights generally
expire in less than four weeks.

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, pursuant to the
percentage limitations listed in the Prospectus.

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; foreign taxation on income from foreign sources; 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. A developing
country is one that the World Bank, the International Finance Corporation or the
United Nations or its authorities has determined to have a low or middle income
economy.

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 Series may purchase obligations of
foreign corporation or governmental entities, provided they are U.S. dollar
denominated and highly liquid.

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. The underlying loans 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

B-14
<PAGE> 41

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 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

B-15
<PAGE> 42
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
Investment Adviser has determined to be liquid pursuant to guidelines
established by the Trustees, will not be considered illiquid for purposes of
this limitation on illiquid securities.

9. Pledge or hypothecate its assets.

10. Invest in puts, calls, straddles, spreads or any combination
thereof, except as permitted by the Prospectus and Statement of Additional
Information, as amended from time to time.

11. Invest in securities of other investment companies, except to
the extent permitted by applicable law and the Prospectus and Statement of
Additional Information, as amended from time to time.

Notwithstanding investment restriction Number 1 above, in order to
comply with Rule 2a-7 under the 1940 Act, the Cash Management Series has
adopted a more restrictive policy (which 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.

B-16
<PAGE> 43

INVESTMENT RESTRICTIONS OF THE GROWTH SERIES, THE INTERNATIONAL SERIES, THE
GROWTH-INCOME SERIES, THE ASSET ALLOCATION SERIES AND THE HIGH-YIELD BOND
SERIES

The Growth Series, the International Series, the Growth-Income Series,
the Asset Allocation Series and the High-Yield Bond 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 Growth Series, the International Series, the
Growth-Income Series, the Asset Allocation Series and the High-Yield Bond
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,
that deal in real estate or interests therein).

5. Purchase commodities or commodity contracts; except that the
International Series, the Asset Allocation Series and the High-Yield Bond
Series may engage in transactions involving currencies (including forward and
futures contracts or put and call options).

6. Make loans to others except for (a) the purchase of debt
securities; (b) entering into repurchase agreements; and (c) the lending of its
portfolio securities.

7. Borrow money, except to the extent permitted by applicable
law.

8. Purchase securities on margin.

B-17
<PAGE> 44

The following additional restrictions are not fundamental policies and
may be changed by the Trustees without a vote of shareholders. The Growth
Series, the International Series, the Growth-Income Series, the Asset
Allocation Series and the High-Yield Bond 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
Investment 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:

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.

B-18
<PAGE> 45

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 that 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.

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 Investment 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-19
<PAGE> 46
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>
Principal Occupations
Name, Age and Address Position with the Fund During Past Five Years
--------------------- ---------------------- ----------------------
- -----------------------------------------------------------------------------------------------------------

<S> <C> <C>
James K. Hunt, *47 Trustee, Chairman and Executive Vice President, SunAmerica
President Investments, Inc. (1993 to Present);
President, SunAmerica Corporate Finance,
(since January 1994); Trustee, Chairman
and President, SunAmerica Series Trust
and Seasons Series Trust (since 1994).

- -----------------------------------------------------------------------------------------------------------
Monica C. Lozano, 42 Trustee Associate Publisher, La Opinion
3257 Purdue Avenue (newspaper publishing concern) (since
Los Angeles, CA 90066 1995); Director, First Interstate Bank
of California (1994-1996); Editor, La
Opinion (1991-1995).

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

Allan L. Sher, 67 Trustee Retired; Trustee, SunAmerica Series
Trust and Seasons Series Trust.
- -----------------------------------------------------------------------------------------------------------
</TABLE>

B-20

<PAGE> 47

<TABLE>
<CAPTION>
Name, Age and Address Position with the Fund During Past Five Years
--------------------- ---------------------- ----------------------
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
William M. Wardlaw, 51 Trustee Principal, Freeman Spogli & Co.
(investment banking) (1988-Present),
Vice President and Director, MCC
International Holdings (cable) (since
April 1996); Director/Trustee, AV
Development Corp. (homebuilding) (since
1994), MCC International Holdings, Ltd.
(cable) (since 1995), AFC Enterprises,
Inc. (quick service restaurants) (since
1996), Catholic Charities of Los Angeles
(since 1994), The Pantry, Inc.
(convenience store chain) (since April
1998); Formerly Director/Trustee,
Calmar, Inc. (plastic dispenser
manufacturing) (1988-1998), Buttrey Food
and Drug Stores (supermarket chain)
(1990-1998), Koll Real Estate Services,
Inc. (real estate services) (1994-1996)
Trustee, SunAmerica Series Trust and
Seasons Series Trust.

- -----------------------------------------------------------------------------------------------------------
Scott L. Robinson, 52 Senior Vice President, Senior Vice President and Controller,
Treasurer and Controller SunAmerica Inc. (since 1991); Senior
Vice President of Anchor National (since
1988); Senior Vice President, Treasurer
and Controller, SunAmerica Series Trust
(since 1993) and Seasons Series Trust
(since 1997); Joined SunAmerica Inc. in 1978.
- -----------------------------------------------------------------------------------------------------------
</TABLE>

B-21

<PAGE> 48

- -----------------------------------------------------------------------------------------------------------
Peter C. Sutton, 34 Vice President and Senior Vice President, SunAmerica Asset
The SunAmerica Center Assistant Treasurer Management Corp. (since April 1997);
733 Third Avenue Treasurer (since February 1996),
New York, NY 10017-3204 SunAmerica Mutual Funds,
Anchor Series Trust and Style Select
Series, Inc. (since 1996); Vice
President and Assistant Treasurer,
SunAmerica Series Trust and Seasons
Series Trust (since 1994); Joined
SunAmerica Asset Management Corp. in
1990.

- -----------------------------------------------------------------------------------------------------------
Robert M. Zakem, 40 Vice President and Vice President and Assistant Secretary,
The SunAmerica Center Assistant Secretary SunAmerica Series Trust (since 1993)
733 Third Avenue and Seasons Series Trust (since 1997);
New York, NY 10017-3204 Secretary and Chief Compliance Officer,
SunAmerica Mutual Funds and Anchor
Series Trust (since 1993) and Style
Select Series (since 1996); Senior Vice
President and General Counsel,
SunAmerica Asset Management Corp.
(since April 1993); Executive Vice
President, General Counsel and Director,
SunAmerica Capital Services, Inc. (since
February 1993); Vice President, General
Counsel and Assistant Secretary,
SunAmerica Fund Services, Inc. (since
January 1994).
- -----------------------------------------------------------------------------------------------------------
</TABLE>

B-22

<PAGE> 49

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

*A Trustee who may be deemed to be an "interested person" of the Fund as that
term is defined in the 1940 Act.

As of ___, 1998, the officers and Trustees as a group owned an
aggregate of less than 1% of the shares of each Series.

The Trustees of the Fund are responsible for the overall
supervision of the operation of the Fund and each Series and perform various
duties imposed on trustees of investment companies by the 1940 Act and under
the Fund's Declaration of Trust. 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, 1998, 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, 1998. Trustees who are affiliated with the
Company do not receive any compensation. Ms. Lozanto became a Trustee as of
[December 30, 1998.]

B-23

<PAGE> 50
COMPENSATION TABLE

PENSION OR
RETIREMENT TOTAL COMPENSATION
AGGREGATE BENEFITS ACCRUED FROM REGISTRANT AND
COMPENSATION AS PART OF FUND FUND COMPLEX PAID
TRUSTEE FROM REGISTRANT EXPENSES TO TRUSTEES*

- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allan L. Sher -

- -----------------------------------------------------------------------------------------------------------
William M. Wardlaw -

- -----------------------------------------------------------------------------------------------------------
</TABLE>

* Information is as of November 30, 1998 for the three investment companies
in the complex (the Fund, SunAmerica Series Trust and Seasons Series Trust)
that pay fees to these Trustees.

INVESTMENT ADVISORY AGREEMENT

The Fund is advised by CRMC of Los Angeles, California, which is a
wholly-owned subsidiary of the Capital Group Companies, Inc., and is
headquartered at 333 South Hope Street, Los Angeles California 90071. 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%

B-24
<PAGE> 51

of that portion of the Series' average daily net assets in excess of $60
million.

The following table sets forth the total advisory fees received by the
Investment Adviser from each Series pursuant to the Investment Advisory
Agreement for the fiscal years ended November 30, 1998, 1997 and 1996.

ADVISORY FEES

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
FUND 1998 1997 1996

- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Growth Series $2,411,000 $2,478,000

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

International Series $1,504,000 $1,412,000

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

Growth-Income Series $2,809,000 $2,672,000

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

Asset Allocation Series $481,000 $472,000

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

High-Yield Bond Series $394,000 $421,000

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

U.S. Government/AAA-Rated $292,000
Securities Series $380,000

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

Cash Management Series $264,000 $318,000

- -----------------------------------------------------------------------------------------------------------
</TABLE>

BUSINESS MANAGEMENT AGREEMENT

SunAmerica Asset Management Corp. (the "Business Manager") provides
administrative services to the Fund. The Business Manager is an indirect
wholly-owned subsidiary of Anchor National Life Insurance Company, an indirect
subsidiary of SunAmerica Inc., an investment-grade financial services company
that, as of September 30, 1998, earns fees or spreads income on approximately
$110 billion in assets. SunAmerica Inc. has agreed to merge with and into
American International Group, Inc., the leading U.S.-based international
insurance organization, which, through its affiliates, is also engaged in a
range of financial services activities. The Business Management Agreement
between the Fund and the Business Manager, dated [December 30, 1998], 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

B-25
<PAGE> 52
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, 1998, 1997 and 1996.

B-26
<PAGE> 53

BUSINESS MANAGEMENT FEES

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
FUND 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------

<S> <C> <C> <C>
Growth Series $1,607,000 $1,653,000

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

International Series $602,000 $564,000

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

Growth-Income Series $1,873,000 $1,781,000

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

Asset Allocation Series $320,000 $314,000

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

High-Yield Bond Series $263,000 $281,000

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

U.S. Government/AAA-Rated Securities Series $195,000
$253,000

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

Cash Management Series $176,000 $212,000

- -----------------------------------------------------------------------------------------------------------
</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 generally 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

B-27
<PAGE> 54
securities and other securities limited in respect of any one issuer to 5% of
the Series' net assets and to not more than 10% of the voting securities of any
one issuer (other than government securities) and (ii) not more than 25% of the
value of its assets are invested in the securities of any one issuer (other
than government securities or the securities of other regulated investment
companies; and (c) distribute at least 90% of its investment company taxable
income (including short-term capital gains).

Each Series will comply with asset diversification regulations
prescribed by the U.S. Treasury Department under 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
that may be satisfied by the Series under the regulation. Each Series 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.

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.

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.

PRICE OF SHARES

B-28
<PAGE> 55
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.

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

B-29
<PAGE> 56

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.

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 that were paid to
affiliated broker-dealers by the Series for the fiscal years ended November 30,
1998, 1997 and 1996.

B-30
<PAGE> 57

1998 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

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

International Series

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

Growth-Income Series

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

Asset Allocation Series

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

High-Yield Bond Series

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

U.S. Government/AAA-Rated
Securities Series

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

Cash Management Series

- ------------------------------------------------------------------------------------------------
</TABLE>

B-31
<PAGE> 58

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>

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
-- -- --

- ------------------------------------------------------------------------------------------------
</TABLE>

B-32
<PAGE> 59

<TABLE>
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Cash Management Series
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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 -
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, are the Fund's independent accountants. PricewaterhouseCoopers 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 Commission. The firms of Blazzard, Grodd & Hasenauer, 943 Coast Road
East, Westport, CT 06881 and Swidler Berlin Shereff Friedman, 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 such trust. The risk of a
shareholder of the Fund 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.

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REGISTRATION STATEMENT - A registration statement has been
filed with the 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 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, 1998.

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<PAGE> 61

APPENDIX

DESCRIPTION OF COMMERCIAL PAPER AND BAND RATINGS

COMMERCIAL PAPER RATINGS -- Moody's 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.

S&P's 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 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

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<PAGE> 62

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.

S&P 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
principal is in arrears.

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PART C

OTHER INFORMATION

Item 23: Exhibits.

(a) Declaration of Trust, as Amended. Incorporated
herein by reference to Post-Effective Amendment
No. 12 to the Registrant's Registration Statement
on Form N-1A (File No. 33-14227) filed on January
26, 1996.

(b) By-Laws. Incorporated herein by reference to
Post-Effective Amendment No. 12 to the
Registrant's Registration Statement on Form N-1A
(File No. 33-14227) filed on January 26, 1996.

(d) (i) Investment Advisory and Management
Agreement. Incorporated herein by
reference to Post-Effective Amendment No.
12 to the Registrant's Registration
Statement on Form N-1A (File No. 33-14227)
filed on January 26, 1996.

(ii) Business Management Agreement.
Incorporated herein by reference to Post-
Effective Amendment No. 14 to the
Registrant's Registration Statement on Form
N-1A (File No. 33-14227) filed on January
29, 1998.

(e) Not applicable.

(f) Not applicable.

(g) Custodian Agreement. To be filed by amendment.

(h) Form of Fund Participation Agreement. To be
filed by amendment.

(i) Not applicable.

(j) Not applicable.

(k) Not applicable.

(l) Not applicable.

(m) Not applicable.

(n) Not applicable.

(o) (i) Not applicable.

<PAGE> 64

(ii) Powers of Attorney. Incorporated
herein by reference to
Post-Effective Amendment No. 12 to
the Registrant's Registration
Statement on Form N-1A (File No.
33-14227) filed on January 26, 1996.

Item 24. Persons Controlled by or Under Common Control with Registrant

To be filed by amendment.

Item 25. 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 to 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.

(b) The Fund shall indemnify any Trustee or officer of the
Fund who was or is a party 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

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<PAGE> 65

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 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 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,

<PAGE> 66

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 26. 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 27. Principal Underwriters

Not applicable.

Item 28. 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 29. Management Services

Not applicable.

Item 30. Undertakings

Not applicable.

<PAGE> 67
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, the
Registrant has duly caused this Post-Effective Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, and State of New York, on the 30th day of
November, 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. 15 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 November 30, 1998
------------------------------------- and Trustee
James K. Hunt (Principal Executive Officer)

* Senior Vice President, November 30, 1998
------------------------------------- Treasurer and Controller
Scott L. Robinson (Principal Financial and
Accounting Officer)

* Trustee November 30, 1998
---------------------------------------
Allan L. Sher

* Trustee November 30, 1998
---------------------------------------
William M. Wardlaw

*By: /s/ Robert M. Zakem
---------------------------------- November 30, 1998
Attorney-in-Fact
Robert M. Zakem
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