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ANNUAL REPORT - NOVEMBER 30, 1998
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DEAR ANCHOR PATHWAY INVESTOR:
We are pleased to offer the following report on the Anchor
Pathway Fund, which serves as the underlying investment vehicle
for the American Pathway II Variable Annuity. Fiscal 1998,
representing the 12 months ended November 30, 1998, provided a
study in contrasts for the financial markets. The following
commentary on the economy in general and the investment activities
of each of the series has been provided by Capital Research and
Management Company (CRMC), the investment adviser to the Anchor
Pathway Fund.
ECONOMIC OVERVIEW
In our report to you six months ago, CRMC remarked that, with
investors mostly sanguine about the Asian crisis, stock prices in
most major markets soared to impressive heights. Almost
immediately afterward, the tide turned dramatically. Investors
grew skittish when it became increasingly apparent that Asia's
difficulties had deeper roots than suspected and had begun to
spread. As fresh currency turmoil beset first Russia and then
Latin America, global stock markets plummeted. Standard & Poor's
500 Composite Index, an unmanaged proxy for the largest U.S.
stocks, fell almost 20% from mid-July 1998 to the end of August
1998, while international stocks and those of smaller companies
retreated as well. Then, just as investors began to be resigned to
a gloomy winter, stock markets staged a turnaround, rising from
the ashes of the summer downturn to regain most or all of their
lost ground.
Most major markets finished the fiscal year higher than where
they began, but the fits and starts of the past year may have been
a warning sign about what may lie ahead. Indeed, there are
indications that the fallout of the global slowdown has begun to
impact our record peacetime expansion. Although the U.S. economy
continues to expand, it is doing so at a less vigorous pace than
in recent years. Shrinking demand in Asia and the arrival of
low-cost imports to the U.S. have begun to soften corporate
earnings. While this is keeping inflation fears at bay and
interest rates low, the net effect is a less buoyant U.S. economy.
Meanwhile, it remains to be seen whether the historic impeachment
proceedings in Washington will have repercussions on financial
markets.
One of the benefits of investing for the long term is that it
allows CRMC to make carefully reasoned judgments rather than react
emotionally. As CRMC evaluates events, it tries to be mindful not
only of the immediate consequences, but of the underlying patterns
that may influence the fortunes of the companies and regions in
which CRMC invests on your behalf.
Here are brief comments on the investment activities of each
series:
THE GROWTH SERIES was the fund's biggest gainer, increasing
25.2% for the 12 months ended November 30. The series' primary
objective is growth of capital, and CRMC is pleased to note that
the majority of holdings appreciated strongly in price. That was
especially true for media-related companies. Cable television
providers such as Cablevision Systems Corp. and
Telecommunications, Inc., TCI Ventures Group have emerged from a
difficult period of reregulation, while entertainment
conglomerates such as Viacom and Time Warner consolidated gains
from recent mergers and acquisitions. At the other end of the
spectrum, a number of technology companies are still struggling
with reduced demand from Asia and an inventory "correction"
working its way through the industry.
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Silicon Graphics, LSI Logic and National Semiconductor ended the
year lower, extending earlier declines. Not all technology
companies declined, however. Amid signs that demand may be picking
up, stock prices rose for Micron Technology. At fiscal year-end,
89% of the portfolio was held in the stocks of 121 companies, with
the balance in cash and short-term investments.
THE INTERNATIONAL SERIES rose 14.6% for fiscal 1998, mostly on
the strength of its Europe-based investments. Stock prices in
Europe fed off a heady combination of strong corporate earnings, a
wave of merger announcements and optimism about the upcoming
monetary union. Despite the frenzied selling that hobbled markets
in late summer, losses were more than offset by gains made during
the rest of the year. Telecommunications-related issues once again
posted extraordinary increases. Among the series' larger holdings,
these included the Scandinavian mobile phone giants Nokia and
Ericsson as well as service providers Deutsche Telekom and Spain's
Telefonica de Espana. On the other side of the ledger, a number of
Japanese and Latin American securities in the series declined in
price. CRMC has trimmed exposure to the latter to 5% of net assets
from 8% a year ago. Among companies that were sold were
Telecommunicacoes Brasileiras and ELETROBRAS, two long-time
Brazilian holdings that have made considerable contributions to
past results.
THE GROWTH-INCOME SERIES continued to do well, posting a
12-month increase of 15.1%. The series, which emphasizes
established U.S. companies with the potential for rising
dividends, was generally well-served by a robust economic
environment. Consumer spending rose, boosting revenues for
retailers; inflation hovered around 1.5%, keeping interest rates
low, and a spate of well-publicized merger announcements helped
inspire optimism among investors about the direction of stock
prices. Oracle became the series' single-largest holding when it
was added to near its low in October. Texas Instruments, another
large holding in the series, was up 55% for the year. The health &
personal care industry constitutes a series mainstay; performers
in this category included Schering-Plough and Merck. Other areas
that did well were telephone service providers and broadcasting
companies. The series was restrained by its fairly large positions
in chemical, energy and paper stocks, industries that have seen
profits contract as the difficulties in Asia deepened. Overall,
nearly 30 industries and 162 companies are represented in the
series. About 14% is held in cash and short-term investments.
THE ASSET ALLOCATION SERIES had a 9.3% return for the year. The
series is managed as though it constitutes the complete portfolio
of a prudent investor, with a balanced combination of carefully
selected securities from all three major asset classes. At fiscal
year-end, 61% of net assets were in stocks, 28% in bonds and 11%
in cash and short-term investments, reflecting the relative growth
potential of each market. The equity portion comprises stocks of
60 companies in a wide range of industries. Among larger
positions, gainers included Rentokil and IBM. A number of larger
holdings declined in price, however, trimming overall returns
somewhat. These included Citigroup, the entity created from the
recent merger of Citicorp and Travelers; Praxair a producer of
industrial gases, and Atlantic Richfield, which was hurt by
falling oil prices. The bond component is invested in a
combination of U.S. Treasuries, federal agency obligations and
corporate bonds. With most of the appreciation in the bond market
occurring on the longer end of the yield curve, CRMC extended the
average effective maturity of the bonds in the series to take
advantage of the rise in prices. (The longer a bond's maturity,
the more sensitive it
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tends to be to interest-rate changes.) On November 30, the series'
average maturity was 8.9 years.
THE HIGH-YIELD BOND SERIES posted a small 3.2% gain. After a
long span of extraordinary returns, lower-rated bonds suffered a
setback in the latter half of the year. These instruments occupy a
unique position in the fixed-income universe. They are sensitive
not only to interest-rate swings, but also to the rise and fall of
a company's fortunes. In that regard, they share many of the
characteristics of stocks and were thus plagued by some of the
same fundamental concerns that bedeviled equity prices in late
summer -- fears of recession, slowing revenues, tighter profit
margins and the increased possibility of default. In that
environment, demand for lower-rated bonds all but evaporated. The
series was not immune to the decline -- the downturn was
indiscriminate, taking down many fundamentally healthy
issuers -- it did bring a number of promising securities within an
attractive price range. At the time of this writing, CRMC believes
a recovery may be under way as the sector rallied in November on
the heels of the Federal Reserve's interest-rate cuts and the ease
with which securities are traded has improved sharply.
THE U.S. GOVERNMENT/AAA-RATED SECURITIES SERIES made substantial
progress, increasing 8.7% for the 12 months. U.S. Treasury
securities moved higher as anxious investors clamored for the
relative safety of dollar-denominated government bonds. Prices
received an additional boost from a budget surplus that has slowed
the pace of bond issuance by the federal government, leading to a
shrinking supply of securities in the face of renewed demand. With
scant evidence of inflation on the economic horizon, yields on
30-year Treasuries, which serve as the primary benchmark for U.S.
interest rates, dropped from 6.0%-plus at the beginning of the
period to 5.08% at its close. (Bond prices and yields move in
opposite directions.) Meanwhile, mortgage-backed securities, which
account for about 59% of the series, did less well during the
year. Low interest rates and a strong economy led to a spate of
refinancings and record reissuance of new securities last year,
creating a surplus in the marketplace. That dampened prices
somewhat, but it also offered buying opportunities, and CRMC has
been adding selectively to the series' mortgage holdings.
THE CASH MANAGEMENT SERIES provided investors with a 5.0%
return. The Fed lowered short-term rates three times this fall in
an effort to loosen credit markets and stave off recessionary
pressures caused by weakness abroad. Managed for relative
stability and a reasonable rate of return, the series can be an
important diversification tool as well as a base from which to
make investments into other series in the fund. The series
maintains a high-quality orientation by concentrating its assets
in top-grade commercial paper (short-term loans to major,
well-known corporations), all of which carry the highest credit
ratings from Moody's or Standard & Poor's, and federal agency
discount notes (short-term loans to federal government agencies).
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The seven series in the Anchor Pathway Fund offer you a wide
range of investment options to help you reach your long-term
financial goals. CRMC remains committed to helping you achieve
these goals by striving to find the best values that financial
markets have to offer.
We look forward to reporting to you again in six months.
Sincerely,
/s/ ELI BROAD
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Eli Broad
Chairman, President and Chief Executive Officer,
Anchor National Life Insurance Company
January 15, 1999
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Performance figures quoted are for the Anchor Pathway Fund;
therefore, they are not net of the fees and charges associated
with the variable annuity. Past performance is no guarantee of
future results.
Investments in stocks and bonds are subject to risk, including
stock market and interest rate fluctuations. Investments in
non-U.S. stocks and bonds are subject to additional risks,
including political and social instability, differing securities
regulations and accounting standards and limited public
information. High-yield bonds tend to be subject to greater price
swings than higher-rated bonds and, of course, payment of interest
and principal is not assured. Mortgage-backed securities are
subject to prepayment, which can result in reinvestment of
principal at lower yields. Money market instruments generally
offer stability and income, but an investment in these securities,
like investments in the other series, is not guaranteed.
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ANCHOR PATHWAY FUND
GROWTH SERIES INVESTMENT PORTFOLIO -- NOVEMBER 30, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCK -- 88.1% SHARES (IN THOUSANDS)
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<S> <C> <C>
CAPITAL EQUIPMENT -- 29.9%
Aerospace & Military Technology -- 0.2%
Gulfstream Aerospace Corp.+................................. 40,000 $ 2,055
Data Processing & Reproduction -- 11.2%
Adobe Systems, Inc. ........................................ 155,000 6,936
Ascend Communications, Inc.+................................ 164,500 9,243
Compaq Computer Corp. ...................................... 277,500 9,019
Computer Associates International, Inc. .................... 40,000 1,770
Data General Corp.+......................................... 200,000 3,625
Gateway 2000, Inc.+......................................... 30,000 1,684
Lexmark International Group, Inc., Class A+................. 30,000 2,291
Mentor Graphics Corp. +..................................... 120,000 1,035
Microsoft Corp.+............................................ 50,000 6,100
Oracle Corp.+............................................... 440,000 15,070
PeopleSoft, Inc. +.......................................... 530,000 10,898
Siebel Systems, Inc.+....................................... 1,032 25
Silicon Graphics, Inc.+..................................... 500,000 6,125
Solectron Corp.+............................................ 260,000 17,209
Structural Dynamics Research Corp.+......................... 150,000 2,616
Electrical & Electronics -- 1.4%
Ericsson (L.M.) Telecommunications Co., Class B ADR......... 240,000 6,630
General Instrument Corp.+................................... 100,000 2,812
Northern Telecom Ltd. ...................................... 45,000 2,101
Electronic Components -- 15.6%
Adaptec, Inc.+.............................................. 380,000 6,175
ADC Telecommunications, Inc.+............................... 115,000 3,436
Altera Corp.+............................................... 340,000 16,681
Analog Devices, Inc.+....................................... 486,666 9,946
Intel Corp. ................................................ 176,200 18,963
LSI Logic Corp.+............................................ 200,000 3,100
Microchip Technology, Inc.+................................. 205,000 7,137
Micron Technology, Inc.+.................................... 117,100 4,838
Newbridge Networks Corp.+................................... 100,000 2,925
Park Electrochemical Corp. ................................. 187,200 3,592
Quantum Corp.+.............................................. 110,000 2,434
Rogers Corp.+............................................... 109,200 2,962
SCI Systems, Inc.+.......................................... 240,000 11,670
Texas Instruments, Inc. .................................... 411,000 31,390
Xilinx, Inc.+............................................... 100,000 5,075
Electronic Instruments -- 1.2%
Applied Materials, Inc.+.................................... 270,000 10,463
Energy Equipment -- 0.3%
Baker Hughes, Inc. ......................................... 25,500 467
Schlumberger Ltd. .......................................... 40,000 1,787
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250,285
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VALUE
COMMON STOCK (continued) SHARES (IN THOUSANDS)
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CONSUMER GOODS -- 4.5%
Beverages & Tobacco -- 1.3%
PepsiCo, Inc. .............................................. 40,000 $ 1,547
Philip Morris Cos., Inc. ................................... 160,000 8,950
Food & Household Products -- 0.3%
Dole Food, Inc. ............................................ 40,000 1,265
Keebler Foods Co.+.......................................... 40,000 1,348
Health & Personal Care -- 2.2%
BioChem Pharma, Inc.+....................................... 60,000 1,462
Forest Labs, Inc.+.......................................... 45,000 2,098
Guidant Corp. .............................................. 50,000 4,291
Omnicare, Inc. ............................................. 30,000 859
Pfizer, Inc. ............................................... 15,000 1,674
Pharmacia & Upjohn, Inc. ................................... 58,000 3,020
Sepracor, Inc.+............................................. 27,500 2,282
Warner-Lambert Co. ......................................... 40,000 3,020
Recreation & Other Consumer Products -- 0.2%
Hasbro, Inc. ............................................... 44,100 1,546
Midway Games, Inc.+......................................... 55,100 562
Textiles & Apparel -- 0.5%
Nike, Inc., Class B......................................... 100,000 4,000
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37,924
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ENERGY -- 1.0%
Energy Sources -- 1.0%
Enterprise Oil PLC ADR...................................... 300,000 1,648
Murphy Oil Corp. ........................................... 80,000 3,190
Oryx Energy Co.+............................................ 75,000 1,036
Pogo Producing Co. ......................................... 86,500 1,006
Talisman Energy, Inc.+...................................... 40,000 697
Total SA ADR................................................ 20,000 1,222
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8,799
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FINANCE -- 6.9%
Banking -- 2.1%
Charter One Financial, Inc. ................................ 184,999 5,492
M & T Bank Corp. ........................................... 3,500 1,745
Washington Mutual, Inc. .................................... 145,000 5,619
Wells Fargo Co. ............................................ 125,000 4,500
Financial Services -- 1.6%
Capital One Financial Corp. ................................ 20,000 2,200
Federal National Mortgage Association....................... 95,000 6,911
Household International, Inc. .............................. 110,000 4,304
Insurance -- 3.2%
American International Group, Inc. ......................... 90,000 8,460
EXEL Ltd., Class A.......................................... 130,000 9,766
MGIC Investment Corp. ...................................... 85,000 3,735
Transatlantic Holdings, Inc. ............................... 60,000 4,560
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57,292
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VALUE
COMMON STOCK (continued) SHARES (IN THOUSANDS)
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MATERIALS -- 2.3%
Chemicals -- 1.7%
Air Products & Chemicals, Inc. ............................. 100,000 $ 3,813
Monsanto Co. ............................................... 84,000 3,806
Praxair, Inc. .............................................. 35,000 1,337
Valspar Corp. .............................................. 150,000 4,987
Forest Products & Paper -- 0.6%
Sealed Air Corp.+........................................... 115,000 5,074
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19,017
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SERVICES -- 41.5%
Broadcasting & Publishing -- 22.8%
BHC Communications, Inc., Class A........................... 55,821 6,224
Cablevision Systems Corp., Class A+......................... 280,000 11,585
Comcast Corp., Class A...................................... 235,000 11,398
Cox Communications, Inc., Class A+.......................... 253,200 13,341
Fox Entertainment Group, Inc., Class A+..................... 150,000 3,544
News Corp. Ltd. ADR, Inc. TCI............................... 680,000 19,040
Tele-Communications, Inc. Liberty Media Group, Series A+.... 556,037 22,415
Tele-Communications, Inc., TCI Group, Series A+............. 96,081 4,059
Tele-Communications, Inc., TCI Ventures Group, Series A+.... 27,212 539
Time Warner, Inc. .......................................... 478,750 50,628
USA Networks, Inc.+......................................... 356,500 11,252
Viacom, Inc., Class B+...................................... 550,000 36,609
Business & Public Services -- 9.8%
Allied Waste Industries, Inc.+.............................. 165,400 3,370
America Online, Inc.+....................................... 65,000 5,692
APAC Teleservices, Inc.+.................................... 69,900 454
Avery Dennison Corp. ....................................... 40,000 1,917
Cambridge Technology Partners, Inc.+........................ 207,100 4,323
Cendant Corp.+.............................................. 1,295,562 24,616
Columbia/HCA Healthcare Corp. .............................. 238,625 5,876
Concord EFS, Inc.+.......................................... 140,000 4,454
FDX Corp.+.................................................. 250,000 16,219
First Data Corp. ........................................... 100,000 2,669
TeleTech Holdings, Inc.+.................................... 40,000 365
Universal Health Services, Inc., Class B.................... 74,900 4,017
Waste Management, Inc. ..................................... 190,586 8,171
Leisure & Tourism -- 2.5%
Carnival Corp., Class A..................................... 94,300 3,253
Disney (Walt) Co. .......................................... 200,000 6,438
King World Productions, Inc.+............................... 150,000 4,088
Mirage Resorts, Inc.+....................................... 445,000 6,619
Merchandising -- 1.8%
Cardinal Health, Inc., Class A.............................. 55,500 3,809
Consolidated Stores Corp.+.................................. 352,400 7,576
Limited, Inc. .............................................. 96,500 2,792
Venator Group, Inc.+........................................ 77,800 613
Telecommunications -- 2.0%
AirTouch Communications, Inc.+.............................. 195,000 11,151
MCI WorldCom, Inc.+......................................... 49,756 2,936
Paging Network, Inc.+....................................... 230,000 1,423
Teleglobe, Inc. ............................................ 51,000 1,387
</TABLE>
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VALUE
COMMON STOCK (continued) SHARES (IN THOUSANDS)
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SERVICES (continued)
Transportation: Airlines -- 2.6%
AMR Corp.+.................................................. 140,000 $ 9,231
Delta Airlines, Inc. ....................................... 20,000 1,074
Southwest Airlines Co. ..................................... 543,750 11,690
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346,857
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OTHER COMMON STOCK -- 2.0%.................................. 16,694
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TOTAL COMMON STOCK (cost $465,744).......................... 736,868
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<CAPTION>
VALUE
PREFERRED STOCK -- 1.0% SHARES (IN THOUSANDS)
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<S> <C> <C>
SERVICES -- 1.0%
Broadcasting & Publishing -- 1.0%
News Corp. Ltd. ADR (cost $2,313)........................... 340,000 8,564
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TOTAL INVESTMENT SECURITIES (cost $468,057)................. 745,432
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<CAPTION>
PRINCIPAL
AMOUNT
SHORT-TERM SECURITIES -- 11.2% (IN THOUSANDS)
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<S> <C> <C>
CORPORATE SHORT-TERM NOTES -- 9.3%
AI Credit Corp. 5.08% due 12/14/98.......................... $ 9,000 8,984
AI Credit Corp. 5.08% due 1/6/99............................ 2,500 2,487
Duke Energy Co. 5.10% due 12/11/98.......................... 7,400 7,390
International Lease Finance Corp. 5.00% due 1/19/99......... 10,000 9,932
Lucent Technologies, Inc. 5.10% due 12/14/98................ 7,000 6,987
Monsanto Co. 5.15% due 2/12/99.............................. 21,000 20,782
Motorola, Inc. 5.15% due 12/1/98............................ 8,500 8,500
Motorola, Inc. 5.15% due 12/17/98........................... 10,000 9,977
Xerox Corp. 5.17% due 12/3/98............................... 2,500 2,499
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77,538
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FEDERAL AGENCY OBLIGATIONS -- 1.9%
Federal Home Loan Bank Discount Notes 4.80% due 12/2/98..... 14,300 14,298
Federal Home Loan Bank Discount Notes 5.00% due 1/13/99..... 1,500 1,491
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15,789
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TOTAL SHORT-TERM SECURITIES (cost $93,326).................. 93,327
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TOTAL INVESTMENTS --
(cost $561,383) 100.3% 838,759
Liabilities in excess of other assets -- (0.3) (2,404)
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NET ASSETS -- 100.0% $836,355
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</TABLE>
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+ Non-income producing security
ADR - American Depository Receipt
See Notes to Financial Statements
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ANCHOR PATHWAY FUND
INTERNATIONAL SERIES INVESTMENT PORTFOLIO -- NOVEMBER 30, 1998
<TABLE>
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VALUE
COMMON & PREFERRED STOCK -- 86.2% SHARES (IN THOUSANDS)
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ARGENTINA -- 1.3%
Telefonica de Argentina SA ADR (Services)................... 75,400 $ 2,441
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AUSTRALIA -- 6.0%
Brambles Industries Ltd. (Services)......................... 100,000 2,451
Broken Hill Proprietary Co., Ltd. (Materials)............... 422,267 3,357
Coca-Cola Amatil Ltd. (Consumer Goods)...................... 262,517 882
News Corp. Ltd. ADR (Services).............................. 100,000 2,800
Westpac Banking Corp. Ltd. (Finance)........................ 306,514 2,045
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11,535
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BRAZIL -- 0.4%
Centrais Geradoras do Sul do Brasil SA ADR (Energy)......... 18,300 125
Companhia Paranaense De Energia -- Copel (Energy)........... 118,055,000 757
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882
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CANADA -- 2.4%
Northern Telecom Ltd. (Capital Equipment)................... 94,000 4,389
Teck Corp., Class B (Materials)............................. 40,000 271
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4,660
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FINLAND -- 6.7%
Nokia (AB) OY, Series K (Capital Equipment)................. 40,000 3,916
Nokia Corp., Class A ADR+ (Capital Equipment)............... 80,000 7,832
UPM-Kymmene Oyj (Materials)................................. 48,000 1,256
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13,004
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FRANCE -- 9.6%
Canal Plus (Services)....................................... 13,500 3,102
Carrefour SA (Services)..................................... 4,300 3,042
Peugeot SA (Consumer Goods)................................. 6,700 1,060
Total SA, Class B (Energy).................................. 33,876 4,198
Vivendi SA (Services)....................................... 32,000 7,233
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18,635
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GERMANY -- 7.9%
Bayerische Motoren Werke AG (Consumer Goods)................ 6,072 4,689
Bayerische Motoren Werke AG new shares (Consumer Goods)..... 1,214 916
Bayerische Motoren Werke AG Preferred (Consumer Goods)...... 2,604 1,205
Bayerische Motoren Werke AG NV, new shares Preferred
(Consumer Goods).......................................... 520 225
Deutsche Telekom AG (Services).............................. 296,000 8,305
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15,340
---------
ITALY -- 3.2%
Telecom Italia Mobile SpA (Services)........................ 64,800 273
Telecom Italia SpA+ (Services).............................. 954,100 5,958
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6,231
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</TABLE>
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VALUE
COMMON & PREFERRED STOCK (continued) SHARES (IN THOUSANDS)
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<S> <C> <C>
JAPAN -- 9.0%
Advantest Corp. (Capital Equipment)......................... 33,000 $ 2,202
Amway Japan Ltd. ADR (Services)............................. 36,000 180
Fujitsu Ltd. (Capital Equipment)............................ 180,000 2,078
Nintendo Co. Ltd. (Consumer Goods).......................... 11,000 1,019
Nippon Telegraph & Telephone Corp. (Services)............... 630 4,704
Rohm Co. Ltd. (Capital Equipment)........................... 20,000 1,688
Shohkoh Fund & Co. Ltd. (Consumer Goods).................... 17,100 5,635
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17,506
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KOREA -- 0.4%
Korea Mobile Telecommunications Corp. (Services)............ 370 258
LG Semiconductor Co.+ (Capital Equipment)................... 48,900 549
Samsung Electronics (Consumer Goods)........................ 1,097 59
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866
---------
LUXEMBOURG -- 1.0%
Safra Republic Holdings, Inc. (Finance)..................... 40,000 1,920
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MEXICO -- 3.6%
Cemex SA+ (Capital Equipment)............................... 560,000 1,345
Cifra SA de CV (Services)................................... 49,461 61
Cifra SA de CV, Series C (Services)......................... 195,500 239
Grupo Televisa SA de CV GDR+ (Services)..................... 35,000 890
Telefonos de Mexico SA ADR (Services)....................... 95,200 4,433
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6,968
---------
NETHERLANDS -- 5.9%
AEGON NV (Finance).......................................... 35,000 3,744
Philips Electronics (Consumer Goods)........................ 50,000 3,163
Vereenigde Ned Uitgevers (Services)......................... 130,000 4,466
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11,373
---------
NORWAY -- 1.4%
Orkla SA (Multi-industry)................................... 160,000 2,671
---------
SPAIN -- 3.6%
Telefonica de Espana SA (Services).......................... 146,881 6,899
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SWEDEN -- 5.0%
Astra AB, Class A (Consumer Goods).......................... 150,000 2,746
Ericsson LM Telecommunications Co., Class B (Capital
Equipment)................................................ 190,400 5,288
Kinnevik, Series A (Multi-industry)......................... 23,900 661
Kinnevik, Series B (Multi-industry)......................... 15,000 426
Modern Times Group AB, Class A+ (Services).................. 23,900 305
Modern Times Group AB, Class B ADR+ (Services).............. 3,000 192
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9,618
---------
SWITZERLAND -- 5.9%
Nestle SA+ (Consumer Goods)................................. 1,250 2,596
Novartis AG (Consumer Goods)................................ 1,954 3,667
Swisscom AG+ (Services)..................................... 15,163 5,104
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11,367
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</TABLE>
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VALUE
COMMON & PREFERRED STOCK (continued) SHARES (IN THOUSANDS)
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<S> <C> <C>
UNITED KINGDOM -- 11.8%
Coca-Cola Beverage (Consumer Goods)......................... 262,517 $ 546
Dixons Group PLC (Services)................................. 600,000 7,294
EMI Group (Consumer Goods).................................. 930,000 5,538
Guardian Royal Exchange PLC (Finance)....................... 590,110 3,212
Orange PLC+ (Services)...................................... 325,000 3,324
Scottish Power PLC (Energy)................................. 132,240 1,402
Zeneca Group PLC (Consumer Goods)........................... 37,900 1,575
---------
22,891
---------
OTHER COMMON STOCK -- 1.1%.................................. 2,134
---------
TOTAL COMMON & PREFERRED STOCK (cost $135,292).............. 166,941
---------
RIGHTS -- 0.1%+
-----------------------------------------------------------------------------------------------
KOREA -- 0.1%
LG Semiconductor Co. (Capital Equipment) (cost $258)........ 47,734 287
---------
TOTAL INVESTMENT SECURITIES (cost $135,550)................. 167,228
---------
PRINCIPAL
AMOUNT
SHORT-TERM SECURITIES -- 14.6% (IN THOUSANDS)
-----------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES -- 14.6%
Abbey National North America 5.22% due 1/13/99.............. $ 3,000 2,982
British Gas Capital, Inc. 5.25% due 2/11/99................. 4,000 3,958
Canada Government 5.32% due 12/01/98........................ 2,500 2,500
Diageo Capital PLC 5.10% due 12/10/98....................... 3,000 2,996
Diageo Capital PLC 5.17% due 12/10/98....................... 1,200 1,199
General Electric Capital Corp. 5.45% due 12/01/98........... 885 885
International Lease Finance Corp. 5.19% due 1/14/99......... 3,650 3,627
Rio Tinto America, Inc. 5.15% due 1/08/99................... 4,400 4,376
Sony Capital Corp. 5.22% due 12/14/98....................... 3,200 3,194
Unilever Corp 5.00% due 12/04/98............................ 2,500 2,499
---------
TOTAL SHORT-TERM SECURITIES (cost $28,215).................. 28,216
---------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS --
(cost $163,765) 100.9% $195,444
Liabilities in excess of other
assets -- (0.9) (1,681)
----- --------
NET ASSETS -- 100.0% $193,763
===== ========
</TABLE>
-----------------------------
+ Non-income producing security
ADR - American Depository Receipt
GDR - Global Depository Receipt
See Notes to Financial Statements
---------------------
A-7
<PAGE> 13
[ARROW UP]
- ---------------------
ANCHOR PATHWAY FUND
GROWTH-INCOME SERIES INVESTMENT PORTFOLIO -- NOVEMBER 30, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCK -- 84.7% SHARES (IN THOUSANDS)
<S> <C> <C>
---------------------------------------------------------------------------------------------
CAPITAL EQUIPMENT -- 18.8%
Aerospace & Military Technology -- 2.2%
Boeing Co. ................................................. 80,000 $ 3,250
Raytheon Co., Class A....................................... 61,556 3,366
Raytheon Co., Class B....................................... 25,000 1,385
Sundstrand Corp............................................. 130,000 7,020
United Technologies Corp.................................... 52,000 5,574
Data Processing & Reproduction -- 6.3%
3Com Corp.+................................................. 240,000 9,285
Adobe Systems, Inc.......................................... 40,000 1,790
Cisco Systems, Inc.+........................................ 50,000 3,769
Computer Associates International, Inc...................... 150,000 6,637
Hewlett-Packard Co.......................................... 100,000 6,275
Oracle Corp.+............................................... 397,300 13,608
Silicon Graphics, Inc.+..................................... 294,400 3,606
Xerox Corp. ................................................ 114,300 12,287
Electrical & Electronics -- 2.2%
Nokia Corp., Class A ADR.................................... 35,000 3,430
Northern Telecom Ltd........................................ 82,800 3,866
Siemens AG.................................................. 80,000 5,564
York International Corp. ................................... 184,400 7,745
Electronic Components -- 1.6%
Corning, Inc................................................ 85,000 3,411
Intel Corp.................................................. 30,000 3,229
Texas Instruments, Inc. .................................... 100,000 7,637
Electronic Instruments -- 1.9%
Applied Materials, Inc.+.................................... 200,000 7,750
Perkin-Elmer Corp........................................... 100,000 9,325
Energy Equipment -- 1.1%
Baker Hughes, Inc........................................... 184,330 3,375
Schlumberger Ltd............................................ 145,000 6,480
Industrial Components -- 0.7%
Dana Corp................................................... 50,000 1,950
Eaton Corp.................................................. 70,000 4,782
Machinery & Engineering -- 2.8%
Caterpillar, Inc............................................ 70,000 3,461
Deere & Co. ................................................ 290,000 10,132
Ingersoll-Rand Co. ......................................... 120,000 5,618
New Holland N.V............................................. 179,100 2,451
Pall Corp. ................................................. 100,000 2,325
Parker-Hannifin Corp. ...................................... 60,000 2,085
---------
172,468
---------
</TABLE>
- ---------------------
A-8
<PAGE> 14
<TABLE>
<CAPTION>
VALUE
COMMON STOCK (continued) SHARES (IN THOUSANDS)
---------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER GOODS -- 11.5%
Beverages & Tobacco -- 3.4%
Anheuser-Busch Cos., Inc.................................... 70,000 $ 4,244
PepsiCo, Inc................................................ 150,000 5,803
Philip Morris Cos., Inc..................................... 225,000 12,586
Seagram Co. Ltd............................................. 150,000 5,147
UST, Inc.................................................... 100,000 3,475
Food & Household Products -- 0.9%
Bestfoods................................................... 50,000 2,906
General Mills, Inc.......................................... 75,000 5,663
Health & Personal Care -- 6.5%
Astra AB ADR................................................ 200,000 3,700
Avon Products, Inc. ........................................ 149,800 6,086
Glaxo Wellcome PLC ADR...................................... 120,000 7,620
Guidant Corp................................................ 40,000 3,432
Johnson & Johnson Co. ...................................... 60,000 4,875
Kimberly-Clark Corp. ....................................... 110,000 5,789
Merck & Co., Inc. .......................................... 50,000 7,744
Pfizer, Inc. ............................................... 50,000 5,581
Schering-Plough Corp. ...................................... 75,000 7,978
Warner-Lambert Co. ......................................... 80,000 6,040
Textiles & Apparel -- 0.7%
Nike, Inc., Class B......................................... 50,000 2,000
V.F. Corp. ................................................. 90,000 4,415
---------
105,084
---------
ENERGY -- 8.8%
Energy Sources -- 6.2%
Amoco Corp. ................................................ 100,000 5,894
Ashland, Inc. .............................................. 48,800 2,373
Atlantic Richfield Co. ..................................... 135,000 8,977
Conoco, Inc., Class A+...................................... 132,000 3,127
Kerr-McGee Corp. ........................................... 50,000 1,975
Murphy Oil Corp. ........................................... 50,000 1,994
Noble Affiliates, Inc. ..................................... 100,000 2,531
Norsk Hydro ASA ADR......................................... 50,000 1,831
Oryx Energy Co.+............................................ 200,000 2,763
Pennzoil Co. ............................................... 50,000 1,856
Phillips Petroleum Co. ..................................... 60,000 2,520
Pioneer Natural Resources Co. .............................. 18,600 246
Texaco, Inc. ............................................... 80,000 4,605
Ultramar Diamond Shamrock Corp.+............................ 331,600 8,539
Valero Energy Corp. ........................................ 360,000 7,560
Utilities: Electric, Gas & Water -- 2.6%
Ameren Corp. ............................................... 100,000 4,119
DPL, Inc. .................................................. 270,000 5,400
Duke Energy Corp. .......................................... 50,000 3,128
GPU, Inc. .................................................. 100,000 4,382
TECO Energy, Inc. .......................................... 150,000 4,031
Williams Cos., Inc. ........................................ 104,400 3,008
---------
80,859
---------
</TABLE>
---------------------
A-9
<PAGE> 15
<TABLE>
<CAPTION>
VALUE
COMMON STOCK (continued) SHARES (IN THOUSANDS)
---------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCE -- 10.7%
Banking -- 7.4%
Bank of New York Co., Inc. ................................. 320,000 $ 10,960
Bank One Corp. ............................................. 33,000 1,693
Bank Tokyo Mitsubishi Ltd ADR............................... 100,000 1,056
BankAmerica Corp. .......................................... 45,264 2,951
Chase Manhattan Corp. ...................................... 70,000 4,441
First Union Corp. .......................................... 200,272 12,167
Huntington Bancshares, Inc. ................................ 91,960 2,724
KeyCorp. ................................................... 170,000 5,217
Marshall & Ilsley Corp. .................................... 125,300 6,382
Morgan (J.P.) & Co., Inc. .................................. 30,000 3,206
Sakura Bank Ltd. ADR ....................................... 35,000 980
SunTrust Banks, Inc. ....................................... 50,000 3,491
Wells Fargo Co. ............................................ 347,000 12,492
Financial Services -- 1.7%
Associates First Capital Corp., Class A..................... 15,536 1,210
Household International, Inc. .............................. 271,332 10,616
Transamerica Corp. ......................................... 30,000 3,187
Insurance -- 1.6%
Aetna, Inc. ................................................ 50,000 3,865
Allstate Corp. ............................................. 100,000 4,075
General Reinsurance Corp.+.................................. 16,500 3,853
MGIC Investment Corp. ..................................... 70,000 3,076
---------
97,642
---------
INDUSTRIAL & COMMERCIAL -- 0.4%
Industrial -- 0.4%
Crown, Cork & Seal Co., Inc. ............................... 100,000 3,375
---------
MATERIALS -- 10.9%
Chemicals -- 6.3%
Dow Chemical Co. ........................................... 30,000 2,921
du Pont (E.I.) de Nemours & Co. ............................ 60,000 3,525
International Flavors & Fragrances, Inc. ................... 200,000 8,375
Mallinckrodt, Inc. ......................................... 200,000 6,463
Millenium Chemicals, Inc. .................................. 8,400 201
Monsanto Co. ............................................... 350,000 15,859
Morton International, Inc. ................................. 275,000 8,095
PPG Industries, Inc. ....................................... 50,000 3,059
Praxair, Inc. .............................................. 168,800 6,446
Witco Corp. ................................................ 120,000 2,288
Forest Products & Paper -- 3.7%
Bowater, Inc. .............................................. 160,000 6,320
Fort James Corp. ........................................... 125,000 4,891
Georgia Pacific Timber Group................................ 30,000 690
Georgia-Pacific Corp. ...................................... 65,000 3,689
International Paper Co. .................................... 80,000 3,475
Sonoco Products Co. ........................................ 100,000 2,994
Union Camp Corp. ........................................... 140,000 9,056
Westvaco Corp. ............................................. 60,000 1,687
Weyerhaeuser Co. ........................................... 25,000 1,253
Metals: Steel -- 0.2%
Allegheny Teldyne, Inc. .................................... 100,000 2,056
</TABLE>
- ---------------------
A-10
<PAGE> 16
<TABLE>
<CAPTION>
VALUE
COMMON STOCK (continued) SHARES (IN THOUSANDS)
---------------------------------------------------------------------------------------------
<S> <C> <C>
MATERIALS (continued)
Metals & Minerals -- 0.7%
Aluminum Co. of America..................................... 85,000 $ 6,301
---------
99,644
---------
MULTI-INDUSTRY -- 1.3%
Multi-Industry -- 1.3%
AlliedSignal, Inc. ......................................... 80,000 3,520
FMC Corp.+.................................................. 75,000 4,360
Textron, Inc. .............................................. 50,000 3,884
---------
11,764
---------
REAL ESTATE -- 1.0%
Real Estate Companies -- 0.2%
Meditrust Co. .............................................. 125,000 1,899
Real Estate Investment Trusts -- 0.8%
Boston Properties, Inc. .................................... 150,000 4,734
Equity Residential Properties Trust......................... 60,000 2,539
---------
9,172
---------
SERVICES -- 18.9%
Broadcasting & Publishing -- 5.8%
Fox Entertainment Group, Inc., Class A+..................... 150,000 3,544
Gannett Co., Inc. .......................................... 80,000 5,165
Harte Hanks Communications Co. ............................. 400,000 9,450
Houston Industries, Inc. ................................... 70,000 6,440
Media General, Inc. ........................................ 75,800 3,596
News Corp. Ltd. ADR......................................... 140,000 3,920
Tele-Communications, Inc. Liberty Media Group, Series A+.... 150,000 6,047
Time Warner, Inc. .......................................... 50,000 5,287
Viacom, Inc., Class B+...................................... 150,000 9,984
Business & Public Services -- 4.6%
Alexander & Baldwin, Inc. .................................. 180,000 4,140
Avery Dennison Corp. ....................................... 25,500 1,223
Browning-Ferris Industries, Inc. ........................... 255,800 7,546
Cendant Corp.+.............................................. 250,000 4,750
Electronic Data Systems Corp. .............................. 180,000 7,020
Hertz Corp., Class A........................................ 100,000 3,675
Ikon Office Solutions, Inc. ................................ 660,000 6,435
Pitney Bowes, Inc. ......................................... 60,000 3,360
Waste Management, Inc. ..................................... 79,750 3,419
Leisure & Tourism -- 0.6%
Disney (Walt) Co. .......................................... 180,000 5,794
Merchandising -- 3.1%
American Stores Co. ........................................ 60,000 2,014
Circuit City Stores, Inc. .................................. 225,000 8,142
Federated Department Stores, Inc.+.......................... 120,000 5,003
Lowe's Cos., Inc. .......................................... 100,000 4,225
Penney (J.C.), Inc. ........................................ 25,000 1,375
Wal-Mart Stores, Inc. ...................................... 100,000 7,531
Telecommunications -- 4.2%
AirTouch Communications, Inc.+.............................. 81,013 4,633
Ameritech Corp. ............................................ 150,000 8,119
AT&T Corp. ................................................. 165,000 10,281
GTE Corp. .................................................. 164,800 10,218
SBC Communications, Inc. ................................... 40,000 1,917
U.S. West, Inc. ............................................ 46,800 2,913
</TABLE>
---------------------
A-11
<PAGE> 17
<TABLE>
<CAPTION>
VALUE
COMMON STOCK (continued) SHARES (IN THOUSANDS)
---------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES (continued)
Transportation: Rail & Road -- 0.6%
Norfolk Southern Corp. ..................................... 195,000 $ 5,923
---------
173,089
---------
OTHER COMMON STOCK -- 2.4%.................................. 22,403
---------
TOTAL COMMON STOCK (cost $569,734).......................... 775,500
---------
PREFERRED STOCK -- 0.2%
---------------------------------------------------------------------------------------------
SERVICES -- 0.2%
Broadcasting & Publishing -- 0.2%
News Corp. Ltd. ADR (cost $1,044)........................... 80,000 2,015
---------
PRINCIPAL
AMOUNT
CONVERTIBLE BONDS -- 1.0% (IN THOUSANDS)
---------------------------------------------------------------------------------------------
CONSUMER GOODS -- 0.7%
Health & Personal Care -- 0.7%
Sepracor, Inc. 6.25% 2005#.................................. $ 3,650 6,898
---------
SERVICES -- 0.3%
Business & Public Services -- 0.3%
CUC International, Inc. 3.00% 2002#......................... 3,000 2,730
---------
TOTAL CONVERTIBLE BONDS (cost $6,678)....................... 9,628
---------
TOTAL INVESTMENT SECURITIES (cost $577,456)................. 787,143
---------
SHORT-TERM SECURITIES -- 13.8%
---------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES -- 9.7%
Coca-Cola Co. 5.30% due 12/01/98............................ 24,000 24,000
Kellogg Co. 4.83% due 12/08/98.............................. 5,000 4,997
Kellogg Co. 5.32% due 12/08/98.............................. 700 699
Lucent Technologies, Inc. 5.12% due 12/10/98................ 5,000 4,994
Lucent Technologies, Inc. 5.25% due 1/04/99................. 9,000 8,955
Monsanto Co. 5.15% due 2/12/99.............................. 13,900 13,755
Motorola, Inc. 5.15% due 12/01/98........................... 14,500 14,500
Paccar Financial Corp. 5.13% due 12/03/98................... 10,000 9,997
Pfizer, Inc. 5.05% due 12/04/98............................. 6,400 6,397
---------
88,294
---------
</TABLE>
- ---------------------
A-12
<PAGE> 18
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM SECURITIES (continued) (IN THOUSANDS) (IN THOUSANDS)
---------------------------------------------------------------------------------------------
<S> <C> <C>
FEDERAL AGENCY OBLIGATIONS -- 4.1%
Federal Home Loan Bank Discount Notes 4.86% due 1/29/99..... $ 18,000 $ 17,857
Federal Home Loan Mortgage Discount Notes 5.28% due
12/22/98.................................................. 20,000 19,938
---------
37,795
---------
TOTAL SHORT-TERM SECURITIES (cost $126,088)................. 126,089
---------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS --
(cost $703,544) 99.7% 913,232
Other assets less liabilities -- 0.3 2,762
------ ---------
NET ASSETS -- 100.0% $915,994
====== =========
</TABLE>
-----------------------------
+ Non-income producing security
* Fair valued security; see Note 2
# Resale restricted to qualified institutional buyers
ADR - American Depository Receipt
See Notes to Financial Statements
---------------------
A-13
<PAGE> 19
[ARROW UP]
- ---------------------
ANCHOR PATHWAY FUND
ASSET ALLOCATION SERIES INVESTMENT PORTFOLIO -- NOVEMBER 30, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCK -- 60.5% SHARES (IN THOUSANDS)
---------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL EQUIPMENT -- 16.0%
Aerospace & Military Technology -- 3.4%
Boeing Co. ................................................. 40,000 $ 1,625
Raytheon Co., Class A....................................... 10,000 547
Raytheon Co., Class B....................................... 25,000 1,384
United Technologies Corp. .................................. 10,000 1,072
Data Processing & Reproduction -- 3.9%
Hewlett-Packard Co. ........................................ 30,000 1,882
International Business Machines Corp. ...................... 20,000 3,300
Electrical & Electronics -- 3.0%
Nokia Corp., Class A ADR.................................... 20,000 1,960
York International Corp. ................................... 50,000 2,100
Electronic Components -- 2.8%
AMP, Inc. .................................................. 39,251 1,899
Corning, Inc................................................ 45,000 1,805
Industrial Components -- 2.0%
Dana Corp. ................................................. 35,000 1,365
Genuine Parts Co. .......................................... 40,000 1,318
Machinery & Engineering -- 0.9%
Deere & Co. ................................................ 35,000 1,223
---------
21,480
---------
CONSUMER GOODS -- 8.2%
Automotive -- 0.8%
General Motors Corp. ....................................... 15,000 1,050
Beverages & Tobacco -- 2.2%
PepsiCo, Inc................................................ 40,000 1,547
UST, Inc. .................................................. 40,000 1,390
Food & Household Products -- 1.7%
General Mills, Inc. ........................................ 30,000 2,265
Health & Personal Care -- 3.5%
Pfizer, Inc. ............................................... 15,000 1,674
SmithKline Beecham PLC ADR.................................. 20,000 1,219
Warner-Lambert Co. ......................................... 25,000 1,888
---------
11,033
---------
ENERGY -- 6.2%
Energy Sources -- 6.2%
Amoco Corp. ................................................ 20,000 1,179
Atlantic Richfield Co. ..................................... 20,000 1,330
Kerr-McGee Corp. ........................................... 30,000 1,185
Murphy Oil Corp. ........................................... 35,000 1,395
Oryx Energy Co.+............................................ 50,000 691
Phillips Petroleum Co. ..................................... 35,000 1,470
Ultramar Diamond Shamrock Corp.+............................ 40,000 1,030
---------
8,280
---------
</TABLE>
- ---------------------
A-14
<PAGE> 20
<TABLE>
<CAPTION>
VALUE
COMMON STOCK (continued) shares (IN THOUSANDS)
---------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCE -- 11.9%
Banking -- 5.1%
BankAmerica Corp. .......................................... 33,948 $ 2,213
First Union Corp. .......................................... 32,400 1,968
KeyCorp. ................................................... 35,000 1,074
Washington Mutual, Inc. .................................... 40,000 1,550
Financial Services -- 3.2%
Citigroup, Inc. ............................................ 37,500 1,882
Household International, Inc. .............................. 60,666 2,374
Insurance -- 3.6%
American General Corp. ..................................... 25,000 1,761
General Reinsurance Corp.+.................................. 5,000 1,168
St. Paul Cos., Inc. ........................................ 53,598 1,889
---------
15,879
---------
MATERIALS -- 8.0%
Chemicals -- 3.3%
Air Products & Chemicals, Inc............................... 50,000 1,906
PPG Industries, Inc. ....................................... 15,000 918
Praxair, Inc. .............................................. 40,000 1,528
Forest Products & Paper -- 4.7%
Georgia-Pacific Corp. ...................................... 30,000 1,702
Sonoco Products Co. ........................................ 45,000 1,347
Union Camp Corp. ........................................... 20,000 1,294
Weyerhaeuser Co. ........................................... 40,000 2,005
---------
10,700
---------
MULTI-INDUSTRY -- 1.7%
Multi-Industry -- 1.7%
Textron, Inc................................................ 30,000 2,331
---------
SERVICES -- 6.8%
Business & Public Services -- 4.6%
Alexander & Baldwin, Inc. .................................. 7,500 173
Avery Dennison Corp. ....................................... 30,000 1,438
Morton International, Inc. ................................. 40,000 1,177
Rentokil Initial PLC ADR.................................... 30,000 2,047
Reuters Group PLC ADR....................................... 21,700 1,248
Merchandising -- 2.2%
Penney (J.C.), Inc. ........................................ 25,000 1,375
Walgreen Co. ............................................... 30,000 1,611
Telecommunications -- 0.0%
Nextel Communications, Inc., Class A+....................... 1,549 33
---------
9,102
---------
OTHER COMMON STOCK -- 1.7%.................................. 2,277
---------
TOTAL COMMON STOCK (cost $60,736)........................... 81,082
---------
</TABLE>
---------------------
A-15
<PAGE> 21
<TABLE>
<CAPTION>
VALUE
PREFERRED STOCK -- 0.4% SHARES (IN THOUSANDS)
---------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES -- 0.4%
Broadcasting & Publishing -- 0.4%
Adelphia Communications Corp., Series B (cost $500)......... 5,000 $ 582
---------
<CAPTION>
PRINCIPAL
AMOUNT
BONDS & NOTES -- 27.9% (IN THOUSANDS)
---------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BONDS -- 0.1%
Finance -- 0.1%
Bell Atlantic Financial Services, Inc. 4.25% 2005#.......... $ 150 154
---------
CORPORATE BONDS -- 16.8%
Broadcasting & Publishing -- 0.9%
Time Warner, Inc. 9.13% 2013................................ 1,000 1,247
Business Services -- 0.1%
Ziff Davis, Inc. 8.50% 2008................................. 250 238
Finance -- 6.4%
Advanta Corp., Series D 6.57% 2000.......................... 1,325 1,268
Asset Backed Securities Investment Trust, Series 1997-D,
Class A 6.79% 2003++*#.................................... 283 284
Barnett Capital I 8.06% 2026................................ 500 558
Capital One Bank 6.97% 2002................................. 2,250 2,253
Cei Citicorp Holdings SA 11.25% 2007*#...................... 400 272
Chevy Chase Savings Bank 9.25% 2008......................... 500 495
First Plus Home Loan Trust, Series 1997-1, Class A6 6.95%
2015++.................................................... 500 504
Fuji Bank Investment Preferred LLC 9.87% 2049#(1)........... 250 178
GS Escrow Corp. 7.13% 2005#................................. 500 492
IBJ Preferred Capital Co. LLC 8.79% 2049#(1)................ 500 436
Irvine Property 7.46% 2006*................................. 500 502
Ocwen Financial Corp. 11.88% 2003........................... 250 220
PDVSA Finance Ltd. Series D 7.40% 2016#(1).................. 250 215
Socgen Real Estate Co. LLC, Series A 7.64% 2049#(1)......... 500 467
Tokai Preferred Capital LLC 9.98% 2049#(1).................. 500 437
Industrial -- 4.5%
Allegiance Corp. 7.00% 2026................................. 500 532
CBS Radio Inc. 11.38% 2009(2)............................... 526 615
Container Corp. of America 9.75% 2003....................... 500 510
Dayton Hudson Corp. 8.50% 2022.............................. 500 559
Esat Holdings Ltd. zero coupon 2007@........................ 500 333
Freeport McMoRan Copper & Gold 7.20% 2026................... 500 342
Globo Comunicacoes Participacoes Ltd., Class B 10.50%
2006*#.................................................... 220 167
Gruma SA de CV 7.63% 2007*#................................. 250 227
Hyundai Semiconductor 8.63% 2007*#.......................... 425 303
Inco Ltd. 9.60% 2022........................................ 400 439
Omnipoint Corp. 11.63% 2006................................. 250 161
Owens Illinois, Inc. 8.10% 2007............................. 250 264
Pan Pacific Industrial Investment PLC zero coupon 2007*#@... 1,000 350
Royal Caribbean Cruises Ltd. 7.00% 2007..................... 500 494
United Defense Industries, Inc. 8.75% 2007.................. 300 305
Wharf International Finance Ltd. 7.63% 2007................. 500 404
Recreation & Other Consumer Products -- 0.1%
V2 Music Holdings PLC zero coupon 2008*@#.................. (GBP) 175 153
Telecommunications -- 2.1%
Clearnet Communications, Inc. zero coupon 2008@............. 1,000 354
Consorcio Ecuatoriano de Telecommunicaciones 14.00%
2002*#.................................................... 250 140
Iridium Capital Corp., Series A 13.00% 2005#................ 250 220
</TABLE>
- ---------------------
A-16
<PAGE> 22
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
BONDS & NOTES (continued) (IN THOUSANDS) (IN THOUSANDS)
---------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (continued)
Telecommunications (continued)
Nextel Communications, Inc. zero coupon 2008#@.............. $1,500 $ 930
Nextel International, Inc. zero coupon 2008#@............... 300 140
Qwest Communications International, Inc. zero coupon
2007@..................................................... 500 387
Tele-Communications, Inc. 9.25% 2023........................ 500 588
Transportation -- 2.7%
Airplanes Pass Through Trust, Class C, 8.15% 2019++*........ 491 506
Continental Airlines Pass Through Trust 6.94% 2013++........ 954 983
Delta Airlines, Inc. 10.50% 2016............................ 500 642
Jet Equipment Trust, Class B 7.83% 2012..................... 462 485
United Airlines Pass Through Trust, Series 1996, Class A
7.87% 2019++.............................................. 500 495
USAir, Inc., Class A 6.76% 2008............................. 464 461
---------
22,555
---------
UNITED STATES GOVERNMENT & AGENCIES -- 3.0%++
Federal National Mortgage Association 6.53% 2006............ 1,500 1,498
Federal National Mortgage Association 7.52% 2004............ 2,000 2,011
Government National Mortgage Association 8.50% 2027......... 414 440
---------
3,949
---------
UNITED STATES TREASURY -- 8.0%
3.63% Bonds 2002............................................ 2,000 1,996
7.25% Bonds 2004............................................ 2,000 2,242
7.50% Bonds 2016............................................ 2,000 2,505
8.75% Bonds 2008............................................ 2,500 2,927
6.50% Notes 2002............................................ 1,000 1,059
---------
10,729
---------
TOTAL BONDS & NOTES (cost $37,943).......................... 37,387
---------
<CAPTION>
WARRANTS -- 0.1%+ SHARES
---------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER GOODS -- 0.0%
Recreation & Other Consumer Products -- 0.0%
V2 Music Holdings PLC 4/15/08*#............................. 175 0
---------
SERVICES -- 0.1%
Telecommunications -- 0.1%
Esat Holdings Ltd. 2/01/07*#................................ 500 16
Iridium World Communications, Inc. 7/15/05.................. 250 37
---------
TOTAL WARRANTS (cost $15)................................... 53
---------
TOTAL INVESTMENT SECURITIES (cost $99,450).................. 119,104
---------
</TABLE>
---------------------
A-17
<PAGE> 23
<TABLE>
<CAPTION>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM SECURITIES -- 10.7% (IN THOUSANDS) (IN THOUSANDS)
---------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE SHORT-TERM NOTES -- 4.9%
General Electric Capital Corp. 5.45% due 12/1/98............ $2,700 $ 2,700
Lucent Technologies, Inc. 5.10% due 12/2/98................. 1,800 1,800
Oryx Energy Co. 9.50% due 11/1/99........................... 1,500 1,543
Oryx Energy Co. 10.00% due 6/15/99.......................... 500 511
---------
6,554
---------
FEDERAL AGENCY OBLIGATIONS -- 5.8%
Federal Home Loan Bank Discount Notes 5.00% due 1/13/99..... 2,000 1,988
Federal Home Loan Mortgage Discount Notes 5.10% due
3/19/99................................................... 3,000 2,955
Federal National Mortgage Association Discount Notes 5.06%
due 1/8/99................................................ 2,900 2,885
---------
7,828
---------
TOTAL SHORT-TERM SECURITIES (cost $14,330).................. 14,382
---------
</TABLE>
<TABLE>
<S> <C> <C> <C>
TOTAL INVESTMENTS -- (cost $113,780) 99.6% 133,486
Other assets less liabilities -- 0.4 583
------ ---------
NET ASSETS -- 100.0% $134,069
====== =========
</TABLE>
-----------------------------
+ Non-income producing security
++ Pass-through securities are backed by a pool of mortgages or
other loans on which principal payments are periodically
made. Therefore, the effective maturity is shorter than
stated maturity.
* Fair valued security; see Note 2
# Resale restricted to qualified institutional buyers
@ Represents a zero-coupon bond which will convert to an
interest-bearing security at a later date
(1) Variable rate security; rate as of November 30, 1998
(2) PIK ("Payment-in-Kind") payment made with additional shares
in lieu of cash
ADR - American Depository Receipt
OPEN FORWARD FOREIGN CURRENCY CONTRACTS
------------------------------------------------------------------
<TABLE>
<CAPTION>
GROSS UNREALIZED
CONTRACT IN DELIVERY APPRECIATION
TO DELIVER EXCHANGE FOR DATE (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------
USD 54,313 GBP 33,195 08/10/99 $ 1
----
</TABLE>
<TABLE>
<CAPTION>
GROSS UNREALIZED
DEPRECIATION
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------
GBP 120,000 USD 196,340 08/10/99 (4)
----
Net Unrealized Depreciation............. $(3)
====
</TABLE>
-----------------------------
GBP - British Pound USD - United States Dollar
See Notes to Financial Statements
- ---------------------
A-18
<PAGE> 24
[ARROW UP]
- ---------------------
ANCHOR PATHWAY FUND
HIGH-YIELD BOND SERIES INVESTMENT PORTFOLIO -- NOVEMBER 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
BONDS & NOTES -- 93.5% (IN THOUSANDS) (IN THOUSANDS)
-----------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL EQUIPMENT -- 6.7%
Construction & Housing -- 1.6%
CSC Holdings, Inc. 7.88% 2007............................... $ 500 $ 528
CSC Holdings, Inc. 9.88% 2013............................... 1,000 1,110
Electronic Components -- 1.9%
Flextronics International Ltd. 8.75% 2007................... 750 763
Zilog, Inc., Series B 9.50% 2005*........................... 1,500 1,170
Electronic Instruments -- 0.4%
Global Telesystems Ltd. 9.88% 2005.......................... 400 376
Industrial Components -- 2.8%
Breed Technologies, Inc. 9.25% 2008#........................ 2,500 2,150
Impress Metal Packaging Holdings 9.88% 2007................. (DEM) 1,000 650
---------
6,747
---------
CONSUMER GOODS -- 10.9%
Appliances & Household Durables -- 1.1%
Lifestyle Furnishings International Ltd. 10.88% 2006........ 1,000 1,073
Beverages & Tobacco -- 2.1%
Canandaigua Wine, Inc. 8.75% 2003*.......................... 500 512
Delta Beverage Group, Inc. 9.75% 2003*...................... 1,000 1,055
Standard Commercial Corp. 8.88% 2005........................ 500 496
Food & Household Products -- 4.1%
Anchor Glass Container Corp. 9.88% 2008..................... 750 754
Anchor Glass Container Corp. 11.25% 2005.................... 500 515
Favorite Brands International, Inc. 10.75% 2006#............ 500 410
Home Products International, Inc. 9.63% 2008*............... 1,750 1,697
Tekni-Plex, Inc., Series B 9.25% 2008....................... 750 780
Health & Personal Care -- 1.7%
AKI Holding Corp. zero coupon 2009*#@....................... 1,250 481
AKI, Inc. 10.50% 2008*#..................................... 1,250 1,200
Recreation & Other Consumer Products -- 1.1%
V2 Music Holdings PLC zero coupon 2008*@.................... 2,000 1,060
Textiles & Apparel -- 0.8%
Tultex Corp. 10.63% 2005.................................... 1,250 831
---------
10,864
---------
CONSUMER SERVICES -- 1.3%
Retail -- 1.3%
Kmart Corp. 9.78% 2020...................................... 250 274
Randalls Food Markets, Inc. 9.38% 2007...................... 1,000 1,060
---------
1,334
---------
ENERGY -- 2.3%
Energy Sources -- 2.3%
Benton Oil & Gas Co. 9.38% 2007............................. 300 183
Benton Oil & Gas Co. 11.63% 2003............................ 500 375
Cross Timbers Oil Co., Class B 8.75% 2009................... 500 475
Kelley Oil & Gas Corp., Series B 10.38% 2006................ 750 559
</TABLE>
---------------------
A-19
<PAGE> 25
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
BONDS & NOTES (Continued) (IN THOUSANDS) (IN THOUSANDS)
-----------------------------------------------------------------------------------------------
<S> <C> <C>
ENERGY (continued)
Energy Sources (continued)
Kelley Oil Gas Corp., Series C 10.38% 2006*................. $ 250 $ 197
Ocean Energy, Inc. 8.88% 2007............................... 500 520
---------
2,309
---------
FINANCE -- 1.9%
Banking -- 0.4%
Fuji Bank Investment LLC 9.87% 2049#(1)..................... 500 355
Financial Services -- 1.5%
DR Structured Finance Corp. 9.35% 2019*..................... 500 510
PTC International Finance BV zero coupon 2007*@............. 1,000 670
William Hill Finance PLC 10.63% 2008#.......................(GBP) 157 262
Wilshire Financial Services Group, Inc.,
Series B 13.00%2004 ........................................ 500 83
---------
1,880
---------
MATERIALS -- 7.2%
Building Materials -- 0.5%
Consumers International, Inc. 10.25% 2005#.................. 500 536
Chemicals -- 1.0%
Key Plastics, Inc. 10.25% 2007.............................. 1,000 950
Forest Products & Paper -- 3.6%
Container Corp. of America 9.75% 2003....................... 2,000 2,040
Container Corp. of America, Class A 11.25% 2004............. 500 515
Paperboard Industries International, Inc. 8.38% 2007........ 1,100 1,089
Metals & Minerals -- 2.1%
Doe Run Resources Corp., Series B 11.25% 2005*.............. 1,500 1,095
Kaiser Aluminum & Chemical Corp. 12.75% 2003................ 1,000 990
---------
7,215
---------
NON-U.S. GOVERNMENT OBLIGATIONS -- 1.5%
Foreign Government -- 1.5%
Republic of Venezuela 6.63% 2007*........................... 452 253
Republic of Argentina 11.38% 2017*.......................... 500 508
United Mexican States 11.38% 2016*.......................... 700 751
---------
1,512
---------
REAL ESTATE -- 0.5%
Real Estate Investment Trusts -- 0.5%
Felcor Suites Hotels, Inc. 7.38% 2004....................... 500 462
---------
SERVICES -- 58.7%
Broadcasting & Publishing -- 15.8%
Adelphia Communications Corp. 8.38% 2008.................... 1,000 1,013
CBS Radio Corp. 11.38% 2009(2).............................. 1,047 1,222
Chancellor Media Corp. 8.75% 2007........................... 1,000 1,027
Chancellor Media Corp. 9.38% 2004........................... 1,000 1,060
Comcast UK Cable Partners Ltd. zero coupon 2007@............ 2,365 2,046
Falcon Holding Group LP 8.38% 2010#......................... 1,250 1,287
Fox Liberty Networks LLC zero coupon 2007@.................. 575 411
Fox Liberty Networks LLC 8.88% 2007......................... 750 773
Gray Communications Systems, Inc. 10.63% 2006............... 1,500 1,612
International CableTel, Inc. zero coupon 2005@.............. 750 675
Lenfest Communications, Inc. 8.25% 2008#.................... 1,000 1,020
Newsquest Capital PLC 11.00% 2006........................... 450 501
RBS Participacoes SA 11.00% 2007*#.......................... 500 325
Sun Media Corp. 9.50% 2007.................................. 975 1,073
</TABLE>
- ---------------------
A-20
<PAGE> 26
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
BONDS & NOTES (Continued) (IN THOUSANDS) (IN THOUSANDS)
-----------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES (continued)
Broadcasting & Publishing (continued)
Telemundo Holdings, Inc. zero coupon 2008#@................. $1,000 $ 581
Transwestern Publishing Co. 9.63% 2007...................... 750 785
TVN Entertainment Corp. 14.00% 2008*(3)..................... 500 440
Business & Public Services -- 11.9%
Allied Waste North America, Inc. 10.25% 2006................ 2,000 2,340
Graham Packaging Co., Series B 8.75% 2008................... 1,500 1,523
Integrated Health Services, Inc. 9.25% 2008................. 1,750 1,706
Integrated Health Services, Inc. 9.50% 2007................. 1,825 1,802
Mariner Health Group, Inc. 9.50% 2006....................... 385 377
Paracelsus Healthcare Corp. 10.00% 2006..................... 2,750 2,503
Printpack, Inc. 10.63% 2006................................. 500 520
Protection One Alarm Monitoring Corp. 13.63% 2005........... 650 741
Tenet Healthcare Corp. 8.00% 2005........................... 250 259
Unison Healthcare Corp. 13.75% 2006#(4)+.................... 650 159
Business Services -- 0.8%
Iron Mountain, Inc. 8.75% 2009.............................. 500 510
LES, Inc. 9.25% 2008*....................................... 250 260
Leisure & Tourism -- 4.9%
AMF Group, Inc. 10.88% 2006................................. 2,000 1,700
AMF Group, Inc., Series B zero coupon 2006@................. 405 231
Boyd Gaming Corp. 9.25% 2003................................ 500 513
Boyd Gaming Corp. 9.50% 2007................................ 250 244
Friendly Ice Cream Corp. 10.50% 2007........................ 625 642
Regal Cinemas, Inc. 9.50% 2008#............................. 750 787
Sun International Ltd. 9.00% 2007........................... 750 788
Merchandising -- 0.5%
Boyds Collection Ltd. 9.00% 2008*#.......................... 500 515
Telecommunications -- 23.7%
American Cellular Corp. 10.50% 2008#........................ 1,000 990
Cellular Communications of Puerto Rico, Inc. 10.00% 2007*... 500 508
Centennial Cellular Corp. 8.88% 2001........................ 2,500 2,650
Clearnet Communications, Inc. zero coupon 2007@.............(CAD) 1,000 405
Clearnet Communications, Inc. zero coupon 2008@.............(CAD) 6,175 2,187
COLT Telecom Group 7.63% 2008...............................(DEM) 1,750 1,034
COLT Telecom Group PLC 8.88% 2007#..........................(DEM) 2,000 1,246
Comcast Cellular Holdings, Inc. 9.50% 2007.................. 1,500 1,620
Comunicacion Celular SA zero coupon 2003*@.................. 1,000 700
Consorcio Ecuatoriano de Telecommunicaciones 14.00% 2002*... 500 280
Esat Holdings Ltd. zero coupon 2007@........................ 500 333
Esat Telecom Group PLC 11.88% 2008.......................... 250 259
Globalstar LP 11.38% 2004................................... 500 386
McCaw International Ltd. zero coupon 2007................... 1,000 540
Nextel Communications, Inc. zero coupon 2007@............... 750 497
Nextel Communications, Inc. zero coupon 2004@............... 1,500 1,470
Nextel Communications, Inc. zero coupon 2007@............... 2,250 1,423
Nextel Communications, Inc. zero coupon 2008#@.............. 750 465
Nextlink Communications, Inc. 9.00% 2008#................... 250 240
NTL, Inc. 10.00% 2007....................................... 500 520
Omnipoint Corp. 11.63% 2006................................. 750 482
Pagemart Wireless, Inc. zero coupon 2008*@.................. 1,500 705
Time Warner Telecom, Inc. 9.75% 2008........................ 500 530
United States Xchange LLC 15.00% 2008*#..................... 1,250 1,312
Viatel, Inc. zero coupon 2008*@............................. 1,000 610
Viatel, Inc. 10.00% 2011*#..................................(DEM) 26 18
</TABLE>
---------------------
A-21
<PAGE> 27
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
BONDS & NOTES (Continued) (IN THOUSANDS) (IN THOUSANDS)
-----------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES (continued)
Telecommunications (continued)
Viatel, Inc. 11.15% 2008*(3)................................(DEM) 500 $ 290
Viatel, Inc. 11.25% 2008*(3)................................ $2,000 2,000
Transportation -- 1.1%
USAir, Inc. 9.63% 2003...................................... 500 528
USAir, Inc. 10.38% 2013..................................... 500 564
---------
58,763
---------
UNITED STATES TREASURY -- 2.5%
6.88% Notes 2006............................................ 2,210 2,496
---------
TOTAL BONDS & NOTES (cost $97,785).......................... 93,582
---------
<CAPTION>
COMMON STOCK -- 0.1% SHARES
-----------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES -- 0.1%
Cellular & Paging -- 0.1%
Nextel Communications, Inc., Class A+ (cost $25)............ 1,549 33
---------
PREFERRED STOCK -- 0.1%
-----------------------------------------------------------------------------------------------
SERVICES -- 0.1%
Telecommunications -- 0.1%
Viatel, Inc., Series A*(2) (cost $107)...................... 1,743 115
---------
WARRANTS -- 0.3%+
-----------------------------------------------------------------------------------------------
CAPITAL EQUIPMENT -- 0.0%
Electronic Instruments -- 0.0%
Cellnet Data Systems, Inc. 9/15/07#......................... 1,000 9
---------
CONSUMER GOODS -- 0.0%
Recreation & Other Consumer Products -- 0.0%
V2 Music Holdings PLC 4/15/08*#............................. 2,000 0
---------
SERVICES -- 0.3%
Cellular & Paging -- 0.3%
Cellular Communications International, Inc. 8/15/03*........ 2,250 162
Comunicacion Celular SA 8/15/03*#........................... 1,000 80
Esat Holdings Ltd. 2/01/07*#................................ 500 16
Globalstar Telecommunications 2/15/04....................... 500 30
Heartland Wireless Communication, Inc. 4/15/00*#............ 3,000 0
Loral Orion Network Systems, Inc. 1/15/07*.................. 1,275 15
McCaw International Ltd. 4/15/07#........................... 1,000 3
Nextel Communications, Inc. 4/25/99*........................ 500 4
---------
310
---------
TOTAL WARRANTS (cost $88)................................... 319
---------
TOTAL INVESTMENT SECURITIES (cost $98,005).................. 94,049
---------
</TABLE>
- ---------------------
A-22
<PAGE> 28
<TABLE>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM SECURITIES -- 4.2% (IN THOUSANDS) (IN THOUSANDS)
-----------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE SHORT-TERM NOTES -- 4.2%
General Electric Capital Corp. 5.45% due 12/1/98............ $2,200 $ 2,200
St Paul Cos., Inc. 5.16% due 12/10/98....................... 2,000 1,997
---------
TOTAL SHORT-TERM SECURITIES (cost $4,197)................... 4,197
---------
TOTAL INVESTMENTS --
(cost $102,202) 98.2% 98,246
Other assets less liabilities -- 1.8 1,815
------ ---------
NET ASSETS -- 100.0% $100,061
====== =========
</TABLE>
-----------------------------
+ Non-income producing security
* Fair valued security; See Note 2
# Resale restricted to qualified institutional buyers
@ Represents a zero-coupon bond which will convert to an
interest-bearing security at a later date
(1) Variable rate security; rate as of November 30, 1998
(2) PIK ("Payment-in-Kind") payment made with additional shares in
lieu of cash
(3) Bond issued as part of a unit which includes an equity
component
(4) Bond in default
OPEN FORWARD FOREIGN CURRENCY CONTRACTS
------------------------------------------------------------------
<TABLE>
<CAPTION>
GROSS UNREALIZED
CONTRACT IN DELIVERY APPRECIATION
TO DELIVER EXCHANGE FOR DATE (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------
DEM 715,000 USD 422,665 01/28/99 $12
DEM 950,000 USD 562,048 02/17/99 5
DEM 1,032,500 USD 611,010 02/23/99 5
GBP 102,430 USD 168,820 12/21/98 2
----
24
----
</TABLE>
<TABLE>
<CAPTION>
GROSS UNREALIZED
DEPRECIATION
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------------
DEM 1,861,720 USD 1,101,814 02/25/99 (4)
----
Net Unrealized Appreciation.... $20
====
</TABLE>
-----------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
CAD - Canadian Dollar GBP - British Pound
DEM - Deutsche Mark USD - United States Dollar
See Notes to Financial Statements
</TABLE>
---------------------
A-23
<PAGE> 29
[ARROW UP]
- ---------------------
ANCHOR PATHWAY FUND
U.S. GOVERNMENT/
AAA-RATED SECURITIES SERIES INVESTMENT PORTFOLIO -- NOVEMBER 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
BONDS & NOTES -- 98.7% (IN THOUSANDS) (IN THOUSANDS)
---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSET-BACKED SECURITIES -- 12.7%++
EQCC Home Equity Loan Trust, Series A, Class A2 6.95%
2012...................................................... $ 243 $ 244
Green Tree Financial Corp., Series 1995-9, Class A5 6.80%
2027...................................................... 1,000 1,011
Nomura Asset Securities Corp., Series D, Class A 6.28%
2028...................................................... 2,869 2,921
Sears Credit Account Master Trust, Series 1998-2, Class A
5.25% 2008................................................ 250 244
Structured Asset Securities Corp., Series 1998-RE1, Class 1
8.71% 2028(1)............................................. 1,809 1,943
Structured Asset Securities Corp., Series 1998-RF2, Class A
8.58% 2027*(1)............................................ 3,517 3,758
--------
10,121
--------
DEVELOPMENTAL AUTHORITIES -- 3.2%
Intermediate American Development Bank 8.88% 2009........... 2,000 2,536
--------
FEDERAL AGENCY OBLIGATIONS -- 38.2%++
Federal Home Loan Mortgage Corp. 6.50% 2009*................ 2,000 2,004
Federal Home Loan Mortgage Corp. 8.00% 2012................. 499 514
Federal Home Loan Mortgage Corp. 9.00% 2021-2022............ 669 708
Federal Home Loan Mortgage Corp. 9.50% 2016................. 460 493
Federal Home Loan Mortgage Corp. 11.88% 2013................ 10 11
Federal Home Loan Mortgage Corp. 12.50% 2013................ 85 96
Federal National Mortgage Association 5.75% 2005............ 500 518
Federal National Mortgage Association 6.00% 2013............ 291 291
Federal National Mortgage Association 6.50% 2028............ 4,031 4,058
Federal National Mortgage Association 6.85% 2026*........... 1,193 1,195
Federal National Mortgage Association 7.00% 2026-2027....... 1,232 1,256
Federal National Mortgage Association 7.50% 2009............ 842 866
Government National Mortgage Association 6.00% 2028......... 2,961 2,932
Government National Mortgage Association 6.50% 2028......... 4,233 4,276
Government National Mortgage Association 7.00% 2023-2025.... 3,657 3,753
Government National Mortgage Association 7.50% 2023-2028.... 739 764
Government National Mortgage Association 8.00% 2017-2023.... 1,623 1,700
Government National Mortgage Association 8.50% 2016-2022.... 953 1,015
Government National Mortgage Association 9.00% 2016-2017.... 580 624
Government National Mortgage Association 9.50% 2009-2017.... 2,949 3,168
Government National Mortgage Association 10.00% 2016........ 25 27
Government National Mortgage Association 10.50% 2016........ 116 127
Government National Mortgage Association 11.00% 2019........ 27 30
Government National Mortgage Association 11.50% 2010........ 10 11
--------
30,437
--------
MORTGAGE-RELATED SECURITIES -- 20.9%++
Asset Backed Securities Investment Trust, Series 1997-D,
Class A 6.79% 2003*#...................................... 212 213
Chase Commercial Mortgage Securities Corp., Series 1998-2,
Class A2 6.39% 2008....................................... 250 258
Commercial Mortgage Acceptance Corp., Series 1998-C1, Class
A1 6.23% 2007............................................. 491 500
Credit Suisse First Boston Mortgage, Series 1998-C1, Class
A2A 6.26% 2040*........................................... 730 745
DLJ Mortgage Acceptance Corp., Series 1996-CF2, Class A1B
7.29% 2021#............................................... 3,800 4,011
First Chicago Master Trust, Series 1995-M, Class A 5.52%
2003(1)................................................... 1,500 1,495
GMAC Commercial Mortgage Security, Inc., Series 1997-C1,
Class A3 6.87% 2007....................................... 250 265
</TABLE>
- ---------------------
A-24
<PAGE> 30
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
BONDS & NOTES (Continued) (IN THOUSANDS) (IN THOUSANDS)
---------------------------------------------------------------------------------------------
<S> <C> <C>
<->MORTGAGE RELATED SECURITIES (continued)
Merrill Lynch Mortgage Investors, Inc., Series 1995-C3,
Class A2 6.82% 2025*(1)................................... $ 500 $ 512
Merrill Lynch Mortgage Investors, Inc., Series 1997-C1,
Class A1 6.95% 2029*...................................... 934 972
Merrill Lynch Mortgage Investors Inc., Series 1995-C3, Class
A3 7.06% 2025(1).......................................... 500 519
Morgan (J.P.) Commercial Mortgage Finance Corp., Series
1995-C1,
Class A2 7.40% 2010*(1)................................... 1,000 1,014
Morgan Stanley Capital I Inc., Series 1998-1, Class A5 6.75%
2013*..................................................... 847 856
Morgan Stanley Capital I Inc., Series 1998-HF2, Class A2
6.48% 2030................................................ 1,000 1,037
Mortgage Capital Funding, Inc., Series 1998-1, Class A5
6.42% 2007*#.............................................. 1,448 1,492
Norwest Asset Securities Corp., Series 1998, Class A1 6.25%
2013(2)................................................... 325 323
Norwest Asset Securities Corp., Series 1998-8, Class A1
6.50% 2013................................................ 1,166 1,171
Ocwen Residential MBS Corp., Series 1998-R1, Class AWAC
1.08% 2040#(1)............................................ 1,296 1,292
--------
16,675
--------
UNITED STATES TREASURY -- 23.7%
8.00% Bonds 2021............................................ 1,090 1,470
8.88% Bonds 2017............................................ 3,850 5,465
12.00% Bonds 2013........................................... 1,000 1,530
5.88% Notes 2005............................................ 2,975 3,181
6.25% Notes 2007............................................ 1,540 1,691
6.63% Notes 2007............................................ 1,700 1,910
7.25% Notes 2004............................................ 3,255 3,650
--------
18,897
--------
TOTAL INVESTMENT SECURITIES (cost $76,986).................. 78,666
--------
SHORT-TERM SECURITIES -- 3.6%
---------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES -- 1.7%
General Electric Capital Corp. 5.45% due 12/1/98............ 1,380 1,380
--------
FEDERAL AGENCY OBLIGATIONS -- 1.9%
Federal Home Loan Mortgage Discount Notes 5.15% due
2/5/99(3)................................................. 1,500 1,486
--------
TOTAL SHORT-TERM SECURITIES (cost $2,866)................... 2,866
--------
TOTAL INVESTMENTS --
(cost $79,852) 102.3% 81,532
Liabilities in excess of other assets -- (2.3) (1,847)
------ --------
NET ASSETS -- 100.0% $79,685
====== ========
</TABLE>
-----------------------------
<TABLE>
<S> <C> <C>
++ Pass-through securities are backed by a pool of mortgages or
other loans on which principal payments are periodically
made. Therefore, the effective maturity is shorter than
stated maturity.
* Fair valued security; see Note 2
# Resale restricted to qualified institutional buyers
(1) Variable rate security; rate as of November 30, 1998
(2) The security was purchased on a when-issued or delayed
delivery basis. Securities purchased on a when-issued basis
are purchased for delivery beyond normal settlement date at
a stated price. Purchasing securities on a when-issued basis
may involve a risk that the market price at the time of
delivery may be lower than the agreed upon purchase price.
(3) The security or a portion thereof represents collateral for
a when-issued security.
</TABLE>
See Notes to Financial Statements
---------------------
A-25
<PAGE> 31
[ARROW UP]
- ---------------------
ANCHOR PATHWAY FUND
CASH MANAGEMENT SERIES INVESTMENT PORTFOLIO -- NOVEMBER 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM SECURITIES -- 100.3% (IN THOUSANDS) (IN THOUSANDS)
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE SHORT-TERM NOTES -- 73.0%
A.I. Credit Corp. 5.14% due 1/04/99................................. $ 800 $ 796
American Express Credit Corp. 5.15% due 12/03/98.................... 2,000 1,999
Ameritech Corp. 5.00% due 1/12/99................................... 2,000 1,988
Bell South Telecommunications, Inc. 5.15% due 1/19/99............... 1,500 1,490
Chevron Transport Corp. 5.22% due 12/08/98.......................... 2,100 2,098
Coca-Cola Co. 5.03% due 1/15/99..................................... 2,000 1,987
Colgate-Palmolive Co. 5.15% due 12/01/98(#)......................... 2,000 2,000
Commercial Credit Co. 5.14% due 1/19/99............................. 2,000 1,986
Consolidated Natural Gas Co. 5.12% due 12/10/98..................... 2,000 1,998
Deere & Co. 5.25% due 1/14/99....................................... 1,800 1,789
Duke Energy Co. 4.83% due 12/11/98.................................. 2,000 1,997
Eastman Kodak Co. 5.11% due 12/07/98................................ 2,100 2,098
Ford Motor Credit Co. 5.16% due 1/20/99............................. 1,500 1,489
Gannett, Inc. 4.98% due 1/11/99..................................... 500 497
General Electric Capital Corp. 5.15% due 12/02/98................... 2,500 2,500
General Motors Acceptance Corp. 5.11% due 12/10/98.................. 1,200 1,199
Heinz (H.J.) Co. 5.15% due 12/01/98................................. 2,000 2,000
Hershey Foods Corp. 4.97% due 12/03/98.............................. 1,500 1,500
International Lease Finance Corp. 5.20% due 12/14/98................ 2,000 1,996
Lucent Technologies, Inc. 5.05% due 1/08/99......................... 900 895
Lucent Technologies, Inc. 5.05% due 1/13/99......................... 980 974
Minnesota Mining & Manufacturing Co. 5.06% due 12/15/98............. 1,500 1,497
PepsiCo, Inc. 5.03% due 1/13/99..................................... 2,000 1,988
Procter & Gamble Co. 5.00% due 1/19/99.............................. 1,500 1,490
Sara Lee Corp. 4.93% due 12/21/98................................... 2,000 1,995
SBC Communications, Inc. 5.15% due 1/21/99(#)....................... 2,000 1,985
St. Paul Cos., Inc. 5.16% due 12/16/98.............................. 1,200 1,197
Vermont American Corp. 4.82% due 12/31/98(#)........................ 1,200 1,195
-------
TOTAL CORPORATE SHORT-TERM NOTES.................................... 46,623
-------
FEDERAL AGENCY OBLIGATIONS -- 27.3%
Federal Home Loan Bank Discount Notes 4.99% due 12/16/98............ 1,108 1,106
Federal Home Loan Bank Discount Notes 5.05% due 12/09/98............ 2,500 2,497
Federal Home Loan Bank Discount Notes 5.06% due 12/04/98............ 1,000 1,000
Federal Home Loan Mortgage Discount Notes 5.02% due 12/30/98........ 1,800 1,793
Federal Home Loan Mortgage Discount Notes 5.03% due 12/10/98........ 1,000 999
Federal Home Loan Mortgage Discount Notes 5.06% due 12/02/98........ 2,500 2,499
Federal Home Loan Mortgage Discount Notes 5.11% due 1/15/99......... 2,000 1,987
Federal National Mortgage Association Discount Notes 5.00% due
12/22/98.......................................................... 2,000 1,994
Federal National Mortgage Association Discount Notes 5.07% due
12/04/98.......................................................... 1,130 1,129
Federal National Mortgage Association Discount Notes 5.11% due
1/15/99........................................................... 2,400 2,385
-------
TOTAL FEDERAL AGENCY OBLIGATIONS.................................... 17,389
-------
TOTAL SHORT-TERM SECURITIES (cost: $64,012)......................... 64,012
-------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS --
(cost $64,012) 100.3% $64,012
Liabilities in excess of other assets -- (0.3) (186)
------ -------
NET ASSETS -- 100.0% $63,826
====== =======
</TABLE>
-----------------------------
(#) Resale restricted to qualified institutional buyers
See Notes to Financial Statements
- ---------------------
A-26
<PAGE> 32
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- ---------------------
ANCHOR PATHWAY FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1998
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
U.S.
GOVERNMENT/
ASSET HIGH-YIELD AAA-RATED
GROWTH INTERNATIONAL GROWTH-INCOME ALLOCATION BOND SECURITIES
SERIES SERIES SERIES SERIES SERIES SERIES
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment securities, at value*.......... $745,432 $167,228 $787,143 $119,104 $ 94,049 $78,666
Short-term securities*.................... 93,327 28,216 126,089 14,382 4,197 2,866
Cash...................................... 234 5 1,717 44 513 10
Receivables for --
Sales of investments.................... 1,824 -- 883 165 -- --
Fund shares sold........................ 161 32 224 51 17 43
Dividends and accrued interest.......... 146 412 1,498 756 2,190 608
Foreign currency contracts.............. -- 1,504 -- -- -- --
Prepaid expenses.......................... 20 4 23 4 3 2
Unrealized appreciation on forward foreign
currency contracts...................... -- -- -- 1 24 --
--------------------------------------------------------------------------------
841,144 197,401 917,577 134,507 100,993 82,195
--------------------------------------------------------------------------------
LIABILITIES:
Payables for --
Purchases of investments................ 3,545 1,504 343 224 589 2,077
Fund shares redeemed.................... 840 408 789 118 259 364
Advisory fees........................... 202 95 226 34 25 21
Management fees......................... 135 38 151 23 17 14
Foreign currency contracts.............. -- 1,498 -- -- -- --
Other accrued expenses.................... 67 95 74 35 38 34
Unrealized depreciation on forward foreign
currency contracts...................... -- -- -- 4 4 --
--------------------------------------------------------------------------------
4,789 3,638 1,583 438 932 2,510
--------------------------------------------------------------------------------
NET ASSETS:............................... $836,355 $193,763 $915,994 $134,069 $100,061 $79,685
================================================================================
Shares of beneficial interest outstanding
(unlimited shares authorized)........... 18,449 13,748 26,135 8,738 7,796 7,201
Net asset value per share................. $ 45.33 $ 14.09 $ 35.05 $ 15.34 $ 12.83 $ 11.07
================================================================================
COMPOSITION OF NET ASSETS:
Capital paid in........................... $357,053 $133,508 $497,667 $ 89,981 $ 91,163 $74,798
Accumulated undistributed net investment
income.................................. 2,744 3,370 16,585 5,279 10,471 4,991
Accumulated undistributed net realized
gain (loss) on investments and foreign
currency................................ 199,182 25,198 192,054 19,106 2,362 (1,784)
Unrealized appreciation (depreciation) on
investments............................. 277,376 31,679 209,688 19,706 (3,956) 1,680
Unrealized foreign exchange gain (loss) on
other assets and liablities............. -- 8 -- (3) 21 --
--------------------------------------------------------------------------------
Net Assets............................ $836,355 $193,763 $915,994 $134,069 $100,061 $79,685
================================================================================
---------------
*Cost
Investment securities................... $468,057 $135,550 $577,456 $ 99,450 $ 98,005 $76,986
================================================================================
Short-term securities................... $ 93,326 $ 28,215 $126,088 $ 14,330 $ 4,197 $ 2,866
================================================================================
<CAPTION>
CASH
MANAGEMENT
SERIES
------------------------------------------ ----------
<S> <C>
ASSETS:
Investment securities, at value*.......... $ --
Short-term securities*.................... 64,012
Cash...................................... 133
Receivables for --
Sales of investments.................... --
Fund shares sold........................ 196
Dividends and accrued interest.......... --
Foreign currency contracts.............. --
Prepaid expenses.......................... 1
Unrealized appreciation on forward foreign
currency contracts...................... --
-------
64,342
-------
LIABILITIES:
Payables for --
Purchases of investments................ --
Fund shares redeemed.................... 450
Advisory fees........................... 19
Management fees......................... 12
Foreign currency contracts.............. --
Other accrued expenses.................... 35
Unrealized depreciation on forward foreign
currency contracts...................... --
-------
516
-------
NET ASSETS:............................... $63,826
=======
Shares of beneficial interest outstanding
(unlimited shares authorized)........... 5,794
Net asset value per share................. $ 11.02
=======
COMPOSITION OF NET ASSETS:
Capital paid in........................... $60,410
Accumulated undistributed net investment
income.................................. 3,415
Accumulated undistributed net realized
gain (loss) on investments and foreign
currency................................ 1
Unrealized appreciation (depreciation) on
investments............................. --
Unrealized foreign exchange gain (loss) on
other assets and liablities............. --
-------
Net Assets............................ $63,826
=======
---------------
*Cost
Investment securities................... $ --
=======
Short-term securities................... $64,012
=======
</TABLE>
See Notes to Financial Statements
---------------------
A-27
<PAGE> 33
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- ---------------------
ANCHOR PATHWAY FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
U.S.
GOVERNMENT/
ASSET HIGH-YIELD AAA-RATED
GROWTH INTERNATIONAL GROWTH-INCOME ALLOCATION BOND SECURITIES
SERIES SERIES SERIES SERIES SERIES SERIES
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME:
Income:
Interest................................ $ 4,282 $ 1,658 $ 7,243 $ 4,074 $10,447 $5,357
Dividends............................... 2,835 3,443 14,417 1,980 491 --
--------------------------------------------------------------------------------
Total income*.................... 7,117 5,101 21,660 6,054 10,938 5,357
--------------------------------------------------------------------------------
Expenses:
Advisory fees........................... 2,453 1,283 2,854 456 353 253
Management fees......................... 1,635 511 1,903 304 236 169
Custodian fees.......................... 200 352 240 63 56 43
Auditing and legal fees................. 24 30 24 21 24 24
Trustees' fees.......................... 13 3 15 2 2 1
Reports to investors.................... 4 2 5 1 2 1
Other expenses.......................... 14 5 18 3 1 1
--------------------------------------------------------------------------------
Total expenses................... 4,343 2,186 5,059 850 674 492
--------------------------------------------------------------------------------
Net investment income..................... 2,774 2,915 16,601 5,204 10,264 4,865
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain on investments.......... 199,464 26,400 192,083 19,210 2,704 1,702
Net realized foreign exchange gain (loss)
on other assets and liabilities......... -- 43 -- -- (95) --
Change in unrealized appreciation/
depreciation of investments............. (18,723) 454 (75,884) (11,352) (8,636) (136)
Change in unrealized foreign exchange
gain/loss on other assets and
liabilities............................. -- (235) -- (3) 13 --
--------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currencies...... 180,741 26,662 116,199 7,855 (6,014) 1,566
--------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.............................. $183,515 $29,577 $132,800 $ 13,059 $ 4,250 $6,431
================================================================================
<CAPTION>
CASH
MANAGEMENT
SERIES
------------------------------------------ ----------
<S> <C>
NET INVESTMENT INCOME:
Income:
Interest................................ $3,868
Dividends............................... --
------
Total income*.................... 3,868
------
Expenses:
Advisory fees........................... 228
Management fees......................... 152
Custodian fees.......................... 31
Auditing and legal fees................. 24
Trustees' fees.......................... 1
Reports to investors.................... 2
Other expenses.......................... 1
------
Total expenses................... 439
------
Net investment income..................... 3,429
------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain on investments.......... 2
Net realized foreign exchange gain (loss)
on other assets and liabilities......... --
Change in unrealized appreciation/
depreciation of investments............. --
Change in unrealized foreign exchange
gain/loss on other assets and
liabilities............................. --
------
Net realized and unrealized gain (loss) on
investments and foreign currencies...... 2
------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.............................. $3,431
======
</TABLE>
- ---------------
* Net of foreign witholding taxes of $42; $350; $130 and $15 on Growth,
International, Growth-Income and Asset Allocation Series, respectively.
See Notes to Financial Statements
- ---------------------
A-28
<PAGE> 34
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- ---------------------
ANCHOR PATHWAY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED NOVEMBER 30, 1998
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
U.S.
GOVERNMENT/
ASSET HIGH-YIELD AAA-RATED
GROWTH INTERNATIONAL GROWTH-INCOME ALLOCATION BOND SECURITIES
SERIES SERIES SERIES SERIES SERIES SERIES
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income..................... $ 2,774 $ 2,915 $ 16,601 $ 5,204 $ 10,264 $ 4,865
Net realized gain on investments.......... 199,464 26,400 192,083 19,210 2,704 1,702
Net realized foreign exchange gain (loss)
on other assets and liabilities......... -- 43 -- -- (95) --
Change in unrealized appreciation/
depreciation on investments............. (18,723) 454 (75,884) (11,352) (8,636) (136)
Change in unrealized foreign exchange
gain/loss on other assets and
liabilities............................. -- (235) -- (3) 13 --
---------------------------------------------------------------------------------
Net increase in net assets resulting from
operations.............................. 183,515 29,577 132,800 13,059 4,250 6,431
---------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
PAID TO SHAREHOLDERS:
Dividends from net investment income...... (3,495) (3,310) (17,480) (5,385) (11,180) (6,410)
Distributions from net realized gains on
investments............................. (148,000) (54,645) (166,343) (18,305) (2,570) --
---------------------------------------------------------------------------------
Total dividends and distributions paid to
shareholders............................ (151,495) (57,955) (183,823) (23,690) (13,750) (6,410)
---------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold................. 120,195 37,714 92,874 16,070 34,394 33,591
Proceeds from shares issued for
reinvestment of dividends and
distributions........................... 151,495 57,955 183,823 23,690 13,750 6,410
Cost of shares repurchased................ (268,585) (96,865) (260,112) (50,506) (57,253) (41,946)
---------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from capital share
transactions............................ 3,105 (1,196) 16,585 (10,746) (9,109) (1,945)
---------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS... 35,125 (29,574) (34,438) (21,377) (18,609) (1,924)
NET ASSETS:
Beginning of period....................... 801,230 223,337 950,432 155,446 118,670 81,609
---------------------------------------------------------------------------------
End of period............................. $ 836,355 $193,763 $ 915,994 $134,069 $100,061 $ 79,685
=================================================================================
---------------
Accumulated undistributed net investment
income.................................. $ 2,744 $ 3,370 $ 16,585 $ 5,279 $ 10,471 $ 4,991
=================================================================================
Shares issued and repurchased:
Sold.................................... 2,820 2,526 2,655 1,032 2,646 3,076
Issued in reinvestment of dividends and
distributions......................... 3,611 3,971 5,274 1,547 1,052 616
Repurchased............................. (6,265) (6,477) (7,463) (3,262) (4,349) (3,842)
---------------------------------------------------------------------------------
Net increase (decrease)................... 166 20 466 (683) (651) (150)
=================================================================================
<CAPTION>
CASH
MANAGEMENT
SERIES
------------------------------------------ ----------
<S> <C>
OPERATIONS:
Net investment income..................... $ 3,429
Net realized gain on investments.......... 2
Net realized foreign exchange gain (loss)
on other assets and liabilities......... --
Change in unrealized appreciation/
depreciation on investments............. --
Change in unrealized foreign exchange
gain/loss on other assets and
liabilities............................. --
----------
Net increase in net assets resulting from
operations.............................. 3,431
----------
DIVIDENDS AND DISTRIBUTIONS
PAID TO SHAREHOLDERS:
Dividends from net investment income...... (3,995)
Distributions from net realized gains on
investments............................. --
----------
Total dividends and distributions paid to
shareholders............................ (3,995)
----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold................. 171,512
Proceeds from shares issued for
reinvestment of dividends and
distributions........................... 3,995
Cost of shares repurchased................ (180,343)
----------
Net increase (decrease) in net assets
resulting from capital share
transactions............................ (4,836)
----------
TOTAL INCREASE (DECREASE) IN NET ASSETS... (5,400)
NET ASSETS:
Beginning of period....................... 69,226
----------
End of period............................. $ 63,826
==========
Accumulated undistributed net investment
income.................................. $ 3,415
==========
Shares issued and repurchased:
Sold.................................... 15,669
Issued in reinvestment of dividends and
distributions......................... 375
Repurchased............................. (16,372)
----------
Net increase (decrease)................... (328)
==========
</TABLE>
See Notes to Financial Statements
---------------------
A-29
<PAGE> 35
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- ---------------------
ANCHOR PATHWAY FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED NOVEMBER 30, 1997
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
U.S.
GOVERNMENT/
ASSET HIGH-YIELD AAA-RATED CASH
GROWTH INTERNATIONAL GROWTH-INCOME ALLOCATION BOND SECURITIES MANAGEMENT
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment
income............ $ 3,485 $ 2,486 $ 17,471 $ 5,381 $ 10,872 $ 6,330 $ 3,985
Net realized gain
(loss) on
investments....... 146,719 54,711 166,979 18,372 5,128 (1,673) (1)
Net realized foreign
exchange loss
on other assets
and
liabilities..... -- (19) (1) -- -- -- --
Change in unrealized
appreciation/
depreciation on
investments..... 16,891 (25,138) 19,920 1,609 (1,037) 286 --
Change in unrealized
foreign exchange
gain/loss on other
assets and
liabilities....... -- 243 -- -- 8 -- --
----------------------------------------------------------------------------------------------
Net increase in net
assets resulting
from
operations........ 167,095 32,283 204,369 25,362 14,971 4,943 3,984
----------------------------------------------------------------------------------------------
DIVIDENDS AND
DISTRIBUTIONS PAID
TO SHAREHOLDERS:
Dividends from net
investment
income............ (3,795) (3,950) (18,320) (5,690) (12,665) (8,435) (4,852)
Distributions from
net realized gains
on investments.... (118,520) (17,640) (124,190) (14,930) -- -- --
----------------------------------------------------------------------------------------------
Total dividends and
distributions paid
to shareholders... (122,315) (21,590) (142,510) (20,620) (12,665) (8,435) (4,852)
----------------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares
sold.............. 136,992 78,283 69,784 15,741 36,139 10,319 244,501
Proceeds from shares
issued for
reinvestment of
dividends and
distributions..... 122,315 21,590 142,510 20,620 12,665 8,435 4,852
Cost of shares
repurchased....... (316,021) (136,373) (243,077) (38,717) (63,777) (42,505) (268,495)
----------------------------------------------------------------------------------------------
Net decrease in net
assets resulting
from capital share
transactions...... (56,714) (36,500) (30,783) (2,356) (14,973) (23,751) (19,142)
----------------------------------------------------------------------------------------------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS............ (11,934) (25,807) 31,076 2,386 (12,667) (27,243) (20,010)
NET ASSETS:
Beginning of
period............ 813,164 249,144 919,356 153,060 131,337 108,852 89,236
----------------------------------------------------------------------------------------------
End of period....... $ 801,230 $ 223,337 $ 950,432 $155,446 $118,670 $ 81,609 $ 69,226
==============================================================================================
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulated
undistributed net
investment
income............ $ 3,479 $ 2,541 $ 17,464 $ 5,374 $ 11,153 $ 6,345 $ 3,981
==============================================================================================
Shares issued and
repurchased:
Sold.............. 3,275 4,723 2,012 994 2,669 949 21,803
Issued in
reinvestment of
dividends and
distributions... 3,424 1,442 4,590 1,438 990 816 444
Repurchased....... (7,648) (8,200) (6,971) (2,442) (4,696) (3,875) (23,966)
----------------------------------------------------------------------------------------------
Net decrease........ (949) (2,035) (369) (10) (1,037) (2,110) (1,719)
==============================================================================================
</TABLE>
See Notes to Financial Statements
- ---------------------
A-30
<PAGE> 36
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- ---------------------
ANCHOR PATHWAY FUND
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION: Anchor Pathway Fund (the
"Fund") is a Massachusetts Business Trust. Its Agreement and Declaration of
Trust permits the issuance of an unlimited number of shares ($.01 par value per
share) of beneficial interest in seven separate series, with shares of each
series representing an interest in a separate portfolio of assets and operating
as a distinct fund. The Fund is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management investment company.
Shares of the Fund are offered only to Variable Separate Accounts, a separate
account of Anchor National Life Insurance Company which offers annuity
contracts.
The investment objectives for each series are as follows:
The GROWTH SERIES seeks growth of capital by investing primarily in common
stocks or securities with common stock characteristics, such as convertible
preferred stocks, which demonstrate the potential for appreciation.
The INTERNATIONAL SERIES seeks long-term growth of capital by investing
primarily in securities of issuers domiciled outside the United States.
The GROWTH-INCOME SERIES seeks growth of capital and income by investing
primarily in common stocks or securities which demonstrate the potential for
appreciation and/or dividends.
The ASSET ALLOCATION SERIES seeks high total return (including income and
capital gains) consistent with preservation of capital over the long-term
through a diversified portfolio that can include common stocks and other
equity-type securities (such as convertible bonds and preferred stocks), bonds
and other intermediate and long-term fixed-income securities and money market
instruments (debt securities maturing in one year or less) in any combination.
The HIGH YIELD BOND SERIES seeks a high level of current income and secondarily
seeks capital appreciation by investing primarily in intermediate and long-term
corporate obligations, with emphasis on higher yielding, higher risk, lower
rated or unrated securities.
The U.S. GOVERNMENT/AAA-RATED SECURITIES SERIES seeks a high level of current
income consistent with prudent investment risk and preservation of capital by
investing primarily in a combination of securities guaranteed by the U.S.
Government and other debt securities rated AAA by Standard & Poor's Ratings
Services or Aaa by Moody's Investors Service, Inc. or that have not received a
rating but are determined to be of comparable quality by the investment adviser.
The CASH MANAGEMENT SERIES seeks high current yield while preserving capital by
investing in a diversified selection of high quality money market instruments.
2. SIGNIFICANT ACCOUNTING POLICIES: The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from these estimates.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.
SECURITY VALUATIONS: Stocks are stated at value based upon closing sales prices
reported on recognized securities exchanges or, for listed securities having no
sales reported and for unlisted securities, upon last-reported bid prices.
Nonconvertible bonds, debentures, other long-term debt securities, and
short-term securities with original or remaining maturities in excess of 60 days
are valued at prices obtained for the day of valuation from a bond pricing
service or a major dealer in bonds when such prices are available; however, in
circumstances where the investment adviser deems it appropriate to do so, an
over-the-counter or exchange quotation at the mean of representative bid or
asked prices may be used. Securities traded primarily on securities exchanges
outside the United States are valued at the last sale price on such exchanges on
the day of valuation, or if there is no sale on the day of valuation, at the
last reported bid price. If a security's price is available from more than one
foreign exchange the Fund 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. Securities for which
quotations are not readily available are valued at fair value as determined in
good faith under the direction of the Fund's Trustees.
---------------------
A-31
<PAGE> 37
FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained
in U.S. dollars. Assets and liabilities denominated in foreign currencies and
commitments under forward foreign currency contracts are translated into U.S.
dollars at the mean of the quoted bid and asked prices of such currencies
against the U.S. dollar.
The Fund does not isolate that portion of the results of operations arising as
a result of changes in the foreign exchange rates from the changes in the market
prices of securities held at fiscal year-end. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the changes in the
market prices of portfolio securities sold during the year.
Realized foreign exchange gains and losses on other assets and liabilities and
change in unrealized foreign exchange gains and losses on other assets and
liabilities include realized foreign exchange gains and losses from currency
gains or losses between the trade and settlement dates of securities
transactions, the difference between the amounts of interest, dividends, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent amounts actually received or paid and changes in the unrealized
foreign exchange gains and losses relating to other assets and liabilities
arising as a result of changes in the exchange rate.
SECURITIES TRANSACTIONS, DIVIDENDS, INVESTMENT INCOME AND EXPENSES: Securities
transactions are recorded on a trade date basis. Interest income is accrued
daily except when collection is not expected. Dividend income is recorded on the
ex-dividend date except for certain dividends from foreign securities, which are
recorded as soon as the Fund is informed after the ex-dividend date. The Fund
does not amortize premiums or accrete discounts on fixed income securities,
other than short-term securities, except those original issue discounts for
which amortization is required for federal income tax purposes; gains and losses
realized upon the sale of such securities are based on their identified cost.
Funds which earn foreign income and capital gains may be subject to foreign
withholding taxes at various rates.
Common expenses incurred by the Fund are allocated among the series based upon
their relative net asset values or other appropriate allocation methods. In all
other respects, expenses are charged to each series as incurred on a specific
identification basis.
The Fund records dividends and distributions to its shareholders on the
ex-dividend date. The amount of dividends and distributions from net investment
income and net realized capital gains are determined and presented in accordance
with federal income tax regulations, which may differ from generally accepted
accounting principles. These "book/tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassification. Net investment income/loss, net realized gain/loss, and net
assets are not affected.
For the year ended November 30, 1998, the reclassification arising from
book/tax differences primarily related to tax adjustments on passive foreign
investment companies sold and book/tax characterization of foreign currency
transactions, market discount and paydown gains/losses. The reclassifications
resulted in increases (decreases) to the components of net assets as follows
(dollars in thousands):
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED UNDISTRIBUTED PAID
NET REALIZED NET INVESTMENT IN
GAIN/(LOSS) INCOME/(LOSS) CAPITAL
<S> <C> <C> <C>
-----------------------------------
Growth Series............................................... $ 14 $ (14) $ --
International Series........................................ (1,224) 1,224 --
Growth-Income Series........................................ -- -- --
Asset Allocation Series..................................... (86) 86 --
High-Yield Bond Series...................................... (234) 234 --
U.S. Government/AAA-Rated Securities Series................. (158) 191 (33)
Cash Management Series...................................... -- -- --
</TABLE>
3. OPERATING POLICIES:
FORWARD FOREIGN CURRENCY CONTRACTS: Certain series may enter into forward
foreign currency contracts ("forward contracts") to attempt to protect
securities and related receivables and payables against changes in future
foreign exchange rates. A forward contract is an agreement between two parties
to buy or sell currency at a set price on a future date. The market value of the
contract will fluctuate with changes in currency exchange rates. The contract is
marked-to-market daily using the forward rate and the change in market value is
recorded by the Fund as unrealized gain or loss. On settlement date, the Fund
records either realized gains or losses when the contract is closed equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. Risks may arise upon entering into these
contracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar. Forward contracts involve elements of risk
in excess of the amount reflected in the Statement of Assets and Liabilities.
The Fund bears the risk of an unfavorable change in the foreign exchange rate
underlying the forward contract.
- ---------------------
A-32
<PAGE> 38
4. FEDERAL INCOME TAXES: It is the Fund's policy to continue to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income, including any net
realized gain on investments, to its shareholders. Therefore, no federal tax
provision is required.
The amounts of aggregate unrealized gain (loss) and the cost of investment
securities for tax purposes, including short-term securities at November 30,
1998, were as follows (dollars in thousands):
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE NET
UNREALIZED UNREALIZED UNREALIZED COST OF CAPITAL LOSS
GAIN (LOSS) GAIN INVESTMENTS CARRYOVER*+
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------
Growth Series........................................ $309,677 $(32,603) $277,074 $561,685 $--
International Series***.............................. 41,127 (10,503) 30,624 164,820 --
Growth-Income Series................................. 240,869 (31,100) 209,770 703,462 --
Asset Allocation Series.............................. 23,873 (4,167) 19,706 113,780 --
High-Yield Bond Series**............................. 2,714 (6,673) (3,959) 102,205 --
U.S. Government/AAA-Rated Securities Series**........ 1,894 (99) 1,795 79,737 1,765
Cash Management Series............................... -- -- -- 64,012 --
<CAPTION>
CAPITAL LOSS
UTILIZED
<S> <C>
Growth Series........................................ $ --
International Series***.............................. --
Growth-Income Series................................. --
Asset Allocation Series.............................. --
High-Yield Bond Series**............................. --
U.S. Government/AAA-Rated Securities Series**........ 1,513
Cash Management Series............................... 1
</TABLE>
- ---------------
* Expire 2004-2005
** Post 10/31/98 Capital Loss Deferral: High-Yield Bond $488, U.S.
Government/AAA-Rated Securities $17
*** Post 10/31/98 Currency Loss Deferral: International $29
+ Net capital loss carryover reported as of November 30, 1998, which are
available to the extent provided in regulations to offset future capital
gains. To the extent that these carryovers are used to offset future capital
gains, it is probable that the gains so offset will not be distributed.
5. BUSINESS MANAGER AND INVESTMENT ADVISER: SunAmerica Asset Management Corp.
(the "Business Manager"), an indirect wholly owned subsidiary of Anchor National
Life Insurance Company, which is an indirect subsidiary of SunAmerica Inc.,
pursuant to a business management agreement, manages the business affairs and
the administration of the Fund. For providing these services, the Business
Manager receives a monthly fee which is accrued daily based on the average net
assets of each series of the Fund. Except for the International Series, the
Business Manager fee accrues at the annual rate of .24% on that portion of each
series' average daily net assets not exceeding $30,000,000 and .20% on that
portion of the series' average daily net assets in excess of $30,000,000. The
Business Manager fee for the International Series accrues at the annual rate of
.24% on the series' average daily net assets.
Advisory fees paid to Capital Research and Management Company (the "Investment
Adviser") are based on the net assets of each series at the following annual
rates: .36% on that portion of each series' (except for the International
Series) average daily net assets not exceeding $30,000,000 and .30% on that
portion of the series' average net assets in excess of $30,000,000. The advisory
fee for the International Series accrues at the annual rate of .66% on that
portion of the series' average daily net assets not exceeding $60,000,000 and
.58% on that portion of the series' average daily net assets in excess of
$60,000,000.
6. PURCHASES AND SALES OF SECURITIES: Information with respect to purchases and
sales of long-term securities (dollars in thousands) for the year ended November
30, 1998, was as follows:
<TABLE>
<CAPTION>
ASSET
GROWTH INTERNATIONAL GROWTH-INCOME ALLOCATION HIGH-YIELD
SERIES SERIES SERIES SERIES BOND SERIES
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------------------
Purchases of portfolio securities............ $237,423 $109,301 $263,041 $ 28,889 $76,741
Sales of portfolio securities................ 414,917 154,141 403,105 50,159 95,812
U.S. government securities excluded above
were as follows:
Purchases of U.S. government securities...... -- -- -- 13,079 5,527
Sales of U.S. government securities.......... -- -- -- 18,023 522
<CAPTION>
U.S.
GOVERNMENT/
AAA-RATED CASH
SECURITIES MANAGEMENT
SERIES SERIES
<S> <C> <C>
-------------------------------------------------------------------
Purchases of portfolio securities............ $24,316 $ --
Sales of portfolio securities................ 10,398 --
U.S. government securities excluded above
were as follows:
Purchases of U.S. government securities...... 104,440 --
Sales of U.S. government securities.......... 108,024 --
</TABLE>
7. TRANSACTIONS WITH AFFILIATES: The following series incurred brokerage
commissions (dollars in thousands) with an affiliated broker:
<TABLE>
<CAPTION>
FSC
SECURITIES SPELMAN &
CORP. CO., INC.
---------- ---------
<S> <C> <C>
Growth Series............................................... $ 3 $ 1
Growth-Income Series........................................ 6 --
</TABLE>
---------------------
A-33
<PAGE> 39
8. SUBSEQUENT EVENTS: On January 1, 1999, SunAmerica Inc., pursuant to the
terms of an agreement entered into with American International Group, Inc.
("AIG"), merged with and into AIG, and consequently, SunAmerica Asset Management
Corp. ("SAAMCo"), which acts as Business Manager of the Fund, became an indirect
wholly owned subsidiary of AIG. In connection therewith on January 1, 1999,
SAAMCo entered into a new Business Management Agreement with the Fund. The new
agreement has no effect on the fees or expenses payable by the Fund or its
shareholders.
- ---------------------
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<PAGE> 40
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- ---------------------
ANCHOR PATHWAY FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
NET REALIZED TOTAL DIVIDENDS DIVIDENDS
NET ASSET NET & UNREALIZED FROM DECLARED FROM NET NET ASSET
VALUE INVEST- GAIN (LOSS) INVEST- FROM NET REALIZED VALUE
PERIOD BEGINNING MENT ON MENT INVESTMENT GAIN ON END OF TOTAL
ENDED OF PERIOD INCOME@ INVESTMENTS OPERATIONS INCOME INVESTMENTS PERIOD RETURN*
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Series
11/30/94 $35.76 $0.19 $ 1.04 $ 1.23 $(0.25) $(2.66) $34.08 3.33%
11/30/95 34.08 0.25 12.02 12.27 (0.20) (2.65) 43.50 37.93
11/30/96 43.50 0.18 5.10 5.28 (0.28) (6.22) 42.28 14.02
11/30/97 42.28 0.18 8.30 8.48 (0.21) (6.73) 43.82 23.78
11/30/98 43.82 0.15 10.18 10.33 (0.20) (8.62) 45.33 25.21
International Series
11/30/94 $12.57 $0.22 $ 0.81 $ 1.03 $(0.12) $(0.22) $13.26 8.17%
11/30/95 13.26 0.26 1.11 1.37 (0.23) (0.50) 13.90 11.18
11/30/96 13.90 0.22 2.46 2.68 (0.46) (0.31) 15.81 20.03
11/30/97 15.81 0.17 1.78 1.95 (0.27) (1.22) 16.27 13.15
11/30/98 16.27 0.22 2.31 2.53 (0.27) (4.44) 14.09 14.56
Growth-Income Series
11/30/94 $28.23 $0.69 $(0.14) $ 0.55 $(0.76) $(1.56) $26.46 2.00%
11/30/95 26.46 0.71 7.46 8.17 (0.76) (2.23) 31.64 33.47
11/30/96 31.64 0.67 5.87 6.54 (0.77) (2.10) 35.31 21.88
11/30/97 35.31 0.66 6.91 7.57 (0.75) (5.10) 37.03 24.62
11/30/98 37.03 0.62 4.91 5.53 (0.71) (6.80) 35.05 15.07
Asset Allocation Series
11/30/94 $13.66 $0.58 $(0.69) $(0.11) $(0.62) $(0.31) $12.62 (0.84)%
11/30/95 12.62 0.55 3.16 3.71 (0.68) (0.38) 15.27 31.01
11/30/96 15.27 0.56 2.17 2.73 (0.63) (1.14) 16.23 19.34
11/30/97 16.23 0.55 2.00 2.55 (0.63) (1.65) 16.50 17.86
11/30/98 16.50 0.55 0.98 1.53 (0.61) (2.08) 15.34 9.28
High-Yield Bond Series
11/30/94 $15.67 $1.24 $(1.88) $(0.64) $(1.49) $(0.49) $13.05 (4.70)%
11/30/95 13.05 1.26 0.99 2.25 (1.56) (0.13) 13.61 18.97
11/30/96 13.61 1.21 0.56 1.77 (1.53) -- 13.85 14.05
11/30/97 13.85 1.19 0.44 1.63 (1.43) -- 14.05 12.76
11/30/98 14.05 1.22 (0.73) 0.49 (1.39) (0.32) 12.83 3.22
U.S. Government/AAA-Rated Securities Series
11/30/94 $13.34 $0.90 $(1.43) $(0.53) $(1.11) $(0.17) $11.53 (4.17)%
11/30/95 11.53 0.86 0.85 1.71 (1.20) (0.06) 11.98 15.95
11/30/96 11.98 0.80 (0.21) 0.59 (1.06) -- 11.51 5.49
11/30/97 11.51 0.76 (0.14) 0.62 (1.03) -- 11.10 6.09
11/30/98 11.10 0.68 0.23 0.91 (0.94) -- 11.07 8.70
Cash Management Series
11/30/94 $11.40 $0.40 $ -- $ 0.40 $(0.33) $ -- $11.47 3.56%
11/30/95 11.47 0.61 0.01 0.62 (0.44) -- 11.65 5.53
11/30/96 11.65 0.55 -- 0.55 (0.82) -- 11.38 4.94
11/30/97 11.38 0.54 0.01 0.55 (0.62) -- 11.31 5.03
11/30/98 11.31 0.54 -- 0.54 (0.83) -- 11.02 5.04
<CAPTION>
RATIO OF NET
NET ASSETS RATIO OF INVESTMENT
END OF EXPENSES INCOME PORTFOLIO
PERIOD PERIOD TO AVERAGE TO AVERAGE TURNOVER
ENDED (000'S) NET ASSETS NET ASSETS RATE
- --------------------- --------------------------------------------------
<S> <C> <C> <C> <C>
Growth Series
11/30/94 $712,602 0.55% 0.56% 33.79%
11/30/95 897,275 0.55 0.65 23.72
11/30/96 813,164 0.55 0.46 25.51
11/30/97 801,230 0.54 0.44 29.01
11/30/98 836,355 0.54 0.34 32.37
International Series
11/30/94 $259,498 1.04% 1.64% 21.68%
11/30/95 228,134 1.05 1.95 16.79
11/30/96 249,144 1.02 1.56 44.94
11/30/97 223,337 1.04 0.99 47.45
11/30/98 193,763 1.03 1.50 60.19
Growth-Income Series
11/30/94 $765,971 0.55% 2.54% 32.97%
11/30/95 882,143 0.55 2.52 18.81
11/30/96 919,356 0.55 2.07 23.72
11/30/97 950,432 0.54 1.88 30.06
11/30/98 915,994 0.54 1.76 32.42
Asset Allocation Series
11/30/94 $142,678 0.59% 4.47% 48.53%
11/30/95 153,608 0.59 4.04 53.58
11/30/96 153,060 0.58 3.74 40.97
11/30/97 155,446 0.59 3.49 39.14
11/30/98 134,069 0.58 3.56 31.43
High-Yield Bond Series
11/30/94 $127,467 0.59% 8.76% 44.97%
11/30/95 146,590 0.59 9.66 31.64
11/30/96 131,337 0.58 9.09 36.99
11/30/97 118,670 0.61 8.68 64.49
11/30/98 100,061 0.60 9.18 78.82
U.S. Government/AAA-Rated Securities Series
11/30/94 $149,368 0.58% 7.42% 16.95%
11/30/95 134,938 0.59 7.49 43.43
11/30/96 108,852 0.59 7.03 17.12
11/30/97 81,609 0.63 6.93 46.17
11/30/98 79,685 0.63 6.20 163.75
Cash Management Series
11/30/94 $186,396 0.57% 3.52% --%
11/30/95 100,872 0.58 5.32 --
11/30/96 89,236 0.58 4.81 --
11/30/97 69,226 0.63 4.87 --
11/30/98 63,826 0.63 4.91 --
</TABLE>
- ---------------
@ Calculated based upon average shares outstanding
* Does not reflect expenses that apply to the separate accounts of Anchor
National Life Insurance Company. If such expenses had been included, total
return would have been lower for each period presented.
See Notes to Financial Statements
---------------------
A-35
<PAGE> 41
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- ---------------------
ANCHOR PATHWAY FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES AND SHAREHOLDER OF ANCHOR PATHWAY FUND
In our opinion, the accompanying statements of assets and liabilities, including
the investment portfolios, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Growth Series, International
Series, Growth-Income Series, Asset Allocation Series, High-Yield Bond Series,
U.S. Government/AAA-Rated Securities Series and Cash Management Series
(constituting the Anchor Pathway Fund, hereafter referred to as the "Fund") at
November 30, 1998, the results of each of their operations for the year then
ended, the changes in each of their net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
November 30, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
January 13, 1999
- ---------------------
A-36
<PAGE> 42
[ARROW UP]
- ---------------------
ANCHOR PATHWAY FUND
SHAREHOLDER TAX INFORMATION (UNAUDITED)
Certain tax information regarding the Anchor Pathway Fund is required to be
provided to the shareholder based upon each Fund's income and distributions for
the year ended November 30, 1998.
During the year ended November 30, 1998 the Funds paid the following dividends
per share along with the percentage of ordinary income dividends that qualified
for the 70% dividends received deductions for corporations:
<TABLE>
<CAPTION>
NET NET NET QUALIFYING % FOR THE
TOTAL INVESTMENT SHORT-TERM LONG-TERM 70% DIVIDENDS
DIVIDENDS INCOME CAPITAL GAINS CAPITAL GAINS RECEIVED DEDUCTION
--------- ---------- ------------- ------------- --------------------
<S> <C> <C> <C> <C> <C>
Growth Series................................ $8.82 $0.20 $1.22 $7.40 12.41%
International Series......................... 4.71 0.27 0.33 4.11 --
Growth-Income Series......................... 7.51 0.71 0.91 5.89 37.83
Asset Allocation Series...................... 2.69 0.61 0.03 2.05 36.08
High-Yield Bond Series....................... 1.71 1.39 0.12 0.20 2.72
U.S. Government/AAA-Rated Securities
Series..................................... 0.94 0.94 -- -- --
Cash Management Series....................... 0.83 0.83 -- -- --
</TABLE>
The International Series makes an election under Internal Revenue Code Section
853 to pass through foreign taxes paid by the International Series to its
shareholder. The total amount of foreign taxes passed through to the shareholder
for the fiscal year ended November 30, 1998 was $374,208. The gross foreign
source income for information reporting is $3,036,018.
---------------------
A-37
<PAGE> 43
[ARROW UP]
- ---------------------
COMPARISONS: PORTFOLIOS VS. INDEXES
The following graphs compare the performance of a $10,000
investment in certain of the Anchor Pathway Fund portfolios to a
$10,000 investment in a securities index. Each index has been
chosen by Capital Research and Management Company (CRMC), the
fund's money manager, as an appropriate comparison.
THESE GRAPHS COMPARE THE PERFORMANCE OF THE PORTFOLIOS AT THE
ANCHOR PATHWAY FUND LEVEL AND INCLUDE ALL FUND EXPENSES BUT NO
INSURANCE COMPANY EXPENSES AND NO CONTINGENT DEFERRED SALES
CHARGE. NO EXPENSES ARE DEDUCTED FROM THE PERFORMANCE OF THE
INDEXES AND ALL DIVIDENDS ARE ASSUMED TO BE REINVESTED.
<TABLE>
<CAPTION>
S&P 500 COMPOSITE
GROWTH SERIES INDEX
<S> <C> <C>
NOV-88 10000 10000
NOV-89 14867 13083
NOV-90 13597 12617
NOV-91 17242 15193
NOV-92 20912 17997
NOV-93 24730 19810
NOV-94 25553 20022
NOV-95 35245 27422
NOV-96 40187 35066
NOV-97 49745 45082
NOV-98 62288 55755
</TABLE>
------------------------------------------------------------------
The graphs represent past performance, which is not indicative of
future results.
- ---------------------
A-38
<PAGE> 44
<TABLE>
<CAPTION>
International Series MSCI EAFE Index
<S> <C> <C>
May-90 10000 10000
Nov-90 9680 9483
Nov-91 10221 10310
Nov-92 10253 9508
Nov-93 13063 11852
Nov-94 14130 13646
Nov-95 15710 14724
Nov-96 18857 16504
Nov-97 21336 16483
Nov-98 24442 19249
</TABLE>
------------------------------------------------------------------
<TABLE>
<CAPTION>
Growth-Income Series S&P 500 Composite Index
<S> <C> <C>
Nov-88 10000 10000
Nov-89 13294 13083
Nov-90 12288 12617
Nov-91 14886 15193
Nov-92 17271 17997
Nov-93 19402 19810
Nov-94 19791 20022
Nov-95 26415 27422
Nov-96 32196 35066
Nov-97 40122 45082
Nov-98 46168 55755
</TABLE>
------------------------------------------------------------------
The graphs represent past performance, which is not indicative of
future results.
---------------------
A-39
<PAGE> 45
<TABLE>
<CAPTION>
Salomon Smith Barney
S&P 500 Composite Investment Grade Bond
Asset Allocation Series Index Index
<S> <C> <C> <C>
May-89 10000 10000 10000
Nov-89 11000 11532 11076
Nov-90 10827 11120 11923
Nov-91 12847 13391 13640
Nov-92 14620 15863 14882
Nov-93 16192 17461 16518
Nov-94 16056 17648 16016
Nov-95 21035 24170 18868
Nov-96 25104 30908 19997
Nov-97 29586 39735 21511
Nov-98 32332 49142 23551
</TABLE>
------------------------------------------------------------------
<TABLE>
<CAPTION>
Salomon Smith Barney Salomon Smith Barney
Long-Term High-Yield Investment Grade Bond
High-Yield Bond Series Index Index
<S> <C> <C> <C>
Nov-88 10000 10000 10000
Nov-89 10886 9979 11422
Nov-90 10889 8978 12295
Nov-91 14074 12904 14066
Nov-92 16053 15379 15346
Nov-93 18691 18540 17034
Nov-94 17812 17758 16516
Nov-95 21191 22729 19457
Nov-96 24167 25002 20621
Nov-97 27251 29107 22183
Nov-98 28128 32045 24287
</TABLE>
------------------------------------------------------------------
The graphs represent past performance, which is not indicative of
future results.
- ---------------------
A-40
<PAGE> 46
<TABLE>
<CAPTION>
SALOMON SMITH BARNEY
U.S. GOV'T/AAA-RATED SECURITIES TREASURY/GOV'T-
SERIES SPONSORED/MORTGAGE INDEX
------------------------------- ------------------------
<S> <C> <C>
11/88 10000 10000
11/89 11173 11427
11/90 11971 12348
11/91 13598 14067
11/92 14939 15308
11/93 16818 16909
11/94 16117 16425
11/95 18688 19240
11/96 19714 20379
11/97 20914 21915
11/98 22734 23998
</TABLE>
------------------------------------------------------------------
The graphs represent past performance, which is not indicative of
future results.
---------------------
A-41
