Document:

SERVICING AGREEMENT

                           Dated as of August 1, 1999

     ANLIC  INSURANCE  COMPANY  (HAWAII), LTD., a Hawaii stock captive insurance
company  ("ANLIC  (Hawaii)"), ANCHOR NATIONAL LIFE INSURANCE COMPANY, an Arizona
           ---------------
stock  life  insurance  company  ("Anchor"),  ANCHOR INSURANCE COMPANY (HAWAII),
                                   ------
LTD.,  a  Hawaii  stock  captive  insurance  company ("AIC") and SUNAMERICA LIFE
                                                       ---
INSURANCE  COMPANY,  an Arizona stock life insurance company, as Servicer, agree
as  follows:

     PRELIMINARY  STATEMENTS.  (1)  Certain  terms that are capitalized and used
throughout  this  Agreement  (in addition to those defined above) are defined in
Article I  of  this  Agreement.

     (2)     ANLIC  (Hawaii),  AIC  and  Anchor  have  requested the Servicer to
provide  various  services  in  connection  with  the  Reinsurance Agreement (as
defined below) between Anchor and ANLIC (Hawaii), and the Servicer is willing to
furnish  such  services  on  the  terms  and  conditions  set  forth  herein.

              NOW, THEREFORE, the parties hereto agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

     SECTION 1.01.  Certain Defined Terms.  As used in this Agreement, the terms
                    ---------------------
defined  in  the  Reinsurance  Agreement  (as  defined  below)  shall  have  the
respective  meanings  specified  therein, and the following terms shall have the
following  meanings (such meanings to be equally applicable to both the singular
and  plural  forms  of  the  terms  defined):

     "Affiliate"  means  (i) as to any Person, any other Person that directly or
      ---------
indirectly,  is  in control of, is controlled by or is under common control with
such  Person.

     "Agent's  Account"  means  the special account (account number 38858088) in
      ----------------
the  name  of  CNAI,  as agent, maintained at the office of Citibank at 399 Park
Avenue,  New  York,  New  York.
     "Allocation  Procedures" means those allocation procedures in substantially
      ----------------------
the  form  of  Schedule  14.6-2  of  the  Reinsurance  Agreement.

     "Alternate  Base  Rate"  means, for any period, a fluctuating interest rate
      ---------------------
per annum as shall be in effect from time to time, which rate per annum shall at
all  times  be  equal  to  the  higher  of:

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<PAGE>
     (a)     the  rate  of  interest announced publicly by Citibank in New York,
New  York,  from  time  to  time  as  Citibank's  base  rate;  or

     (b)     of  one  percent  above  the  latest  three-week  moving average of
secondary  market  morning  offering  rates in the United States for three-month
certificates  of  deposit  of  major  United  States  money  market  banks, such
three-week  moving  average  being determined weekly on each Monday (or, if such
day  is  not  a  Business  Day,  on  the  next  succeeding Business Day) for the
three-week  period ending on the previous Friday by Citibank (i) on the basis of
such  rates  reported  by certificate of deposit dealers to and published by the
Federal  Reserve Bank of New York or (ii) if such publication shall be suspended
or  terminated,  on  the basis of quotations for such rates received by Citibank
from  three  New  York  certificate  of  deposit  dealers of recognized standing
selected by Citibank, in the case of clause (i) or (ii), adjusted to the nearest
1/4  of  one  percent or, if there is no nearest 1/4 of one percent, to the next
higher  1/4  of  one  percent.

     "Anchor" has the meaning specified in the first paragraph of this Agreement
      ------
and  includes  the  Separate  Account.

     "Anchor  Parties"  means SunAmerica, ANLIC (Hawaii) (but only so long as it
      ---------------
is an Affiliate of Anchor) and the following other parties irrespective of their
affiliation  with  SunAmerica:  the  Servicer,  AIC  and  Anchor.

     "ANLIC  (Hawaii)  Security  Agreement" means a Security Agreement dated the
      ------------------------------------
date  hereof  in favor of CNAI, as agent, as such agreement may be supplemented,
amended,  replaced  or  otherwise  modified  from  time  to  time.

     "Cash  Collateral  Account"  means  a  non-interest bearing cash collateral
      -------------------------
account (the "Cash Collateral Account") with Citibank, N.A. at its office at 399
              -----------------------
Park  Avenue,  New  York,  New  York  10043,  Account  No.  40800176.

     "Citibank"  means  Citibank,  N.A.,  a  national  banking  association.
      --------

     "Citicorp  Product  Information" has the meaning specified in Section 6.08.
      ------------------------------

     "CNAI"  means  Citicorp  North  America,  Inc.
      ----

     "Collection  Procedures" means those administration procedures specified in
      ----------------------
Schedule  14.6-1  to  the  Reinsurance  Agreement  in  effect on the date hereof
relating to Annuities and Charges as modified in compliance with Section 14.6(c)
of  the  Reinsurance  Agreement.

     "Company  Representatives"  has  the  meaning  specified  in  Section 6.08.
      ------------------------

     "Daily  Reinsurance  Servicer  Report"  means a report substantially in the
      ------------------------------------
form  of  Exhibit  1.01A  hereto,  furnished  by  the Servicer to ANLIC (Hawaii)
pursuant  to  Section  4.02.

     "Debt"  means  (i)  indebtedness  for  borrowed  money,  (ii)  obligations
      ----
evidenced  by  bonds,  debentures,  notes  or  other  similar instruments, (iii)
      --
obligations  to  pay  the  deferred purchase price of property or services, (iv)

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obligations  as  lessee  under  leases  that  shall  have  been or should be, in
accordance with GAAP recorded as capital leases and (v) obligations under direct
or  indirect guaranties in respect of, and obligations (contingent or otherwise)
to purchase or otherwise acquire, or otherwise to assure a creditor against loss
in respect of, indebtedness or obligations of others of the kinds referred to in
clauses  (i)  through  (iv) above, excluding, however, obligations arising under
                                   ---------  -------
the  Reinsurance Documents and, in the case of Anchor, obligations arising under
insurance, annuity and similar products sold by it in the ordinary course of its
business.

     "Department"  means  the  Governmental  Authority  responsible  for  the
      ----------
regulation  of  the insurance business of Anchor or the Initial Servicer, as the
      ---
case  may  be,  in  their  respective  states  of  domicile.

     "Fixed  Account  Segregated  Asset  Requirements  and Procedures" means the
      ---------------------------------------------------------------
requirements  and  procedures  set  forth  in  Schedule  14.4 to the Reinsurance
Agreement.

     "Fund"  means  each  of  the  following:  Pathway  Fund, an open management
      ----
investment company organized as a Massachusetts business trust under the laws of
the  Commonwealth  of Massachusetts, SunAmerica Series Trust, an open management
investment company organized as a Massachusetts business trust under the laws of
the  Commonwealth  of  Massachusetts and Anchor Series Trust, an open management
investment company organized as a Massachusetts business trust under the laws of
the  Commonwealth  of  Massachusetts.

     "GAAP"  means  generally  accepted  accounting  principles.
      ----

     "Governmental Authority" means any nation or government, any state or other
      ----------------------
political subdivision thereof, and any entity exercising executive, legislative,
judicial,  regulatory  or  administrative  functions  of  government.

     "Initial  Servicer"  means  SunAmerica  Life  Insurance Company, an Arizona
      -----------------
stock  life  insurance  company.

     "Initial Servicer Statutory Financial Statements" has the meaning set forth
      -----------------------------------------------
in  Section  2.02(e).

     "Investment  Company"  means  a  Person registered as a separate investment
      -------------------
company  under  the  Investment  Company  Act  of  1940,  as  amended.

     "Material  Adverse  Effect"  means  a  material  adverse  effect on (a) the
      -------------------------
business  or  properties  of  any  Anchor  Party,  (b)  the  rights, remedies or
interests of ANLIC (Hawaii) under any Reinsurance Document or (c) the ability of
any Anchor Party to perform its obligations under any Annuity or any Reinsurance
Document.

     "Moody's"  means  Moody's  Investors  Service,  Inc.
      -------

     "Net  Amounts Payable" means Gross Amounts Payable after application of the
      --------------------
netting  provisions  set  forth  in  Article  VIII of the Reinsurance Agreement.

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<PAGE>
     "Obligor"  means  each Person from whom Anchor has the right to receive any
      -------
Charges  pursuant  to  an  Annuity.

     "Payment  Date"  shall mean the 23rd calendar day of each month if such day
      -------------
falls  on  a  Business  Day,  if  not,  then  the first Business Day thereafter.

     "Reinsurance  Agreement"  means  the  Reinsurance Agreement dated as of the
      ----------------------
date  hereof  between  Anchor  and  ANLIC  (Hawaii),  as  such  agreement may be
supplemented,  amended,  replaced  or  otherwise  modified  from  time  to time.

     "Reinsurance  Documents"  means  this Agreement, the Reinsurance Agreement,
      ----------------------
the Standing Instructions, the Collection Procedures, the Allocation Procedures,
the  Daily Reinsurance Servicer Report, the Reinsurance Servicer Report, the AIC
Retrocession  Agreement,  the  ANLIC (Hawaii) YRT Retrocession Agreement, the CG
YRT  Retrocession  Agreement,  the  Successor YRT Retrocession Agreement and the
Fixed  Account  Segregated  Asset  Requirements  and  Procedures.

     "Reinsurance  Servicer  Report" means a report in substantially the form of
      -----------------------------
Exhibit  1.01B  hereto,  furnished by the Servicer to ANLIC (Hawaii) pursuant to
Section  4.02.

     "Responsible  Officer"  means,  in  respect  of  any Person, any authorized
      --------------------
officer  of  such  Person  who  has  the title of vice president or higher or an
officer  performing  substantially  the  same  function  of  such  officer.

     "S&P"  means  Standard  &  Poor's, a division of The McGraw Hill Companies.
      ---

     "SAP"  means,  with  respect  to any Person, statutory accounting practices
      ---
prescribed  or  permitted  by  the  insurance  regulator  of the jurisdiction of
domicile  of  such  Person.

     "Service  Transfer"  has  the  meaning  assigned  to  that  term in Section
      -----------------
4.01(b).
      -

     "Servicer"  has  the  meaning  specified in Section 4.01(a) and on the date
      --------
hereof  means  the  Initial  Servicer.
     "Servicer  Default"  means  any  one  or  more  of  the  following:
      -----------------

     (a)     a  Servicer  Remedy  Event  specified  in  Section  5.01(a);  or

     (b)     any action taken or omitted by the Initial Servicer or any Servicer
that  is  an  Affiliate  of  Anchor  which  has  a  Material  Adverse Effect; or

     (c)     a  Servicer  Remedy Event specified in Section 5.01(g) with respect
to  the  Initial  Servicer  or  any  Servicer  that  is  an Affiliate of Anchor.

     "Servicer  Remedy  Event"  has  the  meaning  specified  in  Section  5.01.
      -----------------------

     "Standing  Instructions"  means  the  irrevocable  standing instructions in
      ----------------------

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<PAGE>
substantially  the  form  of  Schedule  13.1-2  of  the  Reinsurance  Agreement.

     "Successor  Servicer"  means  at  any  time  the Person (including CNAI, as
      -------------------
agent,  but  excluding the Initial Servicer) then authorized pursuant to Article
IV  to  service,  administer  and  collect  the  Gross  Amounts  Payable.

     "Surrender"  means,  with respect to an Annuity, a total withdrawal of 100%
      ---------
of  the  accumulated  value  of  the  Annuity (other than through the receipt of
annuity  payments  during the Income Phase (as defined in the Prospectus) or the
payment  of a death benefit) which results in a cancellation of the Annuity. For
purposes  of this Agreement, partial withdrawals shall not be deemed Surrenders.

     "Surrendered  Annuity"  means  an Annuity with respect to which a Surrender
      --------------------
has  occurred.

     SECTION  1.02.  Other  Terms.  As  used  herein,  and in any certificate or
                     ------------
other  document  made  or delivered pursuant hereto or thereto, accounting terms
not defined in Section 1.01, and accounting terms partly defined in Section 1.01
to  the  extent  not  defined,  shall have the respective meanings given to them
under  GAAP  or SAP, as applicable, in effect on the date hereof.  To the extent
that  the  definitions of accounting terms are inconsistent with the meanings of
such  terms  under  GAAP or SAP, as applicable, the definitions contained herein
shall  control.  The term "including" means "including but not limited to".  All
terms  used  in  Article  9 of the UCC, and not specifically defined herein, are
used  herein as defined in such Article 9.  As used in any Reinsurance Document,
the  phrase  "hold  in  trust"  shall  not  require segregation of assets unless
expressly  set  forth  to  the  contrary.

     SECTION  1.03.  Computation  of  Time  Periods.  Unless otherwise stated in
                     ------------------------------
this  Agreement, in the computation of a period of time from a specified date to
a later specified date, the word "from" means "from and including" and the words
"to"  and  "until"  each  means  "to  but  excluding".

     SECTION  1.04.  Other  Definitional  Provisions.  (a)  The  headings of the
                     -------------------------------
sections of this Agreement are solely for convenience of reference and shall not
affect  the  meaning,  construction  or  effect  of  this  Agreement.

     (b)     All  terms defined in this Agreement shall have the defined meaning
when  used  in  any  certificate  or  other documents made or delivered pursuant
hereto  unless  otherwise  defined  therein.
     (c)     Any  reference herein to any statute, agreement or document, or any
section  thereof,  shall, unless otherwise expressly provided, be a reference to
such  statute,  agreement,  document  or  section  as  amended,  modified  or
supplemented  (including any successor section) and in effect from time to time.

                                   ARTICLE II

                         REPRESENTATIONS AND WARRANTIES

     SECTION  2.01.   Representations  and  Warranties  of   Anchor.    Anchor
                      ---------------------------------------------

                                        5
<PAGE>
represents  and  warrants  as  of  the  date  hereof  as  follows:

     (a)     The  execution,  delivery  and  performance  by  Anchor  of  the
Reinsurance  Documents  to  which  it  is  a party are within Anchor's corporate
powers,  have  been  duly  authorized  by all necessary corporate action, do not
contravene  (i) Anchor's articles of incorporation or by-laws or (ii) law or any
regulation or contractual restriction binding on or affecting Anchor, and do not
result  in  or  require  the  creation of any Adverse Claim (other than pursuant
thereto)  upon  or  with respect to the Separate Accounts or Annuities or any of
its  properties; and no transaction contemplated hereby requires compliance with
any  bulk  sales  act  or  similar law (other than California Civil Code 3440.1,
which  has  been  duly  complied  with).

     (b)     No  authorization  or approval or other action by, and no notice to
or  filing  with,  any Governmental Authority is required for the due execution,
delivery  and performance by Anchor of any Reinsurance Document to which it is a
party,  or  for  the exercise by ANLIC (Hawaii) of its rights and remedies under
any  such Reinsurance Document, except for such other filings with and approvals
of  such  Governmental  Authorities as have been duly made and obtained prior to
the  date  hereof.

     (c)     Each  Reinsurance  Document  to  which  it is a party is the legal,
valid  and binding obligation of Anchor enforceable against Anchor in accordance
with  its  respective  terms.  The  Reinsurance Documents to which it is a party
have  been  duly  executed  and  delivered  by  Anchor.

     (d)     There  is  no  pending  or,  to the knowledge of Anchor, threatened
action  or  proceeding  against  or involving any Anchor Party before any court,
Governmental  Authority or arbitrator that may have a Material Adverse Effect or
that  purports  to  affect  the  legality,  validity  or  enforceability  of the
Reinsurance  Documents.

     (e)     Schedule  2.01(e) hereof contains true, correct and complete copies
of  each  of  the  forms of Annuity agreements (including but not limited to the
form  of  each  endorsement  included  in any Annuity) and such forms of Annuity
contracts  have  been furnished to Connecticut General Life Insurance Company in
connection  with  the  CG  YRT  Retrocession  Agreement.

     (f)     Set  forth  on  Schedule  2.01(f)  hereto  are  the  CARVM  reserve
methodology  for  the  Polaris  program  and  for  the Pathway program in use by
Anchor,  as  approved by the Arizona Department of Insurance and in use in other
applicable  jurisdictions.

     SECTION  2.02.  Representations and Warranties of the Initial Servicer. The
                     ------------------------------------------------------
Initial  Servicer  represents  and  warrants  as  of the date hereof as follows:

     (a)     The  Initial  Servicer  is  a  stock  life  insurance  company duly
incorporated,  validly  existing  and in good standing under the laws of Arizona
and is duly qualified and licensed in the District of Columbia and all States of
the  United  States  of America except the States of New York and Wyoming and in
good  standing as a foreign insurer in each jurisdiction where the failure to be
so  qualified  would  have  a  Material  Adverse  Effect.

                                        6
<PAGE>
     (b)     The  execution, delivery and performance by the Initial Servicer of
each  Reinsurance  Document  to  which  it  is  a  party  are within the Initial
Servicer's  corporate  powers,  have  been  duly  authorized  by  all  necessary
corporate  action,  do  not  contravene  (i)  the Initial Servicer's articles of
incorporation  or  by-laws  or  (ii)  law  or  any  regulation  or  contractual
restriction  binding  on or affecting the Initial Servicer, and do not result in
or  require the creation of any Adverse Claim (other than pursuant thereto) upon
or  with  respect to the Separate Account or Annuities or any of its properties;
and  no  transaction contemplated hereby requires compliance with any bulk sales
act or similar law (other than California Civil Code 3440.1, which has been duly
complied  with).

     (c)     No  authorization  or approval or other action by, and no notice to
or  filing  with,  any Governmental Authority is required for the due execution,
delivery  and performance by the Initial Servicer of any Reinsurance Document to
which  it  is  a  party, or for the exercise by ANLIC (Hawaii) of its rights and
remedies under any such Reinsurance Document, except for such other filings with
and  approvals  of  such  Governmental  Authorities  as  have been duly made and
obtained  prior  to  the  date  hereof.

     (d)     Each  Reinsurance  Document  to  which  it is a party is the legal,
valid  and  binding  obligation  of the Initial Servicer enforceable against the
Initial  Servicer  in  accordance  with its terms.  The Reinsurance Documents to
which  it  is  a  party  have  been  duly  executed and delivered by the Initial
Servicer.

     (e)     The  annual Convention Statement of the Initial Servicer including,
the provisions made therein for investments and the valuation thereof, reserves,
policy  and  contract  claims  and  statutory  liabilities,  as  filed  with the
Department  and  delivered to ANLIC (Hawaii) prior to the execution and delivery
of  this  Agreement,  as  of and for the years ended December 31, 1996, 1997 and
1998 (collectively, the "Initial Servicer Statutory Financial Statements"), have
                         -----------------------------------------------
been  prepared in accordance with SAP applicable thereto applied on a consistent
basis (except as noted therein).  Each such Initial Servicer Statutory Financial
Statement  was  in  compliance with applicable law when filed.  According to the
best  of  the  Initial Servicer's information, knowledge and belief, the Initial
Servicer Statutory Financial Statements are a full and true statement of all the
assets  and liabilities and of the condition and affairs of the Initial Servicer
as  of  the  respective dates thereof and of its income and deductions therefrom
for  the  respective  years  ended  on  such  dates  and  have been completed in
accordance  with the NAIC annual statement instructions and accounting practices
and  procedures  manuals  except to the extent that state law may differ or that
state  rules  or  regulations  require  differences  in reporting not related to
accounting  practices  and  procedures.

     (f)     There  is  no pending or, to the knowledge of the Initial Servicer,
threatened action or proceeding against or involving any Anchor Party before any
court, Governmental Authority or arbitrator that may materially adversely affect
(i)  the  financial  condition or operations of the Initial Servicer or (ii) the
ability of the Initial Servicer to perform its obligations under any Reinsurance
Document  to  which  it  is  a  party,  or that purports to affect the legality,
validity  or  enforceability  of  any  Reinsurance  Document.
                                        7
<PAGE>
                                   ARTICLE III

                                GENERAL COVENANTS

     SECTION  3.01.  Affirmative  Covenants  of  Anchor.  Until  the  Terminal
                     ----------------------------------
Accounting  Date,  Anchor will, unless ANLIC (Hawaii) shall otherwise consent in
writing:

     (a)     Other Agreements.  Duly and punctually observe and perform each and
             ----------------
every  obligation on its part to be observed or performed under each Reinsurance
Document  to  which it is a party, all of the terms of which (as the same may be
modified  or  amended  from  time  to  time  as  permitted  herein)  are  hereby
incorporated  herein  by  reference  to  the same extent as if set forth in full
herein  irrespective  of  any  expiration or termination of the such Reinsurance
Document.

     (b)     Collections Received by Anchor.  (i) Deposit to the Cash Collateral
             ------------------------------
Account  on each Payment Date all Net Amounts Payable received from time to time
by  Anchor  and  (ii)  if  Anchor has a claim's payment rating below A by S&P or
below  A2  by  Moody's, to the extent any distribution representing M&E Fees (as
defined  in  the  Standing  Instructions) other than a distribution on a Payment
Date  pursuant  to  a  Reinsurance  Servicer  Report shall be received by Anchor
notwithstanding  the Custodian's receipt of the notice delivered pursuant to the
Standing  Instructions,  return  such M&E Fees to the Custodian immediately upon
receipt  and,  until  the  same  are  so  returned, hold and segregate the same.

     (c)     Notices.  Furnish  to  Citicorp  North  America,  Inc., at 399 Park
             -------
Avenue,  6th  Floor/Zone  #2, New York, NY 10043, Telecopy (212) 758-6272, Attn:
Art  Bovino,  all  notices  delivered  under  the  Reinsurance  Agreement.

     SECTION 3.02.  Negative Covenants of Anchor.  Until the Terminal Accounting
                    ----------------------------
Date, Anchor will not, unless ANLIC (Hawaii) shall otherwise consent in writing:

     (a)     Waive,  amend  or  otherwise  modify in any respect any Reinsurance
Document;

     (b)     Waive,  amend  or otherwise modify in any respect the CARVM reserve
methodology and pricing assumptions set forth on Schedule 2.01(f) hereto, except
to  the  extent  permitted  by  Section  14.2(i)  of  the Reinsurance Agreement;

     (c)     Add  any Fund pursuant to Section 14.7 of the Reinsurance Agreement
unless  Anchor  shall  have  delivered  to  ANLIC  (Hawaii) a counterpart of the
Standing  Instructions  duly  executed  by  such  Fund;  or

     (d)     Make  any change in the character of its business or consent to any
change  of the Collection Procedures, which change would be reasonably likely to
impair  the  collectability  of  the  Gross  Amounts  Payable.

     SECTION  3.03.  Affirmative  Covenants  of the Initial Servicer.  Until the
                     -----------------------------------------------
payment  in full in cash of all amounts payable under the Reinsurance Documents,

                                        8
<PAGE>
the  Initial  Servicer  will,  unless  ANLIC (Hawaii) shall otherwise consent in
writing:

     (a)     Performance.  Duly  and  punctually  observe  and  perform each and
             -----------
every  obligation  on its part to be observed or performed under this Agreement,
all  of  the terms of which (as the same may be modified or amended from time to
time  as  permitted  herein)  are hereby incorporated herein by reference to the
same  extent  as  if  set forth in full herein irrespective of any expiration or
termination  of  the  Reinsurance  Agreement.

     (b)     Performance  and Compliance with Charges and Annuities.  Timely and
             ------------------------------------------------------
fully  perform  and  comply  with  all  material provisions, covenants and other
promises  required  to  be  observed  by  it  under  the  Annuities.

     (c)     Collections  Received by the Initial Servicer.  Deposit to the Cash
             ---------------------------------------------
Collateral  Account,  on  each  date  when  such  a  deposit is required for the
Servicer  under  Article  IV  of  this  Agreement or is required pursuant to the
Standing Instructions, all Net Amounts Payable received from time to time by the
Initial  Servicer  or  by  Anchor.

     (d)     Collection  Procedures,  Allocation  Procedures  and  Standing
             --------------------------------------------------------------
Instructions.  Implement and comply at all times with the Collection Procedures,
         ---
the  Allocation  Procedures  and  the  Standing  Instructions.

     (e)     Audits.  At  any time and from time to time during regular business
             ------
hours,  permit  ANLIC  (Hawaii), or its agents or representatives (including any
Successor  Servicer),  upon  reasonable  advance  notice (i) to examine and make
copies  of  and  abstracts  from  all  books,  records  and documents (including
computer  tapes  and  disks)  in  the  possession or under the control of Anchor
relating  to  the  Annuities and the Gross Amounts Payable and (ii) to visit the
offices  and  properties  of  Anchor for the purpose of examining such materials
described  in clause (i) above, and to discuss matters relating to the Annuities
and  the  Gross  Amounts  Payable  or Anchor's performance under the Reinsurance
Documents or under the Annuities with any of the officers or employees of Anchor
having  knowledge  of  such matters, provided that by exercising any such rights
ANLIC  (Hawaii)  agrees  that  it  will  hold  in  confidence all information so
obtained  and  will  use  the  same  only  for  the purposes contemplated by the
Reinsurance  Documents.

     SECTION  3.04.  Reporting  Requirements of the Initial Servicer.  Until the
                     -----------------------------------------------
Terminal Accounting Date, the Initial Servicer will, unless ANLIC (Hawaii) shall
otherwise  consent  in  writing,  furnish  to ANLIC (Hawaii) (in addition to the
Initial  Servicer's  obligations  under  Section  3.03(a)):

     (a)     as  soon  as  possible  and  in any event within five Business Days
after  the  Initial  Servicer's knowledge of the occurrence of (i) each Servicer
Remedy  Event  or  Servicer Default, (ii) each Recapture Event, (iii) each event
that,  with  the  giving  of notice or lapse of time or both, would constitute a
Servicer  Remedy  Event,  Recapture  Event  or  Servicer  Default,  or (iii) any
Material  Adverse  Effect,  a  written statement of a Responsible Officer of the
Initial  Servicer setting forth details of such Servicer Remedy Event, Recapture
Event,  Servicer Default, Event of Default, other event or effect and the action
that  the  Initial  Servicer  proposes  to  take  with  respect  thereto;
                                        9
<PAGE>
     (b)     (A)  promptly  upon  becoming available, but in any event within 75
days  after  the  end  of  each  calendar  year, a copy of the annual Convention
Statements of the Initial Servicer for such calendar year, and (B) promptly upon
becoming available, but in any event within 60 days after the end of each of the
first three calendar quarters, a copy of the quarterly Conventions Statements of
the  Initial  Servicer  for  such  quarter, in each case as filed by the Initial
Servicer  with  the Department and executed by the appropriate officer under the
laws  of  the  state of domicile of the Initial Servicer, prepared in accordance
with  SAP and accompanied by the certification of the chief financial officer or
chief  executive officer or controller or treasurer of the Initial Servicer that
such  annual  or  quarterly Convention Statement presents, to the best of his or
her  information,  knowledge  and  belief,  a full and true statement of all the
assets  and liabilities and of the condition and affairs of the Initial Servicer
as of the date thereof and of its income and deductions therefrom for the period
ended on such date and have been completed in accordance with the NAIC statement
instructions  and  accounting  practices  and  procedures  manuals except to the
extent  that  state  law  may  differ or that state rules or regulations require
differences  in  reporting  not  related to accounting practices and procedures;

     (c)     within  90 days after the end of each calendar year, a copy of each
"Statement  of  Actuarial  Opinion"  that  is  provided  to  the  Department (or
equivalent information should the Department no longer require such a statement)
as  to the adequacy of aggregate reserves for life policies and contracts of the
Initial  Servicer;

     (d)     as  soon  as  possible  and  in any event within five Business Days
after the occurrence of any adjustment, settlement, waiver, compromise or change
in  the terms or conditions of any Annuity or any credit, discount or release in
respect thereof, other than (i) that which is permitted by the Waiver Allowance,
and  (ii)  any  adjustments, settlements, waivers, compromises or changes in the
terms  or  conditions  of  any  charges or any credits, discounts or releases in
respect  thereof  which,  in  the  aggregate,  exceeds $500,000 in excess of the
Waiver Allowance in any calendar year, the statement of a Responsible Officer of
the  Initial  Servicer  setting  forth  details  thereof;

     (e)     promptly  after  the  receipt  thereof and in any event within five
Business  Days,  copies  of  each communication received by the Initial Servicer
from  the  Securities  and  Exchange  Commission  or the National Association of
Securities  Dealers to Anchor reporting the final results of, any audit or other
investigation  related  to the Annuities or any aspect of the sale, maintenance,
investment  or  administration  thereof;  and

     (f)     promptly,  from  time  to  time, such other information, documents,
records or reports respecting the Annuities and the Gross Amounts Payable or the
conditions  or  operations,  financial or otherwise, of the Initial Servicer, as
ANLIC  (Hawaii)  may from time to time reasonably request in writing in order to
protect  ANLIC  (Hawaii)'s  interests  under  or contemplated by any Reinsurance
Document.

     SECTION  3.05.   Negative  Covenants  of  the  Initial Servicer.  Until the
                      ----------------------------------------------

                                       10
<PAGE>
Terminal  Accounting  Date, the Initial Servicer will not, unless ANLIC (Hawaii)
shall  otherwise  consent  in  writing:

     (a)     Waive,  amend  or  otherwise  modify in any respect any Reinsurance
Document;

     (b)     Waive,  amend  or otherwise modify in any respect the CARVM reserve
methodology and pricing assumptions set forth on Schedule 2.01(f) hereto, except
to  the  extent  permitted  by Section 14.2(i) of the Reinsurance Agreement; and

     (c)     Consolidate  with  or merge with or into any other Person, provided
                                                                        --------
that  this Section 3.05(c) shall not apply to any merger of the Initial Servicer
with  another  Person  if  both  (i)  the  Initial  Servicer  is the corporation
surviving to such merger and (ii) immediately after giving effect to such merger
no  event  or condition shall have occurred and be continuing which constitutes,
or  with  notice  or  lapse  of  time would constitute, a Servicer Remedy Event.

     SECTION  3.06.  Reporting  Requirements  of  ANLIC  (Hawaii).  Until  the
                     --------------------------------------------
Terminal  Accounting  Date,  ANLIC  (Hawaii)  will,  unless ANLIC (Hawaii) shall
otherwise  consent  in  writing,  furnish  to  the  Agent:

     (a)     as  soon as available and in any event within 60 days of the end of
each  of the first three quarters of each calendar year, balance sheets of ANLIC
(Hawaii) prepared in accordance with GAAP as of the end of such quarter, and the
related  statement  of operations and surplus of ANLIC (Hawaii) each prepared in
accordance  with  GAAP  for  the  period  commencing  at the end of the previous
calendar  year  and  ending with the end of such quarter, certified by the chief
financial  officer  or  chief  accounting  officer  of  ANLIC  (Hawaii);

     (b)     as  soon as available and in any event within 90 days after the end
of  each  calendar year, balance sheets of ANLIC (Hawaii) prepared in accordance
with  GAAP  as  at the end of such year, and the related statement of operations
and  surplus  of  ANLIC  (Hawaii) for such year each prepared in accordance with
GAAP and certified by the chief financial officer or chief accounting officer of
ANLIC  (Hawaii);

     (c)     promptly,  from  time  to  time, such other information, documents,
records  or  reports  respecting the Annuities, the Gross Amounts Payable or the
conditions  or  operations,  financial  or  otherwise, of ANLIC (Hawaii), as the
Agent  may  from  time  to  time  reasonably  request  in  writing;  and

     (d)     promptly  prepare  the  annual  actuarial  report  required  by the
Insurance Division of the Department of Commerce & Consumer Affairs of the State
of  Hawaii.

     SECTION  3.07.  Reporting  Requirements  of  AIC.  Until  the  Terminal
                     --------------------------------
Accounting  Date,  AIC  will,  unless  ANLIC (Hawaii) shall otherwise consent in
writing,  furnish  to  ANLIC  (Hawaii):

     (a)     as  soon as available and in any event within 60 days of the end of

                                       11
<PAGE>
each  of  the  first three quarters of each calendar year, balance sheets of AIC
prepared  in accordance with GAAP as of the end of such quarter, and the related
statement of operations and surplus of AIC each prepared in accordance with GAAP
for  the  period  commencing at the end of the previous calendar year and ending
with  the end of such quarter, certified by the chief financial officer or chief
accounting  officer  of  AIC;

     (b)     as  soon as available and in any event within 90 days after the end
of each calendar year, balance sheets of AIC prepared in accordance with GAAP as
at  the end of such year, and the related statement of operations and surplus of
AIC  for  such  year  each prepared in accordance with GAAP and certified by the
chief  financial  officer  or  chief  accounting  officer  of  AIC;

     (c)     promptly,  from  time  to  time, such other information, documents,
records  or  reports  respecting  the Reinsurance Documents or the conditions or
operations,  financial  or  otherwise,  of Anchor, as CNAI may from time to time
reasonably  request  in  writing  in order to protect ANLIC (Hawaii)'s interests
under  or  contemplated  by  any  Reinsurance  Document;  and

     (d)     promptly  prepare the annual actuarial report required by Insurance
Division  of  the  Department  of  Commerce  &  Consumer Affairs of the State of
Hawaii.

                                   ARTICLE IV

                          ADMINISTRATION AND COLLECTION

SECTION 4.01.  Designation of Servicer.  (a)  The Gross Amounts Payable shall be
               -----------------------
serviced,  administered  and collected by the Person (the "Servicer") designated
                                                           --------
to  do  so  from  time to time in accordance with this Section 4.01. Until ANLIC
(Hawaii)  designates  a  new  Servicer pursuant to this Section 4.01, SunAmerica
Life Insurance Company is hereby designated as, and hereby agrees to perform the
duties  and  obligations  of, the Servicer pursuant to the terms hereof.  Anchor
agrees  to  pay  to  the  Initial  Servicer on demand all of its fees, costs and
expenses  in  connection with the performance of its obligation as Servicer.  If
any Servicer Default shall have occurred and be continuing, Anchor may designate
as  Servicer  any Person (a "Successor Servicer") permitted hereby to succeed in
                             ------------------
whole  or in part the Initial Servicer or any successor, if such Person shall be
approved  by  ANLIC  (Hawaii)  (which approval not to be unreasonably delayed or
withheld)  and  shall  agree  in  writing (and obtain all necessary licenses and
regulatory  approvals)  to  perform  the  duties and obligations of the Servicer
pursuant  to the terms hereof to the extent requested by Anchor and permitted by
all  applicable  laws, rules and regulations.  If Anchor is unable to obtain the
consent  of  a  third  party  to  succeed  the  Initial  Servicer or a Successor
Servicer,  as  the  case may be, as Servicer, ANLIC (Hawaii) hereby reserves the
right  to  act  as Servicer in whole or in part in accordance with the preceding
sentence.  Notwithstanding  anything to the contrary in any Reinsurance Document
and  without  limiting the scope of duties and obligations that may be performed
by  a  Successor  Servicer,  the Successor Servicer may from time to time during
regular  business  hours  inspect  records and oversee activities of the Initial
Servicer  in  respect  of its performance  of  obligations under the Reinsurance
Documents,  including  but  not

                                       12
<PAGE>
limited  to  taking  all  actions  and  reviewing all information appropriate to
confirm  compliance  with  the  Collection Procedures, Allocation Procedures and
Fixed  Account  Segregated Asset Requirements and Procedures.  The Servicer may,
with  the  prior  written  consent of ANLIC (Hawaii), subcontract with any other
Person  to  service,  administer  or  collect  the Gross Amounts Payable if such
Person  is  permitted  to  do  so by all applicable laws, rules and regulations,
provided  that  (i)  the Person with whom the Servicer so subcontracts shall not
    ----
become  the  Servicer  hereunder  and  the  Servicer shall remain liable for the
performance  of the duties and obligations of the Servicer pursuant to the terms
hereof and (ii) the Initial Servicer is not required to obtain the prior written
consent  of  ANLIC (Hawaii) to subcontract (A) with any Affiliate of the Initial
Servicer  or  (B)  with  any  other  Person  approved  by  the  Department.

     (b)     Upon  the designation of any Successor Servicer pursuant to Section
4.01(a), all authority and power of the Servicer under this Agreement in respect
of  the  duties and obligations to be performed by such Successor Servicer shall
pass  to and be vested in a Successor Servicer (a "Service Transfer"); provided,
                                                   ----------------    --------
however,  that  the  responsibilities  and  duties  of  the  Servicer under this
-------
Agreement  for  Collections  received  prior  to such designation of a Successor
-------
Servicer,  and  the  responsibilities  and  duties  of  the  Servicer  which the
----
Successor  Servicer  has  not  expressly agreed to perform, shall not terminate.
----
Without  limitation  but solely to the extent permitted by applicable law, ANLIC
--
(Hawaii) is hereby authorized and empowered (upon the failure of the Servicer to
cooperate)  with full power of substitution to execute and deliver, on behalf of
the  Servicer,  as  attorney-in-fact  or  otherwise,  all  documents  and  other
instruments  upon  the  failure  of  the  Servicer  to  execute  or deliver such
documents  or  instruments,  and  to  do and accomplish all other acts or things
necessary  or  appropriate to effect the purposes of such Service Transfer.  The
Servicer  agrees to cooperate with ANLIC (Hawaii) and such Successor Servicer in
effecting  the termination of the responsibilities and rights of the Servicer to
conduct  servicing  hereunder, including the transfer to such Successor Servicer
of  all  authority of the Servicer to service the Gross Amounts Payable provided
for  under  this  Agreement  to  the extent requested for such Service Transfer,
including  all authority over all Collections that shall on the date of transfer
be  held  by  the  Servicer  for  deposit,  or  that  have been deposited by the
Servicer,  in  the Cash Collateral Account or the Agent's Account, or that shall
thereafter  be  received  with  respect  to  the  Charges,  and in assisting the
Successor  Servicer.  To  the  extent  requested by ANLIC (Hawaii) in connection
with  such  Service Transfer, the Servicer shall promptly at its own expense (i)
transfer  its  electronic  records  relating to the Gross Amounts Payable to the
Successor  Servicer  in  such  electronic  form  as  the  Successor Servicer may
reasonably  request  and (ii) transfer to the Successor Servicer copies (and, to
the  extent  required  for  enforcement,  originals)  of  all  other  records,
correspondence  and  documents  necessary  for  the  continued  servicing of the
Annuities  and the Gross Amounts Payable, in the manner and at such times as the
Successor Servicer shall reasonably request.  To the extent that compliance with
this  Section  4.01(b)  shall  require the Servicer to disclose to the Successor
Servicer  information  of  any  kind  that  the  Servicer reasonably deems to be
confidential  or subject to licensing restrictions, the Successor Servicer shall
be  required  to  enter  into  such  customary  licensing  and  confidentiality
agreements  as  the  Servicer shall deem necessary to protect its interest or to
comply  with  the  requirements  of  such licensing restrictions.   The  Initial
Servicer,  however,  will  continue

                                       13
<PAGE>
at all times to prepare and furnish in accordance with the Reinsurance Documents
(1) a Reinsurance Servicer Report on or before the fifteenth (15th) Business Day
of each month and (2) all reports as and when required by Section 3.06 for ANLIC
(Hawaii)  and  Section  3.07  for  AIC,  and  each Successor Servicer shall make
available  to  the  Initial  Servicer  any information in the possession of such
Successor Servicer necessary for the Initial Servicer to prepare any Reinsurance
Servicer  Report.

     SECTION  4.02.  Duties  of  Servicer.  (a)  ANLIC  (Hawaii), AIC and Anchor
                     --------------------
hereby  appoint  as  their  agent  the  Servicer,  from  time to time designated
pursuant  to  Section  4.01,  to  perform the functions which the Servicer is to
perform under the Reinsurance Documents.  The Servicer shall take or cause to be
taken  all  such  actions  as may be necessary or advisable to collect all Gross
Amounts Payable from time to time, all in accordance with applicable laws, rules
and  regulations, with reasonable care and diligence, and in accordance with the
Reinsurance  Documents.  In  addition,  the  Servicer shall prepare on behalf of
ANLIC  (Hawaii)  and AIC the annual actuarial report required Insurance Division
of  the  Department  of  Commerce  &  Consumer  Affairs  of the State of Hawaii.

     (b)     Except  as  provided  in  Section  4.02(c), the Servicer will cause
Anchor to deposit all Net Amounts Payable in the Cash Collateral Account (to the
extent  not  previously so deposited) on each Payment Date.  The Servicer shall,
not  later  than  two Business Days prior to each Payment Date, deliver to ANLIC
(Hawaii)  the  Reinsurance  Servicer  Report.

     (c)     Upon  receipt  by  the  Servicer  of  a request to do so from ANLIC
(Hawaii) stating that an event or condition has occurred and is continuing which
constitutes,  or  with  notice  or  lapse  of  time  or both would constitute, a
Servicer  Remedy Event or that the claims paying rating of Anchor or the Initial
Servicer  has  become  less  than A2 by Moody's or A by S&P, the Servicer shall:

     (i)     cause  all  Charges  to  be  identified  in  the  Daily Reinsurance
Servicer  Report  in  accordance with the Reinsurance Documents on each Business
Day (A) in the case of contingent deferred sales charges, on the Business Day on
which  they  accrue,  and (B) in the case of all other Gross Amounts Payable, on
the  first  Business  Day  after  they  accrue,

     (ii)     provide  to  the Custodian and to the Agent on each Business Day a
Daily  Reinsurance  Servicer  Report,  and

     (iii)     to  the extent any distribution representing M&E Fees (as defined
in  the  Standing  Instructions)  other  than  a  distribution on a Payment Date
pursuant  to  a  Reinsurance  Servicer  Report  shall be received by the Initial
Servicer  notwithstanding  the  Custodian's  receipt  of  the  notice  delivered
pursuant  to  the  Standing  Instructions, return such M&E Fees to the Custodian
immediately  upon receipt and, until the same are so returned, hold in trust and
segregate  the  same.

ANLIC  (Hawaii)  may require compliance with this Section 4.02(c) whether or not
ANLIC  (Hawaii)  shall  have designated a Successor Servicer under Section 4.01.

                                       14
<PAGE>
     (d)     Upon  the  request of ANLIC (Hawaii) after a Servicer Default shall
have  occurred  and  be  continuing,  the  Initial Servicer shall deliver to the
Successor  Servicer,  and  the  Successor Servicer shall hold in trust for ANLIC
(Hawaii)  in  accordance  with  their  respective interests, copies (and, to the
extent  required  for  enforcement, originals) of all documents, instruments and
records  (including  computer tapes or disks) that evidence or relate to the Net
Amounts  Payable.

     (e)     The  Servicer's  authorization under this Agreement shall terminate
upon  the  indefeasible  payment  in  full  in cash of amounts payable under the
Reinsurance  Documents  and  receipt  by  ANLIC  (Hawaii)  and  the  Servicer,
respectively, of all other amounts owed to ANLIC (Hawaii) and the Servicer under
this  Agreement  (unless  otherwise  agreed by ANLIC (Hawaii) and the Servicer).

     (f)     No  later  than  two  Business  Days prior to any Payment Date, the
Servicer shall provide to ANLIC (Hawaii) a Reinsurance Servicer Report as of the
last  day  of  the  immediately  preceding  calendar  month.

     SECTION  4.03.  Rights  of  ANLIC  (Hawaii).  At  any  time  following  the
                     ---------------------------
designation  of  a  Servicer other than the Initial Servicer pursuant to Section
4.01  and  subject  at  all  times  to  compliance  with  applicable  law:

     (a)     Anchor and the Initial Servicer shall, at ANLIC (Hawaii)'s request,
(i)  assemble  all  of  the  documents, instruments and other records (including
computer  tapes  and  disks)  that  evidence the Annuities and the Gross Amounts
Payable,  or  which  are  otherwise necessary or desirable to collect such Gross
Amounts  Payable,  and  shall  make  copies  (and,  to  the  extent required for
enforcement,  originals)  of  the  same  available  to ANLIC (Hawaii) at a place
selected  by  ANLIC  (Hawaii)  or  its designee, and (ii) promptly upon receipt,
segregate  and remit all cash constituting Net Amounts Payable to ANLIC (Hawaii)
or  its  designee.

     (b)     ANLIC  (Hawaii)  may, to the maximum extent permitted by applicable
law,  take  any  and all steps in Anchor's or the Initial Servicer's name and on
behalf of Anchor, the Initial Servicer and the other Anchor Parties necessary or
desirable, in the determination of ANLIC (Hawaii), to collect all amounts due in
respect  of  the  Gross  Amounts  Payable.

     SECTION 4.04.  Responsibilities of Anchor.  Anything herein to the contrary
                    --------------------------
notwithstanding:

     (a)     Anchor  shall perform all of its obligations under the Annuities in
accordance  with  its  customary practices and the exercise by ANLIC (Hawaii) of
its  rights  hereunder  shall  not  relieve  Anchor from such obligations or its
obligations  with  respect  to  Gross  Amounts  Payable.

     (b)     ANLIC  (Hawaii)  shall  not  have  any obligation or liability with
respect  to  the  Annuities  or  the  Gross  Amounts  Payable.

     (c)     Anchor  will  deposit  to the Cash Collateral Account, on each date
when  such  a  deposit  is  required  for  the Servicer under Article IV of this
Agreement  or  is  required  pursuant  to  the  Standing  Instructions,  all Net

                                       15
<PAGE>
Amounts  Payable received from time to time by Anchor.  Anchor shall not adjust,
settle  or  compromise  the  amount or payment of any Charges, release wholly or
partly  the Custodian or any obligor thereunder, or allow any credit or discount
thereon,  except  for  the  Waiver  Allowance.

     SECTION  4.05.  Further  Action.  (a)  ANLIC  (Hawaii), AIC, Anchor and the
                     ---------------
Initial  Servicer  each  agrees  that from time to time, at its expense, it will
promptly execute and deliver all further instruments and documents, and take all
further  action,  that  may  be necessary, or that ANLIC (Hawaii) may reasonably
request,  in  order  to,  protect  or more fully evidence the interests of ANLIC
(Hawaii)  in the Reinsurance Documents, or to enable any of them to exercise and
enforce  any  of  their  respective  rights  and  remedies under the Reinsurance
Documents.

                                    ARTICLE V

                             SERVICER REMEDY EVENTS

     SECTION  5.01.  Servicer  Remedy Event.  Each of the following events shall
                     ----------------------
constitute  a  "Servicer  Remedy  Event":
                -----------------------

     (a)     The  Servicer  (i)  shall  fail  to  perform  or  observe any term,
covenant  or  agreement hereunder (other than as referred to in Section 3.04(b),
(c)  or  (e) or clause (ii) of this Section 5.01(a)) on its part to be performed
or observed and such failure shall remain unremedied for 3 Business Days or (ii)
shall fail to make any payment or deposit to be made by it under any Reinsurance
Document  when  due  (or,  upon  the  discovery  of  an unintentional error in a
Reinsurance Servicer Report as to an amount to be so paid or deposited, within 3
Business  Days after such discovery if (A) the amount erroneously stated in such
Reinsurance  Servicer  Report  was paid or deposited when due, (B) within such 3
Business  Days  the  Servicer provides to ANLIC (Hawaii) a corrected Reinsurance
Servicer Report and (C) such Reinsurance Servicer Report states a greater amount
to  be  paid  or  deposited);  or

     (b)     Anchor  shall  fail  to  perform  or  observe any term, covenant or
agreement  contained  in  Section  3.01(b), Section 3.02, Section 14.4(g) of the
Reinsurance  Agreement,  or  Section  14.5(c)  of  the Reinsurance Agreement; or

     (c)     Any  representation  or  warranty  or  statement made by any Anchor
Party  (or  any  of  their  respective officers) in or furnished pursuant to any
Reinsurance  Document shall prove to have been incorrect in any material respect
when  made;  or

     (d)     Any  Anchor  Party shall fail to perform or observe any other term,
covenant  or  agreement  contained in any Reinsurance Document on its part to be
performed  or  observed and any such failure shall remain unremedied for 10 days
after written notice thereof shall have been given to such Anchor Party by ANLIC
(Hawaii);  or

     (e)     Anchor shall fail to pay any principal of or premium or interest on
any  Debt  which  is  outstanding  in  a  principal  amount  of  at  least  U.S.

                                       16
<PAGE>
$50,000,000  in  the  aggregate, within the applicable grace period (if any) for
such  payment  after  the  same  becomes  due  and payable (whether by scheduled
maturity,  required prepayment, acceleration, demand or otherwise); or any other
event  shall  occur  or  condition shall exist under any agreement or instrument
relating  to  any  such  Debt  which  has not been effectively waived under such
agreement  or  instrument  if  the  effect of such event or condition (after the
expiration  of any grace or cure periods provided for therein) is to accelerate,
or  to  permit  the acceleration of, the maturity of such Debt; or any such Debt
shall be accelerated or otherwise declared to be due and payable, or required to
be  prepaid (other than by a regularly scheduled required prepayment), redeemed,
purchased  or  defeased, or an offer to prepay, redeem, purchase or defease such
Debt  shall  be  required  to be made, in each case prior to the stated maturity
thereof;  or

     (f)     Anchor  shall  fail for any reason to own all Annuities and Charges
and  rights  therein  free  and  clear  of  any  Adverse  Claim;  or

     (g)     There shall be a filing or entry of a decree or order for relief by
a  court,  or  the  commencement  of  a delinquency proceeding by a Governmental
Authority (including any insurance regulatory authority), having jurisdiction in
the  premises  in  respect  of any Anchor Party or any substantial part of their
respective  property  in  an involuntary case or proceeding under any applicable
bankruptcy,  insolvency,  rehabilitation,  liquidation,  reorganization,
conservation,  dissolution  or  other similar law now or hereafter in effect, or
there  shall  be  appointed  a receiver, liquidator, rehabilitator, conservator,
assignee,  custodian,  trustee,  sequestrator or similar official for any Anchor
Party  or for any substantial part of its respective property, or there shall be
ordered  a winding-up, liquidation, rehabilitation, reorganization, conservation
or  dissolution  of  any  Anchor  Party's business, and (other than in a case or
proceeding  in  which  such  case,  proceeding, decree, order or appointment was
instituted  by  an  Affiliate  of an Anchor Party or by a Governmental Authority
(including  any  insurance  regulatory  authority))  where  any of the foregoing
matters shall remain unstayed and in effect for a period of 60 consecutive days;
any  Anchor  Party  shall  commence  a  voluntary  case  or proceeding under any
applicable  bankruptcy, insolvency, rehabilitation, liquidation, reorganization,
conservation,  dissolution  or  other similar law now or hereafter in effect, or
any  Anchor  Party  shall  consent  to  the  entry  of an order for relief in an
involuntary  case  or  proceeding  under  any  such  law or shall consent to the
appointment  of  or  taking possession by a receiver, liquidator, rehabilitator,
conservator,  assignee, custodian, trustee, sequestrator or similar official for
such  Anchor  Party  or  for any substantial part of its property, or any Anchor
Party  shall  make  any  general assignment for the benefit of creditors, or any
Anchor  Party  shall fail generally to pay its debts as such debts become due or
any  Anchor  Party  shall  admit  in  writing  its  inability  to  pay its debts
generally;  or any Anchor Party shall take any corporate action to authorize any
of  the  actions  set  forth  above  in  this  subsection  (g);  or

     (h)     Any  "Event  of  Recapture" shall occur under and as defined in the
Reinsurance  Agreement  or  the  AIC  Retrocession  Agreement;

then,  and  in any such event, or in the event that Anchor has a claim's payment

                                       17
<PAGE>
rating  below  A  by  S&P or below A2 by Moody's, ANLIC (Hawaii) may at any time
thereafter  deliver  the  notice  referred  to  in  Section  2  of  the Standing
Instructions  to the Custodian.  The remedies herein provided are cumulative and
not  exclusive  of  any remedies provided by law or this or any other agreement.

                                   ARTICLE VI

                                  MISCELLANEOUS

     SECTION 6.01.  Amendments, Etc.  No amendment or waiver of any provision of
                    ---------------
this  Agreement,  and  no  consent  to  any  departure  by Anchor or the Initial
Servicer  herefrom,  shall in any event be effective unless the same shall be in
writing and signed by ANLIC (Hawaii), and then such amendment, waiver or consent
shall  be  effective  only in the specific instance and for the specific purpose
for  which  given.

     SECTION 6.02.  Notices, Etc.  All notices and other communications provided
                    ------------
for  hereunder  shall,  unless otherwise stated herein, be in writing (including
telecopier,  telegraphic,  telex or cable communication) and mailed, telecopied,
telegraphed, telexed, cabled or delivered by hand or by overnight courier, as to
each  party  hereto,  at  its  address set forth under its name on the signature
pages  hereof or at such other address as shall be designated by such party in a
written notice to the other parties hereto.  All such notices and communications
shall  be  effective  when  received.

     SECTION  6.03.  No  Waiver;  Remedies.  No  failure  on  the  part of ANLIC
                     ---------------------
(Hawaii) to exercise, and no delay in exercising, any of its rights hereunder or
under  any Reinsurance Document shall operate as a waiver thereof; nor shall any
single  or partial exercise of any right hereunder preclude any other or further
exercise  thereof  or  the  exercise  of  any  other right.  The remedies herein
provided  are  cumulative  and  not  exclusive  of any remedies provided by law.

     SECTION  6.04.  Binding  Effect;  Assignability.  This  Agreement  shall be
                     -------------------------------
binding  upon  and  inure to the benefit of ANLIC (Hawaii), Anchor, the Servicer
and  their respective assigns, except that neither the Servicer nor Anchor shall
have the right to assign its rights hereunder or any interest herein without the
prior  written  consent  of  ANLIC  (Hawaii).  This  Agreement  shall create and
constitute  the  continuing  obligation of the parties hereto in accordance with
its  terms,  and  shall  remain in full force and effect until such time, as all
amounts  payable  under  the  Reinsurance Documents shall have been indefeasibly
paid  in  full  in  cash.

     SECTION  6.05.  Consent  to  Jurisdiction.  (a)  Each  party  hereto hereby
                     -------------------------
irrevocably  submits to the exclusive jurisdiction of any State or Federal court
sitting  in  the  State  of  Delaware, or, if no court in Delaware will exercise
jurisdiction, Arizona, and any appellate court from any thereof in any action or
proceeding  arising  out of or relating to any Reinsurance Document or any other
instrument  or  document  furnished  pursuant hereto, and each such party hereby
irrevocably  agrees  that all claims in respect of such action or proceeding may
be heard and determined in such Delaware or Arizona State court, as the case may
be, or in such Federal court sitting in Delaware or Arizona, as the case may be.
Each  such  party  hereby  irrevocably  waives,  to  the  fullest

                                       18
<PAGE>
extent  it  may  effectively  do so, the defense of an inconvenient forum to the
maintenance  of such action or proceeding.  Each such party irrevocably consents
to the service of copies of the summons and complaint and any other process that
may  be served in any such action or proceeding by the mailing of copies of such
process  to  such party at its address specified pursuant to Section 6.02.  Each
such  party  agrees that a final judgment in any such action or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on the judgment
or  in  any  other  manner  provided  by  law.

     (b)     Nothing  in  this  Section  6.05 shall affect the right of any such
party  to serve legal process in any other manner permitted by law or affect the
right of any such party to bring any action or proceeding against any other such
party  or  their  respective property in the courts of other jurisdictions other
than the State of New York if no court in the States of Delaware or Arizona will
exercise  jurisdiction.

     SECTION  6.06.  GOVERNING LAW.  THIS AGREEMENT AND THE CERTIFICATE SHALL BE
                     -------------
GOVERNED  BY,  AND  CONSTRUED  IN  ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.

     SECTION  6.07.  No  Proceedings.  ANLIC  (Hawaii),  AIC,  Anchor  and  the
                     ---------------
Servicer each hereby agrees that it will not institute against the Purchaser any
proceeding  of the type referred to in Section 5.01(g) so long as any commercial
paper  or  other debt securities issued by the Purchaser shall be outstanding or
there  shall  not have elapsed one year plus one day since the last day on which
any  such commercial paper or other debt securities shall have been outstanding.

     SECTION  6.08.  Confidentiality.  (a)  The  structure  of  the transactions
                     ---------------
contemplated  by the Reinsurance Documents (as defined in this Agreement and the
Servicing  Agreement dated as of December 31, 1997 among ANLIC Insurance Company
(Hawaii),  Anchor,  Anchor  Insurance  Company  (Hawaii)  and  SunAmerica  Life
Insurance  Company),  any  related  analyses, computer models, information, tax,
legal  or  accounting  opinions  or  other  documents  and  any  related written
information  (collectively,  "Citicorp  Product  Information") constitute CNAI's
                              ------------------------------
proprietary  information;  provided  that Citicorp Product Information shall not
                           --------
include  any  information  that:
     (i)     is  or  becomes  available  to the public other than as a result of
disclosure by  the Company Representatives, ANLIC (Hawaii), the Initial Servicer
or  Anchor,  or

     (ii)     was  known  by  or  was  in  the possession of ANLIC (Hawaii), the
Initial  Servicer  or  Anchor prior to its disclosure by CNAI to ANLIC (Hawaii),
the  Initial  Servicer  or  Anchor,  or

     (iii)     becomes  available  to  ANLIC  (Hawaii),  the Initial Servicer or
Anchor  on  a  non-confidential  basis  from a source not known to be bound by a
confidentiality  agreement  with  or  under other obligation of secrecy to CNAI.

     (b)     ANLIC  (Hawaii),  the Initial Servicer and Anchor agree to maintain
the confidentiality of the Citicorp Product Information (and all drafts thereof)
and  not  to  disclose  the  Citicorp  Product  Information,  directly  or

                                       19
<PAGE>
indirectly,  without  CNAI's  consent,  other  than:

     (i)     to  their  respective  officers,  directors,  employees,  agents,
attorneys,  accountants  and advisors ("Company Representatives"), and then only
                                        -----------------------
on  a  confidential,  need-to-know  basis,

     (ii)     as  required  by  law,  rule  or regulation or judicial process or

     (iii)  as  requested  or  required  by any state, local, federal or foreign
authority  or  examiner regulating insurance or reinsurance companies or banking
or  otherwise  having  jurisdiction.

     (c)     ANLIC  (Hawaii),  the  Initial Servicer and Anchor agree to use the
Citicorp  Product  Information  only  in  connection  with  the  transaction
contemplated  by  the  Reinsurance  Documents  and  not  for  any other purpose.

     (d)     ANLIC  (Hawaii), the Initial Servicer and Anchor agree to cause the
Company  Representatives  and the Anchor Parties to comply with these provisions
and to be responsible for any failure of any such representatives and the Anchor
Parties  so  to  comply.

     (e)     In  the  event that ANLIC (Hawaii), the Initial Servicer and Anchor
are  requested, compelled or required (by deposition, interrogatory, request for
information  or production of documents, subpoena, civil investigative demand or
similar  process)  to  disclose  any  Citicorp  Product  Information, then ANLIC
(Hawaii),  the Initial Servicer and Anchor shall, to the extent permitted by law
and  reasonably  practicable under the circumstances, immediately give the other
party notice of such request so that the other party may seek a protective order
or  other  appropriate  remedy.  If,  in  the  absence  of a protective order or
waiver,  ANLIC  (Hawaii),  the  Initial  Servicer  and  Anchor  are  nonetheless
compelled  to disclose Citicorp Product Information, ANLIC (Hawaii), the Initial
Servicer  and  Anchor may disclose such information without liability hereunder;
provided  that  ANLIC  (Hawaii),  the  Initial  Servicer  and  Anchor  exercise
 -------
reasonable  efforts  (at  CNAI's sole cost and expense) to obtain assurance that
 -------
confidential  treatment  will  be accorded to such disclosed information.  ANLIC
 -
(Hawaii), the Initial Servicer and Anchor shall not oppose any action by CNAI to
 -
obtain a protective order or other assurance that confidential treatment will be
accorded.

     (f)     The  parties  agree that CNAI will suffer irreparable harm from and
will  not  have  an  adequate  remedy  at law with respect to any breach of this
Section.  In  addition to all other remedies, CNAI shall be entitled to specific
performance  and  injunctive  or other equitable relief as a remedy for any such
breach.  If  the  Anchor  Parties  obtain  actual  knowledge of any unauthorized
disclosure  of  the  Citicorp Product Information by any Company Representative,
the  Anchor  Parties  shall  disclose  to  CNAI  such  unauthorized  disclosure.

     (g)     The  provisions  of  this Section 6.08 shall survive termination of
this  Agreement.

     SECTION  6.09.  Payments and Computations, Etc.  (a) All amounts to be paid
                     ------------------------------
or  deposited  by  Anchor  or the Servicer pursuant to the Reinsurance Documents
shall  be  paid  or  deposited  in  accordance  with  the  terms  hereof  no

                                       20
<PAGE>
later  than  11:00 A.M. (New York City time) on the day when due in lawful money
of  the  United  States of America in same day funds to the Agent's Account (or,
where  a  Reinsurance Document so specifies, to the Cash Collateral Account) for
the  account  of  ANLIC  (Hawaii).

     (b)     Anchor  or  the  Initial Servicer shall, to the extent permitted by
law,  pay  to  ANLIC (Hawaii) interest on all amounts not paid or deposited when
due  by Anchor or the Initial Servicer under the Reinsurance Documents at 2% per
annum  above  the  Alternate  Base  Rate in effect from time to time, payable on
demand;  provided, however, that such interest rate shall not at any time exceed
         --------  -------
the  maximum rate permitted by applicable law.  All computations of interest and
fees  hereunder  shall be made on the basis of a year of 360 days for the actual
number  of  days  (including  the  first  but  excluding  the last day) elapsed.

     SECTION 6.10.  Execution in Counterparts; Severability.  This Agreement may
                    ---------------------------------------
be  executed  in  any  number of counterparts and by different parties hereto in
separate  counterparts,  each of which when so executed shall be deemed to be an
original  and all of which when taken together shall constitute one and the same
agreement.  Delivery  of  an  executed  counterpart  of a signature page to this
Agreement  by  telecopier  shall be effective as delivery of a manually executed
counterpart  of  this  Agreement.  In  case any provision in or obligation under
this  Agreement should be invalid, illegal or unenforceable in any jurisdiction,
the  validity,  legality  and  enforceability  of  the  remaining  provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not  in  any  way  be  affected  or  impaired  thereby.

     SECTION  6.11.  Judgment.  (a)  If,  for the purposes of obtaining judgment
                     --------
in  any  court,  it  is  necessary  to  convert  a sum due under the Reinsurance
Documents  in  United  States  dollars into another currency, the parties hereto
agree,  to  the fullest extent that they may effectively do so, that the rate of
exchange  used  shall  be  that  at  which  in  accordance  with  normal banking
procedures CNAI could purchase United States dollars with such other currency in
New  York  on  the Business Day preceding that on which final judgment is given.

     (b)     The  transaction  contemplated  by  the Reinsurance Documents is an
international  insurance transaction in which the specification of United States
dollars  and payment in New York, New York, is of the essence, and United States
dollars  shall be the currency of account in all events.  The obligation of each
Anchor Party party to any Reinsurance Document in respect of any sum due from it
to  any  other  party  under any Reinsurance Document shall, notwithstanding any
judgment  in  a currency other than United States dollars, be discharged only to
the  extent  that on the Business Day following receipt by such party of any sum
adjudged  to  be so due in such other currency such party may in accordance with
normal  banking  procedures  purchase  United  States  dollars  with  such other
currency;  if  the  United  States  dollars  so  purchased are less than the sum
originally  due  to such party in United States dollars, each Anchor Party party
to  this Agreement agrees, as a separate obligation and notwithstanding any such
judgment,  to  indemnify  such party against such loss, and if the United States
dollars so purchased exceed the sum originally due to any party in United States
dollars,  such  party  agrees  to  remit  to  such  Anchor  Party  such  excess.

                                       21
<PAGE>
     SECTION  6.12.  WAIVER  OF JURY TRIAL.  EACH  OF ANLIC (Hawaii), ANCHOR AND
                     ---------------------
THE SERVICER, HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ALL  RIGHT  TO  TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER
BASED  ON  CONTRACT,  TORT  OR  OTHERWISE)  ARISING  OUT  OF  OR RELATING TO ANY
REINSURANCE  DOCUMENT.

                                       22
<PAGE>
IN  WITNESS  WHEREOF,  the  parties have caused this Agreement to be executed by
their  respective officers thereunto duly authorized, as of the date first above
written.

ANCHOR  INSURANCE  COMPANY  (HAWAII),  LTD.

By:____________________________________
   Name
   Title
Address  for  Notices:

c/o  Anchor  Insurance  Company  (Hawaii),  Ltd.
c/o  50th  State  Risk  Management  Services,  Inc.
Six  Waterfront  Plaza,  Room  405
500  Ala  Moana  Boulevard
Honolulu,  HI  96813
Attention:   Ann  Nakagawa
Facsimile:  (808)  524-9526
Telephone:  (808)  543-9737

with  a  copy  to:

General  Counsel
SunAmerica  Inc.
1  SunAmerica  Center
1999  Avenue  of  the  Stars
Los  Angeles,  CA  90067
Telephone:  310-772-6000
Telecopy:  310-772-6574

ANCHOR  NATIONAL  LIFE  INSURANCE  COMPANY

By_____________________________________
  Title:
1  SunAmerica  Center
1999  Avenue  of  the  Stars
Los  Angeles,  CA  90067
Attention:  Jim  Belardi
Telephone:  310-772-6000
Telecopy:  310-772-6635

with  a  copy  to:

General  Counsel
SunAmerica  Inc.
1  SunAmerica  Center
1999  Avenue  of  the  Stars
Los  Angeles,  CA  90067
Telephone:  310-772-6000
Telecopy:  310-772-6574

                                       23
<PAGE>
ANLIC  INSURANCE  COMPANY  (HAWAII),  LTD.,  as  Seller

By__________________________________
  Title:

c/o  ANLIC  Insurance  Company  (Hawaii),  Ltd.
c/o  50th  State  Risk  Management  Services,  Inc.
Six  Waterfront  Plaza,  Room  405
500  Ala  Moana  Boulevard
Honolulu,  HI  96813
Attention:  Ann  Nakagawa
Facsimile:  (808)  524-9526
Telephone:  (808)  543-9737

with  a  copy  to:

General  Counsel
SunAmerica  Inc.
1  SunAmerica  Center
1999  Avenue  of  the  Stars
Los  Angeles,  CA  90067
Telephone:  310-772-6000
Telecopy:  310-772-6574

and

Citicorp  North  America,  Inc.
399  Park  Avenue
6th  Floor/Zone  2
New  York,  NY  10043
Attention:  Art  Bovino
Telephone:  (212)  559-6166
Telecopy:  (212)  758-6272

SUNAMERICA  LIFE  INSURANCE  COMPANY,  as  Servicer

By__________________________________
  Title:

1  SunAmerica  Center
1999  Avenue  of  the  Stars
Los  Angeles,  CA  90067
Attention:  Jim  Belardi
Telephone:  310-772-6000
Telecopy:  310-772-6635
with  a  copy  to:

General  Counsel
SunAmerica  Inc.
1  SunAmerica  Center
1999  Avenue  of  the  Stars
Los  Angeles,  CA  90067
Telephone:  310-772-6000
Telecopy:  310-772-6574

                                       24

<PAGE>

                                                                  EXECUTION COPY

                               SERVICING AGREEMENT

                           DATED AS OF AUGUST 1, 1999

                                      AMONG

                     ANLIC INSURANCE COMPANY (HAWAII), LTD.,

                                  INDIVIDUALLY,

                    ANCHOR INSURANCE COMPANY (HAWAII), LTD.,

                                  INDIVIDUALLY,

                     ANCHOR NATIONAL LIFE INSURANCE COMPANY,

                                  INDIVIDUALLY,

                                       AND

                       SUNAMERICA LIFE INSURANCE COMPANY,

                                   AS SERVICER

<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                       PAGE
                                                                       ----

<S>                                                                     <C>
PRELIMINARY STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . .   1

ARTICLE I DEFINITIONS
SECTION 1.01.  Certain Defined Terms . . . . . . . . . . . . . . . . .   1
SECTION 1.02.  Other Terms . . . . . . . . . . . . . . . . . . . . . .   5
SECTION 1.03.  Computation of Time Periods . . . . . . . . . . . . . .   5
SECTION 1.04.  Other Definitional Provisions . . . . . . . . . . . . .   5

ARTICLE II REPRESENTATIONS AND WARRANTIES
SECTION 2.01.  Representations and Warranties of Anchor. . . . . . . .   5
SECTION 2.02.  Representations and Warranties of the Initial Servicer.   6

ARTICLE III GENERAL COVENANTS
SECTION 3.01.  Affirmative Covenants of Anchor . . . . . . . . . . . .   8
SECTION 3.02.  Negative Covenants of Anchor. . . . . . . . . . . . . .   8
SECTION 3.03.  Affirmative Covenants of the Initial Servicer . . . . .   8
SECTION 3.04.  Reporting Requirements of the Initial Servicer. . . . .   9
SECTION 3.05.  Negative Covenants of the Initial Servicer. . . . . . .  10
SECTION 3.06.  Reporting Requirements of ANLIC (Hawaii). . . . . . . .  11
SECTION 3.07.  Reporting Requirements of AIC . . . . . . . . . . . . .  11

ARTICLE IV ADMINISTRATION AND COLLECTION
SECTION 4.01.  Designation of Servicer . . . . . . . . . . . . . . . .  12
SECTION 4.02.  Duties of Servicer. . . . . . . . . . . . . . . . . . .  14
SECTION 4.03.  Rights of ANLIC (Hawaii). . . . . . . . . . . . . . . .  15
SECTION 4.04.  Responsibilities of Anchor. . . . . . . . . . . . . . .  15
SECTION 4.05.  Further Action. . . . . . . . . . . . . . . . . . . . .  16

ARTICLE V SERVICER REMEDY EVENTS
SECTION 5.01.  Servicer Remedy Event . . . . . . . . . . . . . . . . .  16

ARTICLE VI MISCELLANEOUS
SECTION 6.01.  Amendments, Etc.. . . . . . . . . . . . . . . . . . . .  18
SECTION 6.02.  Notices, Etc. . . . . . . . . . . . . . . . . . . . . .  18
SECTION 6.03.  No Waiver; Remedies . . . . . . . . . . . . . . . . . .  18
SECTION 6.04.  Binding Effect; Assignability . . . . . . . . . . . . .  18
SECTION 6.05.  Consent to Jurisdiction . . . . . . . . . . . . . . . .  18
SECTION 6.06.  GOVERNING LAW . . . . . . . . . . . . . . . . . . . . .  19
SECTION 6.07.  No Proceedings. . . . . . . . . . . . . . . . . . . . .  19
SECTION 6.08.  Confidentiality . . . . . . . . . . . . . . . . . . . .  19
SECTION 6.09.  Payments and Computations, Etc. . . . . . . . . . . . .  20
SECTION 6.10.  Execution in Counterparts; Severability . . . . . . . .  21
SECTION 6.11.  Judgment. . . . . . . . . . . . . . . . . . . . . . . .  21
SECTION 6.12.  WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . .  22

</TABLE>

<PAGE>

                              EXHIBITS & SCHEDULES

EXHIBIT  1.01A     Form  of  Daily  Reinsurance  Servicer  Report

EXHIBIT  1.01B     Form  of  Reinsurance  Servicer  Report

SCHEDULE  2.01(e)  List  of  Annuity  contracts  together with a form of each
Annuity  agreement

SCHEDULE  2.01(f)     CARVM  reserve  methodologyExhibit 10.1

                        1999 INCENTIVE COMPENSATION PLAN

                            MICHAEL BAKER CORPORATION

<PAGE>

                                      INDEX
                                      -----

ARTICLE I - GENERAL

1.1  ESTABLISHMENT OF THE PLAN
1.2  PURPOSE
1.3  ADMINISTRATION

ARTICLE II - DEFINITIONS

2.1  DEFINITIONS
2.2  GENDER AND NUMBER

ARTICLE III - ELIGIBILITY AND PARTICIPATION

3.1  ELIGIBILITY
3.2  PARTICIPATION
3.3  PARTIAL PLAN YEAR PARTICIPATION

ARTICLE IV - AWARDS

4.1  COMPONENTS OF PARTICIPATION AWARDS
4.2  CORPORATE PERFORMANCE MEASURES AND GOALS
4.3  INDIVIDUAL PERFORMANCE REVIEW CRITERIA
4.4  BUSINESS UNIT PERFORMANCE
4.5  BUSINESS SEGMENT PERFORMANCE
4.6  INDIVIDUAL PERFORMANCE
4.7  DISCRETIONARY AWARDS

ARTICLE V - PAYMENT OF AWARDS

5.1  PAYMENT OF AWARDS
5.2  PLAN FUNDING

ARTICLE VI - CHANGE IN CONTROL

6.1  CHANGE IN CONTROL
6.2  DEFINITION OF CHANGE IN CONTROL

ARTICLE VII - MISCELLANEOUS PROVISIONS

7.1  NON-TRANSFERABILITY
7.2  TAX WITHHOLDING
7.3  AMENDMENTS AND TERMINATION
7.4  INDEMNIFICATION
7.5  BENEFICIARY DESIGNATION
7.6  RIGHTS OF PARTICIPANTS
7.7  GOVERNING LAW
7.8  EFFECTIVE DATE

EXECUTION PAGE

<PAGE>

                                    INDEX
                                    -----

1999 INCENTIVE COMPENSATION PLAN - ATTACHMENT 1

     ELIGIBILITY
     OPPORTUNITY
     PERFORMANCE MEASUREMENT
     PERFORMANCE GOALS
     POTENTIAL PAYOUT (PERCENTAGE OF ANNUAL SALARY)
     THRESHOLD
     TYPE OF PAYOUT
     FREQUENCY OF PAYOUT
     FUNDING
     FORFEITURES

<PAGE>

ARTICLE I

GENERAL
-------

1.1  ESTABLISHMENT OF THE PLAN:

Michael Baker Corporation,  a Pennsylvania  corporation (the "Company"),  hereby
adopts this Plan,  which shall be known as the MICHAEL  BAKER  CORPORATION  1999
INCENTIVE COMPENSATION PLAN (the "Plan").

1.2  PURPOSE:

The  purpose  of the Plan is to focus  attention  on  shareholder  value,  drive
performance  in  support  of this  goal and other  business  goals,  and  reward
individual performance.

1.3  ADMINISTRATION:

(a)  The Plan shall be administered by the Incentive Compensation Committee (the
     "Committee"),  of the  Company  with the  concurrence  of the  Compensation
     Committee  of the Board of  Directors  of the  Company.  The members of the
     Committee  shall be appointed by the Chief  Executive  Officer (the "CEO"),
     and any vacancy on the  Committee  shall be filled by an  appointee  of the
     CEO.

(b)  Subject to the  limitations  of the Plan, the Committee  shall,  subject to
     approval by the CEO and  Compensation  Committee of the Board of Directors:
     (i) select from the  regular,  full- time exempt  Employees of the Company,
     those   who   shall   participate   in  the   Plan  (a   "Participant"   or
     "Participants"),  (ii)  make  awards  in  such  forms  and  amounts  as the
     Committee shall determine, (iii) impose such limitations, restrictions, and
     conditions upon such awards as the Committee shall deem  appropriate,  (iv)
     interpret the Plan and adopt, amend, and rescind administrative  guidelines
     and other  rules and  regulations  relating  to the Plan,  (v)  correct any
     defect or omission or reconcile  any  inconsistency  in this Plan or in any
     award granted  hereunder,  and (vi) make all necessary  determinations  and
     take all other actions  necessary or advisable for the  implementation  and
     administration  of the Plan.  The  Committee's  determinations  on  matters
     within its authority  shall be conclusive  and binding upon the Company and
     all other Persons.

<PAGE>

ARTICLE II

DEFINITIONS
-----------

2.1  DEFINITIONS:

Whenever  used  herein,  the  following  terms  shall have the meaning set forth
below, unless otherwise expressly provided.

(a)  "Base  Salary"  shall  mean the  salary  reported  during a Plan  Year to a
     participant while  participating in the Plan. Base Salary shall include any
     salary reduction  contributions made to the Company's Internal Revenue Code
     Section 401(k) Plan or other deferred  compensation plans, but exclusive of
     any  awards  under  this  Plan and of any  other  bonuses,  incentive  pay,
     exercise of stock options,  overtime pay, special awards,  hiring/retention
     awards,  car  allowances,  imputed income related to company  provided life
     insurance,  reimbursement for moving expenses,  per diem payments,  tuition
     reimbursement, additional compensation related to international assignments
     such as expatriate differential  compensation,  tax equalization,  etc., or
     any other extraordinary income.

(b)  "Board" shall mean the Board of Directors of Michael Baker Corporation.

(c)  "Committee" shall mean the Incentive Compensation Committee of the Company,
     which shall consist of at least three employees of the Company.

(d)  "Company" shall mean Michael Baker Corporation and its Subsidiaries.

(e)  "Corporate" shall mean relating to Michael Baker Corporation.

(f)  "Employee" shall mean a regular,  full-time, exempt Employee of the Company
     who  is  in  a  position  meeting  the  defined  eligibility  criteria  for
     participation in the Plan, as stated in Section 3.1. - "Eligibility".

(g)  "Participant"  shall mean an Employee who is approved by the  Committee for
     participation  in the Plan for a  specified  Plan Year as  defined in 3.2 -
     "Participation".

(h)  "Performance  Management  Process"  shall  mean  the  Company's  three-step
     performance  cycle.  The cycle begins with setting  individual  performance
     goals, followed by performance coaching, and ending with formal performance
     review at the end of the performance period.

(i)  "Plan Year" shall mean the Company's fiscal year.

(j)  "Business  Unit"  shall  mean the  operating  units of:  Buildings,  Civil,
     Energy, Environmental and Transportation, and any other Business Unit added
     during the year.

(k)  "Business Segment" shall mean Business Unit segments of:  Buildings-Design,
     Buildings- Construction,  Civil-Engineering,  Civil-Baker Support Services,
     Inc.,   Energy-Baker/MO,    Energy-OTS,    Transportation-Engineering   and
     Transportation-Construction  (Heavy  &  Highway)  and  any  other  Business
     Segment added during the year.

<PAGE>

(l)  "Contribution to Corporate Overhead and Profit" shall mean the following:

     Business Unit Level -- Income before income taxes plus Corporate  overhead,
     Engineering  Support  overhead  (related  only  to  Engineering  segments),
     Intercompany  insurance  premiums/overhead  (VGIC),  and internal  interest
     expense (VGIC).

     Engineering Segment Level -- Income before income taxes Corporate overhead,
     Business  unit  overhead,   Engineering   Support  Overhead,   Intercompany
     insurance premiums/overhead (VGIC), and internal interest expense (VGIC).

     Non-Engineering  Segment Level -- Income before income taxes plus Corporate
     overhead, Business unit overhead,  Intercompany insurance premiums/overhead
     (VGIC) and internal interest expense (VGIC).

     IN MEASURING THE RESULTS OF CONTRIBUTION TO CORPORATE  OVERHEAD AND PROFIT,
     "MEETS   EXPECTATIONS"  IS  ESTABLISHED  AT  90%  OF  OBJECTIVE,   "EXCEEDS
     EXPECTATIONS"  IS  ESTABLISHED  AT  100%  OF  OBJECTIVE  AND  "FAR  EXCEEDS
     EXPECTATIONS"  IS  ESTABLISHED  AT 110% OF OBJECTIVE.  WHEN  POSSIBLE,  THE
     MINIMUM  SPREAD  OF  $250,000  WILL BE  USED  TO  SEPARATE  THE  LEVELS  OF
     MEASUREMENT.

(m)  "New work  added"  (NWA)  shall  mean and be  determined  in the  following
     manner:

     FORMULA:  CURRENT PLAN YEAR BACKLOG MINUS THE IMMEDIATE  PREVIOUS PLAN YEAR
     BACKLOG PLUS ACTUAL  CURRENT PLAN YEAR  REVENUES.  NWA IS BASED UPON FUNDED
     BACKLOG.

     IN CALCULATING NWA AT THE END OF THE YEAR FOR THE ENGINEERING  GROUPS,  THE
     GREATER  OF THE  "MASTER"  OR "TASK" MAY BE USED TO  DETERMINE  PERFORMANCE
     AGAINST GOAL,  WHICH PROVIDES FULL PROJECT CREDIT FOR THE ENTITY WHICH OWNS
     THE JOB. OTHER GROUPS THAT GAIN WORKLOAD FROM  "IMPORTING"  WORK FROM OTHER
     DEPARTMENTS  CAN  ALSO USE THE  GREATER  OF  "MASTER"  OR  "TASK"  IF IT IS
     BENEFICIAL TO THE OVERALL PERFORMANCE RESULTS.

2.2  GENDER AND NUMBER:

Except when otherwise  indicated by the context,  words in the masculine gender,
when used in the Plan,  shall include the feminine  gender,  the singular  shall
include the plural, and the plural shall include the singular.

<PAGE>

ARTICLE III

ELIGIBILITY AND PARTICIPATION
-----------------------------

3.1  ELIGIBILITY:

Eligibility for participation in the Plan shall be limited to regular, full-time
exempt Employees of the Company.

3.2  PARTICIPATION:

Participation in the Plan shall be determined by the executive management of the
Company.  The CEO shall determine  Corporate  participants and the Business Unit
Heads  shall  determine  Business  Unit  participants,  in all  cases  with  the
concurrence of the Michael Baker Corporation CEO and the Compensation  Committee
of the Board of Directors of the Company. The number of participants in the Plan
shall be influenced by the Business  Unit's ability to  financially  support the
accrual  for the  projected  payout  opportunity.  (See  5.2 -  "Plan  Funding")
Participants are to include executive  management,  business unit managers,  and
selected   managers  who  are  accountable  for  significant   contributions  to
Corporate,  as determined by the CEO, and to the Business Unit, as determined by
the  Business   Unit  head.   Participants   are  to  be  designated  as  having
accountability  associated  with  Corporate,  overall  Business Unit or specific
Business Segment performance. Participants are to be designated as having Tier 1
or Tier 2 accountability as defined in an attachment to the Plan.

3.3  PARTIAL PLAN YEAR PARTICIPATION:

An  Employee  who  becomes  eligible  after  the  beginning  of a Plan  Year may
participate in the Plan for that Plan Year. Such situations may include, but are
not limited to (i) new hires,  (ii) when an Employee is promoted from a position
which  did  not  meet  the  eligibility  criteria,  (iii)  when an  Employee  is
transferred  from an affiliate  which does not  participate in the Plan, or (iv)
when job responsibilities become consistent with other Plan participants.

The CEO retains the right to prohibit or allow participation in the initial Plan
Year  of  eligibility  for any of the  aforementioned  Employees.  Any so  added
participant  will be eligible  to receive a  pro-rated  share based upon a 2,080
work-hour year.

An  Employee  is not  eligible  to receive  any  payout  from the Plan under the
following conditions:

a)   Separation from employment prior to July 1 of the Plan year for any reason;

b)   Termination for cause or voluntary resignation from the Company at any time
     during the Plan Year;

c)   TERMINATION FOR CAUSE OR VOLUNTARY  RESIGNATION  FROM THE COMPANY AFTER THE
     PLAN YEAR BUT PRIOR TO INCENTIVE PLAN PAYMENT DISTRIBUTION (MARCH 15).

An Employee who leaves the  employment  of the Company after June 30 of the Plan
Year as a result of Reduction In Force, Divestiture or any other business reason
outside of the Employee's  control is eligible to receive a pro-rata payout from
the Plan for that year based upon the percent of the fiscal year employed.

<PAGE>

ARTICLE IV

AWARDS
------

4.1  COMPONENTS OF PARTICIPANT AWARDS:

Each  award  may be based  on (i)  Corporate  performance,  (ii)  Business  Unit
performance,   (iii)  Business   Segment,   and  Individual   performance   plan
accomplishments.

4.2  INDIVIDUAL PERFORMANCE CRITERIA

In order for an  individual  to be  eligible  for any  portion  of an  incentive
compensation  payout, they must receive an overall "3.0" or "Meets Expectations"
on the values/work standards portion of the performance review form. This change
is made to further  reinforce  Baker's  cultural  strategy  which  embraces  the
importance of goal  attainment  and how those goals are attained.  A Participant
must receive a "2.6" or greater on the performance  plan in order to be eligible
for the individual segment of the payout. Participants who do not meet the "2.6"
or   greater  on  the   performance   plan  may  still  be   eligible   for  the
corporate/business unit portions of the payout,  predicated on the "3.0" overall
rating on the annual performance review form.

4.3  CORPORATE  PERFORMANCE MEASURES AND GOALS

For each Plan Year, the Compensation Committee of the Board of Directors and the
CEO shall agree on a range of  performance  goals for  Corporate  results.  Each
performance  range shall include a level of performance at which awards shall be
earned.

Measures  of  performance  may  include,  but are not  limited  to,  one or more
financial ratios such as earnings per share, profitability, return on equity and
return on assets. Performance measures need not be the same within the Company.

For 1999,  corporate results shall be dependent upon audited corporate  earnings
per share (after all incentives have been paid). Payouts related to this part of
the plan will be based upon step  accomplishments  and should not be  pro-rated.
For  treatment of corporate  payouts,  please refer to sections  4.5-  "Business
Segment Performance and 4.6 - "Individual Performance".

For 1999, performance level goals for earnings per share are:
<TABLE>
<CAPTION>
              Corporate
             Performance                  Goal Setting
                Level                 (Earnings Per Share)
                -----                 --------------------
           <S>                                <C>
           LEVEL 1 ON PLAN                    $ .81
           LEVEL 2 COMMENDABLE                $ .90
           LEVEL 3 OUTSTANDING                $ .99
</TABLE>

4.4  BUSINESS UNIT PERFORMANCE MEASURES:

Business Unit  performance  shall be reflected in the final award based upon the
Business  Unit's  Contribution to Corporate  Overhead and Profit.  The Incentive
Compensation   Committee  shall  establish  and  approve  "Meets  Expectations",
"Exceeds  Expectations",  and "Far Exceeds  Expectations" goals specific to each

<PAGE>

Business Unit at the beginning of the Plan year. The "Meets  Expectations"  goal
shall serve as a Threshold  target which must be met in order for Business  Unit
Managers and those having overall Business Unit accountability to be eligible to
receive an incentive  payout based upon their individual  performance  plans. In
addition,  the "Meets Expectations" goal shall serve as a Threshold target which
must be met in order for all Business  Segment  participants to receive a payout
based upon Business Unit  performance.  For Business Segment  participants,  the
incentive  compensation award related to Business Unit performance is based upon
"step" accomplishment of "Meets Expectations",  "Exceeds Expectations", and "Far
Exceeds Expectations" goals and is not to be pro-rated.

Any Business Unit with an objective of a positive contribution  performance (net
income before tax plus corporate  overhead) which results in a year-end negative
contribution,  may  be  eligible  for  the  portion  of  incentive  compensation
dependent  on overall  corporate  earnings  per share  performance,  pending CEO
approval as advised by the Incentive Compensation  Committee.  Any Business Unit
with an objective of a NEGATIVE contribution  performance (net income before tax
plus corporate overhead) which results in a year-end more negative contribution,
may be eligible for the portion of incentive  compensation  dependent on overall
corporate earnings per share performance, pending CEO approval as advised by the
Incentive  Compensation  Committee.  Factors to be taken into  consideration may
include the amount of deviation from  objective,  impact of the  contribution of
the Business Unit to the Corporation and any extraordinary  issues. Any Business
Unit with an objective of a NEGATIVE  contribution  which  results in a year-end
more  favorable  performance,  will be  eligible  for the  portion of  incentive
compensation dependent on overall corporate performance.

4.5  BUSINESS SEGMENT PERFORMANCE MEASURES:

Business Segment  performance shall be reflected in the final award based on the
Business Segment's  Contribution to Corporate Overhead and Profit. The Incentive
Compensation   Committee   shall   approve   "Meets   Expectations",    "Exceeds
Expectations",  and "Far Exceeds  Expectations"  goals specific to each Business
Segment at the beginning of the Plan year. The "Meets  Expectations"  goal shall
serve as a Threshold target which must be met in order for  participants  within
the Segment to be eligible to receive an incentive  payout based upon individual
performance plans.

Any Business  Segment with an objective of a positive  contribution  performance
(net income  before tax plus  corporate  overhead)  which  results in a year-end
negative contribution, may be eligible for the portion of incentive compensation
dependent on overall corporate  earnings per share  performance  and/or Business
Unit Contribution to Overhead and Profit, pending CEO approval as advised by the
Incentive  Compensation  Committee.  Any Business Segment with an objective of a
NEGATIVE  contribution   performance  (net  income  before  tax  plus  corporate
overhead)  which  results  in a  year-end  more  negative  contribution,  may be
eligible  for  the  portion  of  incentive  compensation  dependent  on  overall
corporate  earnings per share  performance  and/or Business Unit Contribution to
Overhead  and  Profit,   pending  CEO  approval  as  advised  by  the  Incentive
Compensation  Committee.  Any  Business  Segment with an objective of a NEGATIVE
contribution  which results in a year-end more  favorable  performance,  will be
eligible  for  the  portion  of  incentive  compensation  dependent  on  overall
corporate performance and Business Unit Contribution to Overhead and Profit.

4.6  INDIVIDUAL PERFORMANCE MEASURES AND GOALS:

Individual  performance  shall be  reflected  in the  final  award  based on the
performance rating assigned to an Employee as part of the Performance Management
Process and is based upon a number of factors  established by the  participant's
manager(s) at the beginning of the Plan Year.

<PAGE>

Individual level payouts for participants  meeting individual  performance goals
in the Corporate  category  will occur when the Earnings Per Share  threshold is
achieved.   Individual  level  payouts  for  participants   meeting   individual
performance  goals in the Business  Unit  category will occur when Business Unit
operating  profit  accomplishes  threshold  performance.  (after all  individual
incentives have been paid).  Individual level payouts for  participants  meeting
individual  performance  goals in the Business  Segment category will occur when
Business Segment operating profit accomplishes threshold performance. (after all
individual incentives have been paid).

Guidelines  of  performance  goals and  percentage  weights  for  Business  Unit
managers are recommended to be:
<TABLE>
<CAPTION>
                                                % of Business Unit
                                                 Performance Plans
                                                 -----------------
      <S>                                               <C>
      Business Unit Contribution to                     20%
         Corporate Overhead and Profit

      New Work Added To The Company                     45%

      Cash Flow Return on Investment (CFROI)            15%

      Critical Success Factors (Continuous Improvement) 10%

      Human Resources Development                       10%
</TABLE>

Guidelines of  performance  goals and  percentage  weights for Business  Segment
participants are recommended to be:
<TABLE>
<CAPTION>
                                               % of Business Segment
                                                  and Individual
                                                 Performance Plans
                                                 -----------------
      <S>                                               <C>
      Business Segment Contribution to                  20%
         Corporate Overhead and Profit

      New Work Added To The Company                     45%

      Accounts Receivables                              15%

      Critical Success Factors (Continuous Improvement) 10%

      Human Resources Development                       10%
</TABLE>

The  guidelines  are  recommended  but are not  prescriptive,  particularly  for
functional positions (e.g.:  Finance,  Marketing,  Human Resources).  Individual
performance measures for incentive compensation participants are to be developed
jointly  with  the  employee's  immediate  supervisor,  be  consistent  with the
participant's   respective  job   responsibilities,   and  be  included  on  the
participant's  performance  plan.  Participants  may have plans  that  relate to
corporate, unit or segment. The performance plans are to be submitted to the CEO
by the Business Unit head or Functional  Unit head by the designated time in the
Plan year. For  individuals who become  eligible for  participation  in the Plan
during the course of the year, a completed  performance  plan is to be submitted
within four weeks of the individual becoming eligible for participation.
<PAGE>

At the end of the Plan Year, incentive compensation  participants' managers will
determine the level of performance accomplished by the participant.  Participant
performance  which  does not  meet or  exceed  the  Meets  Expectations-On  Plan
Performance-3  level on a specific  goal will result in no incentive  payout for
that  specific  performance  goal.  Once  performance  has  exceeded  the  Meets
Expectations-On  Plan  Performance-3  level on a specific  financial  goal,  any
performance beyond the 3 level will result in a pro-rated  weighted  calculation
of the incremental incentive  compensation earned by the participant,  until the
maximum level 5 performance is achieved. Once performance has exceeded the Meets
Expectations-On  Plan  Performance-3  level  for  major  performance  areas  for
functional unit employees,  any performance  beyond the 3 level will result in a
pro-rated  calculation,  in increments of .5 (e.g.:  3.5, 4.0, 4.5 etc.), of the
incremental incentive compensation earned by the participant,  until the maximum
level 5 performance is achieved.

The specific  accomplishments  associated with these goals are to be recorded on
each  participant's  annual Performance Plan at the end of the Plan Year as part
of the overall performance evaluation.

4.7  DISCRETIONARY AWARDS:

In addition to individual  performance  incentives,  a discretionary pool may be
created  within  Corporate and within each Business  Unit to  selectively  award
those  individuals  who  have  exceeded  expected  performance.  Guidelines  for
discretionary  awards are indicated  within the  Corporate  and Business  Units'
Incentive  Compensation  Plan  Summary  in  the  attachments.   Functional  Unit
discretionary  awards are to be selected by the CEO with the  concurrence of the
Incentive Compensation  Committee.  Business Unit discretionary awards are to be
selected  by  the  Executive  Vice  President  of the  Business  Unit  with  the
concurrence of the Incentive  Compensation  Committee.  THE DISCRETIONARY  AWARD
POOL WILL EQUAL 15% OF THE ICP PAYOUT FOR THE COMPANY.  12% OF THE DISCRETIONARY
FUNDS WILL BE ALLOCATED  PROPORTIONATELY  TO EACH  BUSINESS  UNIT BASED UPON THE
UNIT'S RELATIVE CONTRIBUTION TO CORPORATE PROFITABILITY. 3% OF THE DISCRETIONARY
FUNDS WILL BE AVAILABLE FOR  CORPORATE-WIDE  DISTRIBUTION  AND DETERMINED BY THE
CEO OF THE COMPANY.

<PAGE>

ARTICLE V

PAYMENT OF AWARDS
-----------------

5.1  PAYMENT OF AWARDS:

At the end of each  Plan  Year,  the CEO shall  report  the  overall  Corporate,
Business  Unit,  Business  Segment  and  individual  performance  levels  to the
Compensation  Committee  of the Board of  Directors,  who shall then approve the
payment of awards.

The incentive compensation earned as a result of the Company achieving corporate
profitability  goals and through the  achievement  of  Business  Unit,  Business
Segment and individual goals, will be paid in cash no later than March 15 of the
year after which it was earned.

5.2  PLAN FUNDING:

Accrual for the Incentive  Compensation Plan will be established annually by the
Committee,  subject to the  approval of the CEO.  The  approved  accrual for the
Incentive  Compensation  Plan shall pre-fund the amounts  available to be earned
for incentive  compensation  distributions.  Any forfeitures associated with the
termination of those in the incentive  compensation  plan prior to year-end will
be allocated toward the funding of the incentive pool for the following year. In
addition,  if the  incentive  pool is not paid out in full  because of  Business
Unit,  Business  Segment or participants'  failure to achieve goals  established
under the Plan or the Performance Management Process, the unearned portion would
be allocated toward the funding of the incentive pool for the following year.

Any excess pre-funding accrual based upon corporate goals which are not met and,
therefore,  not earned by  Incentive  Compensation  Plan  participants,  will be
removed from expense.

<PAGE>

ARTICLE VI

CHANGE IN CONTROL
-----------------

6.1  CHANGE IN CONTROL:

In the  event of a Change  in  Control  of the  Company,  as  defined  below,  a
Participant  shall be  entitled  to,  for the Plan Year in which  the  Change of
Control occurs, the award determined using:

      (i) The Participant's actual Base Salary rate in effect on the date of the
          Change in Control,

     (ii) Actual Corporate performance results to the date of Change in Control,
          and

    (iii) Participant's Individual Performance results.

The Committee as  constituted  immediately  prior to the Change in Control shall
determine how actual  Corporate  performance  should be measured for purposes of
the award calculation in 6.1. The Committee's  determination shall be conclusive
and final.

Awards  and  any  previously  accrued  awards  shall  be  paid  in  cash  to the
Participant  promptly  following  any  discontinuance  of the Plan on or after a
Change of Control.

6.2  DEFINITION OF CHANGE IN CONTROL:

A "Change in Control"  will be deemed to have  occurred on the first to occur of
the following:

(a)  The  Company  acquires  actual  knowledge  that any  Person  other than the
     Company, a Subsidiary,  the Company's Stock Ownership Plan and Trust or any
     employee  benefit  plan(s)  sponsored  by  the  Company  has  acquired  the
     Beneficial Ownership,  directly or indirectly, of securities of the Company
     entitling such Person to 20% or more of the Voting Power of the Company;

(b)  A Tender Offer is made to acquire  securities of the Company  entitling the
     holders thereof to 20% or more of the Voting Power of the Company; or

(c)  A solicitation  subject to Rule 14a-11 under the 1934 Act (or any successor
     Rule)  relating to the election or removal of 50% or more of the members of
     any class of the Board  shall be made by any person  other than the Company
     or less than 51% of the members of the Board shall be Continuing Directors;
     or

(d)  The  shareholders  of the Company  shall  approve a merger,  consolidation,
     share  exchange,  division  or sale or other  disposition  of assets of the
     Company as a result of which the  shareholders  of the Company  immediately
     prior  to  such  transaction  shall  not  hold,   directly  or  indirectly,
     immediately  following  such  transaction a majority of the Voting Power of
     (i) in the case of a merger or  consolidation,  the  surviving or resulting
     corporation,   (ii)  in  the  case  of  a  share  exchange,  the  acquiring
     corporation  or  (iii)  in  the  case  of a  division  or a sale  or  other
     disposition of assets, each surviving,  resulting or acquiring  corporation
     which,  immediately  following the transaction,  holds more than 10% of the
     consolidated assets of the Company immediately prior to the transaction.

<PAGE>

The  term  "person"  shall  mean  and  include  any   individual,   corporation,
partnership,  company,  association  or other  "person," as such term is used in
Section  14(d) of the  Exchange  Act,  other than the  Company  or any  employee
benefit plans sponsored by the Company.

"Continuing Directors" shall mean a director of the Company who either (a) was a
director  of the  Company  on  the  effective  date  of  the  Plan  or (b) is an
individual  whose  election,  or nomination  for election,  as a director of the
Company was  approved by a vote of at least  two-thirds  of the  directors  then
still in office who were Continuing  Directors  (other than an individual  whose
initial  assumption  of office  is in  connection  with an actual or  threatened
election  contest  relating to the election of  directors  of the Company  which
would be subject to Rule 14a-11 under the 1934 Act, or any successor Rule).

<PAGE>

ARTICLE VII

MISCELLANEOUS PROVISIONS
------------------------

7.1  NON-TRANSFERABILITY:

No right of  interest of any  Participant  in this Plan shall be  assignable  or
transferable,  or  subject  to  any  lien,  directly,  by  operation  of  law or
otherwise,  including  execution,  levy,  garnishment,  attachment,  pledge, and
bankruptcy.

7.2  TAX WITHHOLDING:

The Company shall have the right to deduct from all payments under this Plan any
foreign,  Federal,  state,  or local taxes  required by law to be withheld  with
respect to such payments.

7.3  AMENDMENTS AND TERMINATION:

THE COMPANY,  IN ITS ABSOLUTE  DISCRETION,  WITHOUT NOTICE, AT ANY TIME AND FROM
TIME TO TIME,  MAY  MODIFY  OR  AMEND,  IN WHOLE  OR IN PART,  ANY OR ALL  OTHER
PROVISIONS OF THIS PLAN, OR SUSPEND OR TERMINATE IT ENTIRELY;  PROVIDED, THAT NO
SUCH MODIFICATION, AMENDMENT, SUSPENSION, OR TERMINATION MAY AFFECT THE RIGHT OF
A PARTICIPANT  (OR HIS  BENEFICIARY  AS THE CASE MAY BE) TO AN EARNED BUT UNPAID
DISTRIBUTION IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN THIS PLAN.

7.4  INDEMNIFICATION:

Each person who is or shall have been a member of the  Committee or the Board or
who is or shall have been an Employee of the Company  shall be  indemnified  and
held  harmless by the Company  against and from any loss,  cost,  liability,  or
expense, including, without limitation, fees and expenses of legal counsel, that
may have been imposed upon or reasonably  incurred by him in connection  with or
resulting from any claim, action, suit, or proceeding to which he may be a party
or in which he may be involved  by reason of any action  taken or failure to act
under  the  Plan  and  against  and  from  any  and all  amounts  paid by him in
settlement thereof,  with the Company's approval, or paid by him in satisfaction
of any judgment in any such action,  suit, or proceeding against him provided he
shall give the Company an opportunity,  as its own expense, to handle and defend
the same before he  undertakes  to handle and defend it on his own  behalf.  The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification  to which  such  person  may be  entitled  under  the  Company's
Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them harmless.

7.5  BENEFICIARY DESIGNATION:

Each  Participant  under the Plan may name,  from time to time,  beneficiary  or
beneficiaries  (who  may be  named  contingently  or  successively)  to whom any
benefit under the Plan is to be paid in case of his death before he receives any
or all of such benefit.  Each designation will revoke all prior  designations by
the same Participant,  shall be in a form prescribed by the Company, and will be
effective only when filed by the  Participant in writing with the Company during

<PAGE>

his  lifetime.  In the  absence of any such  designation,  or if the  designated
beneficiary  is no  longer  living,  benefits  shall  be paid  to the  surviving
member(s) of the following classes of beneficiaries, with preference for classes
in the order listed below:

(a)  Participant's spouse (unless the parties were divorced or legally separated
     by court decree);

(b)  Participant's children (including children by adoption); or

(c)  Participant's executor or administrator.

Payment of benefits  shall be made  exclusively  to the  member(s)  of the first
class, in the order listed above, which has surviving  member(s).  If that class
have more than one member,  benefit  payment shall be made in equal shares among
members of that class.

7.6  RIGHTS OF PARTICIPANTS:

Nothing in this Plan shall  interfere  with or limit in any way the right of the
Company to  terminate  or change a  Participant's  employment  at any time,  nor
confer upon any  Participant,  any right to continue  in the  employment  of the
Company for any period of time or to  continue  his present or any other rate of
compensation.  No  Participant in a previous Plan Year, or other Employee at any
time, shall have a right to be selected for participation in a current or future
Plan Year.

7.7  GOVERNING LAW:

The Plan shall be construed in  accordance  with and governed by the laws of the
State of Pennsylvania.

7.8  EFFECTIVE DATE:

The Plan shall be deemed effective as of January 1, 1999.

<PAGE>

                                 EXECUTION PAGE

IN WITNESS  WHEREOF,  THE  COMPANY  HAS CAUSED  THIS PLAN,  EFFECTIVE  AS OF THE
EFFECTIVE  DATE TO BE EXECUTED BY ITS DULY  AUTHORIZED  OFFICER THIS 26TH DAY OF
MAY, 1999.

                                 MICHAEL BAKER CORPORATION

APPROVED                         /s/ CHARLES I. HOMAN
                                 -----------------------------------------
                                 CHARLES I. HOMAN, CHIEF EXECUTIVE OFFICER

EFFECTIVE DATE                   JANUARY 1, 1999
                                 -----------------------------------------

<PAGE>

      1999 MICHAEL BAKER CORPORATION INCENTIVE COMPENSATION PLAN - SUMMARY

ATTACHMENT 1                                                   FEBRUARY 25, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ELIGIBILITY FOR INCENTIVE COMPENSATION PLAN
--------------------------------------------------------------------------------
<S>                                       <C>
NUMBER OF PARTICIPANTS                    Tier 1:  APPROXIMATELY 48
                                          Tier 2:  APPROXIMATELY 80
                                          Tier 3:  Discretionary
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Participants
<S>                                       <C>
TIER 1
Corporate                                 Executive Management, Officers and
                                          Directors

Business Units                            Business Unit Heads
                                          Selected Staff who support the
                                          functions of the entire Business Unit
                                          (Designated by Business Unit Head)

BUSINESS SEGMENTS-                        PROFIT CENTER MANAGERS WITH GREATER
ENGINEERING AND DESIGN                    THAN $3 MILLION NET REVENUE
                                          RESPONSIBILITY
                                          (DESIGNATED BY BUSINESS UNIT HEAD)

Business Segments-Construction and        Profit Center Managers with greater
Heavy/Highway and Baker Support           than $60 Million gross revenue
Services, Inc.                            responsibility
                                          (Designated by Business Unit Head)

TIER 2
Corporate                                 Selected Functional Unit Managers

Business Units                            Selected Staff who support the
                                          functions of the entire Business Unit
                                          (Designated by Business Unit Head)

Business Segments                         Selected Managers, Other Profit Center
                                          Managers, and selected Senior Project
                                          Managers
                                          (Designated by Business Unit Head)

TIER 3                                    Discretionary
</TABLE>

<PAGE>

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                                       <C>
Participant Recommendation                Corporate participants and Business
                                          Unit Heads (CEO)
                                          Within Business Units (Head of
                                          Business Unit)
--------------------------------------------------------------------------------
Participant Approval                      President and Chief Executive Officer
--------------------------------------------------------------------------------
Participants Added During Year?           Yes, Pro-rata
--------------------------------------------------------------------------------
Ineligible Employees                      Termination for Cause/Voluntary
                                          Resignation
</TABLE>

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCENTIVE COMPENSATION OPPORTUNITY
--------------------------------------------------------------------------------

                                          Tier 1      Tier 2     Tier 3
<S>                                       <C>         <C>        <C>
Total % of Annual Salary                  0-25%       0-15%      Discretionary

First Level (total maximum)               8.333%      5%
                                                                 To Be
                                                                 Determined
Second Level (total maximum)              16.667%     10%

Third Level (total maximum)               25%         15%
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERFORMANCE MEASUREMENT
--------------------------------------------------------------------------------

Corporate  Participants,  Heads of  Business  Units  and  Staff,  Managers  with
multiple  Business  Unit  responsibility,  and all  Environmental  Business Unit
Participants
<S>                                       <C>
Corporate Profitability Goals             50% of Potential Award

Individual Performance Plan Goals         50% of Potential Award
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Business Unit-Segments and Profit Center Managers
<S>                                       <C>
Corporate Profitability Goals             25% of Potential Award

Business Unit Performance Goals           25% of Potential Award

Individual Performance Plan Goals         50% of Potential Award
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
PERFORMANCE GOALS
--------------------------------------------------------------------------------
Corporate Profitability Goals
--------------------------------------------------------------------------------

Audited Corporate Earnings Per Share      % of Payout Based      Earnings
(After All Incentives Have Been Paid)     Upon Corporate Plan    Per Share
                                          -------------------    ---------
<S>                                               <C>             <C>
1st Level (On-Plan Performance)                   33%             $.81
2nd Level (Commendable)                           33%             $.90
3rd Level (Outstanding)                           34%             $.99
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDIVIDUAL PERFORMANCE PLAN GOALS
                                       % of           % of
(Number of goals and % for each        Business       Business
specific goal is to be customized      Unit           Segment        Functional
for each participant based             Participants'  Participants'  Unit
upon Operating Objective,              Individual     Individual     Individual
Marketing driven orientation           Performance    Performance    Performance
and level of accountability. %         Plans          Plans          Plan
is not to be less than 10% for         -------------  -------------  -----------
any goal)
<S>                                        <C>             <C>          <C>
Business Unit or Business Segment          20%             20            *
Contribution to Corporate Overhead
and Profit

New Work Added to the Company              45%             45%           *

Cash Flow Return on Investment (CFROI)     15%              *            *

Accounts Receivables                                       15%           *

Critical Success Factors                   10%             10%          10%

Human Resources Development                10%             10%          10%

*Functional  Unit  Performance  Plans are to be  determined  by Dept.  Heads and
participants with CEO approval
</TABLE>

<PAGE>

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POTENTIAL PAYOUT
--------------------------------------------------------------------------------
                                      Corporate                     Individual
                                      Profitability                 Performance
                                      Goals                         Goals
(% of Annual Salary)                  -------------                 -----------
Tier 1 Corporate and Business
Unit Heads and Staff
<S>                                     <C>                           <C>
1st Level (On-Plan Performance)          4.167%                        4.167%
2nd Level (Commendable)                  8.334%                        8.334%
3rd Level (Outstanding)                 12.500%                       12.500%

                                                      Business
                                      Corporate       Unit          Individual
                                      Profitability   Performance   Performance
                                      Goals           Goals         Goals
                                      -------------   -----------   -----------
Tier 1 Business Unit-Segments
1st Level (On-Plan Performance)          2.084%          2.084%        4.167%
2nd Level (Commendable)                  4.167%          4.167%        8.334%
3rd Level (Outstanding)                  6.250%          6.250%       12.500%
--------------------------------------------------------------------------------
                                      Corporate                     Individual
                                      Profitability                 Performance
(% of Annual Salary)                  Goals                         Goals
                                      -------------                 ------------
Tier 2 Corporate and Business Unit Staff
1st Level (On-Plan Performance)          2.50%                         2.50%
2nd Level (Commendable)                  5.00%                         5.00%
3rd Level (Outstanding)                  7.50%                         7.50%
--------------------------------------------------------------------------------
                                                      Business
                                      Corporate       Unit          Individual
                                      Profitability   Performance   Performance
                                      Goals           Goals         Goals
                                      -------------   -----------   -----------
Tier 2 Business Unit-Segments
1st Level (On-Plan Performance)          1.25%           1.25%         2.50%
2nd Level (Commendable)                  2.50%           2.50%         5.00%
3rd Level (Outstanding)                  3.75%           3.75%         7.50%
--------------------------------------------------------------------------------
</TABLE>

<PAGE>

--------------------------------------------------------------------------------
THRESHOLD
--------------------------------------------------------------------------------

Corporate

Minimum earnings per share for any potential payout              $0.81
on corporate component (after all incentives have been paid)

BUSINESS UNITS AND BUSINESS SEGMENTS
MINIMUM  CONTRIBUTION  TO  OVERHEAD  AND PROFIT  THRESHOLDS  (AFTER  ACCRUAL FOR
INCENTIVE   COMPENSATION   PAYMENTS  AND  INTERNAL  INTEREST  CHARGES)  WILL  BE
IDENTIFIED BY CEO, CFO AND APPROVED BY THE BOARD OF DIRECTORS OF THE COMPANY FOR
1999.
<TABLE>
<CAPTION>

                                  CONTRIBUTION
                                  ------------
<S>                               <C>
CIVIL BUSINESS UNIT               $9,663,704
CIVIL-ENGINEERING                 $8,657,967
BAKER SUPPORT SERVICES, INC.      $1,338,269

BUILDINGS BUSINESS UNIT           $  508,241 (REVISED 6/9/99)
BUILDINGS-DESIGN                  $2,578,937 (REVISED 6/9/99)
BUILDINGS-CONSTRUCTION            $        0 (REVISED 6/9/99)

TRANSPORTATION BUSINESS UNIT      $9,599,484
TRANSPORTATION-ENGINEERING        $8,459,309
TRANSPORTATION-HEAVY & HIGHWAY    $1,444,108

ENVIRONMENTAL BUSINESS UNIT       $2,515,655

ENERGY BUSINESS UNIT              $5,663,434
ENERGY/BAKER MO                   $3,298,016
ENERGY/OTS                        $2,901,659
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                               <C>
TYPE OF PAYOUT                    Cash
--------------------------------------------------------------------------------
FREQUENCY OF PAYOUT               Annually, with payment by the end of
                                  the following year's first quarter
--------------------------------------------------------------------------------
FUNDING                           Pre-funding accrual in the year earned
--------------------------------------------------------------------------------
FORFEITURES                       Allocated toward next year's funding
</TABLE>
--------------------------------------------------------------------------------

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