<PAGE> 1
SIERRA
ASSET MANAGEMENT
The Diversification Solution
<TABLE>
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<S> <C>
President's Letter 1
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1996 Year-in-Review / 1997 Outlook 2
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Individual Portfolio Reviews 7
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Statements of Assets and Liabilities 18
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Statements of Operations 19
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Statements of Changes in Net Assets 20
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Statements of Changes in Net Assets -
Capital Stock Activity 21
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Financial Highlights 22
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Portfolio of Investments 27
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Notes to Financial Statements (Unaudited) 29
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</TABLE>
<PAGE> 2
A MESSAGE FROM THE PRESIDENT
[PHOTO OF F. BRIAN CERINI]
Dear Shareholder:
We are pleased to provide you with the Sierra Asset Management (SAM)
Portfolios Semi-Annual Report for the six-month period ended December 31, 1996.
The past year was an eventful one for both Sierra and the U.S. stock market.
Stocks posted another record year, with both large- and small-cap stocks posting
double-digit gains. From the beginning of 1995 to the end of 1996, the U.S.
stock market provided investors with a cumulative total return of more than 68%,
as measured by the Standard & Poor's Composite Index of 500 Stocks (S&P 500).
Throughout 1996, investors continued to invest new assets into domestic and
international mutual funds. According to the Investment Company Institute (ICI),
net investments into equity funds totaled $233 billion in 1996, well ahead of
the previous single-year asset record of $135 billion set in 1993.
At Sierra, the year was highlighted by our enhancement of the Sierra Asset
Management (SAM) program. In our continuing efforts to increase SAM's
versatility and features, we developed the Sierra Asset Management (SAM)
Portfolios, an enhanced version of the original SAM Strategies. Structured as a
family of mutual funds, the SAM Portfolios are easier to maintain, and offer
additional benefits, such as daily price reporting and simpler year-end tax
reporting. In late 1996, we successfully implemented a one-time, tax-free
exchange from the SAM Strategies into the SAM Portfolios. As of December 31,
1996, there were 14,968 shareholder accounts diversified among the five SAM
Portfolios, and $517 million in total assets under management. As detailed in
the Individual Portfolio Reviews section of this report, each SAM Portfolio has
continued to produce total returns in excess of inflation since inception, while
managing potential risk at levels below that of most non-diversified,
single-asset investments.
Aside from favorable economic fundamentals, a recent driving force in the
stock market has been the growing awareness among individuals of the need to
build assets for retirement. In 1996, members of the 70-million strong baby
boomer generation began turning 50, typically the beginning of peak earning
years. Some analysts predict that the income of this group will rise by as much
as 90% in coming years, which could mean an enormous surge in retirement savings
for the stock market.
The importance of personal retirement savings has also been underscored by
recent tax legislation included in the Small Business Protection Act of 1996.
One important change is an increase in the contributions single-earner couples
can make to tax-deferred individual retirement accounts, effective with the 1997
tax year. In addition, a Federal advisory panel has recommended that the U.S.
Government considers investing a portion of its Social Security revenues in the
stock market to ensure the solvency of the Federal program. This could prove a
boon to the stock market by funneling billions of dollars into equities.
The Dow Jones Industrial Average's record-breaking surge past 6,000 captured
public attention and most likely contributed to record inflows in 1996. Measured
from its low in 1982, the current bull market has averaged a 19% return
annually. This remarkable performance, however, has led to perhaps overconfident
expectations of the stock market among many investors. Yet, these expectations
may not take into account that since 1992, the market's 10-year returns have
been among the highest in 200 years. Additionally, since 1919, there have been
47 years in which the market has fallen 10% or more from the prior year's
high.(1)
Rather than focusing on the market's current strengths or potential
weaknesses, we at Sierra believe that the most effective investment approach is
to diversify your assets and plan and invest for the long term. Developing a
long-term investment strategy and following that strategy consistently over time
are critical to achieving your financial goals in today's quickly changing
environment. As markets change, it is also important to set realistic
expectations and prepare for the market's normal ups and downs by diversifying
your portfolio to control risk.
The SAM Portfolios are designed to provide investors with professional
ongoing investment management and active asset allocation to help manage risk
and achieve specific performance objectives. Each SAM Portfolio invests in
shares of various Sierra Trust Funds which hold hundreds of individual
securities representing one or more asset classes. The mix of funds within your
SAM Portfolio is regularly monitored and periodically adjusted to be best
positioned for the current market environment.
As you plan and invest for the long term, we encourage you to meet at least
annually with your Investment Representative. Regular communications with your
Investment Representative will help ensure that your portfolio remains
appropriately diversified for your current situation and financial goals.
Thank you for selecting the SAM Portfolios. We appreciate the opportunity to
serve your investment needs and remain committed to providing quality
investments and services for your financial future.
Sincerely,
F. Brian Cerini
President
(1) Source: Standard & Poor's. Based on the S&P 500.
1
<PAGE> 3
1996 YEAR-IN-REVIEW / 1997 OUTLOOK
[PHOTO OF STEPHEN C. SCOTT]
Stephen C. Scott
Portfolio Manager
Sierra Investment Services Corporation
Stephen C. Scott, Portfolio Manager
Mr. Scott received his B.A. and M.B.A. from California State University, Long
Beach. He is responsible for providing economic analysis, as well as conducting
investment analysis, and management for the Sierra Asset Management (SAM)
Portfolios. Mr. Scott is also President and Chief Investment Officer of Sierra
Investment Advisors Corporation, the investment advisor to Sierra Trust Funds,
which he joined in 1988. Prior to joining Sierra, Mr. Scott was President &
Chairman of his own firm, SDS Investment Advisors, after serving nine years as
Senior Pension Investment Manager with the Group Pension and Investment Division
of The Equitable Life Assurance Society of the United States.
The U.S. economy continued to grow at a moderate pace in 1996, setting the
stage for continued growth in corporate earnings and higher stock prices through
the year. For most of 1996, it seemed as if it was "all systems go" --employment
growth, income growth, high consumer confidence, political resolution, budget
deficits in retreat, steady monetary policy, new records in stock prices, record
earnings -- all with benign inflation.
Despite these seemingly positive indicators, however, a dichotomy existed in
the domestic economy throughout the second half of 1996. While there was
evidence of growth in areas such as manufacturing and overall employment, the
rate of growth was slowing, and weakness existed in areas such as consumer
spending. This dichotomy incited some volatility in the financial markets,
although year-end results were decidedly positive.
[1996 RETURNS FOR MAJOR ASSET CLASSES - BAR GRAPH CHART]
Large Co. Stocks 23.07%
Small Co. Stocks 17.62%
International Stocks 6.36%
T-Bills 5.28%
Intermediate-Term Bonds 4.06%
Long-Term Bonds 0.14%
Sources: Ibbotson Associates. T-bills represent 90-day U.S. Treasury bills;
Long-Term Bonds are represented by Lehman Brothers Long-Term Government and
Corporate Bond Index; Intermediate-Term Bonds are represented by Lehman Brothers
Intermediate-Term Government and Corporate Bond Index; Small Company Stocks are
represented by Ibbotson Small Company Index; Large Company Stocks are
represented by S&P 500 Composite Index; and International Stocks are represented
by MSCI EAFE Index. Indexes represent unmanaged performance. T-bills are
generally considered the safest securities because they are short-term and offer
a fixed yield at maturity, which is guaranteed by the U.S. Government.
Government bonds are riskier than T-bills because of the longer maturities, yet
they are generally subject to less credit risk, because the interest payments
and return of principal are also backed by the U.S. Government, if held to
maturity. An investor would typically purchase stocks for long-term growth of
capital. However, stocks are often subject to significant price fluctuations and
therefore an investor may have a gain or loss in principal when the shares are
sold. This chart is not intended to represent the performance of any Sierra
Trust Fund.
2
<PAGE> 4
MARKET HIGHLIGHTS
While the past year resulted in greater price movements and greater differences
among various indexes than in recent years, 1996 marked the sixth year of the
U.S. stock market's current bull run. Large-capitalization stocks posted
double-digit gains, with the Standard & Poor's Composite Index of 500 Stocks up
23.07%.(1)
What's behind this year's gains in the stock market? Low inflation, moderate
economic growth, and positive corporate earnings growth were favorable
fundamentals. Inflation, the rising costs of goods and services as measured by
the Consumer Price Index, was 3.3% in 1996, well below its 20-year average.
STOCKS POST ALL-TIME HIGHS
Economic stability created a positive setting in the equity markets,
especially for the larger capitalized companies represented by the S&P 500 and
the Dow Jones Industrial Average. While both the S&P 500 and the broader based
NASDAQ stock market posted at or near all-time highs in 1996, equity investors
had to maintain a longer-term perspective through some volatile periods during
the summer months.
Early in the third quarter, sharp declines in small-cap stocks dropped the
Russell 2000 Index more than 15% through mid-July from its June peak. The S&P
500 also fell, declining about 8% from its high on May 24. This increased
volatility resulted from stronger Gross Domestic Product (GDP) growth in the
first half of 1996, and sharp declines in the unemployment rate (to a low of
5.1% in August) raised concerns that the Federal Reserve would increase
short-term interest rates. At the same time, several large technology companies
reported lower than expected earnings. By the end of August, however, many
large-cap stocks had recovered, while small-cap stocks took the remainder of
1996 to regain lost ground, never reaching previous highs.
ELECTION RESULTS
The stock market reacted positively in November to the 1996 election results,
reflecting a view that the balance of power distributed among the
administration and Congress will lead to a moderate course in government
programs and fiscal policies. Democratic and Republican leaders alike expressed
hope that a budget agreement will be reached in 1997, setting the stage for a
balanced budget early in the 21st century. Market observers will be looking for
constructive budget negotiations in the first half of 1997, with an agreement by
the third quarter. A breakdown in negotiations similar to what occurred in 1995
and early 1996 would likely have a negative impact on both stocks and bonds.
[DOW JONES INDUSTRIAL AVERAGE 12/31/95-12/31/96 - LINE GRAPH]
A visual chart depicts performance of the Dow Jones Industrial Average from
Dec. '95 to Dec. '96.
Source: Bloomberg Business News - The Dow Jones Industrial Average is a
price-weighted average of 30 blue-chip stocks that are generally leaders in
their industry and are listed on the New York Stock Exchange.
BONDS POST MIXED RESULTS
Fixed-income investors who may have hoped for a repeat of 1995, were
disappointed by lower average returns on many bond investments. The U.S.
fixed-income market experienced volatility in 1996, as economic growth raised
concerns that price pressure (inflation) would surely follow. This resulted in
higher interest rates (as rates rise, bond prices fall), with the yield on the
30-year Treasury Bond rising to a high of 7.19% in July, 1996, up from 5.95% at
the end of 1995. Inflationary pressures never surfaced, and yields came down and
remained in the 6.40%-6.80% range for the remainder of the year. With moderate
inflation (3.3% for the year), the yield on the benchmark 30-year government
bond finished at 6.64%.(2)
The U.S. bond markets experienced higher volatility in 1996 due to
uncertainty over potential rate
================================================================================
Given today's environment of low core inflation, high levels of employment and
consumer confidence, and a positive outlook for U.S. export growth, the economy
is well positioned for continued growth with little evidence of any widespread
inflation rising dramatically over 1996 levels.
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(1) Source: Ibbotson Associates. Past performance does not guarantee future
results. The S&P 500 is an unmanaged index representative of the U.S. stock
market. Individuals cannot invest directly in any index.
(2) Source: Bloomberg Business News
3
<PAGE> 5
================================================================================
Fueled by declining interest rates in the industrial nations, all of the major
world regions are experiencing positive economic growth.
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adjustments by the Federal Reserve. The central bank cut short-term interest
rates early in the year by 25 basis points (one-quarter of one percentage
point), but then stayed on the sidelines for the remainder of the year.
Long-term bonds were more negatively impacted by the uncertainty (the Lehman
Brothers Long-Term Government and Corporate Bond Index posted a 0.14% return for
the 12 months ended 12/31/96), while intermediate- and short-term issues fared
better. Treasury bonds maturing in the five to seven year range returned 2.82%
for the year and mortgage-backed issues returned 5.35% for the same time
period.(3)
[1996 STOCK MARKET PERFORMANCE IN KEY FOREIGN MARKETS - BAR GRAPH]
<TABLE>
<S> <C>
Spain 40.05%
Sweden 37.21%
Finland 33.94%
Hong Kong 33.08%
France 21.20%
Germany 13.58%
Japan -15.50%
</TABLE>
Source: MSCI Morgan Stanley Capital International. Currencies have been
converted to U.S. dollars. Investments outside the U.S. are subject to special
risks, including currency fluctuations, the volatility and potential for
political uprisings in many international markets, as well as regulations and
corporate responsibility to shareholders. Returns shown do not reflect any
asset-based charges for management or other expenses.
CATALYSTS OF CHANGE IN THE GLOBAL ECONOMY
Fueled by declining interest rates in the industrial nations, all of the major
world regions are experiencing positive economic growth. Foreign markets gained
an average of 11.30% in local currency terms in 1996, as measured by Morgan
Stanley Capital International Europe, Australia & Far East (EAFE) Index.
However, a strengthening U.S. Dollar during the course of the year reduced those
gains to 6.05% in U.S. Dollar terms.(4)
In Europe, efforts to reduce budget deficits to meet targets set by the
European Monetary Union pushed interest rates lower, supporting moderate
economic growth. The Maastricht Treaty sets a 3% deficit-to-budget target ratio,
and attempts to meet these targets resulted in a more stable currency
environment in 1996. As the chart below shows, many European markets posted
double-digit gains in U.S. Dollar terms, led by Spain (40.05%), Sweden (37.21%)
and Finland (33.94%).
Many emerging markets in Latin America and Asia also showed strong
performances in 1996.
Japan, however, has recently become an area of concern. The world's
second-largest economy enjoyed stronger economic growth early in the year along
with a rising stock market. As growth momentum sputtered in the second half of
the year, however, the Japanese government gave notice that it would allow
market forces greater freedom, through deregulation and cuts in government
spending on programs supporting certain industries. This announcement, combined
with a gloomy government forecast of 1.9% GDP growth for next year, sent
Japanese stocks skidding some 16% from the end of November, 1996 through early
January, 1997.
(3) Source: Lehman Brothers indexes. Past performance is no guarantee of future
results. Government bonds are guaranteed as to principal and interest, although
funds that invest in them are not.
(4) International investors are subject to higher taxation and risks including
political and currency risks. Past performance is no guarantee of future
results.
4
<PAGE> 6
OUTLOOK FOR 1997
Looking ahead, we believe the economy is poised for continued growth in the
2-2.5% range, although speculation regarding the direction of the economy will
likely fuel heightened volatility in the capital markets over short-term
periods. We are slightly more optimistic in our corporate earnings outlook for
the first half of 1997, in spite of relatively weak consumer spending. Strength
in such areas as manufacturing, inventory restocking, business investment, and
export growth should continue to drive the economy forward.
Our interest rate outlook anticipates slightly higher long-term rates in the
first half of the year, with the Federal Reserve poised to raise rates at the
first hard evidence of price pressure stemming from stronger growth.
The yield spread between long-term bonds and underlying inflation finished
the year at 3.4% (high by historical standards). Consequently, at this stage of
the economic cycle, investors are not convinced that inflation will remain
contained in spite of all evidence pointing to benign price pressures. Although
price inflation has not surfaced, the costs of labor and oil have risen, which
adds to the concern for future inflation. A positive offset to these pressures,
however, appears to be the unwillingness of consumers to pay up for goods and
services, and improvements in productivity.
Given today's environment of low core inflation, high levels of employment
and consumer confidence, and a positive outlook for U.S. export growth, the
economy is well positioned for continued growth with little hard evidence of the
potential for widespread inflation. This scenario, combined with the current
interest rate environment, should have a positive impact on both equity and
fixed-income market performance, though negative volatility can be expected when
prices get too far ahead of earnings.
In summary, our 1997 outlook calls for:
- Continued growth with higher expectations during the first half of 1997
- Inflation rising over 1996, but still at a manageable level
- The Federal Reserve's monetary policy holding steady, but with the
potential for a slightly more restrictive posture should GDP growth trend
much beyond 3.5%
- International growth expanding (excluding Japan, which is still contending
with long-term structural problems)
- Corporate profits expanding but at slower rates than 1996
- Domestic stock prices (although highly valued) poised for another positive
year, yet sensitive to slight adjustments in earnings estimates
SAM PORTFOLIOS INVESTMENT STRATEGY
Management of the SAM Portfolios involves an innovative approach that
incorporates extensive fundamental and quantitative economic and capital market
analysis, together with assessments of how these factors could affect the
individual funds within each Portfolio. To help achieve specific performance
objectives, while managing risk within each Portfolio's investment policies, we
analyze each segment of the market to determine probable future performance.
Additionally, we examine the interrelationships among asset classes (funds) to
continuously assess risk and ensure that highly correlated classes are avoided
within each Portfolio.
ALLOCATION RESULTS
Over the last six months of 1996, asset allocations in the SAM Portfolios
focused on shorter-term maturities for fixed-income investments, which helped to
reduce Portfolio risk exposure to higher interest rates. Equity Portfolios, in
general, were slightly overweighted toward domestic equities, with a bias toward
large capitalization stocks. This helped to enhance performance, as blue chip
stocks, such as those found in the Growth and Income Fund, led the market
throughout the second half of the year. Conversely, smaller-company growth
stocks significantly underperformed the market as a whole. This had a negative
performance impact on Portfolios holding the Emerging Growth Fund and Growth
Fund during the fourth quarter of 1996. Exposure to Japan was also significantly
reduced in the Portfolios' international
================================================================================
Overall, the SAM Portfolios' conservative mix of global, diversified equities,
greater emphasis on larger-cap stocks, and focus on short- to intermediate-term
fixed-income investments worked to provide positive performance and reduce
overall Portfolio risk.
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5
<PAGE> 7
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Our investment philosophy will continue to focus on diversification to reduce
the risk of price volatility and overexposure to any one asset class.
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[SAM PORTFOLIO PERFORMANCE (INCEPTION THROUGH DECEMBER 31, 1996) - TABLE]
<TABLE>
<CAPTION>
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SAM Portfolio SAM Performance* Premium Over Inflation**
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<S> <C> <C>
Capital Growth Portfolio 20.03% +17.27%
(inception 5/31/95)
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Growth Portfolio 12.74% +9.78%
(inception 9/30/90)
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Balanced Portfolio 10.26% +7.30%
(inception 9/30/90)
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Value Portfolio 6.96% +4.17%
(inception 3/31/93)
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Income Portfolio 7.50% +4.54%
(inception 9/30/90)
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</TABLE>
* Performance represents average annual total returns for Class A shares
(inception through 12/31/96), unadjusted for the maximum sales charge. The
following is Portfolio performance adjusted for the maximum sales charge (Class
A shares) for the 12-month and 5-year periods ended 12/31/96: Capital Growth
Portfolio 7.96%/NA; Growth Portfolio 5.08%/9.04%; Balanced Portfolio
2.76%/7.27%; Value Portfolio 1.65%/NA; Income Portfolio -2.40%/4.51%.
(Performance for Class B shares will differ -- see Individual Portfolio Reviews
on pages 7 - 17.) The performance of an actual account may differ from that of
the Model and may be higher or lower depending on the purchase date, purchase
amount, and the share price of the Portfolio.
** Source: Bloomberg Business News. Inflation (CPI) based on Portfolios'
inception date through 12/31/96.
Note: SAM Portfolios' performance shown prior to the November 1, 1996 asset
conversion date (the date on which the majority of existing SAM clients
voluntarily exchanged into the SAM Portfolios) represents the performance of the
Sierra Asset Management Account ("SAM Account"), a discretionary asset
allocation service that invested in the Sierra Trust Funds. The SAM Account was
not registered as an investment company under the Investment Company Act of 1940
("Act") and therefore, was not subject to certain investment restrictions that
the Act imposes. If the SAM Account had been registered under the Act, its
performance may have differed significantly. Past performance is not an
indication of future performance.
equity component (International Growth Fund), and we expect to gradually reduce
our weighting in this market in 1997.
Overall, the SAM Portfolios' conservative mix of global, diversified
equities, greater emphasis on larger-cap stocks, and focus on short- to
intermediate-term, fixed-income investments worked to provide positive
performance and reduce overall risk. While lagging performance of smaller
company growth stocks impacted short-term SAM equity performance, we believe
that over the long-term, a diversified mix of equity and fixed-income
investments will help to both reduce overall risk, and provide strong long-term
performance.
For more specific information on individual SAM Portfolio performance and
investment management strategies, see the accompanying section.
[THE POWER OF DIVERSIFICATION - 1/1/87 - 12/31/96 GRAPH CHART]
<TABLE>
<CAPTION>
Risk
Return (Standard Deviation)
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<S> <C> <C>
T-Bills 5.74% 0.52%
Intermediate-Term Bonds 7.91% 3.77%
Long-Term Bonds 9.50% 8.77%
Diversified Portfolio 11.73% 8.75%
Stocks 15.28% 16.61%
</TABLE>
Source: Ibbotson Associates. Stocks are represented by the Standard & Poor's
Index of 500 stocks (S&P 500). Long-Term Bonds and Intermediate-Term Bonds are
represented by the Lehman Brothers Long-Term Government and Corporate Bond Index
and the Lehman Brothers Intermediate-Term Government and Corporate Bond Index,
respectively. T-bills are represented by 90-day U.S. Treasury bills. Diversified
Portfolio represents a portfolio consisting of 40% stocks, 40% Long-Term Bonds,
and 20% Intermediate-Term Bonds. Past performance of these indices is not a
guarantee of future results, and this chart is not intended to reflect the past
or future performance of any SAM Portfolio.
T-bills are generally considered the safest securities because they are
short-term and offer a fixed yield at maturity, which is guaranteed by the U.S.
Government. Government bonds are riskier than T-bills because of the longer
maturities, yet they are generally subject to less credit risk, because the
interest payments and return of principal are also backed by the U.S.
Government, if held to maturity. An investor would typically purchase stocks for
long-term growth of capital. However, stocks are often subject to significant
price fluctuations and therefore an investor may have a gain or loss in
principal when the shares are sold.
IMPORTANCE OF ACTIVE ASSET ALLOCATION
The Sierra Asset Management Portfolios are managed using a strategic asset
allocation approach that also takes advantage of changing market environments,
in a manner consistent with each Portfolio's long-term objectives. Our
investment philosophy will continue to focus on diversification to reduce the
risk of price volatility and overexposure to any one asset class.
6
<PAGE> 8
INDIVIDUAL PORTFOLIO REVIEWS
UNDERSTANDING THE ENCLOSED CHARTS AND PERFORMANCE FIGURES
In order to help you understand the Sierra Asset Management (SAM) Portfolios'
investment performance, we have included the following discussions along with
graphs that compare the Portfolios performance with certain capital market
benchmarks. The benchmarks are a blended mix of capital market indices that is
intended to represent a proxy for Portfolio performance. Descriptions of the
indices used are as follows:
- - The SALOMON BROTHERS U.S. 90-DAY T-BILL INDEX measures performance of United
States Treasury Bills with maturities of three months.
- - The LEHMAN BROTHERS MUTUAL FUND (1-5) GOVERNMENT/CORPORATE INDEX is
represented by all U.S. Government agency and Treasury securities and all
investment grade corporate debt securities with maturities of one to five
years.
- - The LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX includes 15- and 30-year
fixed rate securities backed by mortgage pools of the Government National
Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC),
and Federal National Mortgage Association (FNMA). Balloons are included in
the index; graduated payment mortgages (GPMs), buydowns, manufactured home
mortgages, and graduated equity mortgages (GEMs) are not.
- - The LEHMAN BROTHERS BAA LONG-TERM CORPORATE BOND INDEX includes all publicly
issued, fixed rate, nonconvertible BAA rated, dollar-denominated,
SEC-registered corporate debt with maturity greater than ten years.
- - The STANDARD & POOR'S 500 COMPOSITE INDEX is a capitalization-weighted index
of 500 stocks designed to measure performance of the broad domestic economy
and all economic sectors. It is an unmanaged index which assumes reinvestment
of all dividends, and does not reflect any asset-based charges or other
expenses.
- - The RUSSELL 2000 GROWTH INDEX measures the performance of the companies with
higher price-to-book ratios and higher forecasted growth values within the
Russell 2000 Index. The Russell 2000 Index measures the performance of the
2,000 smallest companies (approximately 10% of the total market
capitalization) of the Russell 3000 Index. The Russell 3000 Index is
comprised of the 3,000 largest U.S. companies based on total market
capitalization, which represents approximately 98% of the investable U.S.
equity market.
- - The MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EUROPE, AUSTRALIA, AND THE
FAR EAST PLUS EMERGING MARKETS FREE INDEX is a market capitalization weighted
index composed of companies representative of the market structure of 48
developed and emerging market countries. The Index is calculated with gross
dividends reinvested and in United States Dollars.
Generally, an index represents the market value of an unmanaged group of
securities, regarded by investors as representative of a particular market. An
index does not reflect any asset-based charges for investment management or
other expenses. Total return is used to measure a Portfolio's performance and
reflects both changes in the value of the price of the Portfolio's shares as
well as any income dividend and/or capital gain distributions made by the
Portfolio during the period. Past performance is not a guarantee of future
results. A mutual fund's share price and investment return will vary with market
conditions, and the principal value of an investment when you sell your shares
may be more or less than the original cost.
The 30-day SEC yield is the yield calculated pursuant to a standard formula
required by the Securities and Exchange Commission ("SEC") for performance
advertisement purposes, and does not imply any endorsement or recommendation by
the SEC.
Yield indicates the investment income per share as a percentage of the offering
price, whereas total return includes both net investment income and changes in
the value of the shares as a percentage of the initial investment.
================================================================================
TO OUR ASSET ALLOCATION CLIENTS
Welcome to the Sierra Asset Management Portfolios.
We are pleased to provide you with an overview of our five asset allocation
portfolios, each engineered to meet your individual investment needs.
This report includes a reiteration of the goal and objective of each
Portfolio, a review of the performance, and highlights of the investment
strategy incorporated during the six-month period ended December 31, 1996.
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7
<PAGE> 9
SAM CAPITAL GROWTH PORTFOLIO
GOAL & OBJECTIVE
The CAPITAL GROWTH PORTFOLIO is designed for the investor seeking long-term
growth of capital. Its goal is to generate a premium above the rate of inflation
over a period of at least five years. The Capital Growth Portfolio is managed
similarly to the SAM Account Aggressive Growth Strategy, a discretionary asset
allocation service that invested in the SIERRA Trust Funds. The long-term goal
of the Strategy was to generate a minimum return in excess to the S&P 500, over
a five-year period, although over short-term periods, significant differences
may exist between the Portfolio and the S&P 500.(1)
PORTFOLIO - CAP GROW
<TABLE>
<S> <C> <C> <C>
May 95 9436 10000 10000
Jun 9790 10375 10235
Jul 10293 10908 10576
Aug 10372 10992 10604
Sep 10654 11291 11049
Oct 10334 10951 11010
Nov 10706 11346 11494
Dec 95 10986 11657 11707
Jan 11168 11849 12110
Feb 11506 12208 12226
Mar 11809 12530 12343
Apr 12144 12886 12525
May 12390 13146 12848
Jun 12063 12799 12901
Jul 11209 11893 12327
Aug 11729 12444 12588
Sep 12231 12977 13295
Oct 12082 12819 13660
Nov 12676 13449 14696
Dec 96 12585 13353 14408
</TABLE>
The performance of the Class B Shares will be less than indicated by the lines
shown above for the Class A Shares, based on the difference in sales loads and
fees paid by Class B shareholders.
(1) The stated goals may or may not be met and are in no way a guarantee.
PERFORMANCE REVIEW
We are pleased to report that since inception, the SAM CAPITAL GROWTH PORTFOLIO
has continued to produce total returns in excess of inflation, while managing
potential risk at levels below that of most non-diversified, single-asset
investments. From the Portfolio's inception (May 31, 1995) through December 31,
1996, the Capital Growth Portfolio (Class A Shares) has advanced 20.03% on an
average annual total return basis, or 15.63% adjusted for the maximum sales
charge. For the 12-month period ended December 31, 1996, the Portfolio's total
return was 14.55%, or 7.96% adjusted for the maximum sales charge. For
additional information, including Class B Share performance, see the
accompanying chart and notes.++
++ All performance shown prior to the November 1, 1996 asset conversion date
(the date on which the majority of existing SAM clients voluntarily exchanged
into the new SAM Portfolios) for the SIERRA Asset Management Portfolios
represents the performance of the SIERRA Asset Management Account ("SAM
Account"), a discretionary asset allocation service that invested in the SIERRA
Trust Funds. The SAM Account was not registered as an investment company under
the Investment Company Act of 1940 ("Act") and therefore, was not subject to
certain restrictions that the Act imposes. If the SAM Account had been
registered under the Act, its performance may have differed significantly.
* The Capital Growth Portfolio's benchmark is a capital market index that is
intended to represent a proxy for Portfolio performance. The benchmark
allocation is as follows: 100% S&P 500. For additional information regarding the
individual indices, see page 7. Source: Ibbotson Associates. Past investment
performance does not guarantee future performance. The returns shown for the
Portfolio assume reinvestment of all dividends/distributions by the shareholder.
For the period November 1, 1996 to December 31, 1996, the Advisor (SIERRA
Investment Services Corporation) waived its management fee and absorbed other
expenses, the Administrator (SIERRA Fund Administration Corporation) waived a
portion of its management fee, and the Custodian reduced fees by credits. Prior
to November 1, 1996, only the Custodian reduced fees by credits. In the absence
of the waivers and absorption of other expenses, or fees reduced by credits,
total return would have been lower.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/96 1 YEAR 5 YEAR SINCE INCEPTION
------ ------ ---------------
(May 31, 1995)
<S> <C> <C> <C>
CLASS A SHARES
Fund (not adjusted for sales charge) 14.55% N/A 20.03%
Fund (adjusted for the maximum 5.75% sales charge) 7.96% N/A 15.63%
Capital Market Benchmark* 23.07% N/A 25.94%
- ------------------------------------------------------------------------------------------------------
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/96
1 YEAR 5 YEAR SINCE INCEPTION
------ ------ ---------------
(May 31, 1995)
<S> <C> <C> <C>
CLASS B SHARES
Fund (not adjusted for sales charge) 13.78% N/A 19.20%
Fund (adjusted for the maximum 5% CDSC) 8.78% N/A 16.91%++++
Capital Market Benchmark* 23.07% N/A 25.94%
++++ Adjusted for the maximum 4% CDSC for shares held since inception
- ------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 10
CAPITAL GROWTH PORTFOLIO'S INVESTMENT STRATEGY
During the six-month period ended December 31, 1996, the Capital Growth
Portfolio remained fully invested and appropriately allocated to take advantage
of market and economic conditions. Despite the fact that interest rates remained
relatively stable, the markets adjusted to expectations of higher growth, and
yields rose along with stock prices. The Portfolio was diversified among
different classes of both foreign and domestic holdings with 20% in the Sierra
International Growth Fund, and 80% in the three SIERRA domestic stock funds. The
Portfolio's domestic equity component was weighted towards larger-capitalized
companies in the SIERRA Growth and Income Fund (a 35% weight) and the mid-cap
companies in the SIERRA Growth Fund (a 25% weight), which greatly outperformed
the smaller-capitalized growth companies found in the SIERRA Emerging Growth
Fund (a 20% allocation) in the fourth quarter of 1996. Although the small-cap
portion of the Portfolio contributed negative results for the period, the
majority weighting in mid- and large-cap holdings resulted in positive portfolio
performance for the period, but lagged results we should otherwise expect
relative to the S&P 500 over longer-term periods.
OVER THE PERIOD, OUR SAM CAPITAL GROWTH PORTFOLIO STRATEGY WAS TO:
- - Maintain a fully invested portfolio diversified both domestically and
internationally (over 26% of the portfolio) to capture maximum returns
expected from global growth, while reducing volatility relative to
single asset-class investments
- - Continue to weight the Portfolio towards larger-capitalized companies
as prospects for domestic growth strengthen
PORTFOLIO ALLOCATION RESULTS
The net result of the Portfolio's diverse equity weighting, was a reduction in
overall risk, though the small-cap portion detracted from overall performance.
Given our overall outlook for the financial markets, we felt that it would be
inappropriate to be overly aggressive with Portfolio allocations throughout the
period. The Portfolio's relatively conservative mix of diversified equities
during the last six months of 1996 proved to be constructive in shielding the
Portfolio from the extremely volatile periods, which we expect to continue in
1997. Additionally, the Portfolio's active management helped to contribute to
its long-term performance. With our current economic outlook calling for a
slight uptick in growth during the first half of 1997, we feel the Portfolio
remains well positioned to achieve its goals. Therefore, no portfolio allocation
changes were made during the fourth quarter of 1996.
The SAM Capital Growth Portfolio continues to be managed in order to maximize
the benefits of active asset allocation and reduce the risks associated with
overexposure to any one asset class. SIERRA will continue to position the
Portfolio to best respond to changing market conditions, while striving to meet
its long-term goal of capital growth.
[MUTUAL FUND ALLOCATION AS OF DECEMBER 31, 1996 -- PIE CHART]
<TABLE>
<S> <C>
Growth Fund 25%
International Growth Fund 20%
Growth & Income Fund 35%
Emerging Growth Fund 20%
</TABLE>
[ASSET CLASS DIVERSIFICATION AS OF DECEMBER 31, 1996 -- PIE CHART]
<TABLE>
<S> <C>
Repurchase Agreements 4.67%
U.S. Equity Small Cap 14.97%
U.S. Equity Mid Cap 25.36%
U.S. Equity Large Cap 28.68%
Foreign Stocks 26.32%
</TABLE>
9
<PAGE> 11
SAM GROWTH PORTFOLIO
GOAL AND OBJECTIVE
The GROWTH PORTFOLIO is designed for the investor seeking primarily long-term
growth of capital and some income. Its goal is to generate a premium over the
rate of inflation over a minimum period of five years. The Growth Portfolio is
managed similarly to the SAM Account Growth Strategy, a discretionary asset
allocation service that invested in the SIERRA Trust Funds. The goal of the
Strategy was to generate a return of 7% or more above the rate of inflation.(1)
[LINE GRAPH]
PORTFOLIO - GROWTH
<TABLE>
<S> <C> <C> <C>
Sep 90 9456 10000 10000
9645 10199 10295
9860 10427 10490
Dec 9981 10555 10691
10317 10911 11013
10857 11482 11619
10870 11495 11654
10977 11608 11719
11226 11872 11980
Jun 10795 11416 11604
11162 11804 11971
11338 11991 12103
11459 12118 12215
11702 12375 12375
11446 12105 12094
Dec 91 12266 12971 12823
12411 13125 12750
12518 13238 12749
12103 12799 12475
12149 12848 12609
12436 13152 12830
Jun 12269 12975 12636
12378 13090 12823
12450 13166 12884
12409 13123 12944
12358 13068 12849
12643 13370 13080
Dec 92 12805 13550 13213
12989 13737 13305
13239 14001 13449
13624 14408 13811
13709 14498 13948
14024 14831 14180
Jun 14028 14835 14202
14128 14940 14296
14728 15576 14722
14770 15620 14667
15068 15935 14906
14694 15540 14596
Dec 93 15194 16088 14936
15752 16659 15417
15422 16309 15228
14803 15655 14787
14856 15711 14950
14709 15555 15032
Jun 14380 15207 14914
14804 15656 15185
15208 16083 15577
14966 15827 15360
15196 16071 15594
14677 15521 15210
Dec 94 14667 15510 15317
14606 15447 15366
14841 15694 15653
15066 15932 16050
15353 16236 16403
15706 16610 16711
Jun 16204 17137 16893
16938 17913 17377
17093 18076 17321
17492 18498 17689
17064 18045 17577
17542 18551 18020
Dec 95 17977 19023 18351
18232 19293 18657
18755 19847 18754
19154 20268 18911
19646 20789 19208
19960 21123 19388
Jun 19590 20730 19427
18377 19446 18908
19121 20234 19160
19779 20930 19738
19500 20635 19906
20097 21266 20664
Dec 96 19990 21154 20505
</TABLE>
The performance of the Class B Shares will be less than indicated by the lines
shown above for the Class A Shares, based on the difference in sales loads and
fees paid by Class B shareholders.
(1) The stated goals may or may not be met and are in no way a guarantee.
(2) Annual rate of inflation: 2.96%. Source: Bloomberg Business News
PERFORMANCE REVIEW
We are pleased to report that since inception, the SAM GROWTH PORTFOLIO has
continued to produce total returns in excess of inflation, while managing
potential risk at levels below that of most non-diversified, single-asset
investments. From the Portfolio's inception (September 30, 1990) through
December 31, 1996, the Growth Portfolio (Class A Shares) has advanced 12.74% on
an average annual total return basis, or 11.72% adjusted for the maximum sales
charge. For the 12-month period ended December 31, 1996, the Portfolio's total
return was 11.20%, or 5.08% adjusted for the maximum sales charge. Since
inception, the Portfolio has outperformed its benchmark by 0.56%, as well as
outperformed SAM's inflation-adjusted goal, exceeding the annual rate of
inflation by 9.78%(2). For additional information, including Class B Share
performance, see the accompanying chart and notes.++
++ All performance shown prior to the November 1, 1996 asset conversion date
(the date on which the majority of existing SAM clients voluntarily exchanged
into the new SAM Portfolios) for the SIERRA Asset Management Portfolios
represents the performance of the SIERRA Asset Management Account ("SAM
Account"), a discretionary asset allocation service that invested in the SIERRA
Trust Funds. The SAM Account was not registered as an investment company under
the Investment Company Act of 1940 ("Act") and therefore, was not subject to
certain restrictions that the Act imposes. If the SAM Account had been
registered under the Act, its performance may have differed significantly.
* The Growth Portfolio's benchmark is a blended mix of capital market indices
that is intended to represent a proxy for Portfolio performance. The benchmark
allocation is as follows: 35% S&P 500, 20% MSCI EAFE + Emerging Markets, 20%
Lehman Bros. Mutual Fund (1-5) Gov/Corp Index, 20% Salomon Bros. 90-day T-Bills,
and 5% Russell 2000 Growth. For additional information regarding the individual
indices, see page 7. Source: Ibbotson Associates. Past investment performance
does not guarantee future performance. The returns shown for the Portfolio
assume reinvestment of all dividends/distributions by the shareholder.
For the period November 1, 1996 to December 31, 1996, the Advisor (SIERRA
Investment Services Corporation) waived its management fee and absorbed other
expenses, the Administrator (SIERRA Fund Administration Corporation) waived a
portion of its management fee, and Custodian reduced fees by credits. Prior to
November 1, 1996, the Advisor (SIERRA Investment Advisors Corporation),
Administrator and Distributor waived a portion of their management or
distribution fees, the Advisor and Administrator absorbed other expenses, and
the Custodian reduced fees by credits. In the absence of the waivers, absorption
of other expenses, or fees reduced by credits, total return would have been
lower.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/96 1 YEAR 5 YEAR SINCE INCEPTION
------ ------ ---------------
(September 30, 1990)
CLASS A SHARES
<S> <C> <C> <C>
Fund (not adjusted for sales charge) 11.20% 10.28% 12.74%
Fund (adjusted for the maximum 5.5% sales charge) 5.08% 9.04% 11.72%
Capital Market Benchmark* 11.74% 9.84% 12.18%
- -----------------------------------------------------------------------------------------------------
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/96 1 YEAR 5 YEAR SINCE INCEPTION
------ ------ ---------------
(June 30, 1994)
CLASS B SHARES
<S> <C> <C> <C>
Fund (not adjusted for sales charge) 10.41% N/A 13.32%
Fund (adjusted for the maximum 5% CDSC) 5.41% N/A 12.32%++++
Capital Market Benchmark* 11.74% N/A 13.58%
- -----------------------------------------------------------------------------------------------------
</TABLE>
++++Adjusted for the maximum 3% CDSC for shares held since inception
10
<PAGE> 12
GROWTH PORTFOLIO'S INVESTMENT STRATEGY
During the six-month period ended December 31, 1996, the Growth Portfolio
remained allocated to take advantage of market and economic conditions. Despite
the fact that interest rates remained relatively stable, the markets adjusted to
expectations of higher growth, and yields rose along with stock prices. The
Portfolio was properly allocated in anticipation of this type of volatility,
with a fixed-income component entirely weighted in shorter to intermediate-term
investments (10% in the Sierra Global Money Fund and 10% in the Sierra U.S.
Government Fund). This weighting contributed to overall performance of the
Portfolio fixed-income allocations. Additionally, the equity component of the
Portfolio was spread among different classes of both foreign and domestic
holdings, with 20% in the SIERRA International Growth Fund, and 60% in the three
SIERRA domestic stock funds. This domestic equity diversification, however
reduced Portfolio performance relative to its benchmark, as larger-capitalized
companies in the SIERRA Growth and Income Fund (only a 10% weight) and the
SIERRA Growth Fund (a 25% weight) greatly outperformed smaller-capitalized
companies found in the SIERRA Emerging Growth Fund (a 25% allocation) in the
fourth quarter of 1996. Because of the disparity of results in the U.S. equity
market in the second half of 1996, the overall performance of the Portfolio was
hampered.
OVER THE PERIOD, OUR SAM GROWTH PORTFOLIO STRATEGY WAS TO:
- - Maintain diversification with an 80% allocation in equities (20%
international exposure) and a 20% allocation in fixed-income assets to
capture returns expected from global growth, while reducing volatility
as economic growth continues
- - Focus on a diversified mix of equity classes with representation from
small-, mid- , and large-cap companies, and foreign holdings
[MUTUAL FUND ALLOCATION AS OF DECEMBER 31, 1996 - PIE CHART]
International Growth Fund 20%
Global Money Fund 10%
Growth & Income Fund 10%
Growth Fund 25%
Emerging Growth Fund 25%
U.S. Government Fund 10%
[ASSET CLASS DIVERSIFICATION AS OF DECEMBER 31, 1996 - PIE CHART]
Foreign Stocks 26.22%
Repurchase Agreements 13.91%
U.S. Govt. Mortgages & Agencies 8.12%
Other 1.57%
Treasuries 0.31%
U.S. Equity Small Cap 16.73%
U.S. Equity Large Cap 14.32%
U.S. Equity Mid Cap 18.82%
PORTFOLIO ALLOCATION RESULTS
The net result of the Portfolio's allocations in shorter maturity, fixed-income
assets and a diverse equity weighting, was a reduction in overall risk, but a
drag on relative overall performance. Given our overall outlook for the
financial markets, we felt that it would be inappropriate to be overly
aggressive with Portfolio allocations throughout the period. The Portfolio's
conservative mix of diversified equities combined with a focus on short- to
intermediate-term bonds proved to be constructive in shielding the Portfolio
from the extremely volatile period, which we expect to continue in 1997.
Additionally, the Portfolio's active management help to contribute to the
long-term outperformance of its benchmark and stated inflation goals. With our
current economic outlook calling for a slight uptick in growth during the first
half of 1997, we feel the Portfolio remains well positioned to achieve its
goals. Therefore, no portfolio allocation changes were made during the fourth
quarter of 1996.
The SAM Growth Portfolio continues to be managed in order to maximize the
benefits of active asset allocation and reduce the risks associated with
overexposure to any one asset class. SIERRA will continue to position the
Portfolio to best respond to changing market conditions, while striving to meet
its long-term goal of capital growth.
11
<PAGE> 13
SAM BALANCED PORTFOLIO
GOAL & OBJECTIVE
The BALANCED PORTFOLIO is designed for the investor seeking long-term growth of
capital and income. Its goal is to generate a premium over the rate of inflation
over a minimum period of three to five years. The Balanced Portfolio is managed
similarly to the SAM Account Balanced Strategy, a discretionary asset allocation
service that invested in the SIERRA Trust Funds. The goal of the Strategy was to
generate a return of 5% or more above the rate of inflation.(1)
PORTFOLIO - BALANCED
Sep 90 9487 10000 10000
9687 10211 10286
9805 10335 10384
Dec 9922 10458 10537
10185 10736 10734
10587 11160 11076
10492 11059 11071
10607 11180 11156
10766 11349 11301
Jun 10492 11059 11137
10777 11360 11378
10935 11527 11489
11052 11649 11647
11164 11768 11783
11009 11604 11694
Dec 91 11649 12279 12104
11575 12201 12014
11619 12247 12021
11349 11962 11866
11444 12063 11987
11707 12340 12200
Jun 11608 12236 12160
11696 12329 12268
11815 12454 12405
11762 12398 12457
11608 12235 12333
11800 12438 12416
Dec 92 11936 12581 12529
12087 12741 12635
12303 12969 12787
12634 13318 13025
12809 13502 13201
13038 13743 13310
Jun 13064 13770 13357
13175 13887 13443
13595 14330 13694
13629 14366 13660
13852 14601 13796
13525 14257 13612
Dec 93 13870 14620 13842
14326 15101 14153
14031 14790 14037
13486 14215 13751
13437 14163 13818
13300 14019 13878
Jun 13044 13749 13858
13442 14169 14064
13720 14462 14252
13457 14185 14096
13606 14342 14221
13225 13940 14028
Dec 94 13229 13945 14099
13276 13993 14191
13549 14282 14406
13720 14462 14645
14002 14759 14895
14448 15229 15167
Jun 14672 15476 15245
15118 15936 15487
15271 16097 15489
15542 16382 15694
15403 16236 15704
15822 16678 15957
Dec 95 16083 16975 16191
16278 17181 16383
16391 17300 16369
16460 17373 16432
16707 17633 16547
16828 17762 16583
Jun 16692 17617 16707
16135 17029 16558
16451 17363 16650
16927 17864 16971
16993 17934 17152
17562 18535 17550
Dec 17444 18411 17460
The performance of the Class B Shares will be less than indicated by the lines
shown above for the Class A Shares, based on the difference in sales loads and
fees paid by Class B shareholders.
(1) The stated goals may or may not be met and are in no way a guarantee.
(2) Annual rate of inflation: 2.96%. Source: Bloomberg Business News
PERFORMANCE REVIEW
We are pleased to report that since inception, the SAM Balanced Portfolio has
continued to produce total returns in excess of inflation, while managing
potential risk at levels below that of most non-diversified, single-asset
investments. From the Portfolio's inception (September 30, 1990) through
December 31, 1996, the Balanced Portfolio (Class A Shares) has advanced 10.26%
on an average annual total return basis, or 9.31% adjusted for the maximum sales
charge. For the 12-month period ended December 31, 1996, the Portfolio's total
return was 8.46%, or 2.76% adjusted for the maximum sales charge. Since
inception, the Portfolio outperformed its benchmark by 0.93%, as well as
outperformed SAM's inflation-adjusted goal, exceeding the annual rate of
inflation by 7.30% over the same time period.(2) For additional information,
including Class B Share performance, see the accompanying chart and notes.++
++ All performance shown prior to the November 1, 1996 asset conversion date
(the date on which the majority of existing SAM clients voluntarily exchanged
into the new SAM Portfolios) for the SIERRA Asset Management Portfolios
represents the performance of the SIERRA Asset Management Account ("SAM
Account"), a discretionary asset allocation service that invested in the SIERRA
Trust Funds. The SAM Account was not registered as an investment company under
the Investment Company Act of 1940 ("Act") and therefore, was not subject to
certain restrictions that the Act imposes. If the SAM Account had been
registered under the Act, its performance may have differed significantly.
* The Balanced Portfolio's benchmark is a blended mix of capital market indices
that is intended to represent a proxy for Portfolio performance. The benchmark
allocation is as follows: 25% Lehman Bros Mutual Fund (1-5) Gov/Corp Index, 25%
Salomon Bros. 90-day T-Bills, 20% Lehman Bros Mortgage Index, 15% S&P 500, and
15% MSCI EAFE + Emerging Markets. For additional information regarding the
individual indices, see page 7. Source:Ibbotson Associates. Past investment
performance does not guarantee future performance. The returns shown for the
Portfolio assume reinvestment of all dividends/distributions by the shareholder.
For the period November 1, 1996 to December 31, 1996, the Advisor (SIERRA
Investment Services Corporation) waived its management fee and absorbed other
expenses, the Administrator (SIERRA Fund Administration Corporation) waived a
portion of its management fee, and Custodian reduced fees by credits. Prior to
November 1, 1996, the Advisor (SIERRA Investment Advisors Corporation),
Administrator and Distributor waived a portion of their management or
distribution fees, the Advisor and Administrator absorbed other expenses, and
the Custodian reduced fees by credits. In the absence of the waivers, absorption
of other expenses, or fees reduced by credits, yield and total return would have
been lower.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/96 1 YEAR 5 YEAR SINCE INCEPTION
------ ------ --------------------
(September 30, 1990)
CLASS A SHARES
<S> <C> <C> <C>
Fund (not adjusted for sales charge) 8.46% 8.44% 10.26%
Fund (adjusted for the maximum 5.25% sales charge) 2.76% 7.27% 9.31%
Capital Market Benchmark* 7.83% 7.60% 9.33%
- -----------------------------------------------------------------------------------------------------
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/96 1 YEAR 5 YEAR SINCE INCEPTION
------ ------ ---------------
(June 30, 1994)
CLASS B SHARES
<S> <C> <C> <C>
Fund (not adjusted for sales charge) 7.65% N/A 11.63%
Fund (adjusted for the maximum 5% CDSC) 2.65% N/A 10.61%++++
Capital Market Benchmark* 7.83% N/A 9.68%
++++Adjusted for the maximum 3% CDSC for shares held since inception
- -----------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 14
BALANCED PORTFOLIO'S INVESTMENT STRATEGY
During the six-month period ended December 31, 1996, the Balanced Portfolio was
positioned in anticipation of market volatility. Although interest rates
stabilized in the fourth quarter of 1996, expectations of increased growth
caused yields to rise along with stock prices. The Portfolio's diversification
took advantage of these market and economic conditions by weighting the
fixed-income component towards shorter to intermediate-term investments (10% in
the SIERRA Global Money Fund and 25% in the SIERRA U.S. Government Fund). The
result of this strategy was to create an overall Portfolio duration (a measure
of interest rate sensitivity) of 2.27 years, shielding it from interest rate
volatility. The Portfolio also benefited from a nearly 22% weight in
mortgage-backed securities, which performed very well in the fourth quarter as
interest rates stabilized. Additionally, the equity component of the Portfolio
was diversified among different classes of both foreign and domestic holdings
with 20% in the SIERRA International Growth Fund, and 35% in the three SIERRA
domestic stock funds. This equity diversification helped to enhance overall
Portfolio performance, as larger-capitalized companies in the SIERRA Growth and
Income Fund (a 15% weight) and the SIERRA Growth Fund (a 15% weight) greatly
outperformed smaller-capitalized companies found in the SIERRA Emerging Growth
Fund (only a 5% allocation) in the fourth quarter of 1996.
OVER THE PERIOD, OUR SAM BALANCED PORTFOLIO STRATEGY WAS TO:
- - Maintain balanced diversification with a 55% allocation in equities
(20% international exposure) and a 45% allocation in fixed-income
assets to capture the overall return potential of equities, while
managing risk and reducing volatility as economic growth continues
- - Focus on a conservative mix of short- and intermediate-term
fixed-income investments along with a diversified mix of equity
investments
[MUTUAL FUND ALLOCATION AS OF DECEMBER 31, 1996 - PIE CHART]
Growth & Income Fund 15%
Emerging Growth Fund 5%
U.S. Government Fund 25%
International Growth Fund 20%
Corporate Income Fund 10%
Growth Fund 15%
Global Money Fund 10%
[ASSET CLASS DIVERSIFICATION AS OF DECEMBER 31, 1996 - PIE CHART]
Repurchase Agreements 12.61%
U.S. Govt. Mortgages & Agencies 21.90%
Other 3.93%
Treasuries 0.95%
Corporates 8.05%
U.S. Equity Small Cap 5.15%
U.S. Equity Mid Cap 11.45%
Foreign Stocks 22.32%
U.S. Equity Large Cap 13.64%
PORTFOLIO ALLOCATION RESULTS
The net result of the Portfolio's allocations in shorter maturity, fixed-income
assets and an equity weighting in larger-cap stocks, was not only a reduction in
overall risk, but an enhancement of Portfolio performance. Given our overall
outlook for the financial markets, we felt that it would be inappropriate to be
overly aggressive with Portfolio allocations throughout the period. The
Portfolio's diversified mix of equities, combined with a focus on short- to
intermediate-term bonds proved to be constructive in shielding the Portfolio
from current and potential upcoming market volatility. Additionally, the
Portfolio's strategic positioning over the period contributed to the
outperformance of its benchmark and stated inflation goals. With our current
economic outlook calling for a slight uptick in growth during the first half of
1997, we feel the Portfolio remains well positioned to achieve its goals.
Therefore, no portfolio allocation changes were made during the fourth quarter
of 1996.
The SAM Balanced Portfolio continues to be managed in order to match the risks
of current market conditions against the needs of achieving specific long-term
objectives. SIERRA will continue to position the Portfolio to best respond to
changing market conditions, while striving to meet its long-term goals of
capital growth and relative stability of principal.
13
<PAGE> 15
SAM VALUE PORTFOLIO
GOAL & OBJECTIVE
The VALUE PORTFOLIO is designed for the investor seeking long-term capital
preservation and income, with some incremental growth of principal. Its goal is
to generate a premium over the rate of inflation over a minimum period of three
to five years. The Value Portfolio is managed similarly to the SAM Account Value
Strategy, a discretionary asset allocation service that invested in SIERRA Trust
Funds. The goal of the strategy was to generate a return of 4% or more above the
rate of inflation.(1)
PORTFOLIO - VALUE
Mar 9550 10000 10000
9528 9977 10022
9666 10121 10052
Jun 9793 10255 10117
9838 10301 10135
10065 10539 10238
Sep 10087 10562 10255
10195 10676 10300
10069 10544 10290
Dec 10164 10643 10339
10374 10863 10430
10157 10636 10363
Mar 94 9839 10302 10260
9715 10173 10253
9588 10039 10291
Jun 9461 9907 10284
9684 10140 10399
9765 10225 10473
Sep 9639 10093 10426
9667 10123 10471
9576 10028 10424
Dec 9544 9994 10476
9684 10140 10609
9915 10382 10770
Mar 95 10012 10483 10853
10180 10659 10967
10585 11083 11168
Jun 10674 11177 11249
10808 11318 11321
10960 11476 11389
Sep 11121 11645 11494
11129 11654 11565
11362 11897 11699
Dec 11546 12090 11797
11586 12131 11911
11493 12035 11899
Mar 96 11485 12026 11912
11502 12044 11943
11530 12074 11994
Jun 11575 12120 12078
11467 12007 12067
11539 12083 12126
Sep 11783 12338 12289
12008 12574 12437
12355 12937 12618
Dec 96 12289 12869 12596
The performance of the Class B Shares will be less than indicated by the lines
shown above for the Class A Shares, based on the difference in sales loads and
fees paid by Class B shareholders.
(1) The stated goals may or may not be met and are in no way a guarantee.
(2) Annual rate of inflation: 2.79%. Source: Bloomberg Business News
PERFORMANCE REVIEW
We are pleased to report that since inception, the SAM VALUE PORTFOLIO has
continued to produce total returns in excess of inflation, while managing
potential risk at levels below that of most non diversified, single-asset
investments. From the Portfolio's inception (March 31, 1993) through December
31, 1996, the Value Portfolio (Class A Shares) has advanced 6.96% on an average
annual total return basis, or 5.65% adjusted for the maximum sales charge. For
the 12-month period ended December 31, 1996, the Portfolio's total return was
6.44%, or 1.65% adjusted for the maximum sales charge. Since inception, the
Portfolio has outperformed its benchmark by 0.61%, as well as outperformed SAM's
inflation-adjusted goal, exceeding the annual rate of inflation by 4.17% over
the same time period.(2) For additional information, including Class B Share
performance, see the accompanying chart and notes.++
++ All performance shown prior to the November 1, 1996 asset conversion date
(the date on which the majority of existing SAM clients voluntarily exchanged
into the new SAM Portfolios) for the SIERRA Asset Management Portfolios
represents the performance of the SIERRA Asset Management Account ("SAM
Account"), a discretionary asset allocation service that invested in the SIERRA
Trust Funds. The SAM Account was not registered as an investment company under
the Investment Company Act of 1940 ("Act") and therefore, was not subject to
certain restrictions that the Act imposes. If the SAM Account had been
registered under the Act, its performance may have differed significantly.
* The Value Portfolio's benchmark is a blended mix of capital market indices
that is intended to represent a proxy for Portfolio performance. The benchmark
allocation is as follows: 40% Lehman Bros Mutual Fund (1-5) Gov/Corp Index, 40%
Salomon Bros 90-day T-Bills, 10% Lehman Bros Mortgage Index, and 10% S&P 500.
For additional information regarding the individual indices, see page 7. Source:
Ibbotson Associates. Past investment performance does not guarantee future
performance. The returns shown for the Portfolio assume reinvestment of all
dividends/distributions by the shareholder.
For the period November 1, 1996 to December 31, 1996, the Advisor (SIERRA
Investment Services Corporation) waived its management fee and absorbed other
expenses, the Administrator (SIERRA Fund Administration Corporation) waived a
portion of its management fee, and Custodian reduced fees by credits. Prior to
November 1, 1996, the Advisor (SIERRA Investment Advisors Corporation), and
Administrator waived a portion of their management fees, the Advisor and
Administrator absorbed other expenses, and the Custodian reduced fees by
credits. In the absence of the waivers, absorption of other expenses, or fees
reduced by credits, yield and total return would have been lower.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/96 1 YEAR 5 YEAR SINCE INCEPTION
------ ------ -----------------
(March 31, 1993)
CLASS A SHARES
<S> <C> <C> <C>
Fund (not adjusted for sales charge) 6.44% N/A 6.96%
Fund (adjusted for the maximum 4.5% sales charge) 1.65% N/A 5.65%
Capital Market Benchmark* 6.77% N/A 6.35%
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/96 1 YEAR 5 YEAR SINCE INCEPTION
------ ------ -----------------
(June 30, 1994)
CLASS B SHARES
<S> <C> <C> <C>
Fund (not adjusted for sales charge) 5.64% N/A 10.26%
Fund (adjusted for the maximum 5% CDSC) 0.65% N/A 9.22%++++
Capital Market Benchmark* 6.77% N/A 8.45%
++++Adjusted for the maximum 3% CDSC for shares held since inception
- ----------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 16
VALUE PORTFOLIO'S INVESTMENT STRATEGY
During the six-month period ended December 31, 1996, the Value Portfolio was
positioned to take advantage of market and economic conditions as well as
capture the returns associated with our long-term average mix. Despite the fact
that interest rates remained relatively stable during the last half of the year,
the markets adjusted to expectations of higher growth, and yields rose along
with stock prices. The Portfolio was properly allocated in anticipation of this
type of volatility, with a fixed-income component weighted towards shorter- to
intermediate-term investments (5% in the SIERRA Global Money Fund, 15% in the
SIERRA Short Term Global Government Fund, 10% in the SIERRA Short Term High
Quality Bond Fund, and 35% in the SIERRA U.S. Government Fund). The result of
this strategy was to create an overall Portfolio duration (a measure of interest
rate sensitivity) of 3.71 years, shielding it from the price volatility that
occurred when rates rose. The Portfolio also benefited from a nearly 35% weight
in mortgage-backed securities, which performed very well in the fourth quarter
as interest rates stabilized. The over 10% allocation in foreign bonds aided
overall performance as interest rates declined worldwide, especially in the
industrialized countries of Europe. Additionally, the equity component of the
Portfolio consisted of a 20% weight in the SIERRA Growth and Income Fund. This
equity diversification helped to enhance overall Portfolio performance, as the
larger-capitalized companies in the Fund outperformed all other equity classes
in the period.
OVER THE PERIOD, OUR SAM VALUE PORTFOLIO STRATEGY WAS TO:
- - Maintain a 20% allocation in equities and a 80% allocation in
fixed-income assets to create stability of principal, to generate
income, and to receive the capital appreciation of equities
- - Focus on a conservative mix of short- and intermediate-term
fixed-income investments along with a larger than normal weight in U.S.
equities
[MUTUAL FUND ALLOCATION AS OF DECEMBER 31, 1996 - PIE CHART]
Short Term Global Govt. Fund 15%
Global Money Fund 5%
U.S. Government Fund 35%
Short Term High Quality Bond Fund 10%
Corporate Income Fund 15%
Growth & Income Fund 20%
[ASSET CLASS DIVERSIFICATION AS OF DECEMBER 31, 1996 - PIE CHART]
Foreign Stocks 0.63%
Repurchase Agreements 6.25%
U.S. Govt. Mortgages & Agencies 34.63%
Asset-Backed 3.37%
Other 7.18%
Treasuries 2.63%
Corporates 16.62%
Foreign Bonds 10.19%
U.S. Equity Small Cap 0.67%
U.S. Equity Mid Cap 6.30%
U.S. Equity Large Cap 11.54%
PORTFOLIO ALLOCATION RESULTS
The net result of the Portfolio's allocations in shorter maturity, fixed-income
assets and an equity weighting in larger-cap stocks, was not only a reduction in
overall risk, but an enhancement of portfolio performance. Given our overall
outlook for the financial markets, we felt that it would be inappropriate to be
overly aggressive with Portfolio allocations throughout the period. The
Portfolio's conservative large-cap equity weight combined with a focus on short-
to intermediate-term bonds proved to be constructive in shielding the Portfolio
from current and potential upcoming market volatility. Additionally, the
Portfolio's strategic positioning over the period contributed to the
outperformance of its benchmark and stated inflation goals. With our current
economic outlook calling for a slight uptick in growth during the first half of
1997, we feel the Portfolio remains well positioned to achieve its goals.
Therefore, no portfolio allocation changes were made during the fourth quarter
of 1996.
The Portfolio continues to be managed in order to maximize the benefits of
active asset allocation and reduce the risks associated with overexposure to any
one asset class. SIERRA will continue to position the Portfolio to best respond
to changing market conditions, while striving to meet its long-term goals of
capital preservation, with some added total return growth potential.
15
<PAGE> 17
SAM INCOME PORTFOLIO
GOAL & OBJECTIVE
The INCOME PORTFOLIO is designed for the investor seeking long-term capital
preservation and high levels of income. Its goal is to generate a premium above
the rate of inflation over a period of at least three to five years. The Income
Portfolio is managed similarly to the SAM Account Fixed Strategy, a
discretionary asset allocation service that invested in SIERRA Trust Funds. The
goal of the strategy was to generate a return of 3% or more above the rate of
inflation.(1)
PORTFOLIO - INCOME
<TABLE>
<S> <C> <C> <C>
Sep 90 9550 10000 10000
9556 10007 10074
9715 10173 10177
Dec 9864 10328 10284
9919 10386 10370
10083 10558 10458
10182 10661 10531
10336 10823 10616
10401 10891 10681
Jun 10406 10896 10730
10550 11047 10825
10794 11302 10951
10940 11455 11065
11075 11596 11155
11184 11711 11234
Dec 91 11492 12033 11387
11377 11913 11365
11464 12004 11420
11390 11928 11421
11458 11997 11485
11691 12241 11597
Jun 11858 12416 11692
12117 12688 11810
12192 12767 11885
12289 12868 11966
12103 12673 11912
12119 12690 11929
Dec 92 12310 12890 12024
12530 13120 12141
12769 13371 12244
12841 13447 12284
12924 13533 12343
13012 13625 12360
Jun 13245 13869 12464
13350 13979 12507
13585 14225 12612
13574 14214 12637
13686 14331 12678
13553 14191 12664
Dec 93 13604 14245 12712
13815 14466 12811
13488 14123 12741
13013 13627 12637
12818 13422 12603
12729 13329 12615
Jun 12654 13250 12634
12922 13531 12771
12874 13481 12808
12680 13277 12758
12644 13240 12785
12662 13259 12793
Dec 94 12584 13177 12858
12751 13352 13005
13004 13616 13175
13072 13688 13254
13246 13870 13374
13784 14433 13625
Jun 13800 14450 13705
13745 14393 13741
13966 14624 13848
14083 14746 13938
14284 14957 14034
14487 15170 14157
Dec 95 14681 15373 14277
14753 15448 14359
14446 15127 14299
14315 14990 14298
14211 14880 14303
14182 14851 14333
Jun 14335 15011 14448
14375 15053 14503
14332 15007 14537
14556 15242 14682
14869 15569 14859
15099 15811 14999
Dec 96 15004 15711 14983
</TABLE>
The performance of the Class B Shares will be less than indicated by the lines
shown above for the Class A Shares, based on the difference in sales loads and
fees paid by Class B shareholders.
(1) The stated goals may or may not be met and are in no way a guarantee.
(2) Annual rate of inflation: 2.96%. Source: Bloomberg Business News
PERFORMANCE REVIEW
We are pleased to report that since inception, the SAM Income Portfolio has
continued to produce total returns in excess of inflation, while managing
potential risk at levels below that of most non-diversified, single-asset
investments. From the Portfolio's inception (September 30, 1990) through
December 31, 1996, the Income Portfolio (Class A Shares) has advanced 7.50% on
an average annual total return basis, or 6.71% adjusted for the maximum sales
charge. For the 12-month period ended December 31, 1996, the Portfolio's total
return was 2.20%, or -2.40% adjusted for the maximum sales charge. Since
inception, the Portfolio outperformed its benchmark by 0.82%, as well as
outperformed SAM's inflation-adjusted goal, exceeding the annual rate of
inflation by 4.54% over the same time period. (2) For additional information,
including Class B Share performance, see the accompanying chart and notes.++
++ All performance shown prior to the November 1, 1996 asset conversion date
(the date on which the majority of existing SAM clients voluntarily exchanged
into the new SAM Portfolios) for the SIERRA Asset Management Portfolios
represents the performance of the SIERRA Asset Management Account ("SAM
Account"), a discretionary asset allocation service that invested in the SIERRA
Trust Funds. The SAM Account was not registered as an investment company under
the Investment Company Act of 1940 ("Act") and therefore, was not subject to
certain restrictions that the Act imposes. If the SAM Account had been
registered under the Act, its performance may have differed significantly.
* The Income Portfolio's benchmark is a blended mix of capital market indices
that is intended to represent a proxy for Portfolio performance. The benchmark
allocation is as follows: 50% Salomon Bros. 90-day T-Bills, 30% Lehman Bros
Mutual Fund (1-5) Gov/Corp Index, 10% Lehman Bros Mortgage Index, and 10% Lehman
Bros BAA LT Corporate Bond Index. For additional information regarding the
individual indices, see page 7. Source: Ibbotson Associates. Past investment
performance does not guarantee future performance. The returns shown for the
Portfolio assume reinvestment of all dividends/distributions by the shareholder.
For the period November 1, 1996 to December 31, 1996, the Advisor (SIERRA
Investment Services Corporation) waived its management fee and absorbed other
expenses, the Administrator (SIERRA Fund Administration Corporation) waived a
portion of its management fee, and Custodian reduced fees by credits. Prior to
November 1, 1996, the Advisor (SIERRA Investment Advisors Corporation),
Administrator and Distributor waived a portion of their management or
distribution fees, the Advisor and Administrator absorbed other expenses, and
the Custodian reduced fees by credits. In the absence of the waivers, absorption
of other expenses, or fees reduced by credits, yield and total return would have
been lower.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/96 1 YEAR 5 YEAR SINCE INCEPTION
------ ------ --------------------
(September 30, 1990)
CLASS A SHARES
<S> <C> <C> <C>
Fund (not adjusted for sales charge) 2.20% 5.48% 7.50%
Fund (adjusted for the maximum 4.5% sales charge) -2.40% 4.51% 6.71%
Capital Market Benchmark* 4.95% 5.64% 6.68%
- --------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/96 1 YEAR 5 YEAR SINCE INCEPTION
------ ------ ---------------
(June 30, 1994)
CLASS B SHARES
<S> <C> <C> <C>
Fund (not adjusted for sales charge) 1.44% N/A 6.27%
Fund (adjusted for the maximum 5% CDSC) -3.34% N/A 5.17%++++
Capital Market Benchmark* 4.95% N/A 7.06%
++++Adjusted for the maximum 3% CDSC for shares held since inception
- --------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 18
INCOME PORTFOLIO'S INVESTMENT STRATEGY
During the six-month period ended December 31, 1996, the Income Portfolio was
well positioned to take advantage of market and economic conditions. Despite the
fact that interest rates remained relatively stable, the markets experienced
some very volatile periods, as the markets adjusted to expectations of higher
growth, yields rose along with stock prices. The Portfolio was properly
allocated in anticipation of this type of volatility, with a portfolio weighted
towards shorter to intermediate-term investments (5% in the SIERRA Global Money
Fund, 30% in the SIERRA Short Term High Quality Bond Fund, and 35% in the SIERRA
U.S. Government Fund). The result of this strategy was to create a overall
portfolio duration (a measure of interest rate sensitivity) of 5.12 years,
shielding it from interest rate volatility. The Portfolio also benefited from a
nearly 42% weight in mortgage-backed securities, which performed very well in
the fourth quarter. Mortgage-backed securities tend to exhibit strong relative
performance in periods of relatively stable interest rates, as there is a lesser
degree of prepayment risk (due to a smaller quantity of refinanced mortgages)
and the mortgages generate a higher level of income than Treasuries. The
Portfolio is also managed for income as the 30% weight in the SIERRA Corporate
Income Fund helped bring the overall SEC Yield as of December 31, 1996 to 6.21%.
OVER THE PERIOD, OUR SAM INCOME PORTFOLIO STRATEGY WAS TO:
- - Maintain a diversified mix of 239 fixed-income investments weighted
towards the short- and intermediate-term to provide stability of
principal while generating a high level of income
- - Continue to hold over 40% of the portfolio in mortgage-backed
securities to enhance overall yield
[MUTUAL FUND ALLOCATION AS OF DECEMBER 31, 1996 - PIE CHART]
Global Money Fund 5%
Short Term High Quality Bond Fund 30%
U.S. Government Fund 35%
Corporate Income Fund 30%
[ASSET CLASS DIVERSIFICATION AS OF DECEMBER 31, 1996 - PIE CHART]
Foreign Bonds 1.30%
Repurchase Agreements 5.77%
U.S. Govt. Mortgages & Agencies 41.47%
Asset-Backed 7.68%
Other 10.44%
Treasuries 2.56%
Corporates 30.78%
PORTFOLIO ALLOCATION RESULTS
The net result of the Portfolio's allocations in shorter maturity, fixed-income
assets was not only a reduction in overall risk, but an enhancement of portfolio
performance. Given our overall outlook for the financial markets, we felt that
it would be inappropriate to be overly aggressive with Portfolio allocations
throughout the period. The Portfolio's focus on short- to intermediate-term
bonds proved to be constructive in shielding the Portfolio from current and
potential upcoming market volatility, while providing competitive levels of
income. Additionally, the Portfolio's strategic positioning over the period
contributed to the outperformance of its benchmark and stated inflation goals.
With our current economic outlook calling for a slight uptick in growth during
the first half of 1997, we feel the Portfolio remains well positioned to achieve
its goals. Therefore, no portfolio allocation changes were made during the
fourth quarter of 1996.
The Portfolio continues to be managed in order to maximize the benefits of
active asset allocation and reduce the risks associated with overexposure to any
one asset class. SIERRA will continue to position the Portfolio to best respond
to changing market conditions, while striving to meet its long-term goals of
capital preservation with a high level of income.
17
<PAGE> 19
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
SIERRA ASSET MANAGEMENT PORTFOLIOS
DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
CAPITAL
GROWTH GROWTH BALANCED VALUE INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value (Note 2)
See portfolios of investments (a)............ $29,094,086 $258,270,085 $185,943,302 $ 20,027,887 $19,756,309
Cash........................................... 86 592 689 929 454
Dividends and/or interest receivable........... 28 235,746 428,106 127,967 122,953
Receivable for Portfolio shares sold........... 335,800 2,003,743 967,370 144,214 240,614
Unamortized organization and offering costs
(Note 8)..................................... 55,504 55,504 55,504 55,504 55,504
Receivable from investment advisor............. 3,463 20,373 16,529 4,806 4,581
Prepaid expenses and other assets.............. -- 16 -- -- --
----------- ----------- ------------ ------------ -----------
Total Assets................................. 29,488,967 260,586,059 187,411,500 20,361,307 20,180,415
----------- ----------- ------------ ------------ -----------
LIABILITIES:
Payable for Portfolio shares redeemed.......... -- 222,613 15,692 12,146 44,866
Administration fee payable (Note 3)............ 12,591 89,556 65,534 6,959 6,924
Shareholder servicing and distribution fees
payable (Note 5)............................. 17,315 122,370 81,606 7,788 6,704
Dividends payable.............................. 11,334 25,595 113,052 18,085 59,828
Accrued legal and audit fees................... 13,199 32,357 28,700 8,215 7,529
Custodian fees payable (Note 3)................ 148 200 160 167 206
Accrued transfer agent fees.................... 3,220 19,353 12,124 1,418 1,296
Accrued Trustees' fees and expenses (Note 4)... 217 1,983 1,464 160 160
Accrued registration and filing fees........... 5,265 47,509 36,996 4,663 5,311
Accrued expenses and other payables............ 2,587 23,648 17,450 1,905 1,909
----------- ----------- ------------ ------------ -----------
Total Liabilities............................ 65,876 585,184 372,778 61,506 134,733
----------- ----------- ------------ ------------ -----------
NET ASSETS..................................... $29,423,091 $260,000,875 $187,038,722 $ 20,299,801 $20,045,682
=========== =========== ============ ============ ===========
(A) INVESTMENTS, AT COST (NOTE 2).............. 31,134,084 271,135,040 191,305,807 20,310,402 19,764,805
NET ASSETS CONSIST OF:
Distributions in excess of net investment
income....................................... $ (20,871) $ (21,386) $ (23,269) $ (16,683) $ (16,309)
Accumulated net realized gain on investments
sold......................................... 1,150,455 5,335,712 3,379,664 347,712 9,096
Net unrealized depreciation of investments..... (2,039,998) (12,864,955) (5,362,505) (282,515) (8,496)
Paid-in capital................................ 30,333,505 267,551,504 189,044,832 20,251,287 20,061,391
----------- ----------- ------------ ------------ -----------
Total Net Assets............................. $29,423,091 $260,000,875 $187,038,722 $ 20,299,801 $20,045,682
=========== =========== ============ ============ ===========
NET ASSETS:
Class A Shares................................. $ 7,751,860 $131,276,774 $108,229,206 $ 13,875,334 $15,295,785
=========== =========== ============ ============ ===========
Class B Shares................................. $21,671,231 $128,724,101 $ 78,809,516 $ 6,424,467 $ 4,749,897
=========== =========== ============ ============ ===========
SHARES OUTSTANDING:
Class A Shares................................. 746,698 12,896,604 10,486,460 1,339,551 1,503,415
=========== =========== ============ ============ ===========
Class B Shares................................. 2,091,906 12,660,943 7,635,382 620,068 466,834
=========== =========== ============ ============ ===========
CLASS A SHARES:
Net asset value per share of beneficial
interest outstanding*........................ $ 10.38 $ 10.18 $ 10.32 $ 10.36 $ 10.17
=========== =========== ============ ============ ===========
Maximum sales charge........................... 5.75% 5.50% 5.25% 4.50% 4.50%
Maximum offering price per share of beneficial
interest outstanding......................... $ 11.01 $ 10.77 $ 10.89 $ 10.85 $ 10.65
=========== =========== ============ ============ ===========
CLASS B SHARES:
Net asset value and offering price per share of
beneficial interest outstanding*............. $ 10.36 $ 10.17 $ 10.32 $ 10.36 $ 10.17
=========== =========== ============ ============ ===========
</TABLE>
- ---------------------
* Redemption price per share is equal to Net Asset Value less any applicable
contingent deferred sales charge.
See Notes to Financial Statements.
18
<PAGE> 20
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
SIERRA ASSET MANAGEMENT PORTFOLIOS
FOR THE PERIOD ENDED DECEMBER 31, 1996* (UNAUDITED)
<TABLE>
<CAPTION>
CAPITAL
GROWTH GROWTH BALANCED VALUE INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends......................................... $ 1,611,570 $12,903,792 $ 6,308,239 $ 377,930 $ 216,459
Interest.......................................... 4,347 20,773 13,821 1,155 897
------- -------- ---------- ----------- ----------
Total Investment Income......................... 1,615,917 12,924,565 6,322,060 379,085 217,356
------- -------- ---------- ----------- ----------
EXPENSES:
Investment advisory fee (Note 3).................. 6,241 54,435 40,744 4,470 4,476
Administration fee (Note 3)....................... 20,804 181,451 135,814 14,901 14,921
Custodian fees (Note 3)........................... 588 574 570 543 548
Legal and audit fees.............................. 16,126 70,428 57,292 11,681 11,231
Trustees' fees and expenses (Note 4).............. 433 2,483 1,932 206 179
Amortization of organization and offering costs
(Note 8)........................................ 17,658 17,658 17,658 17,658 17,658
Registration and filing fees...................... 6,490 48,539 38,026 5,715 6,311
Shareholder reports expense....................... 3,317 32,140 23,850 2,745 2,800
Transfer agent fees............................... 7,878 31,424 20,950 5,114 4,944
Other............................................. -- 500 500 -- --
------- -------- ---------- ----------- ----------
Subtotal........................................ 79,535 439,632 337,336 63,033 63,068
Shareholder servicing and distribution fees (Note
5):
Class A Shares.................................. 2,809 45,455 38,919 4,930 5,732
Class B Shares.................................. 30,374 181,082 115,950 10,080 6,916
Fees waived and/or expenses absorbed by investment
advisor and administrator (Note 3).............. (50,435) (170,687) (134,357) (40,164) (39,367)
Fees reduced by credits allowed by the custodian
(Note 3)........................................ (376) (186) (285) (172) (89)
------- -------- ---------- ----------- ----------
Total Expenses................................ 61,907 495,296 357,563 37,707 36,260
------- -------- ---------- ----------- ----------
NET INVESTMENT INCOME............................. 1,554,010 12,429,269 5,964,497 341,378 181,096
------- -------- ---------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS (Notes 2 and 6):
Net realized gain on investments during the
period.......................................... 1,561 -- 507 20,472 9,102
Capital gain distributions received............... 1,150,455 5,335,712 3,379,816 327,611 --
Net change in unrealized depreciation of
investments during the period .................. (2,039,998) (12,864,955) (5,362,505) (282,515) (8,496)
------- -------- ---------- ----------- ----------
Net Realized and Unrealized Gain/(Loss) on
Investments..................................... (887,982) (7,529,243) (1,982,182) 65,568 606
------- -------- ---------- ----------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... $ 666,028 $ 4,900,026 $ 3,982,315 $ 406,946 $ 181,702
======= ======== ========== =========== ==========
</TABLE>
- ---------------------
* The Portfolio's Class A Shares and Class B Shares commenced operations on July
25, 1996.
See Notes to Financial Statements.
19
<PAGE> 21
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
SIERRA ASSET MANAGEMENT PORTFOLIOS
FOR THE PERIOD ENDED DECEMBER 31, 1996* (UNAUDITED)
<TABLE>
<CAPTION>
CAPITAL
GROWTH GROWTH BALANCED VALUE INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Net investment income............................ $ 1,554,010 $ 12,429,269 $ 5,964,497 $ 341,378 $ 181,096
Net realized gain on investments sold during the
period......................................... 1,561 -- 507 20,472 9,102
Capital gain distributions received.............. 1,150,455 5,335,712 3,379,816 327,611 --
Net unrealized depreciation of investments during
the period..................................... (2,039,998) (12,864,955) (5,362,505) (282,515) (8,496)
----------- ----------- ------------ ------------ -----------
Net increase in net assets resulting from
operations..................................... 666,028 4,900,026 3,982,315 406,946 181,702
Distributions to shareholders from:
Net investment income:
Class A Shares............................... (409,353) (6,335,092) (3,516,970) (248,777) (155,625)
Class B Shares............................... (1,165,528) (6,115,563) (2,470,796) (109,284) (41,780)
Distributions to shareholders from:
Net realized gains:
Class A Shares............................... (406) -- (389) (256) (5)
Class B Shares............................... (1,155) -- (270) (115) (1)
Net increase in net assets from Portfolio share
transactions:
Class A Shares............................... 7,961,517 134,961,989 109,320,244 13,837,783 15,300,013
Class B Shares............................... 22,351,988 132,569,515 79,704,588 6,393,504 4,741,378
----------- ----------- ------------ ------------ -----------
Net increase in net assets....................... 29,403,091 259,980,875 187,018,722 20,279,801 20,025,682
NET ASSETS:
Beginning of period.............................. 20,000 20,000 20,000 20,000 20,000
----------- ----------- ------------ ------------ -----------
End of period.................................... $ 29,423,091 $260,000,875 $187,038,722 $ 20,299,801 $20,045,682
=========== =========== ============ ============ ===========
Distributions in excess of net investment income
at end of period............................... $ (20,871) $ (21,386) $ (23,269) $ (16,683) $ (16,309)
=========== =========== ============ ============ ===========
</TABLE>
- ---------------------
* The Portfolio's Class A Shares and Class B Shares commenced operations on July
25, 1996.
See Notes to Financial Statements.
20
<PAGE> 22
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS --
CAPITAL STOCK ACTIVITY
SIERRA ASSET MANAGEMENT PORTFOLIOS
FOR THE PERIOD ENDED DECEMBER 31, 1996* (UNAUDITED)
<TABLE>
<CAPTION>
CAPITAL
GROWTH GROWTH BALANCED VALUE INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
AMOUNT
CLASS A:
Sold........................................ $ 8,072,426 $132,056,914 $108,650,073 $ 14,614,213 $17,027,019
Issued as reinvestment of dividends......... 406,975 6,297,875 3,427,399 229,920 69,344
Redeemed.................................... (517,884) (3,392,800) (2,757,228) (1,006,350) (1,796,350)
----------- ------------ ------------ ------------ -----------
Net increase................................ $ 7,961,517 $134,961,989 $109,320,244 $ 13,837,783 $15,300,013
=========== ============ ============ ============ ===========
CLASS B:
Sold........................................ $21,376,503 $128,397,459 $ 79,387,473 $ 7,166,132 $ 4,913,027
Issued as reinvestment of dividends......... 1,130,781 6,029,475 2,439,618 104,152 24,101
Redeemed.................................... (155,296) (1,857,419) (2,122,503) (876,780) (195,750)
----------- ------------ ------------ ------------ -----------
Net increase................................ $22,351,988 $132,569,515 $ 79,704,588 $ 6,393,504 $ 4,741,378
=========== ============ ============ ============ ===========
SHARES
CLASS A:
Sold........................................ 753,509 12,592,322 10,414,036 1,412,598 1,671,382
Issued as reinvestment of dividends......... 39,283 622,406 331,606 22,122 6,786
Redeemed.................................... (47,094) (319,124) (260,182) (96,169) (175,753)
----------- ------------ ------------ ------------ -----------
Net increase................................ 745,698 12,895,604 10,485,460 1,338,551 1,502,415
=========== ============ ============ ============ ===========
CLASS B:
Sold........................................ 1,995,886 12,237,787 7,597,392 692,541 482,615
Issued as reinvestment of dividends......... 109,360 598,688 236,178 10,029 2,359
Redeemed.................................... (14,340) (176,532) (199,188) (83,502) (19,140)
----------- ------------ ------------ ------------ -----------
Net increase................................ 2,090,906 12,659,943 7,634,382 619,068 465,834
=========== ============ ============ ============ ===========
</TABLE>
- ---------------------
* The Portfolio's Class A Shares and Class B Shares commenced operations on July
25, 1996.
21
<PAGE> 23
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
CAPITAL GROWTH PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
----------- -----------
PERIOD PERIOD
ENDED ENDED
12/31/96* 12/31/96*
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Net asset value, beginning of period............................................................ $ 10.00 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................................................................... 0.64 0.59
Net realized and unrealized gain on investments................................................. 0.36# 0.38#
------- -------
Total from investment operations................................................................ 1.00 0.97
LESS DISTRIBUTIONS:
Dividends from net investment income............................................................ (0.62) (0.61)
Distributions from net realized capital gains................................................... (0.00)+++ (0.00)+++
------- -------
Total distributions............................................................................. (0.62) (0.61)
------- -------
Net asset value, end of period.................................................................. $ 10.38 $ 10.36
======= =======
TOTAL RETURN+................................................................................... 10.00% 9.69%
======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)............................................................ $ 7,752 $21,671
Ratio of operating expenses to average net assets++............................................. 0.94%** 1.69%**
Ratio of net investment income to average net assets............................................ 37.90%** 37.15%**
Portfolio turnover rate......................................................................... 0% 0%
Ratio of operating expenses to average net assets without fees reduced by credits allowed by the
custodian++................................................................................... 0.95%** 1.70%**
Ratio of operating expenses to average net assets without fee waivers, expenses absorbed and/or
fees reduced by credits allowed by the custodian++............................................ 2.16%** 2.91%**
Net investment income per share without fee waivers, expenses absorbed and/or fees reduced by
credits allowed by the custodian.............................................................. $ 0.62 $ 0.57
</TABLE>
- ---------------------
* The Portfolio's Class A Shares and Class B Shares commenced operations on
July 25, 1996.
** Annualized.
+ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges. The total returns would have
been lower if certain fees had not been waived and/or expenses absorbed by
the investment advisor and/or administrator or if fees had not been reduced
by credits allowed by the custodian.
++ The Portfolio will indirectly bear its prorated share of expenses of the
Underlying Funds.
+++ Amount represents less than $0.01.
# The amount shown may not accord with the change in the aggregate gains and
losses of portfolio securities due to timing of sales and redemptions of
Portfolio shares.
22
<PAGE> 24
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
GROWTH PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
----------- -----------
PERIOD PERIOD
ENDED ENDED
12/31/96* 12/31/96*
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Net asset value, beginning of period............................................................ $ 10.00 $ 10.00
-------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................................................................... 0.54 0.52
Net realized and unrealized gain on investments................................................. 0.18# 0.17#
-------- --------
Total from investment operations................................................................ 0.72 0.69
LESS DISTRIBUTIONS:
Dividends from net investment income............................................................ (0.54) (0.52)
-------- --------
Total distributions............................................................................. (0.54) (0.52)
-------- --------
Net asset value, end of period.................................................................. $ 10.18 $ 10.17
======== ========
TOTAL RETURN+................................................................................... 7.23% 6.96%
======== ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)............................................................ $131,277 $128,724
Ratio of operating expenses to average net assets++............................................. 0.99%** 1.74%**
Ratio of net investment income to average net assets............................................ 34.62%** 33.87%**
Portfolio turnover rate......................................................................... 0% 0%
Ratio of operating expenses to average net assets without fees reduced by credits allowed by the
custodian++................................................................................... 0.99%** 1.74%**
Ratio of operating expenses to average net assets without fee waivers, expenses absorbed and/or
fees reduced by credits allowed by the custodian++............................................ 1.46%** 2.21%**
Net investment income per share without fee waivers, expenses absorbed and/or fees reduced by
credits allowed by the custodian.............................................................. $ 0.53 $ 0.51
</TABLE>
- ---------------------
<TABLE>
<S> <C>
* The Portfolio's Class A Shares and Class B Shares commenced operations on July 25, 1996.
** Annualized.
+ Total return represents aggregate total return for the period indicated and does not reflect any applicable sales charges.
The total returns would have been lower if certain fees had not been waived and/or expenses absorbed by the investment
advisor and/or administrator or if fees had not been reduced by credits allowed by the custodian.
++ The Portfolio will indirectly bear its prorated share of expenses of the Underlying Funds.
# The amount shown may not accord with the change in the aggregate gains and losses of portfolio securities due to timing of
sales and redemptions of Portfolio shares.
</TABLE>
23
<PAGE> 25
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
BALANCED PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
----------- -----------
PERIOD PERIOD
ENDED ENDED
12/31/96* 12/31/96*
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Net asset value, beginning of period............................................................ $ 10.00 $ 10.00
-------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................................................................... 0.41 0.38
Net realized and unrealized gain on investments................................................. 0.32# 0.32#
-------- -------
Total from investment operations................................................................ 0.73 0.70
LESS DISTRIBUTIONS:
Dividends from net investment income............................................................ (0.41) (0.38)
Distributions from net realized capital gains................................................... (0.00)+++ (0.00)+++
-------- -------
Total distributions............................................................................. (0.41) (0.38)
-------- -------
Net asset value, end of period.................................................................. $ 10.32 $ 10.32
======== =======
TOTAL RETURN+................................................................................... 7.37% 7.02%
======== =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)............................................................ $ 108,229 $78,810
Ratio of operating expenses to average net assets++............................................. 1.00%** 1.75%**
Ratio of net investment income to average net assets............................................ 22.28%** 21.53%**
Portfolio turnover rate......................................................................... 0% 0%
Ratio of operating expenses to average net assets without fees reduced by credits allowed by the
custodian++................................................................................... 1.00%** 1.75%**
Ratio of operating expenses to average net assets without fee waivers, expenses absorbed and/or
fees reduced by credits allowed by the custodian++............................................ 1.49%** 2.24%**
Net investment income per share without fee waivers, expenses absorbed and/or fees reduced by
credits allowed by the custodian.............................................................. $ 0.40 $ 0.37
</TABLE>
- ---------------------
* The Portfolio's Class A Shares and Class B Shares commenced operations on
July 25, 1996.
** Annualized.
+ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges. The total returns would have
been lower if certain fees had not been waived and/or expenses absorbed by
the investment advisor and/or administrator or if fees had not been reduced
by credits allowed by the custodian.
++ The Portfolio will indirectly bear its prorated share of expenses of the
Underlying Funds.
+++ Amount represents less than $0.01.
# The amount shown may not accord with the change in the aggregate gains and
losses of portfolio securities due to timing of sales and redemptions of
Portfolio shares.
24
<PAGE> 26
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
VALUE PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
----------- -----------
PERIOD PERIOD
ENDED ENDED
12/31/96* 12/31/96*
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Net asset value, beginning of period............................................................ $ 10.00 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................................................................... 0.32 0.29
Net realized and unrealized gain on investments................................................. 0.36# 0.36#
------- -------
Total from investment operations................................................................ 0.68 0.65
LESS DISTRIBUTIONS:
Dividends from net investment income............................................................ (0.32) (0.29)
Distributions from net realized capital gains................................................... (0.00)+++ (0.00)+++
------- -------
Total distributions............................................................................. (0.32) (0.29)
------- -------
Net asset value, end of period.................................................................. $ 10.36 $ 10.36
======= =======
TOTAL RETURN+................................................................................... 6.90% 6.55%
======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)............................................................ $13,875 $ 6,424
Ratio of operating expenses to average net assets++............................................. 1.01%** 1.76%**
Ratio of net investment income to average net assets............................................ 11.71%** 10.96%**
Portfolio turnover rate......................................................................... 14% 14%
Ratio of operating expenses to average net assets without fees reduced by credits allowed by the
custodian++................................................................................... 1.02%** 1.77%**
Ratio of operating expenses to average net assets without fee waivers, expenses absorbed and/or
fees reduced by credits allowed by the custodian++............................................ 2.37%** 3.12%**
Net investment income per share without fee waivers, expenses absorbed and/or fees reduced by
credits allowed by the custodian.............................................................. $ 0.28 $ 0.25
</TABLE>
- ---------------------
<TABLE>
<C> <S>
* The Portfolio's Class A Shares and Class B Shares commenced operations on July 25, 1996.
** Annualized.
+ Total return represents aggregate total return for the period indicated and does not reflect any applicable sales charges.
The total returns would have been lower if certain fees had not been waived and/or expenses absorbed by the investment
advisor and/or administrator or if fees had not been reduced by credits allowed by the custodian.
++ The Portfolio will indirectly bear its prorated share of expenses of the Underlying Funds.
+++ Amount represents less than $0.01.
# The amount shown may not accord with the change in the aggregate gains and losses of portfolio securities due to timing of
sales and redemptions of Portfolio shares.
</TABLE>
25
<PAGE> 27
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
INCOME PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
----------- -----------
PERIOD PERIOD
ENDED ENDED
12/31/96* 12/31/96*
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Net asset value, beginning of period............................................................ $ 10.00 $ 10.00
------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................................................................... 0.27 0.24
Net realized and unrealized gain on investments................................................. 0.17# 0.17#
------- ------
Total from investment operations................................................................ 0.44 0.41
LESS DISTRIBUTIONS:
Dividends from net investment income............................................................ (0.27) (0.24)
Distributions from net realized capital gains................................................... (0.00)+++ (0.00)+++
------- ------
Total distributions............................................................................. (0.27) (0.24)
------- ------
Net asset value, end of period.................................................................. $ 10.17 $ 10.17
======= ======
TOTAL RETURN+................................................................................... 4.62% 4.28%
======= ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)............................................................ $15,296 $ 4,750
Ratio of operating expenses to average net assets++............................................. 1.04%** 1.79%**
Ratio of net investment income to average net assets............................................ 6.24%** 5.49%**
Portfolio turnover rate......................................................................... 12% 12%
Ratio of operating expenses to average net assets without fees reduced by credits allowed by the
custodian++................................................................................... 1.04%** 1.79%**
Ratio of operating expenses to average net assets without fee waivers, expenses absorbed and/or
fees reduced by credits allowed by the custodian++............................................ 2.36%** 3.11%**
Net investment income per share without fee waivers, expenses absorbed and/or fees reduced by
credits allowed by the custodian.............................................................. $ 0.21 $ 0.18
</TABLE>
- ---------------------
* The Portfolio's Class A Shares and Class B Shares commenced operations on
July 25, 1996.
** Annualized.
+ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges. The total returns would have
been lower if certain fees had not been waived and/or expenses absorbed by
the investment advisor and/or administrator or if fees had not been reduced
by credits allowed by the custodian.
++ The Portfolio will indirectly bear its prorated share of expenses of the
Underlying Funds.
+++ Amount represents less than $0.01.
# The amount shown may not accord with the change in the aggregate gains and
losses of portfolio securities due to timing of sales and redemptions of
Portfolio shares.
26
<PAGE> 28
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
CAPITAL GROWTH PORTFOLIO
DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ----------- ------------
<S> <C> <C>
INVESTMENT COMPANY SECURITIES -- 98.2%
331,900 Emerging Growth Fund................. $ 5,891,224
720,599 Growth and Income Fund............... 9,828,965
490,424 Growth Fund.......................... 6,939,500
596,587 International Growth Fund............ 6,222,397
-----------
Total Investment Company Securities
(Cost $30,922,084)................. 28,882,086
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 0.7% (Cost $212,000)
$212,000 Agreement with Boston Safe Deposit &
Trust Company, 4.750% dated
12/31/1996, to be repurchased at
$212,056 on 01/02/1997
collateralized by $225,000 Student
Loan Marketing Association, 5.430%
due 02/08/1999..................... $ 212,000
-----------
TOTAL INVESTMENTS (COST $31,134,084*)..... 98.9% 29,094,086
OTHER ASSETS AND LIABILITIES (NET)........ 1.1 329,005
----- ------------
NET ASSETS................................ 100.0% $ 29,423,091
===== ============
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
GROWTH PORTFOLIO
DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ----------- ------------
<S> <C> <C>
INVESTMENT COMPANY SECURITIES -- 98.9%
3,611,937 Emerging Growth Fund................. $ 64,111,879
27,300,743 Global Money Fund.................... 27,300,743
1,759,491 Growth and Income Fund............... 23,999,451
4,261,025 Growth Fund.......................... 60,293,505
5,215,324 International Growth Fund............ 54,395,826
2,843,645 U.S. Government Fund................. 27,213,681
-----------
Total Investment Company Securities
(Cost $270,180,040)................ 257,315,085
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 0.4% (Cost $955,000)
$955,000 Agreement with Boston Safe Deposit &
Trust Company, 4.750% dated
12/31/1996, to be repurchased at
$955,252 on 01/02/1997
collateralized by $1,005,000
Student Loan Marketing Association,
5.430% due 02/08/1999.............. $ 955,000
-----------
TOTAL INVESTMENTS (COST $271,135,040*).... 99.3% 258,270,085
OTHER ASSETS AND LIABILITIES (NET)........ 0.7 1,730,790
----- ------------
NET ASSETS................................ 100.0% $260,000,875
===== ============
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
BALANCED PORTFOLIO
DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ----------- ------------
<S> <C> <C>
INVESTMENT COMPANY SECURITIES -- 99.0%
1,847,142 Corporate Income Fund................ $ 19,210,279
505,527 Emerging Growth Fund................. 8,973,108
19,314,933 Global Money Fund.................... 19,314,933
1,878,301 Growth and Income Fund............... 25,620,021
1,801,423 Growth Fund.......................... 25,490,140
3,687,150 International Growth Fund............ 38,456,979
5,030,078 U.S. Government Fund................. 48,137,842
-----------
Total Investment Company Securities
(Cost $190,565,807)................ 185,203,302
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 0.4% (Cost $740,000)
$740,000 Agreement with Boston Safe Deposit &
Trust Company, 4.750% dated
12/31/1996, to be repurchased at
$740,195 on 01/02/1997,
collateralized by $780,000 Student
Loan Marketing Association, 5.430%
due 02/08/1999..................... $ 740,000
-----------
TOTAL INVESTMENTS (COST $191,305,807*).... 99.4% 185,943,302
OTHER ASSETS AND LIABILITIES (NET)........ 0.6 1,095,420
----- ------------
NET ASSETS................................ 100.0% $187,038,722
===== ============
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
See Notes to Financial Statements.
27
<PAGE> 29
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
VALUE PORTFOLIO
DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ----------- ------------
<S> <C> <C>
INVESTMENT COMPANY SECURITIES -- 97.7%
291,569 Corporate Income Fund................ $ 3,032,312
1,017,149 Global Money Fund.................... 1,017,149
264,222 Growth and Income Fund............... 3,603,990
1,305,733 Short Term Global Government Fund.... 3,029,301
877,281 Short Term High Quality Bond Fund.... 2,044,064
741,700 U.S. Government Fund................. 7,098,071
-----------
Total Investment Company Securities
(Cost $20,107,402)................. 19,824,887
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 1.0% (Cost $203,000)
$203,000 Agreement with Boston Safe Deposit &
Trust Company, 4.750% dated
12/31/1996, to be repurchased at
$203,054 on 01/02/1997,
collateralized by $215,000 Student
Loan Marketing Association, 5.430%
due 02/08/1999..................... $ 203,000
-----------
TOTAL INVESTMENTS (COST $20,310,402*)..... 98.7% 20,027,887
OTHER ASSETS AND LIABILITIES (NET)........ 1.3 271,914
----- ------------
NET ASSETS................................ 100.0% $ 20,299,801
===== ============
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
INCOME PORTFOLIO
DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ----------- ------------
<S> <C> <C>
INVESTMENT COMPANY SECURITIES -- 97.7%
534,070 Corporate Income Fund................ $ 5,554,328
921,995 Global Money Fund.................... 921,995
410,432 Short Term Global Government Fund.... 952,203
2,411,566 Short Term High Quality Bond Fund.... 5,618,948
682,428 U.S. Government Fund................. 6,530,835
-----------
Total Investment Company Securities
(Cost $19,586,805)................. 19,578,309
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 0.9% (Cost $178,000)
$178,000 Agreement with Boston Safe Deposit &
Trust Company, 4.750% dated
12/31/1996, to be repurchased at
$178,047 on 01/02/1997,
collateralized by $190,000 Student
Loan Marketing Association, 5.430%
due 02/08/1999..................... $ 178,000
-----------
TOTAL INVESTMENTS (COST $19,764,805*)..... 98.6% 19,756,309
OTHER ASSETS AND LIABILITIES (NET)........ 1.4 289,373
----- ------------
NET ASSETS................................ 100.0% $ 20,045,682
===== ============
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
See Notes to Financial Statements.
28
<PAGE> 30
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
SIERRA ASSET MANAGEMENT PORTFOLIOS
1. ORGANIZATION AND BUSINESS
Sierra Asset Management Portfolios (the "Trust") was organized as a
Massachusetts business trust under the laws of the Commonwealth of Massachusetts
on March 26, 1996 and is registered under the Investment Company Act of 1940, as
amended, (the "1940 Act"), as an open-end management investment company. The
Trust was established in order to offer a range of asset allocation strategies
to accommodate different investment philosophies and goals. The Trust offers
five portfolios; the Capital Growth Portfolio, Growth Portfolio, Balanced
Portfolio, Value Portfolio and Income Portfolio (each a "Portfolio" and
collectively, the "Portfolios"). Each of the Portfolios offers two classes of
shares; Class A Shares and Class B Shares. Class A Shares are subject to an
initial sales charge at the time of purchase. Certain Class A Shares purchased
without an initial sales charge may be subject to a contingent deferred sales
charge ("CDSC") if redeemed within one or two years from the date of purchase,
depending on the circumstances. Class B Shares are subject to a CDSC if redeemed
within six years from the date of purchase.
Each Portfolio of the Trust invests, within certain percentage ranges, in Class
I Shares of the Sierra Trust Funds' Global Money and U.S. Government Money Funds
(the "Money Funds"); Short Term High Quality Bond, Short Term Global Government,
U.S. Government and Corporate Income Funds (the "Bond Funds"); and Growth and
Income, Growth, Emerging Growth and International Growth Funds (the "Equity
Funds") (collectively, the "Underlying Funds"). In order to achieve its
investment objective, each Portfolio typically allocates its assets, within
determined percentage ranges, among certain of the Underlying Funds. The
percentages reflect the extent to which each Portfolio will invest in the
particular market segment represented by each Underlying Fund, and the varying
degrees of potential investment risk and reward represented by each Portfolios'
investments in those market segments and their corresponding Underlying Funds.
Sierra Investment Services Corporation ("Sierra Services") may alter these
percentage ranges when it deems appropriate. The assets of each Portfolio will
be allocated among the Underlying Funds in accordance with its investment
objective, Sierra Services' outlook for the economy and the financial markets
and the relative market valuations of the Underlying Funds. In addition,
generally in order to meet liquidity needs or for temporary defensive purposes,
each Portfolio may invest its assets directly in cash, stock or bond index
futures, options, money market securities and certain short-term debt
instruments.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Portfolios in the
preparation of their financial statements.
PORTFOLIO VALUATION:
Investments in the Underlying Funds are valued at the price of each Class I
Share of the respective Underlying Funds determined as of the close of the New
York Stock Exchange on the valuation date. A security that is primarily traded
on a U.S. exchange (including securities traded through the NASDAQ National
Market System) is valued at the last sale price on that exchange or, if there
were no sales during the day, at the current quoted bid price. Over-the-counter
securities that are not traded through the NASDAQ National Market System are
valued on the basis of the bid price at the close of business on each day. An
option is generally valued at the last sale price or, in the absence of a last
sale price, the last offer price. Investments in U.S. government securities
(other than short-term securities) are valued at the average of the quoted bid
and asked prices in the over-the-counter market. Short term investments that
mature in 60 days or less are valued at amortized cost when the Board of
Trustees determines that this constitutes fair value. The value of a futures
contract equals the unrealized gain or loss on the contract, which is determined
by marking the contract to the current settlement price for a like contract
acquired on the day on which the futures contract is being valued. A settlement
price may not be issued if the market makes a limited move with respect to the
security or index underlying the futures contract. In such event, the futures
contract will be valued at a fair market value to be determined by or under the
direction of the Board of Trustees of the Trust.
REPURCHASE AGREEMENTS:
Each Portfolio may engage in repurchase agreement transactions. Under the terms
of a typical repurchase agreement, the Portfolio through its custodian takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase, and the
29
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NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
SIERRA ASSET MANAGEMENT PORTFOLIOS
Portfolio to resell, the obligation at an agreed upon price and time, thereby
determining the yield during the Portfolio's holding period. This arrangement
results in a fixed rate of return that is not subject to market fluctuations
during the Portfolio's holding period. The value of the collateral is at least
equal at all times to the total amount of the repurchase obligation, including
interest. In the event of counterparty default, the Portfolio has the right to
use the collateral to offset losses incurred. There is potential loss to the
Portfolio in the event the Portfolio is delayed or prevented from exercising its
right to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period while the
Portfolio seeks to assert its rights. Sierra Services, acting under the
supervision of the Board of Trustees, reviews the value of the collateral and
the creditworthiness of those banks and dealers with which the Portfolio enters
into repurchase agreements to evaluate potential risks.
FUTURES CONTRACTS:
Each Portfolio may engage in futures transactions. The Portfolios may use
futures contracts to manage their exposure to the stock and bond markets and to
fluctuations in interest rates and currency values. Buying futures contracts
tends to increase the Portfolio's exposure to the underlying instrument. Selling
futures contracts tends to either decrease the Portfolio's exposure to the
underlying instrument, or to hedge other Portfolio investments.
Upon entering into a futures contract, the Portfolio is required to deposit with
the broker an amount of cash or cash equivalents equal to a certain percentage
of the contract amount. This is known as the "initial margin." Subsequent
payments ("variation margin") are made or received by the Portfolio each day,
depending on the daily fluctuation of the value of the contract. The daily
changes in contract value are recorded as unrealized gains and losses and the
Portfolio recognizes a realized gain or loss when the contract is closed.
Futures contracts are valued at the settlement price established by the board of
trade or exchange on which they are traded.
There are several risks in connection with the use of futures contracts as a
hedging device. Futures contracts involve, to varying degrees, risk of loss in
excess of the futures variation margin reflected in the Statements of Assets and
Liabilities. The change in the value of futures contracts primarily corresponds
with the value of their underlying instruments, which may not correlate with the
change in the value of the hedged instruments. In addition, there is the risk
that the Portfolio may not be able to enter into a closing transaction because
of an illiquid secondary market.
OPTIONS ON FUTURES CONTRACTS:
Each Portfolio may purchase and write put and call options on futures contracts
that are traded on a U.S. exchange or board of trade as a hedge against changes
in the value of its portfolio securities.
Writing puts and buying calls tends to increase the Portfolios' exposure to the
underlying instrument. Buying puts and writing calls tends to decrease the
Portfolios' exposure to the underlying instruments or to hedge other Portfolio
investments.
Upon the purchase of a put option or a call option by the Portfolios, the
premium paid is recorded as an investment, the value of which is
marked-to-market daily. When a purchased option expires, the Portfolio will
realize a loss in the amount of the cost of the option. When the Portfolios
enter into a closing sale transaction, the Portfolios will realize a gain or
loss depending on whether the sales proceeds from the closing sale transaction
are greater or less than the cost of the option. When the Portfolios exercise a
put option, they will realize a gain or loss from the sale of the underlying
futures contract and the proceeds from such sale will be decreased by the
premium originally paid. When the Portfolios exercise a call option, the cost of
the security which the Portfolios purchase upon exercise will be increased by
the premium originally paid.
When the Portfolios write a call option or a put option, an amount equal to the
premium received by the Portfolios is recorded as a liability, the value of
which is marked-to-market daily. When a written option expires, the Portfolios
realize a gain equal to the amount of the premium received. When the Portfolios
enter into a closing purchase transaction, the Portfolios realize a gain (or
loss if the cost of the closing purchase transaction exceeds the premium
received when the option was sold) without regard to any unrealized gain or loss
on the underlying futures contracts, and the liability related to such option is
eliminated. When a written call option is exercised, the Portfolios realize a
gain or loss from the sale of the underlying futures contracts and the proceeds
from such sale are increased by the premium originally received. When a written
put option is exercised, the amount of the premium originally received will
reduce the cost of the security that the Portfolios purchased upon exercise.
30
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- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
SIERRA ASSET MANAGEMENT PORTFOLIOS
The risk associated with purchasing options is limited to the premium originally
paid. Options written by a Portfolio involve, to varying degrees, risk of loss
in excess of the option value reflected in the Statements of Assets and
Liabilities. The risk in writing a covered call option is that the Portfolios
may forego the opportunity of profit if the market price of the underlying
security increases and the option is exercised. The risk in writing a covered
put option is that the Portfolios may incur a loss if the market price of the
underlying futures contracts decreases and the option is exercised.
Certain risks are associated with the use of options on futures as hedging
devices. The predominant risk is that the movement in the price of the
instrument underlying such options may not correlate perfectly with the movement
in the prices of the assets being hedged. The lack of correlation could render
the Portfolios' strategy unsuccessful and could result in a loss to the
Portfolios. In addition, there is the risk the Portfolios may not be able to
enter into a closing transaction because of an illiquid secondary market or, for
over-the-counter options, because of the counterparty's inability to perform.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are recorded as of the trade date (the date the order to
buy or sell is executed). Realized gains and losses from securities sold are
recorded on the identified cost basis. Interest income is recorded on the
accrual basis. Dividend income is recorded on the ex-dividend date. Each
Portfolio's investment income and realized and unrealized gains and losses are
allocated among the Portfolio's classes of shares based upon the relative
average net assets of each class of shares.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income of the Growth Portfolio will be declared
and paid quarterly and from the Capital Growth Portfolio will be declared and
paid semi-annually. Dividends from net investment income of the Income
Portfolio, Value Portfolio and Balanced Portfolio will be declared daily and
paid monthly. Distributions of any net long-term capital gains earned by a
Portfolio will be distributed no less frequently than annually at the discretion
of the Board of Trustees. Additional distributions of net investment income and
capital gains for each Portfolio may be made at the discretion of the Board of
Trustees in order to avoid the application of a 4% non-deductible excise tax on
certain undistributed amounts of ordinary income and capital gains. Income
distributions and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments of
income and gains on various investment securities held by the Portfolio, timing
differences and differing characterization of distributions made by each
Portfolio as a whole.
FEDERAL INCOME TAXES:
It is each Portfolio's policy to qualify as a regulated investment company by
complying with the requirements of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and by, among other
things, distributing substantially all of its taxable and tax-exempt earnings to
its shareholders. Therefore, no Federal income tax provision is required.
EXPENSES:
Expenses that are directly related to one of the Portfolios are charged directly
to that Portfolio. General expenses of the Trust are allocated to all the
Portfolios based upon relative net assets of each Portfolio. In addition, the
Portfolios will indirectly bear their prorated share of expenses of the
Underlying Funds. Operating expenses directly attributable to a class of shares
are charged to the operations of that class of shares. Expenses of each
Portfolio not directly attributable to the operations of any class of shares are
prorated among the classes to which the expenses relate based on the relative
average net assets of each class of shares.
3. INVESTMENT ADVISORY, ADMINISTRATION FEES AND OTHER TRANSACTIONS
Sierra Services serves as investment advisor to the Trust. Sierra Services
provides its proprietary asset allocation services to the Portfolio, formulates
the Portfolios' investment policies, analyzes economic and market trends,
exercises investment discretion over the assets of the Portfolios and monitors
the allocation of each Portfolio's assets and each Portfolio's performance. For
its investment advisory services to the Portfolios, Sierra Services is entitled
to a monthly fee, at an annual rate of 0.15% of each Portfolio's average daily
net assets.
31
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NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
SIERRA ASSET MANAGEMENT PORTFOLIOS
Sierra Services is a wholly-owned subsidiary of Sierra Capital Management
Corporation ("SCMC"), which is a wholly-owned subsidiary of Great Western
Financial Corporation ("GWFC"), a publically held corporation.
Fees voluntarily waived and expenses absorbed by Sierra Services for the period
ended December 31, 1996 are as follows:
<TABLE>
<CAPTION>
NAME OF FUND FEES WAIVED EXPENSES ABSORBED
- ---------------------------------------------------------------------------------- ----------- -----------------
<S> <C> <C>
Capital Growth Portfolio.......................................................... $ 6,241 $41,371
Growth Portfolio.................................................................. 54,435 98,600
Balanced Portfolio................................................................ 40,744 82,121
Value Portfolio................................................................... 4,470 34,312
Income Portfolio.................................................................. 4,476 33,579
</TABLE>
Sierra Fund Administration Corporation ("Sierra Administration"), an indirect
wholly-owned subsidiary of GWFC and under common control with Sierra Services,
serves as administrator to the Trust. For its services as administrator, Sierra
Administration is entitled to a monthly fee at an annual rate of 0.50% of each
Portfolio's average daily net assets. First Data Investor Services Group, Inc.
("FDISG"), a subsidiary of First Data Corporation, serves as sub-administrator
and transfer agent of the Trust. Sierra Administration pays FDISG for its
services as a sub-administrator while the Trust pays FDISG for its services as
transfer agent, including certain out-of-pocket expenses.
Fees voluntarily waived by Sierra Administration for the period ended December
31, 1996 are as follows:
<TABLE>
<CAPTION>
NAME OF FUND FEES WAIVED
--------------------------------------------------------------------------------- -----------
<S> <C>
Capital Growth Portfolio......................................................... $ 2,823
Growth Portfolio................................................................. 17,652
Balanced Portfolio............................................................... 11,492
Value Portfolio.................................................................. 1,382
Income Portfolio................................................................. 1,312
</TABLE>
The Trust pays Boston Safe Deposit and Trust Company ("Boston Safe"), a
wholly-owned subsidiary of Mellon Bank Corporation, certain custodial
transaction charges for its services as the Trust's custodian.
Custodian fees for certain Portfolios have been reduced by credits allowed by
Boston Safe for the period ended December 31, 1996 as follows:
<TABLE>
<CAPTION>
CREDITS ALLOWED
BY THE
NAME OF FUND CUSTODIAN
------------------------------------------------------------------------------- ---------------
<S> <C>
Capital Growth Portfolio....................................................... $ 376
Growth Portfolio............................................................... 186
Balanced Portfolio............................................................. 285
Value Portfolio................................................................ 172
Income Portfolio............................................................... 89
</TABLE>
For the period ended December 31, 1996, Great Western Financial Securities
Corporation ("GW Securities"), a registered broker-dealer, and Sierra Services
have informed the Portfolios that they received $306,814 and $85,373
respectively, representing commissions (front-end sales charges). In addition,
for the period ended December 31, 1996, Sierra Services and Funds Distributor
Inc. informed the Portfolios that they received $43,376 from CDSCs.
4. TRUSTEES' FEES
No director, officer or employee of Sierra Services, a registered investment
adviser and broker-dealer, Sierra Administration or FDISG, or any of their
affiliates receives any compensation from the Trust for serving as an officer or
Trustee of the Trust. The Trust pays each Trustee who is not a director, officer
or employee of Sierra Services, Sierra Administration or FDISG, or any of their
affiliates $250 per board meeting attended and $200 per audit and/or nominating
committee meeting attended and reimbursement for travel and out-of-pocket
expenses.
32
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- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
SIERRA ASSET MANAGEMENT PORTFOLIOS
5. DISTRIBUTION PLANS
Sierra Services serves as distributor of the Class A Shares and Class B Shares
of the Portfolios and is also the distributor of the shares of the Underlying
Funds. Each of the Portfolios has adopted two distribution plans, pursuant to
Rule 12b-1 under the 1940 Act, one for the Class A Shares ("Class A Plan") and
one for the Class B Shares ("Class B Plan"). Under the Class A Plan, Sierra
Services is to be paid an annual distribution fee of up to 0.25% of the average
daily net assets of the Class A Shares of each Portfolio for activities
primarily intended to result in the sale of Class A Shares of the Portfolios.
Under the Class B Plan, Sierra Services is to be paid an annual distribution fee
of up to 0.75% of the average daily net assets of the Class B Shares of each
Portfolio for activities primarily intended to result in the sale of Class B
Shares of the Portfolios. In addition, under the Class B Plan, Class B Shares
are also subject to a shareholder service fee at an annual rate of 0.25% of the
average daily net assets of the Class B Shares. The shareholder service fee is
paid by the Portfolios to Sierra Services.
For the period ended December 31, 1996, the Funds incurred the following fees
pursuant to the respective distribution plans described above:
<TABLE>
<CAPTION>
CLASS A CLASS B
------------ --------------------------
DISTRIBUTION DISTRIBUTION SERVICE
NAME OF FUND FEES FEE FEE
---------------------------------------------------------- ------------ ------------ --------
<S> <C> <C> <C>
Capital Growth Portfolio.................................. $ 2,809 $ 22,780 $ 7,594
Growth Portfolio.......................................... 45,455 135,812 45,270
Balanced Portfolio........................................ 38,919 86,962 28,988
Value Portfolio........................................... 4,930 7,560 2,520
Income Portfolio.......................................... 5,732 5,187 1,729
</TABLE>
6. PURCHASES AND SALES
The aggregate cost of purchases and proceeds from sales, excluding short-term
investments, for the period ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
NAME OF FUND PURCHASES SALES
------------------------------------------------------------------ ------------ ---------
<S> <C> <C>
Capital Growth Portfolio.......................................... $ 30,948,609 $ 28,086
Growth Portfolio.................................................. 270,180,040 --
Balanced Portfolio................................................ 190,597,046 31,746
Value Portfolio................................................... 20,846,887 759,957
Income Portfolio.................................................. 20,248,982 671,279
</TABLE>
At December 31, 1996, aggregate gross unrealized appreciation for all Underlying
Funds in which there is an excess of value over tax cost was as follows:
<TABLE>
<CAPTION>
TAX BASIS TAX BASIS
UNREALIZED UNREALIZED
NAME OF FUND APPRECIATION DEPRECIATION
------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Capital Growth Portfolio........................................... $ 9,614 $ 2,049,612
Growth Portfolio................................................... 448,096 13,313,051
Balanced Portfolio................................................. 287,153 5,649,658
Value Portfolio.................................................... 10 282,525
Income Portfolio................................................... 3,430 11,926
</TABLE>
7. SHARES OF BENEFICIAL INTEREST
The Company may issue an unlimited number of shares of beneficial interest each
without par value.
33
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- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
SIERRA ASSET MANAGEMENT PORTFOLIOS
8. ORGANIZATION AND OFFERING COSTS
Costs incurred in connection with the organization of the Portfolios are being
amortized on a straight-line basis over a period of five years from commencement
of operations of each Portfolio, respectively. Costs incurred in connection with
the initial offering of the Portfolios are being expensed over a one year period
from commencement of operations of each Portfolio. In the event any of the
initial shares of a Portfolio are redeemed by any holder thereof during the
amortization period, the proceeds of such redemptions will be reduced by an
amount equal to the pro-rata portion of unamortized deferred organizational
expenses in the same proportion as the number of shares being redeemed bears to
the number of initial shares of such Portfolio outstanding at the time of such
redemption.
9. RISK FACTORS OF THE PORTFOLIOS
Investing in the Underlying Funds through the Portfolios involves certain
additional expenses and tax results that would not be present in a direct
investment in the Underlying Funds. Under certain circumstances, an Underlying
Fund may determine to make payment of a redemption request by a Portfolio wholly
or partly by a distribution in kind of securities from its portfolio, instead of
cash, in accordance with the rules of the SEC. In such cases, the Portfolios may
hold securities distributed by an Underlying Fund until Sierra Services
determines that it is appropriate to dispose of such securities.
Certain Underlying Funds may: invest a portion of their assets in foreign
securities; enter into forward currency transactions; lend their portfolio
securities; enter into stock index, interest rate and currency futures
contracts, and options on such contracts; enter into interest rate swaps or
purchase or sell interest rate caps or floors; engage in other types of options
transactions; make short sales; purchase zero coupon and payment-in-kind bonds;
engage in repurchase or reverse repurchase agreements; purchase and sell
"when-issued" securities and engage in "delayed-delivery" transactions; and
engage in various other investment practices each with inherent risks.
The Capital Growth Portfolio can invest as much as 50% of its total asset in the
Sierra Trust Funds Growth Fund and as much as 50% of its total assets in the
Sierra Trust Funds Emerging Growth Fund, each of which Underlying Funds may
invest as much as 35% of its total assets in lower-rated bonds. Securities rated
below investment grade generally involve greater price volatility and risk of
principal and income and may be less liquid than higher rated securities.
Certain Portfolios invest as much as 50% of their total assets in the Sierra
Trust Funds' Growth or Emerging Growth Funds, each of which may invest up to 25%
of its total assets in foreign equity securities and as much as 5% of its total
assets in securities in developing or emerging markets countries. Certain
Portfolios invest as much as 50% of their total assets in the Sierra Trust Funds
International Growth Fund, which invests primarily in the foreign equity
securities, and may invest as much as 30% of its total assets in securities in
developing or emerging market countries. These investments will subject such
Portfolios to risks associated with investing in foreign securities including
those resulting from future adverse political and economic developments and the
possible imposition of currency exchange blockages or other foreign governmental
laws or restrictions.
The officers and trustees of the Trust also serve as officers and trustees of
the Underlying Funds. In addition, Sierra Services, the investment advisor and
distributor of each Portfolio, and Sierra Investment Advisors Corporation
("Sierra Advisors"), an indirect wholly-owned subsidiary of GWFC, the investment
advisor of the Underlying Funds, are both wholly-owned subsidiaries of SCMC.
Also, Sierra Services is the distributor of the shares of the Underlying Funds.
Conflicts may arise as these companies seek to fulfill their fiduciary
responsibilities to both the Portfolios and the Underlying Funds.
From time to time, one or more of the Underlying Funds used for investment by a
Portfolio may experience relatively large investments or redemptions due to
reallocations or rebalancings by the Portfolios as recommended by Sierra
Services. These transactions will affect the Underlying Funds, since the
Underlying Funds that experience redemptions as a result of the reallocations or
rebalancings may have to sell portfolio securities and Underlying Funds that
receive additional cash will have to invest such cash. While it is impossible to
predict the overall impact of these transactions over time, there could be
adverse effects on portfolio management to the extent that the Underlying Funds
may be required to sell securities or invest cash at times when they would not
otherwise do so. These transactions could also have tax consequences if sales of
securities resulted in gains and could also increase transactions costs. Sierra
Advisors, representing the interests of the Underlying Funds, is committed to
minimizing the impact of Portfolio transactions on the Underlying Funds; Sierra
Services, representing the interest of the shareholders of the Portfolios, is
also committed to minimizing such impact on the Underlying Funds to the extent
it is consistent with pursuing the investment objectives of the Portfolios.
Sierra Advisors and Sierra Services will nevertheless face conflicts in
fulfilling their respective responsibilities because they are affiliates and
employ some of the same investment professionals.
34
