<PAGE>
SIERRA ASSET
MANAGEMENT
PORTFOLIOS
ANNUAL REPORT
for the year ended
June 30, 1997
[Graphic Omitted]
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SIERRA
ASSET MANAGEMENT
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The Diversification Solution
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PRESIDENT'S LETTER 1
THE YEAR IN REVIEW
AND OUR OUTLOOK FOR 1997-1998 2
INDIVIDUAL PORTFOLIO REVIEWS 7
STATEMENTS OF ASSETS AND LIABILITIES 18
STATEMENTS OF OPERATIONS 19
STATEMENTS OF CHANGES IN NET ASSETS 20
STATEMENTS OF CHANGES IN NET ASSETS -
CAPITAL STOCK ACTIVITY 21
FINANCIAL HIGHLIGHTS 22
PORTFOLIO OF INVESTMENTS 27
NOTES TO FINANCIAL STATEMENTS 29
REPORT OF INDEPENDENT ACCOUNTANTS 37
TAX INFORMATION (UNAUDITED) 38
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SIERRA
ASSET MANAGEMENT
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The Diversification Solution
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A MESSAGE FROM THE PRESIDENT
[Photo of James H. Overholt]
We are pleased to provide you with the SIERRA ASSET MANAGEMENT ("SAM")
Portfolios Annual Report for the year ended June 30, 1997.
The past 12 months have seen a continuation of favorable economic trends. Low
unemployment, low inflation, and sustained consumer confidence were all factors
that resulted in a positive environment for stocks and bonds. Despite a
correction of nearly 10% in the Dow Jones Industrial Average (the "Dow") in the
first quarter of 1997, many stock market indices including the Dow, Standard &
Poor's Composite Index of 500 Stocks ("S&P 500"), and the Nasdaq Composite Index
posted net annual returns well above average for the period.
The S&P 500 rose 34.7% for the year, and on June 30, 1997 was up 104% since
December 31, 1994. Such rapid gains are unusual considering the stock market's
history. Over the last 70 years, the S&P 500 posted an average annual return of
10.8%. Since 1919, there have also been 47 years in which the market has fallen
10% or more from the previous year's highs. With the market showing signs of
volatility in early 1997, we continue to advise investors to maintain a
long-term perspective when making investment decisions, and to seek the
assistance of a qualified professional.
The pattern of mutual fund purchases and sales during the first half of 1997 may
suggest, however, that many investors' mutual fund investment decisions are
affected by short-term performance. When stock and bond markets fell sharply in
March 1997, net new cash flow into mutual funds fell 77.4% from February to
March, according to the Investment Company Institute. Net inflows into stock
mutual funds, while still positive in March, fell to their lowest level since
July 1996, while bond and income funds experienced a net outflow. Unfortunately,
investors who curtailed fund purchases or even exited the market during the
downturn in March missed out on the recovery and subsequent net gains during the
second quarter of 1997.
At Sierra Asset Management, we strive to pursue long-term performance consistent
with the stated objectives of each SAM Portfolio without exposing investors to
excessive risks. We believe that, over the long-term, mutual fund investors are
best served by applying the principles of asset allocation and diversification
in constructing a portfolio, by selecting investment programs that follow a
long-term, disciplined approach, and by staying the course through periods of
uncertain markets.
These principles have been successfully applied in each SAM Portfolio. As
detailed in the Individual Portfolio Reviews section of this report, the SAM
Portfolios have continued to produce total returns in excess of inflation since
inception, while managing risk at levels below that of non-diversified,
single-asset investments.
In evaluating SAM Portfolio performance, we encourage investors to look beyond
the short term, and especially, to assess the risk-reduction potential that a
portfolio of different funds offers over the long term. Your Investment
Representative can provide in-depth information about the risk parameters of
each SAM Portfolio, as well as the risk and return profiles of the underlying
Sierra Trust Funds.
To meet the needs of investors interested in active asset allocation, but who
also want the advantages of tax-deferred growth and estate planning, we
introduced the Sierra Asset Manager Variable Annuity in May of this year. Sierra
Asset Manager combines all the risk management and asset allocation benefits of
the SAM Portfolios, with the tax deferral and estate planning advantages of a
variable annuity.
Other Sierra Asset Manager benefits include low investment minimums, tax-free
transfers among investment options, and a "stepped-up" death benefit that
protects your family against market risk. Of course, keep in mind that like all
securities, there are risks associated with investing in variable annuities,
including the fact that investment returns and principal value will fluctuate
with market conditions.
For more complete information, including charges and expenses, please contact
your Investment Representative to obtain a Sierra Asset Manager prospectus and
related Sierra Variable Trust prospectus. Please read the prospectus(es)
carefully before you invest or send money.
As we move into the 21st century, Sierra appreciates the confidence you have
placed in us and will continue to demonstrate our commitment to you through
product innovation and the pursuit of disciplined investment management
strategies. Thank you for choosing the SAM Portfolios.
Sincerely,
/s/ James H. Overholt
James H. Overholt
President
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THE YEAR IN REVIEW AND OUR OUTLOOK FOR 1997 -- 1998
[Photo of Stephen C. Scott]
Stephen C. Scott
Portfolio Manager
Sierra Investment Services Corp.
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.
Note: Unless otherwise noted, source for all performance figures is Standard &
Poor's. Past performance is not a guarantee of future results. Individuals
cannot invest directly in any index.
A strong, though sometimes bumpy, market environment prevailed during the last
12 months, with stock market indices posting double-digit gains and many
fixed-income investments returning upwards of 8%.
STOCKS CONTINUE TO BREAK NEW RECORDS
With a growing economy and low inflation, the stock market continued to surge to
new heights. Over the 12 months ended June 30, 1997, large capitalization stocks
turned in the best performance, with the Standard & Poor's Composite Index of
500 Stocks (S&P 500) up 34.7%. While the S&P MidCap 400 returned 23.35%,
small-cap stocks, represented by the Russell 2000 Index, returned 16.33% over
the same period.
Although overall gains were impressive, the stock market experienced increased
volatility during the period, with the S&P 500 falling 8% in mid-1996 and then
nearly 10% in early 1997. After generating only single-digit returns in 1996,
the international stock markets rebounded in 1997, with Morgan Stanley Capital
International's Europe, Australasia and Far East (EAFE) Index returning 12.84%
for the year ended June 30, 1997.
Emerging-market stocks also posted gains in the first half of 1997, returning
16.55% from January to June and 10.19% over the 12 months. Returns on
international investments were tempered by the strength of the U.S. Dollar
against the Japanese Yen and many European currencies. By early July 1997, the
Dollar had risen to a six-year high against the German Mark and a two-year high
against the Japanese Yen.\1/
[BAR GRAPH CHART]
RETURNS FOR MAJOR ASSET CLASSES
(ONE-YEAR PERIOD ENDED JUNE 30, 1997)
Large Co Stocks 34.70%
Small Co Stocks 16.33%
International Stocks 12.84%
Long-Term Bonds 9.19%
Intermediate-Term Bonds 7.22%
T-Bills 4.89%
\1/ International investors may be subject to higher taxation and additional
risks compared to domestic investors, including currency, liquidity, and
political risks. Emerging markets may pose higher liquidity and political risks
than other international markets.
Sources: S&P, Lehman Brothers, Russell, & Morgan Stanley. T-bills represent
30-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 & Corporate Bond
Index; small company stocks are represented by the Russell 2000 Index; large
company stocks are represented by S&P 500 Composite Index; and international
stocks are represented by MSCI EAFE Index. Indices 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 SAM Portfolio.
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BONDS POST POSITIVE RESULTS
The second half of 1996 saw falling interest rates and positive returns for the
fixed-income market. Although economic growth raised concerns about inflation,
price pressures never surfaced, and yields on the 30-year U.S. Treasury bond
dropped to the 6.4%-6.8% level during the second half of 1996. In the first
quarter of 1997, U.S. gross domestic product rose a stunning 4.9%, creating
renewed concerns about rising inflation. Bond prices fell in March in
anticipation of the Federal Reserve's 0.25% hike in short-term rates on March
25, pushing yields on long-term government bonds above 7%.
With a slowing economy and benign inflation in the second quarter of 1997, the
Federal Reserve did not raise interest rates further. The fixed-income markets
reacted strongly, rebounding to generate their highest quarterly returns since
the fourth quarter of 1995. For the 12 months ended June 30, the overall total
return for long-term U.S. Treasury bonds was 8.55%, as measured by the Lehman
Long Term T-Bond Index.
Investment-grade corporate bonds and mortgage-backed securities also performed
well for the period. According to the Lehman Mortgage-Backed Securities Index
and Lehman Corporate Investment Grade Index, corporate bonds returned 8.79%,
while mortgage-backed securities were one of the strongest performers among
fixed-income securities with a gain of 9.10%.
In the municipal bond market, yields on many health care related issues rose as
legislators continue to focus on reducing health care costs. The Lehman Brothers
Muni Bond Index posted an annual return of 8.25% through June 30, 1997.
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[LINE GRAPH]
INTEREST RATE FLUCTUATIONS
30-YEAR TREASURY BOND YIELDS
JUNE 30, 1996 - JUNE 30, 1997
High 7.19%
July 5, 1996
30 Jun 96 6.87
5 Jul 96 7.19
12 Jul 96 7.03
19 Jul 96 6.97
26 Jul 96 7.01
2 Aug 96 6.74
9 Aug 96 6.69
16 Aug 96 6.77
23 Aug 96 6.96
30 Aug 96 7.12
6 Sep 96 7.11
13 Sep 96 6.95
20 Sep 96 7.04
27 Sep 96 6.91
4 Oct 96 6.74
11 Oct 96 6.84
18 Oct 96 6.80
25 Oct 96 6.82
1 Nov 96 6.68
8 Nov 96 6.51
15 Nov 96 6.46
22 Nov 96 6.44
29 Nov 96 6.35
6 Dec 96 6.51
13 Dec 96 6.57
20 Dec 96 6.61
27 Dec 96 6.56
3 Jan 97 6.73
10 Jan 97 6.84
17 Jan 97 6.82
24 Jan 97 6.89
31 Jan 97 6.79
7 Feb 97 6.70
14 Feb 97 6.52
21 Feb 97 6.64
28 Feb 97 6.80
7 Mar 97 6.81
14 Mar 97 6.94
21 Mar 97 6.97
28 Mar 97 7.09
4 Apr 97 7.12
11 Apr 97 7.17
18 Apr 97 7.05
25 Apr 97 7.14
2 May 97 6.87
9 May 97 6.89
16 May 97 6.90
23 May 97 6.99
30 May 97 6.91
6 Jun 97 6.77
13 Jun 97 6.72
20 Jun 97 6.66
27 Jun 97 6.74
30 Jun 97 6.78
Low 6.35%
Nov. 29, 1996
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Source: Bloomberg Business News
MARKET SHOWS SIGNS OF INCREASED VOLATILITY
Continued economic growth and low inflation have led to strong performance in
both the stock and bond markets. At the same time, however, uncertainty over the
future direction of interest rates and sustainable corporate earnings growth, as
well as disbelief that conditions could improve much more, have produced higher
market volatility. Bond prices have fluctuated due to changing interest rates,
and equities have also been impacted. From March 11 to April 11, for example,
the Dow Jones Industrial Average dropped 9.8%, and many individual stocks
experienced steeper drops.
These declines resulted in many mutual funds reporting negative returns for the
first quarter of 1997, before rebounding in May and June. According to Lipper
Analytical Services, which tracks mutual fund performance, the average equity
mutual fund lost 1.98% in value, the first quarterly decline since 1994.
Large-cap growth funds averaged a decline of 1.28%, while small-cap stock funds
fell 6.91% on average in the first quarter.
Individuals who began investing only in the last few years may find these market
ups and downs during the last 12 months disconcerting because the volatility of
the stock market has been unusually low in recent years. From January 1991
through December 1996, the S&P 500 rose or fell more than 1% in a single day on
average about once every eight trading days. In the first six months of 1997, a
1% or greater move has occurred once every three trading days, on average. The
chart below shows, however, that the market's current volatility is more in line
with its longer-term averages. The period from 1990 to 1996 was an exceptionally
quiet one compared to previous periods.
IMPORTANCE OF ASSET ALLOCATION IN MANAGING RISK
The volatility and uncertainty of the financial markets reinforce the importance
of asset allocation in managing risk. A portfolio that is diversified and
properly allocated among stocks, bonds, and cash equivalents can help investors
weather periods of market turbulence. The SAM Portfolios are designed to provide
diversification and asset allocation that reflect an investor's unique financial
circumstances, such as their investment time horizon, need for current income
versus long-term growth, and tolerance for short-term market fluctuations.
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HOW MUCH MARKET VOLATILITY SHOULD INVESTORS EXPECT? [BAR GRAPH]
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Standard Deviation (Daily)
Past 20 Years 0.93%
Past 10 Years 0.98%
1990's Thru 12/31/96 0.73% (From 1990-1996, the stock
market was unusually calm.)
1997 Year To Date 0.97%
This bar chart compares daily volatility (as measured by the daily standard
deviation) of the S&P 500 Index for the indicated periods.
Source: Standard & Poor's. The S&P 500 is an unmanaged index representative of
the U.S. stock market. Standard deviation is a volatility measurement that
describes the range of performance within which an investment's (e.g., an index)
total return has fallen. A higher standard deviation means a wider range of
returns. A lower standard deviation means less volatility. Past performance is
not a guarantee of future results.
Properly constructed, an asset allocation strategy like those provided by the
SAM Portfolios can help reduce variability in portfolio returns. For example,
allocating bonds to an investment portfolio of primarily stocks can reduce risk.
While stocks have historically provided higher returns over time and therefore
can add important growth potential to a portfolio, bonds can provide steady
income even as market values fluctuate. In addition, bond prices can move
independently from stock prices over time, helping to reduce investment risk.
The graph below compares the highest and lowest annual returns for stocks and a
diversified portfolio of stocks and bonds over the last 25 years. While the
range of returns for a portfolio of 100% stocks varied from 37% to -26%, in a
diversified portfolio, the variation was only 31% to -8%. In other words, during
this period, a diversified portfolio captured much of the upside potential of
stocks, but with dramatically less downside risk. Of course, past performance is
not a guarantee of future results.
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[BAR GRAPH]
DIVERSIFICATION CAN HELP REDUCE DOWNSIDE RISK
VARIABILITY IN INVESTMENT RETURNS
FOR THE 25-YEAR PERIOD ENDED 12/31/96
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STOCKS
Highest Annual Return 37.43%
Lowest Annual Return -26.47%
DIVERSIFIED PORTFOLIO
Highest Annual Return 30.89%
Lowest Annual Return -8.42%
Source: Ibbotson Associates. Stocks are represented by the Standard & Poor's
Index of 500 Stocks (S&P 500). Diversified Portfolio represents a portfolio
consisting of 40% stocks (S&P 500), 40% long-term bonds (Lehman Brothers
Long-Term Government and Corporate Bond Index), and 20% intermediate-term bonds
(Lehman Brothers Intermediate-Term Government and Corporate Bond Index). Past
performance is not a guarantee of future results. For a more complete discussion
about the risks associated with investing in stocks, bonds, and other asset
classes, please refer to the notes for the graph on page 2.
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THE SAM PORTFOLIOS APPROACH
Building an asset allocation strategy that meets investor needs and their
specific risk and return goals requires extensive planning and knowledge of the
financial markets. The research and analysis behind each asset allocation
decision are at the heart of the SAM Portfolios investment strategy. Sierra's
approach to asset allocation and risk management incorporates three levels of
extensive analysis:
1. At the Macro Level: Analyzing and Forecasting the Economy and Markets
Sierra begins with a detailed, fundamental analysis of the economy and
capital markets. Sierra draws upon a broad range of historical data to
identify how various segments of the market have reacted in different market
cycles. This assessment helps to determine historical relationships among
market sectors and to develop probabilities about future market activity.
2. At the Asset Class Level: Analyzing and Balancing Risk and Returns of
Various Asset Classes
Sierra's in-house team of asset allocation specialists then focuses on a
quantitative analysis of market and risk factors for the asset classes in
each Portfolio. Sierra examines the interrelationships among asset classes
to continually assess risk and ensure consistency with each Portfolio's
risk/return policies.
3. At the Fund Level: Implementing An Efficient Mix of Asset Classes
Sierra then determines which will build the most effecient mix of asset
classes. The goal is to achieve the highest expected return for the risk
parameters defined by the Portfolio and with Sierra's economic and market
outlook.
ALLOCATION RESULTS
Over the last 12 months ended June 30, 1997, the SAM Portfolios continued to
focus on shorter-term maturities for fixed-income investments. With interest
rates rising in the first quarter of 1997, this positioning helped to reduce
portfolio risk and had a positive impact on overall performance. In addition to
shorter maturities, the SAM Portfolios also weighted fixed-income assets toward
higher yielding, mortgage-backed securities. This market segment outperformed
most other fixed-income categories throughout the period. Equity Portfolios, in
general, remained overweighted toward domestic equities, with a bias toward
large capitalization stocks. With blue chip stocks leading the market throughout
the last year, holdings such as the Sierra Growth & Income Fund helped to
enhance performance. Allocations in the small-cap and international sectors
(Sierra Emerging Growth and International Growth Funds) posted mixed results
during the 12-month period. While these holdings underperformed in late 1996 and
early 1997, they rebounded in the second quarter of 1997. All equity components
generated double-digit returns in the second quarter alone. For diversification
and long-term growth potential, we continue to maintain significant exposure to
both the small-cap and international sectors.
Overall, the SAM Portfolios' diversified mix of global 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 produce strong, long-term performance.
For more specific information on individual SAM Portfolio performance and
investment management strategies, see the accompanying section.
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[TABLE]
SAM PORTFOLIO PERFORMANCE
(INCEPTION THROUGH JUNE 30, 1997)
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SAM PORTFOLIO SAM PERFORMANCE* PREMIUM OVER INFLATION**
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CAPITAL GROWTH PORTFOLIO 19.45% +16.90%
(Inception 5/31/95)
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GROWTH PORTFOLIO 12.83% + 9.98%
(Inception 9/30/90)
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BALANCED PORTFOLIO 10.58% + 7.73%
(Inception 9/30/90)
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VALUE PORTFOLIO 7.18% + 4.54%
(Inception 3/31/93)
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INCOME PORTFOLIO 7.35% + 4.50%
(Inception 9/30/90)
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* Performance represents average annual total returns for Class A shares
(inception through 6/30/97), unadjusted for the maximum sales charge. The
following is Portfolio performance adjusted for the maximum sales charge (Class
A shares) for the 12-month/5-year/Since Inception period ended 6/30/97: Capital
Growth Portfolio 6.71%/NA/16.10%; Growth Portfolio 2.85%/10.45%/11.89%; Balanced
Portfolio 6.04%/8.83%/9.70%; Value Portfolio 5.81%/NA/6.03%; Income Portfolio
2.63%/4.39%/6.62%. (Performance for Class B shares will differ -- see individual
Portfolio review 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. CPIs based on Portfolio's inception date
through 6/30/97.
Note: All 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.
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OUTLOOK FOR 1997-1998
Looking ahead, we expect economic growth to continue slowing to a more healthy,
sustainable level, while inflation pressures moderate. In recent months, the
Federal Reserve has taken a more neutral approach to interest rates, allowing
the markets to dictate their current levels. Interest rates should remain
relatively stable if growth does not rebound significantly and if inflation
remains benign. Recent inflation reports suggest that this trend should
continue, as the Consumer Price Index has been rising only moderately, while the
Producer Price Index has actually been falling so far in 1997.
Another component of inflation, which is closely watched by the Federal Reserve,
is the Employment Cost Index, which on average represents two-thirds of the
final cost of a product. There have been concerns that the current economy is
heading towards full employment which will force manufacturers to raise wages
and subsequently prices, as they compete for skilled workers. Recent reports,
however, suggest that wage pressures remain under control. Slowing has become
evident in the manufacturing sector as new orders for durable goods have
recently tapered off. In addition, strong retail sales witnessed in the first
quarter of 1997 have somewhat slowed, demonstrating the unwillingness of
consumers to pay higher prices for goods and services in what is currently a
very competitive environment.
Furthermore, the strength of the U.S. Dollar and productivity gains experienced
by U.S. corporations have also helped to hold down prices and production costs.
These factors all point to a continuation of the currently low inflation
environment and have led to suggestions by Federal Reserve Chairman Alan
Greenspan that an interest rate increase may not be necessary over the near
term.
The markets have performed well in response to current economic conditions.
Since early 1997, bond yields have dropped and equity markets have rallied back
to new highs. Given the favorable economic outlook, we remain positive on both
bonds and stocks. Overseas, there has been continued strength in core Europe and
selected emerging-market countries. Global bond prices have been strengthening,
reflecting the view that worldwide inflation should remain benign. Of course,
while our overall outlook for the financial markets is decidedly positive, we
continue to believe that, regardless of any outlook, risk and risk control
should always remain an important consideration when making investment
decisions.
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OUTLOOK SUMMARY
o Continued economic growth, but at a slower, more sustainable rate than in the
first quarter of 1997
o Continued low levels of worldwide inflation
o Positive outlook for equity markets, although volatility seen in the first
half of 1997 may continue
o Positive outlook for fixed-income investments as interest rates should remain
relatively steady or fall with slow growth and benign inflation
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<PAGE>
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INDIVIDUAL PORTFOLIO REVIEWS
UNDERSTANDING THE ENCLOSED CHARTS AND PERFORMANCE
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 intended
to represent a proxy for Portfolio performance. Descriptions of the indices used
are as follows:
o The Salomon Brothers U.S. 90-Day T-Bill Index measures performance of United
States Treasury Bills with maturities of three months.
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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 designed to meet your individual investment needs.
This report includes a reiteration of the goals and objectives of each
Portfolio, performance reviews, and highlights of the investment strategies
incorporated during the 12-month period ended June 30, 1997.
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o 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.
o 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.
o 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.
o The Lehman Brothers Aggregate Index is an all-inclusive bond index which
contains government, corporate, mortgage and asset-backed securities.
o 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.
o 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.
o 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.
o 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.
o The Morgan Stanley Capital International (MSCI) Europe, Australasia, 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.
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SAM CAPITAL GROWTH PORTFOLIO
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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 of 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)
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PERFORMANCE REVIEW [LINE CHART]
Fund (Class
A Shares; Fund (Class
adjusted for A Shares;
the maximum not adjusted Capital Russell
5.75% sales for sales Market 3000
charge) charge) Benchmark(3) Index(4)
Inception(2) May 31, 1995
May 95 9436 10000 10000 10000
Jun 9790 10375 10235 10289
Jul 10293 10908 10576 10702
Aug 10372 10992 10604 10797
Sep 10654 11291 11049 11216
Oct 10334 10951 11010 11119
Nov 10706 11346 11494 11612
Dec 95 10986 11657 11707 11802
Jan 11168 11849 12110 12144
Feb 11506 12208 12226 12323
Mar 11809 12530 12343 12447
Apr 12144 12886 12525 12683
May 12390 13146 12848 13008
Jun 12063 12799 12901 12966
Jul 11209 11893 12327 12287
Aug 11729 12444 12588 12660
Sep 12231 12977 13295 13349
Oct 12082 12819 13660 13593
Nov 12676 13449 14696 14552
Dec 96 12585 13353 14408 14377
Jan 12936 13725 15303 15172
Feb 12753 13532 15427 15189
Mar 12172 12914 14785 14501
Apr 12414 13171 15667 15212
May 13226 14033 16619 16247
June 97 13651 14483 17364 16925
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.
For the 12-month period ended June 30, 1997, the SAM CAPITAL GROWTH PORTFOLIO
produced total returns of 13.22%, or 6.71% adjusted for the maximum sales
charge.
Illustrating the benefits of asset diversification, this return was achieved in
spite of the underperformance of small-cap stocks. Strong performance from other
asset classes (large-cap stocks, mid-cap stocks, and foreign stocks) in the
Portfolio produced the net total return for the year. From the Portfolio's
inception on May 31, 1995, through June 30, 1997, the SAM CAPITAL GROWTH
PORTFOLIO (Class A Shares) has averaged a total return of 19.45% per year, or
16.10% per year when adjusted for the maximum sales charge and annual SAM fees.
For additional information, including Class B Share performance, see the table
below.(2)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/97 1 Year 5 Year Since Inception
------------------------------------------
(May 31, 1995)
CLASS A SHARES
<S> <C> <C> <C>
Fund (not adjusted for sales charge) 13.22% N/A 19.45%
Fund (adjusted for the maximum 5.75% sales charge) 6.71% N/A 16.10%
Capital Market Benchmark(3) 34.70% N/A 30.33%
<CAPTION>
CLASS B SHARES 1 Year 5 Year Since Inception
------------------------------------------
(May 31, 1995)
<S> <C> <C> <C>
Fund (not adjusted for sales charge) 12.41% N/A 18.63%
Fund (adjusted for the maximum 5% CDSC) 7.41% N/A 17.43%(5)
Capital Market Benchmark(3) 34.70% N/A 30.33%
- ---------------------------------------------------------------------------------------------------------
(1) The stated goals may or may not be met and are in no way a guarantee.
(2) 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.
(3) 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 index, 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.
(4) The Russell 3000 Index is a broad-based index and is intended to represent the equity market as a
whole.
(5) Adjusted for the maximum 4% CDSC for shares held since inception.
For the period November 1, 1996 to June 30, 1997, 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 credits were allowed by the
Custodian. Prior to November 1, 1996, only the Custodian allowed credits. In the absence of the
waivers and absorption of other expenses, or Custodian credits, total return would have been lower.
</TABLE>
In spite of strong performance for investors, the Portfolio underperformed
relative to its benchmark, the S&P 500 index. The underperformance of the
small-cap class caused the one-year returns of the Portfolio to lag the S&P 500,
even though the Portfolio was overweighted in the stronger-performing mid-cap
and large-cap classes. Reduced participation in up-trending markets is
characteristic of diversified portfolios; however, when markets ultimately
reverse direction, diversified portfolios also reduce participation in the
downtrends. For example, at the point where the Dow Jones Industrial Average had
declined 700 points, or 10%, from March-April 1997, the Portfolio was down only
7.28%. SAM Portfolios are intended to produce less-volatile returns for
investors, returns which will grow faster than inflation, thus preserving the
purchasing power of the invested assets.
ECONOMIC/MARKET REVIEW
Equity markets worldwide produced positive, but volatile, performance in the
12-month period ended June 30, 1997. Economic strength helped produce strong
results for large-cap and mid-cap equity issues. However, within the equity
classes, wide divergence in performance occurred between the different
capitalization sectors and contributed to overall volatility. Small-cap stocks
significantly underperformed larger-cap stocks. Among small-cap issues,
growth-type stocks also underperformed value-type stocks. As a result, the
Sierra Emerging Growth Fund, a portfolio of small-cap growth-type stocks,
produced negative results for the period.
In addition, tremendous economic growth in the first quarter of 1997 incited
inflation fears and caused the Federal Reserve to raise short-term interest
rates. As interest rates spiked up, gains in the equity markets were wiped out.
After breaking 7000, the Dow corrected nearly 10% or 700 points. This short-term
trend later reversed itself in the second quarter of 1997, when slower, more
sustainable economic growth replaced inflation fears. This caused very strong
performance in domestic stock prices. Bolstered by economic and market strength
in Japan, Europe, and Latin America, foreign issues also produced appreciation
for investors.
INVESTMENT STRATEGY
The SAM CAPITAL GROWTH PORTFOLIO took advantage of the favorable economic and
market environments by remaining fully invested in equities for almost the
entire year. During this time the PORTFOLIO was well-diversified, holding all
four Sierra equity funds; a position in a money fund was also utilized. These
five funds represent six major asset classes. By allocating its assets among
these five funds the Portfolio was able to manage risk while producing capital
appreciation.
More specifically, the Portfolio's investment strategy was:
1) to enhance prospects for capital appreciation by maintaining a broadly
diversified mix of equities favoring the core holdings found in the Sierra
Growth and Sierra Growth & Income Funds
2) lower overall risk of the Portfolio by reducing exposure to both small-cap
and international stocks and by adding a small cash position.
PORTFOLIO REALLOCATION REVIEW
The Portfolio began the period overweighted in small-cap stocks (30% in the
Sierra Emerging Growth Fund) which, due to subsequent underperformance, was
reduced throughout the period to its current under-weighted level of 10%.
Following the above strategy to take advantage of strength in the larger-cap
classes, each of the allocations into large-cap stocks (Sierra Growth & Income
Fund) and mid-cap stocks (Sierra Growth Fund) was increased to 35%. To lower the
overall risk of the Portfolio, a position in cash was allocated to money market
assets (10% in the Sierra Global Money Fund) and the position in the Sierra
International Growth Fund was reduced to 10%.
OUTLOOK
As small-cap stocks have begun to rebound in May and June of 1997, it remains
our view that a properly diversified equity portfolio will provide added value
over the long term. The reallocations over the past 12 months resulted in very
positive performance for the SAM CAPITAL GROWTH PORTFOLIO and should also
produce reduced risk levels, should market weakness recur. The Portfolio will
continue to be managed to maximize the benefits of asset allocation and reduce
the risks associated with exposure to a single asset or asset class. Sierra will
also continue to position the Portfolio to take advantage of market
opportunities while striving to meet its long-term goal of reduced risk and
capital growth in excess of inflation.
<PAGE>
- --------------------------------------------------------------------------------
MUTUAL FUND ALLOCATION AS OF JUNE 30, 1997 - PIE CHART
- --------------------------------------------------------------------------------
International Growth Fund: 10%
Global Money Fund: 10%
Emerging Growth Fund: 10%
Growth Fund: 35%
Growth & Income Fund: 35%
- --------------------------------------------------------------------------------
ASSET CLASS DIVERSIFICATION AS OF JUNE 30, 1997 - PIE CHART
- --------------------------------------------------------------------------------
U.S. Equity Small Cap: 11.04%
Corporates: 0.56%
Foreign Stocks: 15.14%
U.S. Equity Large Cap: 30.02%
Cash Equivalents: 17.90%
U.S. Equity Mid Cap: 25.34%
<PAGE>
- --------------------------------------------------------------------------------
SAM GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
GOAL & 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 above 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)
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
The SAM GROWTH PORTFOLIO produced total returns of 8.84% for the 12-month period
ended June 30, 1997, or 2.85% adjusted for the maximum sales charge.
Underperformance by small-cap growth stocks and an underweight in the large-cap
sector had a negative impact on the Portfolio's return, but strong performance
from other classes enabled the Portfolio to produce competitive results for the
year. Reduced participation in up-trending markets are characteristic of
diversified portfolios; however, when markets ultimately reverse direction,
diversified portfolios also reduce participation in the downtrends. For example,
at the point where the Dow declined 700 points, or 10%, from March-April 1997,
the Portfolio was down less than 6%. The SAM Portfolios are intended to produce
less-volatile returns for investors, returns which will outpace inflation, thus
preserving the purchasing power of the invested assets.
Fund (Class
A Shares; Fund (Class
adjusted for A Shares;
the maximum Capital not adjusted Russell
5.75% sales Market for sales 3000
charge) Benchmark(3) charge) Index(4)
Inception(2) September 30, 1990
Sep 90 9456 10000 10000 10000
9645 10199 10295 9922
9860 10427 10490 10604
Dec 9981 10555 10691 10931
10317 10911 11013 11479
10857 11482 11619 12340
10870 11495 11654 12704
10977 11608 11719 12717
11226 11872 11980 13243
Jun 10795 11416 11604 12640
11162 11804 11971 13237
11338 11991 12103 13591
11459 12118 12215 13436
11702 12375 12375 13660
11446 12105 12094 13136
Dec 91 12266 12971 12823 14609
12411 13125 12750 14510
12518 13238 12749 14703
12103 12799 12475 14378
12149 12848 12609 14669
12436 13152 12830 14766
Jun 12269 12975 12636 14501
12378 13090 12823 15100
12450 13166 12884 14774
12409 13123 12944 14972
12358 13068 12849 15120
12643 13370 13080 15742
Dec 92 12805 13550 13213 16023
12989 13737 13305 16180
13239 14001 13449 16285
13624 14408 13811 16692
13709 14498 13948 16250
14024 14831 14180 16717
Jun 14028 14835 14202 16826
14128 14940 14296 16797
14728 15576 14722 17450
14770 15620 14667 17448
15068 15935 14906 17698
14694 15540 14596 17424
Dec 93 15194 16068 14936 17766
15752 16659 15417 18309
15422 16309 15228 17866
14803 15655 14787 17085
14856 15711 14950 17281
14709 15555 15032 17471
Jun 14380 15207 14914 16993
14804 15656 15185 17520
15208 16083 15577 18283
14966 15827 15360 17894
15196 16071 15594 18189
14677 15521 15210 17526
Dec 94 14667 15510 15317 17797
14606 15447 15366 18187
14841 15694 15653 18930
15066 15932 16050 19401
15353 16236 16403 19908
15706 16610 16711 20630
Jun 16204 17137 16893 21227
16938 17913 17377 22080
17093 18076 17321 22276
17492 18498 17689 23139
17064 18045 17577 22939
17542 18551 18020 23956
Dec 95 17977 19023 18351 24347
18232 19293 18657 25054
18755 19847 18754 25424
19154 20268 18911 25679
19646 20789 19208 26166
19960 21123 19388 26836
Jun 19590 20730 19427 26749
18377 19446 18908 25349
19121 20234 19160 26118
19779 20930 19738 27539
19500 20635 19906 28043
20097 21266 20664 30021
Dec 96 19990 21154 20505 29660
20226 21403 20925 31301
19931 21091 21030 31335
19126 20239 20657 29917
19439 20571 21166 31382
20656 21858 22081 33519
June 97 21323 22564 22766 34916
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.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/97 1 Year 5 Year Since Inception
------------------------------------------
(September 30, 1990)
CLASS A SHARES
<S> <C> <C> <C>
Fund (not adjusted for sales charge) 8.84% 11.71% 12.83%
Fund (adjusted for the maximum 5.5% sales charge) 2.85% 10.45% 11.89%
Capital Market Benchmark(3) 17.19% 12.50% 12.96%
<CAPTION>
CLASS B SHARES 1 Year 5 Year Since Inception
------------------------------------------
(June 30, 1994)
<S> <C> <C>
Fund (not adjusted for sales charge) 8.03% N/A 13.24%
Fund (adjusted for the maximum 5% CDSC) 3.03% N/A 12.45%(5)
Capital Market Benchmark3 17.19% N/A 15.14%
- ---------------------------------------------------------------------------------------------------------
(1) The stated goals may or may not be met and are in no way a guarantee.
(2) 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.
(3) 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.
(4) The Russell 3000 Index is a broad-based index and is intended to represent the equity market as a
whole.
(5) Adjusted for the maximum 3% CDSC for shares held since inception.
For the period November 1, 1996 to June 30, 1997, 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 allowed 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 allowed credits. In the absence of the waivers, absorption of other expenses, or
Custodian credits, yield and total return would have been lower.
</TABLE>
Further illustrating the value of diversification, the Portfolio returned over
11.50% (5.36% adjusted for the maximum sales charge) due to strong performance
from both domestic and foreign stocks in the last quarter of the Portfolio's
fiscal year (2Q97). From the Portfolio's inception on September 30, 1990 through
June 30, 1997, the SAM GROWTH PORTFOLIO (Class A Shares) has averaged a total
return of 12.83% per year, or 11.89% per year when adjusted for the maximum
sales charge and annual SAM fees. For additional information, including Class B
Share performance, see the accompanying table.(2)
ECONOMIC/MARKET REVIEW
Equity markets worldwide produced positive, but volatile, performance in the
12-month period ended June 30, 1997. A strong domestic economy helped produce
very positive results for large-cap and mid-cap equity issues. However, within
the equity classes, wide divergences in performance occurred between the
different capitalization sectors and contributed to overall volatility.
Small-cap stocks significantly underperformed larger-cap stocks, and within the
small-cap asset class, growth-type stocks underperformed value-type stocks. As a
result, the Sierra Emerging Growth Fund, a portfolio of small-cap growth-type
stocks, produced negative results for the period.
In addition, tremendous economic growth in the first quarter of 1997 incited
inflation fears and caused the Federal Reserve to raise short-term interest
rates. As a result, during the first half of 1997, interest rates spiked up and
the recent gains in the equity markets were wiped out. This short-term trend
later reversed itself in the second quarter, as slower, more sustainable
economic growth replaced inflation fears. Consequently, interest rates fell and
equity markets rallied back to new highs. Bolstered by economic and market
strength in Japan, Europe, and Latin America, foreign issues also produced
appreciation for investors.
INVESTMENT STRATEGY
During the period, the Portfolio was well-diversified, holding six mutual funds
representing eight major asset classes. Holding these different asset classes
enabled the Portfolio to manage risk while producing capital appreciation. By
diversifying among various stock asset classes, the Portfolio was able to reduce
the risk of market fluctuations. The addition of bond asset classes produced
current income for the Portfolio and helped to further reduce overall
volatility.
More specifically, the Portfolio's investment strategy was:
1) to enhance prospects for capital appreciation by maintaining a broadly
diversified mix of equities favoring the core holdings found in the Sierra
Growth and Sierra Growth & Income Funds
2) Maintain an 80% concentration in equities and 20% in short- to
intermediate-term fixed-income assets to enhance growth potential while
reducing overall levels of risk
PORTFOLIO REALLOCATION REVIEW
The Portfolio maintained an 80% weight in equities throughout the period. The
overall risk level was lowered by a 10% allocation in cash and a 10% allocation
in mortgage-backed securities found in the Sierra U.S. Government Fund. Although
the concentration in small-cap growth stocks was reduced in the early part of
1997, the underperformance of this class relative to the stronger-performing
mid-cap and large-cap classes had an adverse effect on overall Portfolio
performance. The Portfolio was underweighted in large-cap equities throughout
the second half of 1996 and early 1997, which reduced participation in the
large-cap dominated market surge. Strength in foreign economies also contributed
to positive overall performance as the Portfolio carried a 20% weight in foreign
stocks. With prospects for continued economic strength, the Portfolio is
positioned to capture growth with a 45% weight in core domestic equities found
in the Sierra Growth and Sierra Growth & Income Funds.
OUTLOOK
As stocks in the small-cap growth and foreign sectors began to rebound in the
second quarter of 1997, it remains our view that a portfolio diversified
primarily in the equity classes, including those sectors, will provide added
value. The reallocations over the past 12 months resulted in positive
performance for the SAM GROWTH PORTFOLIO and should also reduce risk levels,
should market weakness recur. The Portfolio will continue to be managed to
maximize the benefits of asset allocation and reduce the risks associated with
exposure to a single asset or asset class. Sierra will also continue to position
the Portfolio to take advantage of market opportunities while striving to meet
its long-term goal of reduced risk and growth in excess of inflation.
- -------------------------------------------------------------------------------
MUTUAL FUND ALLOCATION AS OF JUNE 30, 1997 - PIE CHART
- -------------------------------------------------------------------------------
U.S. Government Fund: 10%
Global Money Fund: 10%
Growth Fund: 25%
Emerging Growth Fund: 15%
Growth & Income Fund: 20%
International Growth Fund: 20%
- -------------------------------------------------------------------------------
ASSET CLASS DIVERSIFICATION AS OF JUNE 30, 1997 - PIE CHART
- -------------------------------------------------------------------------------
Cash Equivalents: 16.51%
U.S. Equity Small Cap: 12.06%
Treasuries: 2.84%
Corporates: 0.32%
U.S. Govt. Mortgages & Agencies: 6.61%
Foreign Stocks: 23.15%
Other: 0.55%
U.S. Equity Large Cap: 18.57%
U.S. Equity Mid Cap: 19.39%
<PAGE>
- -------------------------------------------------------------------------------
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 above 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)
- -------------------------------------------------------------------------------
PERFORMANCE REVIEW - LINE GRAPH
Fund (Class
A Shares; Fund (Class
adjusted for A Shares;
the maximum not adjusted Lehman Brothers Capital Russell
5.75% sales for sales Aggregate Market 3000
charge) charge) Bond Index(6) Benchmark(4) Index(5)
Inception(3) September 30, 1990
Sep 90 9487 10000 10000 10000 10000
9687 10211 10286 10127 9922
9805 10335 10384 10345 10604
Dec 9922 10458 10537 10506 10931
10185 10736 10734 10636 11479
10587 11160 11076 10727 12340
10492 11059 11071 10801 12704
10607 11180 11156 10917 12717
10766 11349 11301 10981 13243
Jun 10492 11059 11137 10975 12640
10777 11360 11378 11128 13237
10935 11527 11489 11368 13591
11052 11649 11647 11599 13436
11164 11768 11783 11728 13660
11009 11604 11694 11836 13136
Dec 91 11649 12279 12104 12187 14609
11575 12201 12014 12021 14510
11619 12247 12021 12100 14703
11349 11962 11866 12032 14378
11444 12063 11987 12118 14669
11707 12340 12200 12347 14766
Jun 11608 12236 12160 12518 14501
11696 12329 12268 12773 15100
11815 12454 12405 12902 14774
11762 12398 12457 13056 14972
11608 12235 12333 12882 15120
11800 12438 12416 12885 15742
Dec 92 11936 12581 12529 13090 16023
12087 12741 12635 13341 16180
12303 12969 12787 13574 16285
12634 13318 13025 13631 16692
12809 13502 13201 13727 16250
13038 13743 13310 13745 16717
Jun 13064 13770 13357 13993 16826
13175 13887 13443 14073 16797
13595 14330 13694 14319 17450
13629 14366 13660 14358 17448
13852 14601 13796 14411 17698
13525 14257 13612 14289 17424
Dec 93 13870 14620 13842 14366 17766
14326 15101 14153 14560 18309
14031 14790 14037 14306 17866
13486 14215 13751 13953 17085
13437 14163 13818 13841 17281
13300 14019 13878 13840 17471
Jun 13044 13749 13858 13810 16993
13442 14169 14064 14084 17520
13720 14462 14252 14101 18283
13457 14185 14096 13894 17894
13606 14342 14221 13882 18189
13225 13940 14028 13851 17526
Dec 94 13229 13945 14099 13947 17797
13276 13993 14191 14223 18187
13549 14282 14406 14561 18930
13720 14462 14645 14650 19401
14002 14759 14895 14855 19908
14448 15229 15167 15430 20630
Jun 14682 15476 15245 15543 21227
15118 15936 15487 15509 22080
15271 16097 15489 15696 22276
15542 16382 15694 15848 23139
15403 16236 15704 16054 22939
15822 16678 15957 16295 23956
Dec 95 16083 16975 16191 16523 24347
16278 17181 16383 16632 25054
16391 17300 16369 16343 25424
16460 17373 16432 16229 25679
16707 17633 16547 16138 26166
16828 17762 16583 16105 26836
Jun 16692 17617 16707 16321 26749
16135 17029 16558 16365 25349
16451 17363 16650 16338 26118
16927 17864 16971 16622 27539
16993 17934 17152 16991 28043
17562 18535 17550 17281 30021
Dec 96 17444 18411 17460 17121 29660
17730 18713 17631 17174 31301
17659 18638 17743 17217 31335
17198 18151 17606 17026 29917
17536 18507 17902 17281 31382
18272 19284 18313 17445 33519
June 97 18687 19722 18677 17653 34916
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.
For the 12-month period ended June 30, 1997, the SAM BALANCED PORTFOLIO'S total
return was 11.91%, or 6.04% after adjusting for the maximum sales charge.
Capital gains from the Portfolio's equity assets made up most of this return,
but income from the Portfolio's bond asset classes also contributed to total
return for the year. As of June 30, 1997, the 30-Day SEC Yield was 1.68%.
Long-term results (since inception September 30, 1990, through June 30, 1997)
continue to be very strong, with an average total return of 10.58% per year, or
9.70% per year adjusted for the maximum sales charge. Consistent with the
Portfolio's objective of above-inflation returns, these long-term returns are in
excess of average inflation rates, and have produced a premium over inflation
averaging 7.73% per year, or 6.85%(2) per year adjusted for the maximum sales
charge. Also consistent with the Portfolio's objective of reduced risk, the
average volatility of returns are reduced relative to single asset class
investments. For additional information, including Class B Share performance,
see the accompanying chart.(3)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/97 1 Year 5 Year Since Inception
------------------------------------------
(September 30, 1990)
CLASS A SHARES
<S> <C> <C> <C>
Fund (not adjusted for sales charge) 11.91% 10.01% 10.58%
Fund (adjusted for the maximum 5.25% sales charge) 6.04% 8.83% 9.70%
Capital Market Benchmark(4) 11.79% 8.96% 9.70%
<CAPTION>
CLASS B SHARES 1 Year 5 Year Since Inception
------------------------------------------
(June 30, 1994)
<S> <C> <C>
Fund (not adjusted for sales charge) 11.10% N/A 12.02%
Fund (adjusted for the maximum 5% CDSC) 6.10% N/A 11.22%(7)
Capital Market Benchmark4 11.79% N/A 10.46%
- ---------------------------------------------------------------------------------------------------------
(1) The stated goals may or may not be met and are in no way a guarantee.
(2) Annual rate of inflation: 2.85% Source: Bloomberg Business News
(3) 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.
(4) 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.
(5) The Russell 3000 Index is a broad-based index and is intended to represent the equity market as a
whole.
(6) The Lehman Brothers Aggregate Index is a broad-based index intended to represent the fixed-income
market as a whole.
(7) Adjusted for the maximum 3% CDSC for shares held since inception.
For the period November 1, 1996 to June 30, 1997, 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 allowed 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 allowed credits. In the absence of the waivers, absorption of other expenses, or
Custodian credits, yield and total return would have been lower.
</TABLE>
ECONOMIC/MARKET REVIEW
The bond markets experienced short-term periods of volatility over the past 12
months, but the net result was slightly lower interest rates for the period. The
yield on the 10-year Treasury Note dropped almost one-quarter of a percent, or
22 basis points, from 6.71% in June 1996 to 6.49% as of June 30, 1997. In the
second half of 1996 low inflation rates provided a positive backdrop for
fixed-income investments, as falling interest rates boosted bond prices. In
early 1997, economic activity increased, raising concerns about inflation; as a
result, interest rates spiked up in the first quarter of 1997. The economy
subsequently slowed, and interest rates fell in the second quarter.
Inflation fears and higher interest rates also caused temporary weakness in the
equity (stock) markets in early 1997. After a strong second half of 1996 led by
large-capitalization stocks, the Dow Jones Industrial Average dropped nearly 10%
in March and April. When selling subsided and prices recovered in the second
quarter, all equity asset classes participated, with the small-cap and mid-cap
classes outperforming the large-caps. Overall, sustainable economic growth
coupled with low inflation during the period produced a positive environment for
earnings and stock prices.
INVESTMENT STRATEGY
The SAM BALANCED PORTFOLIO remained diversified in as many as seven funds. With
those funds representing eight major asset classes of bonds and stocks, a high
degree of asset diversification was provided to investors. Diversification of
stock asset classes reduces the risk of market fluctuations, and diversification
of bond asset classes helps to reduce price volatility due to interest rate
fluctuations.
More specifically, the investment strategy for the Portfolio was to:
1) Increase the levels of diversification and manage risk by weighting the
Portfolio 60% in equities and 40% in fixed income
2) Create a focus on mid- and large-cap equities while maintaining a small
foreign position and weighting the fixed-income portion in cash and
mortgage-backed securities
PORTFOLIO REALLOCATION REVIEW
Due to the active asset allocation provided by the SAM Portfolios, much of the
negative performance of the first quarter of 1997 was averted. Prior to the
upturn in interest rates, the Portfolio was allocated away from higher
volatility long-term fixed-income securities and small-cap equity issues, which
represented only 15% of Portfolio assets. Bonds with shorter maturities do not
react to interest rate fluctuations as much as long-term bonds; the
lower-volatility characteristics of the short- and intermediate-term bonds
helped to reduce downside risk for the Portfolio. In addition, the equity
performance bolstered overall returns as the market was led by the large-cap
stocks found in the Sierra Growth & Income Fund, which currently represents 30%
of the Portfolio.
The fixed-income portion of the Portfolio created strong relative performance by
investing in the mortgage-backed securities found in the Sierra U.S. Government
Fund. Mortgage-related securities outperformed Treasury bonds by 180 basis
points in the past 12 months, according to Lehman Brothers, by virtue of their
superior current yields. Globally, the Portfolio benefited, not only from the
higher degree of diversification achieved by an international component, but
also by the strong performance of international stocks. Although domestic
stocks tended to outperform global equities as a whole, economic and market
strength in Japan, Europe, and Latin America also produced appreciation for
investors.
OUTLOOK
Given our outlook for a low inflation rate environment over the next several
quarters, prospects for both equity and fixed-income assets remain very
positive. The strategic positioning of the Portfolio throughout the period
worked to not only provide real growth of assets, but also to lower risk. The
Portfolio will continue to be managed towards its goal of capital appreciation
and income. It will be positioned to maximize the benefits of asset allocation
in anticipation of changing market and economic conditions, especially if
inflation fears arise and the probability of higher interest rates resurfaces.
- -------------------------------------------------------------------------------
MUTUAL FUND ALLOCATION AS OF JUNE 30, 1997 - PIE CHART
- -------------------------------------------------------------------------------
International Growth Fund: 15%
Growth Fund: 15%
Growth & Income Fund: 30%
Global Money Fund: 20%
U.S. Government Fund: 20%
- -------------------------------------------------------------------------------
ASSET CLASS DIVERSIFICATION AS OF JUNE 30, 1997 - PIE CHART
- -------------------------------------------------------------------------------
Foreign Stocks: 17.42%
U.S. Equity Small Cap: 2.91%
Other: 1.10%
U.S. Equity Mid Cap: 14.05%
Treasuries: 5.68%
Corporates: 0.48%
U.S. Govt. Mortgages & Agencies: 13.22%
Cash Equivalents: 23.66%
U.S. Equity Large Cap: 21.48%
<PAGE>
- -------------------------------------------------------------------------------
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 above 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)
- -------------------------------------------------------------------------------
PERFORMANCE REVIEW - LINE GRAPH
Fund (Class
A Shares; Fund (Class
adjusted for A Shares;
the maximum not adjusted Capital Lehman Brothers
4.50% sales for sales Market Aggregate
charge) charge) Benchmark(3) Bond Index(4)
Inception(2) March 31, 1993
Mar 93 9550 10000 10000 10000
9528 9977 10022 10070
9666 10121 10052 10083
Jun 9793 10255 10117 10266
9838 10301 10135 10324
10065 10539 10238 10505
Sep 10087 10562 10255 10533
10195 10676 10300 10572
10069 10544 10290 10482
Dec 93 10164 10643 10339 10539
10374 10863 10430 10681
10157 10636 10363 10495
Mar 9839 10302 10260 10236
9715 10173 10253 10154
9588 10039 10291 10153
Jun 9461 9907 10284 10131
9684 10140 10399 10332
9765 10225 10473 10345
Sep 9639 10093 10426 10193
9667 10123 10471 10184
9576 10028 10424 10161
Dec 94 9544 9994 10476 10231
9684 10140 10609 10434
9915 10382 10770 10682
Mar 10012 10483 10853 10747
10180 10659 10967 10898
10585 11083 11168 11320
Jun 10674 11177 11249 11402
10808 11318 11321 11377
10960 11476 11389 11515
Sep 11121 11645 11494 11626
11129 11654 11565 11778
11362 11897 11699 11954
Dec 95 11546 12090 11797 12122
11586 12131 11911 12202
11493 12035 11899 11989
Mar 11485 12026 11912 11905
11502 12044 11943 11839
11530 12074 11994 11815
Jun 11575 12120 12078 11973
11467 12007 12067 12006
11539 12083 12126 11985
Sep 11783 12338 12289 12194
12008 12574 12437 12465
12355 12937 12618 12678
Dec 96 12289 12869 12596 12560
12454 13041 12729 12599
12489 13077 12774 12630
Mar 12310 12890 12715 12490
12479 13067 12883 12677
12684 13281 13031 12798
Jun 97 12828 13433 13161 12950
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.
For the 12-month period ended June 30, 1997, the SAM VALUE PORTFOLIO produced a
total return of 10.79%, or 5.81% adjusted for the maximum sales charge. Current
yields from the Portfolio contributed to those returns; the 30-Day SEC Yield was
4.36% as of June 30, 1997.
Consistent with its investment objectives, the Portfolio has continued to
produce a premium over inflation, with an average annual total return of 7.18%,
or 6.03% adjusted for the maximum sales charge, from inception March 31, 1993,
through June 30, 1997. Also consistent with its objective, average risk or
volatility of returns is lower than that of single asset class fixed-income
investments. For additional information including Class B Share performance, see
the table below.(2)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/97 1 Year 5 Year Since Inception
------------------------------------------
(March 31, 1993)
CLASS A SHARES
<S> <C> <C> <C>
Fund (not adjusted for sales charge) 10.79% N/A 7.18%
Fund (adjusted for the maximum 4.5% sales charge) 5.81% N/A 6.03%
Capital Market Benchmark(3) 8.97% N/A 6.68%
<CAPTION>
CLASS B SHARES 1 Year 5 Year Since Inception
------------------------------------------
(June 30, 1994)
<S> <C> <C> <C>
Fund (not adjusted for sales charge) 10.04% N/A 9.92%
Fund (adjusted for the maximum 5% CDSC) 5.04% N/A 9.08%(5)
Capital Market Benchmark(3) 8.97% N/A 8.57%
(1) The stated goals may or may not be met and are in no way a guarantee.
(2) 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.
(3) 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.
(4) The Lehman Brothers Aggregate Index is a broad-based index intended to represent the fixed-income
market as a whole.
(5) Adjusted for the maximum 3% CDSC for shares held since inception.
For the period November 1, 1996 to June 30, 1997, 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 allowed 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 allowed
credits. In the absence of the waivers, absorption of other expenses, or Custodian credits, yield and
total return would have been lower.
</TABLE>
ECONOMIC/MARKET REVIEW
The bond markets experienced periods of volatility over the past 12 months, but
the net result was slightly lower interest rates for the period. The yield on
the 10-year Treasury Note dropped almost one-quarter of a percent, or 22 basis
points, from 6.71% in June 1996 to 6.49% on June 30, 1997. Inflation remained
very low throughout the entire period. During the second half of 1996, slow,
sustainable economic growth coupled with low inflation paved the way for
declining rates and strong bond prices. Signs of stronger growth appeared in
early 1997 which led to inflation fears, rising interest rates, and weaker
prices. However, activity slowed during the second quarter of 1997, allowing
interest rates to settle and bond prices to recover.
Equity were also affected by these economic and interest rate trends. When
interest rates increased in the first quarter of 1997 the equity markets reacted
by dropping nearly 10%. This trend reversed itself in the second quarter of 1997
as slower growth returned, interest rates fell, and equity markets rallied back
to new highs.
INVESTMENT STRATEGY
The SAM VALUE PORTFOLIO remained diversified in as many as seven funds,
representing ten major asset classes. This level of diversification can reduce
potential risk, as measured by volatility of returns, to levels below that of
most single-fund holdings. Just as diversification of stock asset classes
reduces the risk of market fluctuations, diversification of bond asset classes
helps to reduce price volatility due to interest rate fluctuations.
More specifically, the investment strategy for the Portfolio was to:
1) Provide investors with income and capital appreciation with 85% of its
holdings in bonds and 15% in large-cap equities
2) Maintain a competitive current yield by investing in corporate bonds and
mortgage-backed securities, which produce higher yields than like-maturity
Treasuries.
PORTFOLIO REALLOCATION REVIEW
Due to the active asset allocation provided by the SAM Portfolios, much of the
negative performance of the first quarter of 1997 was averted. Prior to the
upturn in interest rates, the Portfolio was allocated away from higher
volatility long-term securities, with a total of 65% of Portfolio assets
invested in short-term and intermediate-term bond classes. Bonds with shorter
maturities do not react to interest rate fluctuations as much as long-term
bonds; the lower-volatility characteristics of the short- and intermediate-term
bonds helped to reduce downside risk for the Portfolio. In addition, the
Portfolio was invested in large-cap equity issues found in the Sierra Growth &
Income Fund which led the market throughout the period and made a strong
contribution to overall performance. The allocation in equities was recently
reduced from 20% to 15% to reduce overall Portfolio risk.
Positions in mortgage-backed bonds and long-term corporate bonds enabled the
Portfolio to pay a competitive current yield throughout the period, even through
the short-term periods of price weakness.
The SAM VALUE PORTFOLIO benefited from an overweight in the higher-yielding
mortgage sector, currently more than 25% of portfolio assets. Mortgage-related
securities outperformed Treasury bonds by 180 basis points in the past 12
months, according to Lehman Brothers, by virtue of their superior current
yields. The allocation in the long-term Sierra Corporate Income Fund, while
adding somewhat to overall volatility, also provided high levels of income; and
the fund's contribution to Portfolio total returns was positive due to the net
decline in interest rates for the period.
In addition, increased allocations to foreign bonds through the Sierra Short
Term Global Government Fund further diversified the Portfolio and contributed
positively to overall performance.
OUTLOOK
Given our outlook for a low inflation rate environment over the next several
quarters, prospects for fixed-income assets remain very positive. The strategic
positioning of the Portfolio throughout the period worked to not only provide
income, but also enhance overall performance. The Portfolio will continue to be
managed towards its goal of income with some degree of capital appreciation. It
will be positioned to maximize the benefits of asset allocation in anticipation
of changing market and economic conditions, especially if inflation fears arise
and the probability of higher interest rates recurs.
- --------------------------------------------------------------------------------
MUTUAL FUND ALLOCATION AS OF JUNE 30, 1997 - PIE CHART
- --------------------------------------------------------------------------------
Short Term Global Govt. Fund: 10%
Short Term High Quality Bond Fund: 5%
Corporate Income Fund: 10%
U.S. Government Fund: 35%
Growth & Income Fund: 15%
Global Money Fund: 25%
- --------------------------------------------------------------------------------
ASSET CLASS DIVERSIFICATION AS OF JUNE 30, 1997 - PIE CHART
- --------------------------------------------------------------------------------
U.S. Equity Small Cap: 0.56%
U.S. Equity Mid Cap: 4.76%
U.S. Equity Large Cap: 8.62%
Foreign Bonds: 6.45%
Foreign Stocks: 0.74%
Corporates: 10.42%
Cash Equivalents: 25.97%
Treasuries: 10.94%
Other: 3.35%
Asset-Backed: 1.77%
U.S. Govt. Mortgages & Agencies: 26.42%
<PAGE>
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW - LINE GRAPH
Fund (Class
Fund (Class A Shares;
A Shares; adjusted for
Capital not adjusted the maximum Lehman Brothers
Market for sales 4.50% sales Aggregate
Benchmark(4) charge) charge) Bond Index(5)
Inception(3) September 30, 1990
Sep 90 9550 10000 10000 10000
9556 10007 10074 10127
9715 10173 10177 10345
Dec 9864 10328 10284 10506
9919 10386 10370 10636
10083 10558 10458 10727
10182 10661 10531 10801
10336 10823 10616 10917
10401 10891 10681 10981
Jun 10406 10896 10730 10975
10550 11047 10825 11128
10794 11302 10951 11368
10940 11455 11065 11599
11075 11596 11155 11728
11184 11711 11234 11836
Dec 91 11492 12033 11387 12187
11377 11913 11365 12021
11464 12004 11420 12100
11390 11926 11421 12032
11458 11997 11485 12118
11691 12241 11597 12347
Jun 11858 12416 11692 12518
12117 12688 11810 12773
12192 12767 11885 12902
12289 12868 11966 13056
12103 12673 11912 12882
12119 12690 11929 12885
Dec 92 12310 12890 12024 13090
12530 13120 12141 13341
12769 13371 12244 13574
12841 13447 12284 13631
12924 13533 12343 13727
13012 13625 12360 13745
Jun 13245 13869 12464 13993
13350 13979 12507 14073
13585 14225 12612 14319
13574 14214 12637 14358
13686 14331 12678 14411
13553 14191 12664 14289
Dec 93 13604 14245 12712 14366
13815 14466 12811 14560
13488 14123 12741 14306
13013 13627 12637 13953
12818 13422 12603 13841
12729 13329 12615 13840
Jun 12654 13250 12634 13810
12922 13531 12771 14084
12874 13481 12808 14101
12680 13277 12758 13894
12644 13240 12785 13882
12662 13259 12793 13851
Dec 94 12584 13177 12858 13947
12751 13352 13005 14223
13004 13616 13175 14561
13072 13688 13254 14650
13246 13870 13374 14855
13784 14433 13625 15430
Jun 13800 14450 13705 15543
13745 14393 13741 15509
13966 14624 13848 15696
14083 14746 13938 15848
14284 14957 14034 16054
14487 15170 14157 16295
Dec 95 14681 15373 14277 16523
14753 15448 14359 16632
14446 15127 14299 16343
14315 14990 14298 16229
14211 14880 14303 16138
14182 14851 14333 16105
Jun 14335 15011 14448 16321
14375 15053 14503 16365
14332 15007 14537 16338
14556 15242 14682 16622
14869 15569 14859 16991
15099 15811 14999 17281
Dec 96 15004 15711 14983 17121
15018 15725 15045 17174
15093 15804 15103 17217
14931 15635 15074 17026
15097 15808 15201 17281
15233 15950 15300 17445
Jun 97 15399 16124 15409 17653
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.
For the 12-month period ended June 30, 1997, the SAM INCOME PORTFOLIO'S total
return was 7.47%; after an adjustment for the maximum sales charge, the net
return for a 1-year investment was 2.63%. Current yields generated by the
Portfolio throughout the period were competitive, ending with the 30-Day SEC
Yield as of June 30, 1997 at 5.52%.
Long-term returns continue to be this Portfolio's strength, with an average
annual total return of 7.35%, or 6.62% adjusted for the maximum sales charge,
from inception (September 30, 1990) through June 30, 1997. In addition,
considering the Portfolio's objective of above-inflation returns, the Portfolio
has paid investors an annual return premium over inflation averaging 4.50%
(3.77% adjusted for the maximum sales charge) each year since the inception of
the Portfolio.(2) For additional information, including Class B Share
performance, see the accompanying chart.(3)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/97 1 Year 5 Year Since Inception
------------------------------------------
(September 30, 1990)
CLASS A SHARES
<S> <C> <C> <C>
Fund (not adjusted for sales charge) 7.47% 5.36% 7.35%
Fund (adjusted for the maximum 4.5% sales charge) 2.63% 4.39% 6.62%
Capital Market Benchmark(4) 6.65% 5.68% 6.61%
<CAPTION>
CLASS B SHARES 1 Year 5 Year Since Inception
------------------------------------------
(June 30, 1994)
<S> <C> <C> <C>
Fund (not adjusted for sales charge) 6.63% N/A 5.98%
Fund (adjusted for the maximum 5% CDSC) 1.63% N/A 5.09%(6)
Capital Market Benchmark(4) 6.65% N/A 6.84%
- -----------------------------------------------------------------------------------------------------------
(1) The stated goals may or may not be met and are in no way a guarantee.
(2) Annual rate of inflation: 2.85% Source: Bloomberg Business News
(3) 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.
(4) 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.
(5) The Lehman Brothers Aggregate Index is a broad-based index intended to represent the fixed-income
market as a whole.
(6) Adjusted for the maximum 3% CDSC for shares held since inception.
For the period November 1, 1996 to June 30, 1997, 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 allowed 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 allowed credits. In the absence of the waivers, absorption of other expenses, or
Custodian credits, yield and total return would have been lower.
</TABLE>
ECONOMIC/MARKET REVIEW
The bond markets experienced periods of volatility over the past 12 months, but
the net result was slightly lower interest rates for the period. The yield on
the 10-year Treasury Note dropped almost one-quarter of a percent, or 22 basis
points, from 6.71% in June 1996 to 6.49% as of June 30, 1997.
During the second half of 1996, slow, sustainable economic growth rate coupled
with low inflation paved the way for declining rates and positive bond
performance. In early 1997, growth of the economy began to gain momentum,
raising concerns about wage and price inflation. In response, the Federal
Reserve raised interest rates, causing short-term price weakness in bonds.
Economic activity, however, slowed by the end of the first quarter of 1997. With
inflation remaining low, interest rates declined during the second quarter, and
bond prices rallied in response.
INVESTMENT STRATEGY
The SAM INCOME PORTFOLIO remained diversified in as many as five bond funds,
including money market funds. These funds represent six major asset classes
which provide a high degree of asset diversification for investors. Just as
diversification of stock asset classes reduces the risk of market fluctuations,
diversification of bond asset classes helps to reduce price volatility due to
interest rate fluctuations.
More specifically, the investment strategy for the Portfolio was to:
1) Increase the levels of diversification and manage risk by increasing exposure
to global bonds and adding to a small cash position
2) Maintain a competitive current yield by investing in corporate bonds and
mortgage-backed securities, which produce higher yields compared to
like-maturity Treasuries.
PORTFOLIO REALLOCATION REVIEW
Due to the active asset allocation provided by the SAM Portfolios, much of the
negative performance of the first quarter of 1997 was averted. Prior to the
upturn in interest rates, the Portfolio was allocated away from higher
volatility long-term securities, with a total of 70% of Portfolio assets
invested in short-term and intermediate-term bond classes. Bonds with shorter
maturities do not react to interest rate fluctuations as much as long-term
bonds; the lower-volatility characteristics of the short- and intermediate-term
bonds helped to reduce downside risk for the Portfolio.
Positions in mortgage-backed bonds and long-term corporate bonds enabled the
Portfolio to pay a competitive current yield throughout the period, even through
the short-term periods of price weakness.
The SAM INCOME PORTFOLIO benefited from an overweight in the higher-yielding
mortgage sector, currently more than one-third of Portfolio assets.
Mortgage-related securities outperformed Treasury bonds by 180 basis points in
the past 12 months, according to Lehman Brothers, by virtue of their superior
current yields. The allocation in the long-term Sierra Corporate Income Fund,
while adding somewhat to overall volatility, also provided high levels of
income; and the fund's contribution to Portfolio total returns was positive due
to the net decline in interest rates for the period.
In addition, increased allocations to foreign bonds through the Sierra Short
Term Global Government Fund further diversified the Portfolio and contributed
positively to overall performance.
OUTLOOK
Given our outlook for a low inflation rate environment over the next several
quarters, prospects for fixed-income assets remain very positive. The strategic
positioning of the Portfolio throughout the period worked to not only provide
income, but also enhance overall performance. The Portfolio will continue to be
managed towards its goal of capital preservation and income. It will be
positioned to maximize the benefits of asset allocation in anticipation of
changing market and economic conditions, especially if inflation fears arise and
the probability of higher interest rates recurs.
- -------------------------------------------------------------------------------
MUTUAL FUND ALLOCATION AS OF JUNE 30, 1997 - PIE CHART
- -------------------------------------------------------------------------------
Short Term Global Govt. Fund: 10%
Global Money Fund: 10%
Short Term High Quality Bond Fund: 10%
U.S. Government Fund: 40%
Corporate Income Fund: 30%
- -------------------------------------------------------------------------------
ASSET CLASS DIVERSIFICATION AS OF JUNE 30, 1997 - PIE CHART
- -------------------------------------------------------------------------------
Foreign Bonds: 6.45%
Other: 5.04%
Cash Equivalents: 11.45%
Asset-Backed: 2.97%
U.S. Govt. Mortgages & Agencies 33.45%
Treasuries: 13.22%
Corporates: 27.42%
<PAGE>
- -------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
SIERRA ASSET MANAGEMENT PORTFOLIOS
JUNE 30, 1997
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) $50,120,501 $295,081,739 $208,818,286 $19,939,993 $17,976,263
Cash .............. 981 299 573 502 522
Dividends and/or
interest
receivable ...... 19,950 268,684 411,229 90,112 103,762
Receivable for
Portfolio shares
sold ............ 128,145 204,312 660,124 -- 223
Unamortized
organization
costs (Note 8) .. 36,122 36,122 36,122 36,122 36,122
Receivable from
administrator ... 1,041 -- -- 12,337 6,635
----------- ------------ ------------ ----------- -----------
Total Assets .. 50,306,740 295,591,156 209,926,334 20,079,066 18,123,527
----------- ------------ ------------ ----------- -----------
LIABILITIES:
Payable for
Portfolio shares
redeemed ........ 800 303,771 366,928 26,736 95,984
Payable for
investment
securities
purchased ....... 163,981 -- -- -- --
Investment advisory
fee payable (Note 3) 6,033 36,082 25,693 2,493 2,262
Administration fee
payable (Note 3) -- 67,955 52,479 -- --
Shareholder
servicing and
distribution fees
payable (Note 5) 31,610 157,039 103,728 8,734 6,557
Dividends payable . -- -- 4,696 4,859 41,872
Accrued legal and
audit fees ...... 16,370 35,093 22,505 15,730 13,515
Custodian fees
payable (Note 3) 69 77 77 110 78
Accrued transfer
agent fees (Note 3) 2,738 12,079 7,520 778 647
Accrued Trustees'
fees and expenses
(Note 4) ........ 311 1,859 1,324 129 117
Accrued
registration and
filing fees ..... 23,593 100,926 71,696 18,585 13,634
Accrued expenses
and other
payables ........ 6,444 38,537 27,441 2,663 2,416
----------- ------------ ------------ ----------- -----------
Total
Liabilities ..... 251,949 753,418 684,087 80,817 177,082
----------- ------------ ------------ ----------- -----------
NET ASSETS ........ $50,054,791 $294,837,738 $209,242,247 $19,998,249 $17,946,445
=========== ============ ============ =========== ===========
NET ASSETS CONSIST OF:
Undistributed net
investment income/
(distributions in
excess of net
investment income) $ (202,159) $ 191 $ 76,816 $ 21,297 $ 18,156
Accumulated net
realized gain/
(loss) on
investments ..... 316,081 763,262 1,157,613 244,976 (25,034)
Net unrealized
appreciation/
(depreciation) of
investments ..... 2,591,328 9,627,435 8,780,900 221,883 (50,474)
Paid-in capital ... 47,349,541 284,446,850 199,226,918 19,510,093 18,003,797
----------- ------------ ------------ ----------- -----------
Total Net
Assets ....... $50,054,791 $294,837,738 $209,242,247 $19,998,249 $17,946,445
=========== ============ ============ =========== ===========
NET ASSETS:
Class A Shares .... $14,252,961 $136,141,181 $109,421,054 $12,613,056 $13,409,935
=========== ============ ============ =========== ===========
Class B Shares .... $35,801,830 $158,696,557 $ 99,821,193 $ 7,385,193 $ 4,536,510
=========== ============ ============ =========== ===========
SHARES OUTSTANDING:
Class A Shares .... 1,266,018 12,539,328 9,993,652 1,193,528 1,323,410
=========== ============ ============ =========== ===========
Class B Shares .... 3,198,772 14,688,974 9,116,810 698,837 447,709
=========== ============ ============ =========== ===========
CLASS A SHARES:
Net asset value per
share of beneficial
interest outstanding* $11.26 $10.86 $10.95 $10.57 $10.13
=========== ============ ============ =========== ===========
Maximum sales charge 5.75% 5.50% 5.25% 4.50% 4.50%
Maximum offering
price per share
of beneficial
interest
outstanding ..... $11.95 $11.49 $11.56 $11.07 $10.61
=========== ============ ============ =========== ===========
CLASS B SHARES:
Net asset value and
offering price
per share of
beneficial
interest
outstanding* .... $11.19 $10.80 $10.95 $10.57 $10.13
=========== ============ ============ =========== ===========
- ----------------
(a) INVESTMENTS, AT
COST (NOTE 2) ... $47,529,173 $285,454,304 $200,037,386 $19,718,110 $18,026,737
*Redemption price per share is equal to Net Asset Value less any applicable contingent deferred sales charge.
</TABLE>
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIERRA ASSET MANAGEMENT PORTFOLIOS
FOR THE PERIOD ENDED JUNE 30, 1997*
CAPITAL
GROWTH GROWTH BALANCED VALUE INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends .............. $ 157,651 $ 2,922,882 $ 4,220,523 $ 770,648 $862,620
Interest ............... 17,548 80,681 47,974 7,706 6,073
---------- ----------- ----------- ---------- --------
Total Investment
Income ........... 175,199 3,003,563 4,268,497 778,354 868,693
---------- ----------- ----------- ---------- --------
EXPENSES:
Investment advisory fee
(Note 3) ............. 36,642 260,044 188,577 19,886 18,539
Administration fee (Note 3) 122,140 866,812 628,588 66,287 61,795
Custodian fees (Note 3) 1,128 1,164 1,257 1,533 1,249
Legal and audit fees ... 29,148 113,084 83,848 22,480 19,651
Trustees' fees and
expenses (Note 4) .... 851 4,706 3,496 359 307
Amortization of
organization and
offering costs (Note 8) 37,040 37,040 37,040 37,040 37,040
Registration and filing
fees ................. 35,529 140,825 98,099 25,396 20,724
Transfer agent fees
(Note 3) ............. 17,090 88,082 54,703 6,012 5,146
Other .................. 13,833 77,645 57,674 8,700 8,534
Shareholder servicing
and distribution fees (Note 5):
Class A Shares ....... 16,775 210,208 173,926 21,809 23,425
Class B Shares ....... 177,179 892,793 561,471 45,337 29,891
Fees waived and/or
expenses absorbed by
investment advisor and
administrator (Note 3) (130,847) (412,724) (302,235) (97,522) (88,089)
---------- ----------- ----------- ---------- --------
Subtotal ........... 356,508 2,279,679 1,586,444 157,317 138,212
Credits allowed by the
custodian (Note 3) ... (3,212) (19,033) (9,714) (747) (315)
---------- ----------- ----------- ---------- --------
Net expenses ....... 353,296 2,260,646 1,576,730 156,570 137,897
---------- ----------- ----------- ---------- --------
NET INVESTMENT INCOME/
(LOSS) ............... (178,097) 742,917 2,691,767 621,784 730,796
---------- ----------- ----------- ---------- --------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS
(Notes 2 and 6):
Net realized loss on
investments during the
period ............... (832,813) (4,572,450) (2,221,544) (82,264) (25,028)
Capital gain
distributions received 2,663,475 17,000,068 8,289,328 498,118 --
Net change in unrealized
appreciation/
(depreciation) of
investments during the
period ............... 2,591,328 9,627,435 8,780,900 221,883 (50,474)
---------- ----------- ----------- ---------- --------
Net Realized and
Unrealized Gain/(Loss)
on Investments ....... 4,421,990 22,055,053 14,848,684 637,737 (75,502)
---------- ----------- ----------- ---------- --------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS ........... $4,243,893 $22,797,970 $17,540,451 $1,259,521 $655,294
========== =========== =========== ========== ========
- --------------
*The Portfolios' Class A Shares and Class B Shares commenced operations on July 25, 1996.
</TABLE>
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
SIERRA ASSET MANAGEMENT PORTFOLIOS
FOR THE PERIOD ENDED JUNE 30, 1997*
<CAPTION>
CAPITAL
GROWTH GROWTH BALANCED VALUE INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net investment
income/(loss) . $ (178,097) $ 742,917 $ 2,691,767 $ 621,784 $ 730,796
Net realized loss
on investments
during the
period ........ (832,813) (4,572,450) (2,221,544) (82,264) (25,028)
Capital gain
distributions
received ...... 2,663,475 17,000,068 8,289,328 498,118 --
Net unrealized
appreciation/
(depreciation)
of investments
during the
period ........ 2,591,328 9,627,435 8,780,900 221,883 (50,474)
----------- ------------ ------------ ----------- -----------
Net increase in
net assets
resulting from
operations .... 4,243,893 22,797,970 17,540,451 1,259,521 655,294
Distributions to
shareholders from:
Net investment
income:
Class A Shares -- (656,680) (1,872,563) (438,577) (571,274)
Class B Shares -- (86,237) (819,204) (183,207) (159,522)
Distributions
in excess of
net investment
income:
Class A Shares (432,599) (5,678,412) (2,697,778) (121,042) (12,235)
Class B Shares (1,142,282) (6,029,325) (2,177,251) (62,906) (3,903)
Net realized
gains on
investments:
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 13,405,891 131,432,582 104,172,141 12,313,830 13,469,251
Class B Shares 33,961,449 153,037,840 95,077,110 7,211,001 4,548,840
----------- ------------ ------------ ----------- -----------
Net increase in
net assets .... 50,034,791 294,817,738 209,222,247 19,978,249 17,926,445
NET ASSETS:
Beginning of
period ........ 20,000 20,000 20,000 20,000 20,000
----------- ------------ ------------ ----------- -----------
End of period ... $50,054,791 $294,837,738 $209,242,247 $19,998,249 $17,946,445
=========== ============ ============ =========== ===========
Undistributed net
investment
income/
(distributions
in excess of
net investment
income) at end
of period ..... $ (202,159) $ 191 $ 76,816 $ 21,297 $ 18,156
=========== ============ ============ =========== ===========
- --------------
* The Portfolios' Class A Shares and Class B Shares commenced operations on July 25, 1996.
</TABLE>
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS --
CAPITAL STOCK ACTIVITY
<TABLE>
SIERRA ASSET MANAGEMENT PORTFOLIOS
FOR THE PERIOD ENDED JUNE 30, 1997*
<CAPTION>
CAPITAL
GROWTH GROWTH BALANCED VALUE INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
AMOUNT
CLASS A:
Sold .......... $14,561,758 $153,704,747 $126,999,007 $16,188,869 $18,811,393
Issued as
reinvestment of
dividends ..... 406,975 6,299,489 4,442,814 512,504 269,092
Redeemed ...... (1,562,842) (28,571,654) (27,269,680) (4,387,543) (5,611,234)
----------- ------------ ------------ ----------- -----------
Net increase .. $13,405,891 $131,432,582 $104,172,141 $12,313,830 $13,469,251
=========== ============ ============ =========== ===========
CLASS B:
Sold .......... $34,262,712 $162,649,840 $104,072,070 $ 8,433,643 $ 5,718,919
Issued as
reinvestment of
dividends ..... 1,130,781 6,026,225 2,955,038 231,229 99,878
Redeemed ...... (1,432,044) (15,638,225) (11,949,998) (1,453,871) (1,269,957)
----------- ------------ ------------ ----------- -----------
Net increase .. $33,961,449 $153,037,840 $ 95,077,110 $ 7,211,001 $ 4,548,840
=========== ============ ============ =========== ===========
SHARES
CLASS A:
Sold .......... 1,373,772 14,708,889 12,169,876 1,564,273 1,849,003
Issued as
reinvestment of
dividends ..... 39,283 622,409 428,830 49,180 26,612
Redeemed ...... (148,037) (2,792,970) (2,606,054) (420,925) (553,205)
----------- ------------ ------------ ----------- -----------
Net increase .. 1,265,018 12,538,328 9,992,652 1,192,528 1,322,410
=========== ============ ============ =========== ===========
CLASS B:
Sold .......... 3,224,045 15,618,441 9,967,493 814,464 562,467
Issued as
reinvestment of
dividends ..... 109,360 598,687 285,165 22,213 9,879
Redeemed ...... (135,633) (1,529,154) (1,136,848) (138,840) (125,637)
----------- ------------ ------------ ----------- -----------
Net increase .. 3,197,772 14,687,974 9,115,810 697,837 446,709
=========== ============ ============ =========== ===========
- --------------
*The Portfolios' Class A Shares and Class B Shares commenced operations on July 25, 1996.
</TABLE>
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
CAPITAL GROWTH PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<CAPTION>
CLASS A SHARES CLASS B SHARES
-------------- --------------
PERIOD PERIOD
ENDED ENDED
06/30/97* 06/30/97*
--------- ---------
<S> <C> <C>
Net asset value, beginning of period ...................... $10.00 $10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss ....................................... (0.02)+++ (0.10)+++
Net realized and unrealized gain on investments ........... 1.90 1.90
------ ------
Total from investment operations .......................... 1.88 1.80
LESS DISTRIBUTIONS:
Dividends from net investment income ...................... -- --
Distributions in excess of 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 ............................ $11.26 $11.19
====== ======
TOTAL RETURN+ ............................................. 19.33% 18.48%
====== ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ...................... $14,253 $35,802
Ratio of operating expenses to average net assets++ ....... 0.90%** 1.65%**
Ratio of net investment loss to average net assets ........ (0.19)%** (0.94)%**
Portfolio turnover rate ................................... 33% 33%
Ratio of operating expenses to average net assets without
credits allowed by the custodian++ ....................... 0.91%** 1.66%**
Ratio of operating expenses to average net assets without
fee waivers, expenses absorbed and/or credits
allowed by the custodian++ ............................... 1.45%** 2.20%**
Net investment loss per share without fee waivers, expenses
absorbed and/or credits allowed
by the custodian ......................................... $ (0.07)+++ $ (0.15)+++
- ----------------
* The Portfolio's Class A Shares and Class B Shares commenced operations on July 25, 1996.
** Annualized.
*** Amount represents less than $0.01.
+ 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 without credits allowed by
the custodian.
++ The Portfolio will indirectly bear its prorated share of expenses of the Underlying Funds.
+++ Per share numbers have been calculated using the average shares method.
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
GROWTH PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<CAPTION>
CLASS A SHARES CLASS B SHARES
-------------- --------------
PERIOD PERIOD
ENDED ENDED
06/30/97* 06/30/97*
--------- ---------
<S> <C> <C>
Net asset value, beginning of period ...................... $10.00 $10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ..................................... 0.08+++ 0.01+++
Net realized and unrealized gain on investments ........... 1.32 1.31
------ ------
Total from investment operations .......................... 1.40 1.32
LESS DISTRIBUTIONS:
Dividends from net investment income ...................... (0.08) (0.01)
Distributions in excess of net investment income .......... (0.46) (0.51)
------ ------
Total distributions ....................................... (0.54) (0.52)
------ ------
Net asset value, end of period ............................ $10.86 $10.80
====== ======
TOTAL RETURN+ ............................................. 14.39% 13.59%
===== =====
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ...................... $136,141 $158,697
Ratio of operating expenses to average net assets++ ....... 0.92%** 1.67%**
Ratio of net investment income to average net assets ...... 0.81%** 0.06%**
Portfolio turnover rate ................................... 20% 20%
Ratio of operating expenses to average net assets without
credits allowed by the custodian++ ....................... 0.93%** 1.68%**
Ratio of operating expenses to average net assets without
fee waivers, expenses absorbed and/or credits
allowed by the custodian++ ............................... 1.17%** 1.92%**
Net investment income/(loss) per share without fee waivers,
expenses absorbed and/or credits allowed
by the custodian ......................................... $ 0.06+++ $(0.01)+++
- ----------------
* 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 without
credits allowed by the custodian.
++ The Portfolio will indirectly bear its prorated share of expenses of the Underlying Funds.
+++ Per share numbers have been calculated using the average shares method.
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
BALANCED PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<CAPTION>
CLASS A SHARES CLASS B SHARES
-------------- --------------
PERIOD PERIOD
ENDED ENDED
06/30/97* 06/30/97*
--------- ---------
<S> <C> <C>
Net asset value, beginning of period ....................... $10.00 $10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ...................................... 0.20+++ 0.14+++
Net realized and unrealized gain on investments ............ 1.27 1.25
------ ------
Total from investment operations ........................... 1.47 1.39
LESS DISTRIBUTIONS:
Dividends from net investment income ....................... (0.20) (0.14)
Distributions in excess of net investment income ........... (0.32) (0.30)
Distributions from net realized capital gains .............. (0.00)*** (0.00)***
------ ------
Total distributions ........................................ (0.52) (0.44)
------ ------
Net asset value, end of period ............................. $10.95 $10.95
====== ======
TOTAL RETURN+ .............................................. 15.02% 14.23%
===== =====
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ....................... $109,421 $99,821
Ratio of operating expenses to average net assets++ ........ 0.92%** 1.67%**
Ratio of net investment income to average net assets ....... 2.48%** 1.73%**
Portfolio turnover rate .................................... 46% 46%
Ratio of operating expenses to average net assets without
credits allowed by the custodian++ ........................ 0.93%** 1.68%**
Ratio of operating expenses to average net assets without
fee waivers, expenses absorbed and/or credits
allowed by the custodian++ ................................ 1.17%** 1.92%**
Net investment income per share without fee waivers,
expenses absorbed and/or credits
allowed by the custodian .................................. $ 0.18+++ $ 0.12+++
- ----------------
* The Portfolio's Class A Shares and Class B Shares commenced operations on July 25, 1996.
** Annualized.
*** Amount represents less than $0.01.
+ 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 without
credits allowed by the custodian.
++ The Portfolio will indirectly bear its prorated share of expenses of the Underlying Funds.
+++ Per share numbers have been calculated using the average shares method.
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
VALUE PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<CAPTION>
CLASS A SHARES CLASS B SHARES
-------------- --------------
PERIOD PERIOD
ENDED ENDED
06/30/97* 06/30/97*
--------- ---------
<S> <C> <C>
Net asset value, beginning of period ....................... $10.00 $10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ...................................... 0.43+++ 0.38+++
Net realized and unrealized gain on investments ............ 0.70 0.68
------ ------
Total from investment operations ........................... 1.13 1.06
LESS DISTRIBUTIONS:
Dividends from net investment income ....................... (0.43) (0.38)
Distributions in excess of net investment income ........... (0.13) (0.11)
Distributions from net realized capital gains .............. (0.00)*** (0.00)***
------ ------
Total distributions ........................................ (0.56) (0.49)
------ ------
Net asset value, end of period ............................. $10.57 $10.57
====== ======
TOTAL RETURN+ .............................................. 11.58% 10.80%
====== ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ....................... $12,613 $7,385
Ratio of operating expenses to average net assets++ ........ 0.92%** 1.67%**
Ratio of net investment income to average net assets ....... 4.95%** 4.20%**
Portfolio turnover rate .................................... 54% 54%
Ratio of operating expenses to average net assets without
credits allowed by the custodian++ ........................ 0.93%** 1.68%**
Ratio of operating expenses to average net assets without
fee waivers, expenses absorbed and/or credits
allowed by the custodian++ ................................ 1.67%** 2.42%**
Net investment income per share without fee waivers,
expenses absorbed and/or credits allowed
by the custodian .......................................... $ 0.37+++ $ 0.32+++
- ----------------
* The Portfolio's Class A Shares and Class B Shares commenced operations on July 25, 1996.
** Annualized.
*** Amount represents less than $0.01.
+ 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 without
credits allowed by the custodian.
++ The Portfolio will indirectly bear its prorated share of expenses of the Underlying Funds.
+++ Per share numbers have been calculated using the average shares method.
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
INCOME PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<CAPTION>
CLASS A SHARES CLASS B SHARES
-------------- --------------
PERIOD PERIOD
ENDED ENDED
06/30/97* 06/30/97*
--------- ---------
<S> <C> <C>
Net asset value, beginning of period .................... $10.00 $10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................................... 0.58+++ 0.51+++
Net realized and unrealized gain on investments ......... 0.14# 0.14#
------ ------
Total from investment operations ........................ 0.72 0.65
LESS DISTRIBUTIONS:
Dividends from net investment income .................... (0.58) (0.51)
Distributions in excess of net investment income ........ (0.01) (0.01)
Distributions from net realized capital gains ........... (0.00)*** (0.00)***
------ ------
Total distributions ..................................... (0.59) (0.52)
------ ------
Net asset value, end of period .......................... $10.13 $10.13
====== ======
TOTAL RETURN+ ........................................... 7.38% 6.63%
====== ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) .................... $13,410 $4,537
Ratio of operating expenses to average net assets++ ..... 0.93%** 1.68%**
Ratio of net investment income to average net assets .... 6.09%** 5.34%**
Portfolio turnover rate ................................. 56% 56%
Ratio of operating expenses to average net assets without
credits allowed by the custodian++ ..................... 0.93%** 1.68%**
Ratio of operating expenses to average net assets without
fee waivers, expenses absorbed and/or credits
allowed by the custodian++ ............................. 1.65%** 2.40%**
Net investment income per share without fee waivers,
expenses absorbed and/or credits
allowed by the custodian ............................... $ 0.51+++ $ 0.44+++
- ----------------
* The Portfolio's Class A Shares and Class B Shares commenced operations on July 25, 1996.
** Annualized.
*** Amount represents less than $0.01.
+ 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 without
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.
+++ Per share numbers have been calculated using the average shares method.
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
<TABLE>
CAPITAL GROWTH PORTFOLIO
JUNE 30, 1997
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C> <C>
INVESTMENT COMPANY SECURITIES -- 98.8%
278,914 Emerging Growth Fund ........................................ $ 5,112,492
4,922,986 Global Money Fund ........................................... 4,922,986
1,068,915 Growth and Income Fund ...................................... 17,038,501
1,167,021 Growth Fund ................................................. 17,435,321
418,628 International Growth Fund ................................... 4,948,201
-----------
Total Investment Company Securities
(Cost $46,866,173) ........................................ 49,457,501
-----------
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
REPURCHASE AGREEMENT -- 1.3% (Cost $663,000)
$ 663,000 Agreement with Boston Safe Deposit & Trust Company, 5.000%
dated 06/30/1997, to be repurchased at $663,092 on 07/01/
1997 collateralized by $700,000 Student Loan Marketing
Association, 5.000%
due 02/08/1999 (Par Value $700,000) ....................... $ 663,000
-----------
TOTAL INVESTMENTS
(COST $47,529,173*) .............................................. 100.1% 50,120,501
OTHER ASSETS AND LIABILITIES (NET) ................................. (0.1) (65,710)
----- -----------
NET ASSETS ......................................................... 100.0% $50,054,791
===== ===========
- ----------------
* Aggregate cost for federal tax purposes is $47,594,260.
</TABLE>
<TABLE>
GROWTH PORTFOLIO
JUNE 30, 1997
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C> <C>
INVESTMENT COMPANY SECURITIES -- 100.0%
2,569,460 Emerging Growth Fund ...................................... $ 47,098,209
26,383,269 Global Money Fund ......................................... 26,383,269
3,755,479 Growth and Income Fund .................................... 59,862,329
5,062,746 Growth Fund ............................................... 75,637,450
4,979,059 International Growth Fund ................................. 58,852,506
2,817,571 U.S. Government Fund ...................................... 26,935,976
------------
Total Investment Company Securities
(Cost $285,142,304) ..................................... 294,769,739
------------
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
REPURCHASE AGREEMENT -- 0.1% (Cost $312,000)
$312,000 Agreement with Boston Safe Deposit & Trust Company, 5.000%
dated
06/30/1997, to be repurchased at $312,043 on 07/01/1997
collateralized by $330,000 Student Loan Marketing
Association, 5.000% due 02/08/1999
(Par Value $330,000) .................................... $ 312,000
------------
TOTAL INVESTMENTS
(COST $285,454,304*) ............................................ 100.1% 295,081,739
OTHER ASSETS AND LIABILITIES (NET) ................................ (0.1) (244,001)
----- ------------
NET ASSETS ........................................................ 100.0% $294,837,738
===== ============
- ----------------
* Aggregate cost for federal tax purposes is $286,087,112.
</TABLE>
<TABLE>
BALANCED PORTFOLIO
JUNE 30, 1997
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C> <C>
INVESTMENT COMPANY SECURITIES -- 99.5%
40,706,505 Global Money Fund ......................................... $ 40,706,505
3,819,795 Growth and Income Fund .................................... 60,887,538
2,269,146 Growth Fund ............................................... 33,901,069
2,684,703 International Growth Fund ................................. 31,733,211
4,288,594 U.S. Government Fund ...................................... 40,998,963
------------
Total Investment Company Securities
(Cost $199,446,386) ..................................... 208,227,286
------------
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
------ --------
REPURCHASE AGREEMENT -- 0.3% (Cost $591,000)
$591,000 Agreement with Boston Safe Deposit & Trust Company, 5.000%
dated
06/30/1997, to be repurchased at $591,082 on 07/01/1997
collateralized by $625,000 Student Loan Marketing
Association, 5.000% due 02/08/1999
(Par Value $625,000) .................................... $ 591,000
------------
TOTAL INVESTMENTS
(COST $200,037,386*) ............................................ 99.8% 208,818,286
OTHER ASSETS AND LIABILITIES (NET) ................................ 0.2 423,961
----- ------------
NET ASSETS ........................................................ 100.0% $209,242,247
===== ============
- ----------------
* Aggregate cost for federal tax purposes is $200,039,536.
</TABLE>
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED)
<TABLE>
VALUE PORTFOLIO
JUNE 30, 1997
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C> <C>
INVESTMENT COMPANY SECURITIES -- 98.6%
192,362 Corporate Income Fund ...................................... $ 1,983,255
4,880,100 Global Money Fund .......................................... 4,880,100
190,334 Growth and Income Fund ..................................... 3,033,925
852,506 Short Term Global Government Fund .......................... 1,960,727
420,697 Short Term High Quality Bond Fund .......................... 976,020
720,813 U.S. Government Fund ....................................... 6,890,966
-----------
Total Investment Company Securities
(Cost $19,503,110) ....................................... 19,724,993
-----------
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
-------- --------
REPURCHASE AGREEMENT -- 1.1% (Cost $215,000)
$215,000 Agreement with Boston Safe Deposit & Trust Company, 5.000%
dated 06/30/1997, to be repurchased at $215,030 on 07/01/
1997 collateralized by $230,000 Student Loan Marketing
Association, 5.000% due
02/08/1999 (Par Value $230,000) .......................... $ 215,000
-----------
TOTAL INVESTMENTS
(COST $19,718,110*) .............................................. 99.7% 19,939,993
OTHER ASSETS AND LIABILITIES (NET) ................................. 0.3 58,256
--------- -----------
NET ASSETS ......................................................... 100.0% $19,998,249
===== ===========
- ----------------
* Aggregate cost for federal tax purposes is $19,723,614.
</TABLE>
<TABLE>
INCOME PORTFOLIO
JUNE 30, 1997
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C> <C>
INVESTMENT COMPANY SECURITIES -- 98.6%
513,612 Corporate Income Fund ...................................... $ 5,295,345
1,775,220 Global Money Fund .......................................... 1,775,220
771,852 Short Term Global Government Fund .......................... 1,775,220
765,181 Short Term High Quality Bond Fund .......................... 1,775,220
740,405 U.S. Government Fund ....................................... 7,078,258
-----------
Total Investment Company Securities
(Cost $17,749,737) ....................................... 17,699,263
-----------
PRINCIPAL VALUE
AMOUNT (NOTE 2)
-------- --------
REPURCHASE AGREEMENT -- 1.6% (Cost $277,000)
$277,000 Agreement with Boston Safe Deposit & Trust Company, 5.000%
dated 06/30/1997, to be repurchased at $277,038 on 07/01/
1997 collateralized by $295,000 Student Loan Marketing
Association, 5.000% due
02/08/1999 (Par Value $295,000) .......................... $ 277,000
-----------
TOTAL INVESTMENTS
(COST $18,026,737*) .............................................. 100.2% 17,976,263
OTHER ASSETS AND LIABILITIES (NET) ................................. (0.2) (29,818)
----- -----------
NET ASSETS ......................................................... 100.0% $17,946,445
===== ===========
- ----------------
* Aggregate cost for federal tax purposes is $18,029,793.
</TABLE>
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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"), the Trust's investment advisor, 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 their net asset value per
share 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. 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.
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 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.
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. Dividends from net investment income of 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.
For the year ended June 30, 1997, permanent differences resulting from book
and tax accounting for organizational costs and distribution fees were
reclassified between undistributed net investment income, accumulated net
realized gain and paid-in capital at year end as stated in the table below.
Short-term capital gain distributions were declared as ordinary income to
reflect the tax character of distributions paid by the Portfolios.
INCREASE DECREASE
UNDISTRIBUTED NET ACCUMULATED
DECREASE INVESTMENT NET REALIZED
NAME OF FUND PAID-IN CAPITAL INCOME GAIN/LOSS
------------ --------------- ------------------- --------------
Capital Growth
Portfolio ............ $(37,799) $ 1,550,819 $(1,513,020)
Growth Portfolio ..... (43,572) 11,707,928 (11,664,356)
Balanced Portfolio ... (42,333) 4,951,845 (4,909,512)
Value Portfolio ...... (34,738) 205,245 (170,507)
Income Portfolio ..... (34,294) 34,294 --
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, as investment advisor, provides its proprietary asset
allocation services to the Portfolios, 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.
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 publicly held corporation. (See Note 11).
Fees voluntarily waived and expenses absorbed by Sierra Services for the
period ended June 30, 1997 are as follows:
NAME OF FUND FEES WAIVED EXPENSES ABSORBED
------------ ----------- -----------------
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 33,580
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., a subsidiary of First Data Corporation, serves as sub-
administrator and transfer agent of the Trust. Sierra Administration pays
First Data Investor Services Group, Inc. for its services as a sub-
administrator while the Trust pays First Data Investor Services Group, Inc.
for its services as transfer agent, including certain out-of-pocket expenses.
Fees voluntarily waived by Sierra Administration for the period ended June 30,
1997 are as follows:
NAME OF FUND FEES WAIVED
------------ -----------
Capital Growth Portfolio ....................................... $ 83,235
Growth Portfolio ............................................... 259,689
Balanced Portfolio ............................................. 179,370
Value Portfolio ................................................ 58,740
Income Portfolio ............................................... 50,033
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 June 30, 1997 as follows:
CREDITS ALLOWED
BY THE
NAME OF FUND CUSTODIAN
------------ ---------------
Capital Growth Portfolio ..................................... $ 3,212
Growth Portfolio ............................................. 19,033
Balanced Portfolio ........................................... 9,714
Value Portfolio .............................................. 747
Income Portfolio ............................................. 315
For the period ended June 30, 1997, Great Western Financial Securities
Corporation ("GW Securities"), a registered broker-dealer, and Sierra Services
have informed the Portfolios that they received $1,043,658 and $176,272
respectively, representing commissions (front-end sales charges). In addition,
for the period ended June 30, 1997, Sierra Services and Funds Distributor Inc.
informed the Portfolios that they received $497,858 from CDSCs.
4. TRUSTEES' FEES
No director, officer or employee of GW Securities, Sierra Services, a
registered investment advisor and broker-dealer, Sierra Administration or
First Data Investor Services Group, Inc., 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 GW Securities, Sierra Services, Sierra Administration or First Data
Investor Services Group, Inc., 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. Since
December 1996, the Lead Trustee has been receiving one and a half times the
normal Trustee's compensation.
For the period ended June 30, 1997, Sierra Advisors paid Trustees fees in the
amount of $80,500 for all special meetings held with regard to the
contemplation of the sale of Sierra Capital Management Corporation, as well
as, the proposed merger between GWFC and Washington Mutual, Inc. ("Washington
Mutual").
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 June 30, 1997, the Funds incurred the following fees
pursuant to the respective distribution plans described above:
CLASS A CLASS B
------------ ---------------------
DISTRIBUTION DISTRIBUTION SERVICE
NAME OF FUND FEE FEE FEE
------------ ------------ ------------ -------
Capital Growth Portfolio ................ $ 16,775 $132,884 $ 44,295
Growth Portfolio ........................ 210,208 669,595 223,198
Balanced Portfolio ...................... 173,926 421,103 140,368
Value Portfolio ......................... 21,809 34,003 11,334
Income Portfolio ........................ 23,425 22,418 7,473
6. PURCHASES AND SALES
The aggregate cost of purchases and proceeds from sales, excluding short-term
investments, for the period ended June 30, 1997 were as follows:
NAME OF FUND PURCHASES SALES
------------ --------- -----
Capital Growth Portfolio ........................ $ 55,472,968 $ 7,773,982
Growth Portfolio ................................ 332,385,639 32,670,885
Balanced Portfolio .............................. 257,040,153 55,372,223
Value Portfolio ................................. 26,301,140 6,715,766
Income Portfolio ................................ 24,157,454 6,382,689
At June 30, 1997, aggregate gross unrealized appreciation for all Underlying
Funds in which there is an excess of value over tax cost was as follows:
TAX BASIS TAX BASIS
UNREALIZED UNREALIZED
NAME OF FUND APPRECIATION DEPRECIATION
------------ ------------ ------------
Capital Growth Portfolio ....................... $ 2,526,241 $ --
Growth Portfolio ............................... 12,829,768 3,835,141
Balanced Portfolio ............................. 10,147,740 1,368,990
Value Portfolio ................................ 279,041 62,662
Income Portfolio ............................... 1,651 55,181
7. SHARES OF BENEFICIAL INTEREST
The Company may issue an unlimited number of shares of beneficial interest
each without par value.
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. 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. 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.
9. POST OCTOBER LOSS
Under current tax law, capital losses realized after October 31 may be
deferred and treated as occurring on the first day of the following fiscal
year.
For the fiscal year ended June 30, 1997, the Income Portfolio has elected to
defer capital losses in the amount of $21,978 occurring between November 1,
1996 and June 30, 1997 under these rules.
Such deferred losses will be treated as arising on the first day of the fiscal
year ending June 30, 1998.
10. 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 Security and Exchange
Commission. 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 foreign 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 assets in
the Sierra Trust Growth Fund and as much as 50% of its total assets in the
Sierra Trust 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 may invest as much as 50% of their total assets in the
Sierra Trust 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 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 the 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.
11. SUBSEQUENT EVENT
Effective July 1, 1997, the merger of GWFC into Washington Mutual was
completed. As a result, Sierra Advisors, Sierra Administration, Sierra
Services and GW Securities are now indirect wholly-owned subsidiaries of
Washington Mutual, a publicly held corporation.
<PAGE>
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REPORT OF INDEPENDENT ACCOUNTANTS
SIERRA ASSET MANAGEMENT PORTFOLIOS
TO THE TRUSTEES AND SHAREHOLDERS
OF THE SIERRA ASSET MANAGEMENT PORTFOLIOS
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of each of the
portfolios constituting Sierra Asset Management Portfolios (the "Trust") at
June 30, 1997, the results of their operations, the changes in each of their
net assets and the financial highlights for the period from July 25, 1996
(commencement of operations) to June 30, 1997, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit, which included confirmation of securities at June 30, 1997 by
correspondence with the custodian and the application of alternative auditing
procedures where investments purchased were not yet received by the custodian,
provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
August 12, 1997
<PAGE>
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TAX INFORMATION (UNAUDITED)
SIERRA ASSET MANAGEMENT PORTFOLIOS
FISCAL YEAR ENDED JUNE 30, 1997 (UNAUDITED)
The following tax information represents fiscal year end disclosures of
various tax benefits passed through to shareholders at calendar year end.
The amount of long term capital gain paid as follows:
NAME OF FUND
------------
Capital Growth Portfolio ........................................... $203,720
Balanced Portfolio ................................................. 659
Value Portfolio .................................................... 371
Of the distributions made by the following Portfolios the corresponding
percentages represent the amount of each distribution which will qualify for
the dividends received deduction available to corporate shareholders.
NAME OF FUND
------------
Capital Growth Portfolio ........................................... 11.50%
Growth Portfolio ................................................... 3.29%
Balanced Portfolio ................................................. 5.86%
Value Portfolio .................................................... 7.48%
The above figures may differ from those cited elsewhere in this report due to
differences in the calculations of income and capital gains for Securities and
Exchange Commission (book) purposes and Internal Revenue Service (tax)
purposes.
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SIERRA
ASSET MANAGEMENT
- ----------------------------
The Diversification Solution
This Annual Report is published for the general information of the shareholders
of the Sierra Asset Management Portfolios. It is authorized for distribution to
prospective investors only when preceded or accompanied by a current Sierra
Asset Management Portfolios prospectus. 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 Sierra Asset Management Portfolios are not insured by the FDIC. They are not
deposits or obligations of, nor are they guaranteed by the depository
institution or any other agency. These securities are subject to investment
risks, including possible loss of principal amount invested.
Distributed by
SIERRA INVESTMENT SERVICES CORPORATION
Member NASD
SIERRA ASSET MANAGEMENT PORTFOLIOS --------------
P.O. Box 5118 Bulk Rate
Westboro, MA 01581-5118 U.S. Postage
PAID
Van Nuys, CA
Permit No. 987
--------------
20100 (8/97) 35M
