<PAGE> 1
A MESSAGE FROM THE PRESIDENT
We are pleased to bring you the Sierra Asset Management Portfolios semi-annual
report for the six months ended December 31, 1997.
I would like to take this opportunity to thank you, our shareholders, for your
support and trust in the momentous undertakings of the last six months. As you
know, the merger of Great Western Financial Corporation, Sierra's former parent
company, and Washington Mutual, Inc. on July 1, 1997, has provided opportunities
to benefit from increased assets under management while pursuing greater
operating efficiencies. I am confident that the results of these initiatives
will begin to be realized in the coming months.
This year has been momentous for the U.S. financial markets as well. Against a
backdrop of shrinking budget deficits, the lowest unemployment rate in a quarter
of a century, and continued moderate inflation, the U.S. stock market achieved
its third consecutive year of 20%+ returns.
Some market watchers suggest that the stock market's record-setting returns may
reflect a new reality in economic and corporate efficiency. Nevertheless, we
believe that the 10% to 12% annual return that stocks have produced during
longer periods will remain the rule rather than the exception. Investors should
understand that average annual returns in excess of 20% are exceptional and
unlikely to continue indefinitely. Future short-term volatility could be sparked
by a wide range of developments, including uncertainty in foreign markets and
non-financial events such as worldwide weather patterns and the so-called Year
2000 problem (when computer programs could be thrown off by a technical glitch).
MARKET HIGHLIGHTS
Throughout 1997, the U.S. financial markets turned in some of the best
performances around the globe. Stocks rose to record highs while bond yields
fell and bond values rose. More people than ever are investing in mutual funds.
New investment inflows into stock mutual funds continued to climb in 1997.
During 1990, net new cash flow into stock mutual funds was $12.8 billion,
according to The Investment Company Institute (ICI). In comparison, during 1996
net new investment reached $221.60 billion, and totaled $176.85 billion through
the first nine months of 1997. Overall bond inflows have also risen, to $24.13
billion through the first nine months of 1997, compared with $9.38 billion for
the same time period during 1996, according to ICI.
Returns from foreign markets reflected difficult times in some regions, and
showed the path to recovery in others. With the Asian market volatility as a
backdrop, the average emerging market fund in the Morningstar universe dropped
17.8% during the fourth quarter, down 7.1% on the year. Diversified foreign
funds dropped an average of 4.4% during the quarter, but rose 3.3% for the year.
Funds that invest solely in Japan were off 18.7% in 1997, while funds dedicated
to the emerging and newly emergent markets of the Pacific Rim dropped 35.4%.++
TAKE A LOOK AT TAX RELIEF
One of the major events of the year occurred in August, when President Clinton
signed The Taxpayer Relief Act of 1997. Among other things, this will reduced
the top long-term capital gains tax rate from 28% to 20%. Other provisions of
this important legislation introduced new IRA rules and several new types of
IRAs. One, called the Roth IRA, allows withdrawals of non-deductible
contributions and investment earnings, tax and penalty free after five years.
The change in tax legislation may have a significant impact on your personal
financial plan and long-term strategy for achieving your financial goals. Your
investment professional can help you assess how the new capital gains rules may
affect your after-tax portfolio returns. He or she can also assist you in
evaluating new strategies for achieving long-term retirement and
education-related financial goals. Of course, should you have any questions
about your investments, particularly during periods of market volatility, I urge
you to speak with your investment professional before making changes to your
portfolio.
We at Sierra Asset Management Portfolios welcome the opportunity to continue to
serve you in the coming years -- years that we believe will present both
challenges and significant opportunities for wealth accumulation.
Sincerely,
/s/ KEITH B. PIPES
Keith B. Pipes
President
++ Source: Morningstar
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<PAGE> 2
SIX MONTHS IN REVIEW AND OUR OUTLOOK FOR 1998
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.
YET ANOTHER BANNER YEAR FOR U.S. FINANCIAL MARKETS
U.S investors enjoyed another strong year. Solid economic growth and low
inflation helped give the blue-chip Dow Jones Industrial Average an
unprecedented third consecutive year of 20%+ returns, while the broader Standard
& Poor's Composite Index of 500 Stocks (S&P 500) posted a 33.36% total return
for the year*+. Meanwhile, government bond yields fell below 6%, pushing bond
prices higher.
Overshadowing these results was the well-watched "Asian contagion," a chaos of
falling currency values and stock prices throughout Asia, which sent the Dow
plummeting a record 554 points on October 27, 1997. The October decline marked
the first correction of more than 10% in the Dow Jones Industrial Average+ in
more than seven years. While the U.S. market quickly recovered, ongoing Asian
woes could mean investors face prospects for a more subdued 1998 - a year of
slower economic growth, lower investment returns, and higher market volatility.
LARGE CAP STOCKS LED THE MARKET
Investors favored the largest, most stable companies and the strongest, most
diverse global economies in 1997, in part due to higher market volatility.
Financial services firms, broadcasting companies, and advertisers turned in the
best performances during the year, while houseware, semiconductor, and paper
product firms did the worst.
Smaller company stocks did well for the year, but they did not fare as well as
the broader market after the October 27 correction. The small-cap companies
lagged the S&P 500, with the Russell 2000 Index up
Returns for Major Asset Classes
(one-year ended December 31, 1997)
<TABLE>
<CAPTION>
Large Company Small Company International Long-Term Intermediate-Term
Stocks Stocks Stocks Bonds Bonds T-Bills
<S> <C> <C> <C> <C> <C>
33.36% 22.36% 1.78% 14.52% 7.87% 4.90%
</TABLE>
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.
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.
2
<PAGE> 3
22.36%.**+ Part of this under-performance was due to investors fleeing smaller
issues toward the end of 1997 for the perceived comfort of larger stocks as
Asia's currency crisis broadened. Sharp drops in technology stocks, which often
dominate small-cap growth portfolios, were also a factor. During the second week
of December, the Pacific Stock Exchange Technology Index+ dropped 9.8%, its
second poorest one-week performance on record.
In the year ahead, the tide could turn back to smaller stocks. Market analysts
note that these issues' underlying values have been growing faster than their
prices, while many larger companies have become overpriced relative to their
underlying values. Smaller companies may also have better earnings prospects.
The Wall Street Journal (Dec. 29, 1997) reported that earnings for companies in
the Russell 2000 Index were expected to rise more than 31% in 1998, compared
with 14% for S&P 500 firms. Also, Asia-wary investors may begin to value the
reduced overseas exposure of smaller stocks - at 26% - compared with the average
44% overseas exposure of large-cap stocks.
BOND MARKETS RALLIED ON LOW INFLATION
The yield on the bellwether 30-year U.S. Treasury bond (a benchmark of the
broader bond market) fell to 5.92% as 1997 ended.* A continued absence of
inflation should keep bond yields and prices fairly steady in 1998. The Lehman
Brothers Aggregate Bond Index posted a total return of 9.68% for 1997, with much
of that return earned in the last six months of the year.*** Bond trading surged
during the October stock market correction as investors sought the relative
safety of fixed income investments.
Long-term yields fell through the psychologically important 6% "floor" in
December, and some market watchers are wondering, "How much lower can they go?"
Some analysts regard the current stock bull market as a natural "catch-up"
phenomenon following the high-inflation days of the 1970s and early 1980s.
Likewise, some experts believe the bond market is undergoing a comeback from an
extended slump that spanned four decades and only ended in 1981, when yields
peaked at 15.78%. Since then, the so-called "equity premium" between stock and
bond returns has been relatively narrow. From 1982 through 1997 bonds had a real
(after inflation) return of 9.4% compared with a real return on stocks of 12.5%,
according to Business Week (1/19/98).
Among those buoying the U.S. bond market in 1997 have been Asia-wary investors
in stocks, high-yield, and emerging-market bonds, who have sought the relative
safety of government-backed U.S. Treasury securities in all maturities. In
addition, some investors who traditionally favor mortgage-backed securities have
shifted into Treasuries as concern builds that low rates will prompt an increase
in mortgage refinancings, potentially resulting in lower returns for mortgage
securities. The move to U.S. Treasury securities has contributed to a flattening
"yield curve," with little difference between short- and long-term interest
rates.
Municipal bond markets closely watched emerging tax legislation in 1997. The
passage of The Taxpayer Relief Act of 1997 in August contained few surprises and
further reduced investor's concerns about a possible "flat tax." The Lehman
Brothers Municipal Bond Index posted a 9.2% total return for the year.***
INTEREST RATE FLUCTUATIONS
30-YEAR TREASURY BOND YIELDS
(January 3, 1997 - December 31, 1997)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jan 97 Feb 97 Mar 97 Apr 97 May 97 Jun 97 Jul 97 Aug 97 Sep 97 Oct 97 Nov 97 Dec 97
6.73 6.7 6.81 7.12 6.87 6.77 6.63 6.45 6.64 6.29 6.16 6.08
</TABLE>
Source: Bloomberg Business News
INTERNATIONAL MARKETS POST MIXED RESULTS
Globally, markets generally echoed similar bigger-is-better themes. In the
industrialized world, Germany's market rose 24.57%, while in the United Kingdom
stocks gained 22.62%. Among the G-7 countries, only Japan's Nikkei Index dropped
- -- losing 23.67%. +/++ The global weak spot in equity investing was the
smaller emerging markets of
3
<PAGE> 4
Asia. Morgan Stanley Capital International's EAFE Index, a composite of 22
national markets, squeezed out a 1.78% total return for 1997, as losses during
the second half of the year erased much of its earlier gains.++++/++
The currency turmoil in Asia may have more long-term effects on the world
economy and equity markets. The Organization for Economic Cooperation and
Development estimated that the situation in Asia will cause a reduction in
expected economic growth worldwide by nearly one-third in 1998.
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.
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 Dow Jones Industrial Average
Positive Yet Volatile Performance
<TABLE>
<CAPTION>
Jan 97 Feb 97 Mar 97 Apr 97 May 97 Jun 97 Jul 97 Aug 97 Sep 97 Oct 97 Nov 97 Dec 97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6448 6855 7000 6526 7071 7435 7895 8194 7822 8038 7581 8149
</TABLE>
Source: Bloomberg Business News.
Note: The Dow Jones Industrial Average is an index of 30 stocks and is sometimes
used to measure the overall U.S. equity market.+
Diversification Can Help Reduce Downside Risk
Variability In Investment Returns
For the 25-year period ended 12/31/97
<TABLE>
<CAPTION>
Highest Annual Return Lowest Annual Return
<S> <C> <C>
Stocks 37.43% -26.47%
Diversified Portfolio 31.23% -12.45%
</TABLE>
Source: Ibbotson Associates. Stocks are represented by the Standard & Poor's
Composite 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.
4
<PAGE> 5
The graph on the right 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 -12%. 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.
SAM PORTFOLIO PERFORMANCE
(Inception through December 31, 1997)
<TABLE>
<CAPTION>
SAM PORTFOLIO SAM PERFORMANCE(*) PREMIUM OVER INFLATION(**)
<S> <C> <C>
CAPITAL GROWTH 16.91% 14.46%
PORTFOLIO
(Inception 5/31/95)
GROWTH PORTFOLIO 12.18% 9.39%
(Inception 9/30/90)
BALANCED PORTFOLIO 10.25% 7.46%
(Inception 9/30/90)
VALUE PORTFOLIO 7.63% 5.06%
(Inception 3/31/93)
INCOME PORTFOLIO 7.62% 4.83%
(Inception 9/30/90)
</TABLE>
OUTLOOK FOR A MORE SOBER ECONOMY
The "Goldilocks economy" - not too swift to trigger inflation, but growing
enough to keep businesses happy - continued in 1997, with Gross Domestic Product
(GDP) growing at an estimated annualized rate of 3.7%.* However, projections are
for GDP to slow to the 2.1% - 2.4% range in 1998. Inflation (measured by the
consumer price index) could rise from its current 1.8% to an annual rate of 2.2%
to 2.5% by year-end 1998.
This slowdown in economic growth would likely stem from Asia's difficulties.
When a foreign currency drops in value in relation to the U.S. dollar, it
becomes relatively more expensive for people in that country to buy American
goods. As a result, demand for imports in that area of the world is likely to
cool, trimming earnings among multinational U.S. firms that depend on these
countries for a solid portion of their business. At the same time, the strong
Dollar makes exports from Asia cheaper for American consumers. That, in turn,
could threaten domestic sales of American companies who compete with imports
from abroad. Investors may react by driving down the stock prices of those
businesses. However, much of this may have been discounted during the October
plummet.
On the flip side, it is possible that the troubles in Asia may be insufficient
to prevent domestic demand from accelerating. Some U.S. companies report they
expect much of their loss of business will be made up through strong sales in
Europe and Latin America. Should this scenario occur, it is quite likely the Fed
would be forced to take action to try to orchestrate a "soft landing".
Investors should anticipate a less-enthusiastic stock market in most areas.
Consensus projections for the broad market's year-end 1998 returns are in the 8%
to 12% range with higher volatility across all stock sectors.
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 sec-
* Performance represents average annual total returns for Class A shares
(inception through 12/31/97), 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 12/31/97: Capital
Growth Portfolio 5.71%/NA/14.26%; Growth Portfolio 2.68%/9.90%/11.30%; Balanced
Portfolio 4.43%/8.84%/9.43%; Value Portfolio 5.29%/NA/6.59%; Income Portfolio
3.41%/4.73%/6.93%. (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 12/31/97.
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.
5
<PAGE> 6
tors 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 combination of asset classes will provide 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
consistent with Sierra's economic and market outlook.
* Source: The Wall Street Journal, Jan. 2, 1998. The S&P 500 is an unmanaged
index that is generally considered representative of large-capitalization U.S.
stocks. Past performance does not guarantee future results.
** Source: The Frank Russell Company. The Russell 2000 Index(R) is an unmanaged
index that is generally considered representative of small-capitalization U.S.
stocks. Past performance does not guarantee future results.
+ The performance of any index is not indicative of the performance of any
particular investment and does not take into account brokerage commissions or
other expenses associated with purchasing individual investments. Individuals
cannot invest directly in any index.
*** Source: Lehman Brothers, Fixed Income Research
++++ Source: Morgan Stanley Capital International, Global Investment Monitor
++ Investors cannot invest directly in any index. Past performance does not
guarantee future results. Investments in international securities are sometimes
subject to somewhat higher taxation and higher currency risk, as well as less
liquidity, compared with investments in domestic securities.
LOOK TO YOUR INVESTMENT PROFESSIONAL FOR HELP
Following last year's strong stock and bond market performances, now is a good
time to review your portfolio with your investment professional to make sure
that your portfolio remains on track toward your financial goals. Your
investment professional can assist you in evaluating whether your current asset
allocation is appropriate for your time frame and the current market
environment. An appropriate asset allocation strategy can help reduce the
negative impact of market volatility on your overall investment returns.
The Sierra Asset Management Portfolios offers an array of professionally managed
investments that may be appropriate for your portfolio. Speak with your
investment professional about how long-term investing and the Sierra Asset
Management Portfolios can help you pursue your financial dreams.
6
<PAGE> 7
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.
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 in U.S. Dollars, with dividends reinvested.
Generally, an index represents the market value of an unmanaged group of
securities, regarded by investors as representative of a particular market. An
index does not reflect any asset-based charges for investment management or
other expenses. Total return is used to measure a Portfolio's performance and
reflects both changes in the value of the price of the Portfolio's shares as
well as any income dividend and/or capital gain distributions made by the
Portfolio during the period. Past performance is not a guarantee of future
results. A mutual fund's share price and investment return will vary with market
conditions, and the principal value of an investment when you sell your shares
may be more or less than the original cost.
The 30-day SEC yield is the yield calculated pursuant to a standard formula
required by the Securities and Exchange Commission ("SEC") for performance
advertisement purposes, and does not imply any endorsement or recommendation by
the SEC.
Yield indicates the investment income per share as a percentage of the offering
price, whereas total return includes both net investment income and changes in
the value of the shares as a percentage of the initial investment.
TO OUR ASSET
ALLOCATION CLIENTS
Welcome to the Sierra Asset Management Portfolios.
We are pleased to provide you with an overview of our five asset allocation
portfolios, each 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 6-month period ended December 31, 1997.
7
<PAGE> 8
SAM CAPITAL GROWTH PORTFOLIO
GOAL & OBJECTIVE
The Capital Growth Portfolio is designed for the investor seeking long-term
growth of capital. 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)
<TABLE>
<CAPTION>
May 95 Dec 95 Dec 96 June 97 Dec 97
------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C>
Fund (Class A Shares; adjusted for 9436 10986 12585 13651 14114
the maximum 5.75% sales charge)
Fund (Class A Shares; not adjusted 10000 11657 13353 14483 14975
for sales charge)
Russell 3000 Index(4) 10000 11707 14408 17362 18733
Capital Market Benchmark(3) 10000 11802 14377 16925 19197
</TABLE>
PERFORMANCE REVIEW
The SAM Capital Growth Portfolio A shares returned 12.16% (5.71% adjusted for
the maximum sales charge) for the year ended December 31, 1997. For the six
months covered in this report, the performance was positive, but volatile. Gains
in the third quarter of 1997 were washed out by the negative equity performance
during the fourth quarter. The performance was hampered by the negative results
in foreign equities. Over the past 6 months, the Capital Growth Portfolio
returned 3.60% (-2.36% adjusted for the maximum sales charge). The Fund has
underperformed its benchmark(4), as positions in small-caps, and international
equities have hurt performance. Equity performance has been largely concentrated
in the large-capitalization companies of the S&P 500. For additional performance
information, including B share performance please refer to the table below.
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 12/31/97(2) 1 Year 5 Year Since Inception
------ ------ ---------------
(May 31, 1995)
<S> <C> <C> <C>
CLASS A SHARES
Fund (not adjusted for sales charge) 12.16% N/A 16.91%
Fund (adjusted for the maximum 5.75%
sales charge) 5.71% N/A 14.26%
Capital Market Benchmark(3) 33.36% N/A 28.72%
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES 1 Year 5 Year Since Inception
------ ------ ---------------
(May 31, 1995)
<S> <C> <C> <C>
Fund (not adjusted for sales charge) 11.31% N/A 16.12%
Fund (adjusted for the maximum 5% CDSC) 6.31% N/A 15.20%(5)
Capital Market Benchmark(3) 33.36% N/A 28.72%
- ----------------------------------------------------------------------------------------
</TABLE>
(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 3% CDSC for shares held since inception.
For the period November 1, 1996 to December 31, 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.
8
<PAGE> 9
ECONOMIC / MARKET REVIEW
International markets were a driving force behind the volatility in equities
during the period. Asian economic and currency woes sent shocks throughout
worldwide financial markets and caused volatility in domestic equity prices. The
Dow Jones Industrial Average dropped 554 points on October 27, 1997. Throughout
the volatility incited by this foreign activity, domestic economic reports
remained positive. Low inflation, higher income, strong employment, and low
interest rates provided a very positive fundamental backdrop for U.S. financial
assets.
Interest rates fell during the period, with the yield on the 30-year Treasury
Bond closing the year under 6%. Rates dropped in the fourth quarter as many
overseas investors moved into U.S. fixed-income investments. International
equities, as measured by the MSCI EAFE Index, were down nearly 8% in the fourth
quarter, and the possibility of adverse effects on earnings of companies doing
business in Asia worried many investors. Technology stocks were especially
affected and were very volatile during the period. The net effect was a fourth
quarter where bond investments outperformed stocks.
INVESTMENT STRATEGY
The SAM Capital Growth Portfolio remained diversified in five funds,
representing five major asset classes. This broad diversification enables the
Portfolio to manage risk during periods of volatility. Assets ranging in risk
levels from cash to international equities shield the Portfolio from drastic
swings in one area of the financial markets. This was evident in the fourth
quarter when value style investments significantly outperformed growth style
investments.
The overall investment strategy for the period was to:
o Invest 95% of assets in equity Funds, while maintaining cash positions to
help manage risk
o Reduce risk levels by holding down exposure to foreign holdings and
small-cap equities -- resulting in an equity weighting that significantly
favors mid- and large-capitalization companies
PORTFOLIO REALLOCATION REVIEW
During the 6 month period, the exposure to foreign stock (16.2%) had a negative
impact on performance as foreign markets tumbled. The performance of the core
domestic equity Funds also impacted results for the period. These funds
underperformed their respective individual proxies during the fourth quarter,
providing additional challenges in meeting the allocation benchmarks. The
domestic equity portion of the Portfolio (nearly 75%) performed very well in the
third quarter, then underperformed relative to the market and to fixed-income
investments in the fourth quarter. In addition, the disparity between growth and
value stocks hurt performance.
We reduced, but maintained a small weighting in cash to offset the 90% weighting
in equities. During the fourth quarter, it not only lowered portfolio risk, but
contributed positively to total return. This cash position was a result of both
the allocation in the Global Money Fund, and the overall cash positions of the
underlying Funds. The weighting in the International Growth and the Emerging
Growth Funds were maintained in the Portfolio because of the possibility for
relative performance strength in the months to come.
OUTLOOK
Given the current economic environment, we remain positive on equity
investments. With low interest rates and little inflation, financial assets
should benefit. The crisis in Asia will have some effects on domestic growth,
but the magnitude is not yet known. We believe the oversold sectors (small-cap
and international) will recover and we have maintained their exposure. Also, the
growth style should be more in favor in the coming months. Although the
Portfolio has underperformed the benchmark, we feel that it is positioned
appropriately to take advantage of the equity markets in 1998.
MUTUAL FUND ALLOCATION AS OF DECEMBER 31, 1997
1 Global Money Fund: 5%
2 Growth and Income Fund: 40%
3. Growth Fund: 35%
4. Energing Growth Fund: 10%
5. International Growth Fund: 10%
ASSET CLASS DIVERSIFICATION AS OF DECEMBER 31, 1997
1. Cash and Equivalents: 10.4%
2. U.S. Equity Small Cap: 6.9%
3. U.S. Equity Mid Cap: 27.1%
4. U.S. Equity Large Cap: 39.4%
5. Foreign Stocks: 16.2%
9
<PAGE> 10
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)
<TABLE>
<CAPTION>
Sep 90 Dec Jun Dec 91 Jun Dec 92 Jun Dec 93 Jun
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund (Class A Shares; adjusted for 9456 9981 10795 12266 12269 12805 14028 15194 14380
the maximum 5.50% sales charge)
Fund (Class A Shares; not adjusted 10000 10555 11416 12971 12975 13550 14835 16068 15207
for sales charge)
Capital Market Benchmark(3) 10000 10691 11604 12823 12636 13213 14202 14936 14914
Russell 3000 Index(4) 10000 10931 12640 14609 14501 16023 16826 17766 16993
</TABLE>
<TABLE>
<CAPTION>
Dec 94 Jun Dec 95 Jun Dec 96 Jun Dec 97
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fund (Class A Shares; adjusted for 14667 16204 17977 19590 19990 21323 21716
the maximum 5.50% sales charge)
Fund (Class A Shares; not adjusted 15510 17137 19023 20730 21154 22564 22980
for sales charge)
Capital Market Benchmark(3) 15317 16893 18351 19427 20505 22772 23576
Russell 3000 Index(4) 17797 21227 24347 26749 29660 34916 39046
</TABLE>
The performance of the Class B Shares will be less than indicated by the lines
shown above for the Class A Shares, based on the difference in sales loads and
fees paid by Class B shareholders.
PERFORMANCE REVIEW
The SAM Growth Portfolio A shares returned 8.65% (2.68% adjusted for the maximum
sales charge) for the year ended December 31, 1997. For the six months covered
in this report, the performance was nominally positive, but volatile. Positive
gains in the third quarter of 1997 were washed out by the negative equity
performance during the fourth quarter. The performance was hampered by the
negative results in foreign equities. Overall, the Growth Portfolio A shares
returned 1.85% (-3.75% adjusted for the maximum sales charge). The Fund has
underperformed its benchmark(4), but is managed in an effort to reduce
volatility relative to single asset class investments. Consistent with the
objective of the Fund, long-term results continue to provide a premium over
inflation; since inception, the Portfolio returned 9.4% above the rate of
inflation, 8.5% adjusted for the maximum sales charge(1).
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/97(2) 1 Year 5 Year Since Inception
------ ------ ---------------
(September 30, 1990)
<S> <C> <C> <C>
CLASS A SHARES
Fund (not adjusted for sales charge) 8.65% 11.15% 12.18%
Fund (adjusted for the maximum 5.5% sales charge) 2.68% 9.90% 11.30%
Capital Market Benchmark(3) 14.91% 12.28% 12.56%
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES 1 Year 5 Year Since Inception
------ ------ ---------------
(June 30, 1994)
<S> <C> <C> <C>
Fund (not adjusted for sales charge) 7.87% N/A 11.74%
Fund (adjusted for the maximum 5% CDSC) 2.87% N/A 11.09%(5)
Capital Market Benchmark(3) 14.91% N/A 13.97%
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) The stated goals may or may not be met and are in no way a guarantee. Annual
rate of inflation: 2.79%. Source: Bloomberg Business News.
(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 December 31, 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.
10
<PAGE> 11
ECONOMIC / MARKET REVIEW
International markets were a driving force behind the volatility in equities
during the period. Asian economic and currency woes sent shocks throughout
worldwide financial markets and caused volatility in domestic equity prices. The
Dow Jones Industrial Average dropped 554 points on October 27, 1997. Throughout
the volatility incited by this foreign activity, domestic economic reports
remained positive. Low inflation, higher income, strong employment, and low
interest rates provided a very positive fundamental backdrop for U.S. financial
assets.
Interest rates fell during the period, with the yield on the 30-year Treasury
Bond closing the year under 6%. Rates dropped in the fourth quarter as many
overseas investors moved into U.S. fixed-income investments. International
equities, as measured by the MSCI EAFE Index, were down nearly 8% in the fourth
quarter, and the possibility of adverse effects on earnings of companies doing
business in Asia worried many investors. Technology stocks were especially
affected and were very volatile during the period. The net effect was a fourth
quarter where bond investments outperformed stocks.
INVESTMENT STRATEGY
The SAM Growth Portfolio remained diversified in six funds, representing seven
major asset classes. This broad diversification enables the Portfolio to manage
risk during periods of volatility. Assets ranging in risk levels from cash to
international equities shield the Portfolio from drastic swings in one area of
the financial markets. This was evident in the fourth quarter when equity
investments were falling in value while fixed-income investments were enjoying a
very strong quarter.
The overall investment strategy for the period was to:
o Maintain an asset mix of 80% equities and 20% fixed-income in an attempt
to manage the overall risk of the Portfolio
o Reduce risk levels by lowering exposure to foreign holdings and small-cap
equities -- resulting in an equity weighting that favors holdings in mid-
and large-capitalization companies
PORTFOLIO REALLOCATION REVIEW
We positioned the portfolio to more effectively withstand increased market
volatility, which did occur. We continued to fine tune the portfolio to enable
participation in the stronger areas of overall market activity without extending
portfolio risk.
During the 6 month period, the exposure to foreign stock was reduced, but the
19.5% weight had a negative impact on performance. The most significant factors
contributing to negative fourth quarter results were investments in the same two
funds (Growth and Income and Growth) that contributed positively to third
quarter performance. The 55% weighting resulted in a drag on overall total
Portfolio returns. These funds also significantly underperformed their
respective individual proxies during the fourth quarter, providing additional
challenges in meeting the allocation benchmarks.
We maintained a 20% weighting in fixed-income funds to offset the risk of a 80%
weighting in equities. During the fourth quarter, it not only lowered portfolio
risk, but contributed positively to total return. The weighting in the
International Growth Fund was reduced to 15% and the allocation to the Emerging
Growth Fund was reduced to 10% to lower overall risk levels, although some of
the damage had already been done. These asset classes are maintained in the
Portfolio because of the possibility of relative performance strength in the
months to come.
OUTLOOK
Currently, we are conservatively positioned for a growth portfolio with the 24%
fixed-income position, however, we feel that both the small-cap and the
international sectors have the possibility to rebound from their poor
performance in the second half of 1997. Although the Portfolio has
underperformed its benchmark, we feel that it is positioned appropriately to
take advantage of the financial markets in 1998.
MUTUAL FUND ALLOCATION AS OF DECEMBER 31, 1997
1 Global Money Fund: 10%
2 U.S. Government Fund: 10%
3. Growth and Income Fund: 30%
4. Growth Fund: 25%
5. Energing Growth Fund: 10%
6. International Growth Fund: 15%
ASSET CLASS DIVERSIFICATION AS OF DECEMBER 31, 1997
1. Cash and Equivalents: 14.7%
2. U.S. Govt. Mortgages: 6.9%
3. Treasuries: 2.4%
4. U.S. Equity Small Cap: 6.2%
5. U.S. Equity Mid Cap: 21.1%
6. U.S. Equity Large Cap: 29.2%
7. Foreign Stocks: 19.5%
11
<PAGE> 12
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)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Sep 90 Dec Jun Dec 91 Jun Dec 92 Jun Dec 93 Jun
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund (Class A Shares; adjusted for 9687 9922 10492 11649 11608 11936 13064 13870 13044
the maximum 5.25% sales charge)
Fund (Class A Shares; not adjusted 10000 10458 11059 12279 12236 12581 13770 14620 13749
for sales charge)
Capital Market Benchmark(4) 10000 10537 11137 12104 12160 12529 13357 13842 13858
Lehman Brothers Aggregate 10000 10506 10975 12187 12518 13090 13993 14366 13810
Bond Index(6)
Russell 3000 Index(5) 10000 10931 12640 14609 14501 16023 16826 17766 16993
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Dec 94 Jun Dec 95 Jun Dec 96 Jun Dec 97
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fund (Class A Shares; adjusted for 13229 14682 16083 16692 17444 18687 19224
the maximum 5.25% sales charge)
Fund (Class A Shares; not adjusted 13945 15476 16975 17617 18411 19722 20289
for sales charge)
Capital Market Benchmark(4) 14099 15245 16191 16707 17460 18694 19236
Lehman Brothers Aggregate 13947 15543 16523 16321 17121 17653 18779
Bond Index(6)
Russell 3000 Index(5) 17797 21227 24347 26749 29660 34916 39046
- ---------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE REVIEW
The SAM Balanced Portfolio A shares returned 10.22% (4.43% adjusted for the
maximum sales charge) for the year ended December 31, 1997. For the six months
covered in this report, the performance was positive, yet mixed. Positive
results in bonds were balanced with negative equity performance during the
fourth quarter. The performance was hampered by the negative results in foreign
equities. Overall the Balanced Portfolio A shares returned 2.88% (-2.52%
adjusted for the maximum sales charge). The Fund continued to beat its benchmark
index for all periods(4) while being managed in an effort to reduce volatility
relative to single asset class investments. Long-term results continue to
provide a premium over inflation; since inception, the Fund's A shares returned
nearly 7.5% above the rate of inflation, 6.6% adjusted for the maximum sales
charge(2).
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 12/31/97(2) 1 Year 5 Year Since Inception
------ ------ ---------------
(September 30, 1990)
<S> <C> <C> <C>
CLASS A SHARES
Fund (not adjusted for sales charge) 10.22% 10.02% 10.25%
Fund (adjusted for the maximum 5.25% sales charge) 4.43% 8.84% 9.43%
Capital Market Benchmark(4) 10.17% 8.95% 9.44%
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES 1 Year 5 Year Since Inception
------ ------ ---------------
(June 30, 1994)
<S> <C> <C> <C>
Fund (not adjusted for sales charge) 9.40% N/A 11.00%
Fund (adjusted for the maximum 5% CDSC) 4.40% N/A 10.33%(7)
Capital Market Benchmark(4) 10.17% N/A 9.81%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The stated goals may or may not be met and are in no way a guarantee.
(2) Annual rate of inflation: 2.79%. Source: Bloomberg Business News
(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 December 31, 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.
12
<PAGE> 13
ECONOMIC / MARKET REVIEW
International markets were a driving force behind the volatility in equities
during the period. Asian economic and currency woes sent shocks throughout
worldwide financial markets and caused volatility in domestic equity prices. The
Dow Jones Industrial Average dropped 554 points on October 27, 1997. Throughout
the volatility incited by this foreign activity, domestic economic reports
remained positive. Low inflation, higher income, strong employment, and low
interest rates provided a very positive fundamental backdrop for U.S. financial
assets.
Interest rates fell during the period, with the yield on the 30-year Treasury
Bond closing the year under 6%. Rates dropped in the fourth quarter as many
overseas investors moved into U.S. fixed-income investments. International
equities, as measured by the MSCI EAFE Index, were down nearly 8% in the fourth
quarter, and the possibility of adverse effects on earnings of companies doing
business in Asia worried many investors. Technology stocks were especially
affected and were very volatile during the period. The net effect was a fourth
quarter where bond investments outperformed stocks.
INVESTMENT STRATEGY
The SAM Balanced Portfolio remained diversified in five funds, representing
seven major asset classes. This broad diversification enables the Portfolio to
manage risk during these volatile periods. Assets ranging in risk levels from
cash to international equities shield the Portfolio from drastic market swings
in one area of the financial markets. This was evident in the fourth quarter
when equity investments were falling in value while fixed-income investments
were enjoying a very strong quarter.
The overall investment strategy for the period was to:
o Maintain an asset mix of approximately 60% equities and 40% fixed-income
in an attempt to manage the overall risk of the Portfolio
o Reduce risk levels by lowering exposure to foreign holdings and weighting
the equity holdings in mid- and large-capitalization stocks
PORTFOLIO REALLOCATION REVIEW
During the 6 month period, the exposure to foreign stock was reduced, but the
13% weight still had a negative impact on performance. The most significant
factors contributing to negative fourth quarter results were investments in the
same two funds (Growth and Income and Growth) that contributed positively to
third quarter performance. The 50% weighting resulted in a drag on overall total
Portfolio returns. All three equity funds significantly underperformed their
respective individual proxies during the fourth quarter, providing additional
challenges in meeting the allocation benchmarks.
We maintained a 20% weighting in the Global Money Fund to offset the risk of a
60% weighting in equities. During the fourth quarter, it not only lowered
portfolio risk, but combined with U. S. Government securities fund it
contributed positively to total return. This concentration in cash and
mortgage-backed securities did, however, underperform relative to longer
maturity corporate and government bonds. The weighting in the International
Growth Fund was reduced to 10% and the allocation to the Growth Fund was
increased 5% to offset the move. Although the Portfolio underperformed the
benchmark in the fourth quarter, the strong performance in the third quarter
resulted in positive net results for the period (2.88% versus 2.59% for the
Benchmark).
OUTLOOK
The Fund has been conservatively structured (57.5% equity, 42.5% debt) to
mitigate risk until we better understand the depth and breadth of the Asian
problem and its impact on the domestic economy and corporate earnings.
Meanwhile, the Portfolio truly represents a globally diversified, balanced
portfolio with 13% (even after the reduction) of assets in the severely
depressed foreign stocks. We expect these holdings to bounce back, making
positive contributions to Portfolio results during the next 6 months. In
addition, the 23.7% cash position allows the flexibility to play either the
higher or the lower growth scenarios without major structural shifts in risk.
MUTUAL FUND ALLOCATION AS OF DECEMBER 31, 1997
1 Global Money Fund: 20%
2 U.S. Government Fund: 20%
3. Growth and Income Fund: 30%
4. Growth Fund: 20%
5. International Growth Fund: 10%
ASSET CLASS DIVERSIFICATION AS OF DECEMBER 31, 1997
1. Cash: 23.7%
2. U.S. Govt. Mortgages: 14%
3. Treasuries: 4.8%
4. U.S. Equity Small Cap: 1.9%
5. U.S. Equity Mid Cap: 15.9%
6. U.S. Equity Large Cap: 26.7%
7. Foreign Stocks: 13%
13
<PAGE> 14
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)
<TABLE>
<CAPTION>
Mar 93 Jun Sep Dec 93 Mar Jun Sep Dec 94 Mar Jun Sep
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund (Class A Shares; adjusted for 9550 9793 10087 10164 9839 9461 9639 9544 10012 10674 11121
the maximum 4.50% sales charge)
Fund (Class A Shares; not adjusted 10000 10255 10562 10643 10302 9907 10093 9994 10483 11177 11645
for sales charge)
Capital Market Benchmark(4) 10000 10117 10255 10339 10260 10284 10426 10476 10853 11249 11494
Lehman Brothers Aggregate 10000 10266 10533 10539 10236 10131 10193 10231 10747 11402 11626
Bond Index(5)
</TABLE>
<TABLE>
<CAPTION>
Dec 95 Mar Jun Sep Dec 96 Mar Jun Dec 97
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fund (Class A Shares; adjusted for 11546 11485 11575 11783 12289 12310 12828 13549
the maximum 4.50% sales charge)
Fund (Class A Shares; not adjusted 12090 12026 12120 12338 12869 12890 13433 14188
for sales charge)
Capital Market Benchmark(4) 11797 11912 12078 12289 12596 12715 13169 13743
Lehman Brothers Aggregate 12122 11905 11973 12194 12560 12490 12950 13776
Bond Index(5)
</TABLE>
PERFORMANCE REVIEW
The SAM Value Portfolio A shares returned 10.25% (5.29% adjusted for the maximum
sales charge) for the year ended December 31, 1997. For the six months covered
in this report, the performance was strong, returning 5.63% (0.88% adjusted for
the maximum sales charge). The Fund continues to beat its benchmark index for
all periods(4) while being managed in an effort to reduce volatility relative to
single asset class investments. Consistent with its investment objective,
long-term results continue to provide a premium over inflation; since inception,
the Fund's A shares returned over 5% above the rate of inflation, 4% adjusted
for the maximum sales charge(1).
ECONOMIC / MARKET REVIEW
International markets were a driving force behind the volatility in equities
during the period. Asian economic
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 12/31/97(2) 1 Year 5 Year Since Inception
------ ------ ---------------
(March 31, 1993)
<S> <C> <C> <C>
CLASS A SHARES
Fund (not adjusted for sales charge) 10.25% N/A 7.63%
Fund (adjusted for the maximum 4.5% sales charge) 5.29% N/A 6.59%
Capital Market Benchmark(3) 9.09% N/A 6.24%
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES 1 Year 5 Year Since Inception
------ ------ ---------------
(June 30, 1994)
<S> <C> <C> <C>
Fund (not adjusted for sales charge) 9.43% N/A 10.03%
Fund (adjusted for the maximum 5% CDSC) 4.43% N/A 9.35%(5)
Capital Market Benchmark(3) 9.09% N/A 8.63%
</TABLE>
(1) The stated goals may or may not be met and are in no way a guarantee. Annual
rate of inflation: 2.79%. Source: Bloomberg Business News.
(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 December 31, 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.
14
<PAGE> 15
and currency woes sent shocks throughout worldwide financial markets and caused
volatility in domestic equity prices. The Dow Jones Industrial Average dropped
554 points on October 27, 1997. Throughout the volatility incited by this
foreign activity, domestic economic reports remained positive. Low inflation,
higher income, strong employment, and low interest rates provided a very
positive fundamental backdrop for U.S. financial assets.
Interest rates fell during the period, with the yield on the 30-year Treasury
Bond closing the year under 6%. Rates dropped in the fourth quarter as many
overseas investors moved into U.S. fixed-income investments. International
equities, as measured by the MSCI EAFE Index, were down nearly 8% in the fourth
quarter, and the possibility of adverse effects on earnings of companies doing
business in Asia worried many investors. The net effect was a fourth quarter
where bond investments outperformed stocks, especially investments weighted in
long-term fixed income.
INVESTMENT STRATEGY
The SAM Value Portfolio remained diversified in five funds, representing nine
major asset classes. This broad diversification enables the Portfolio to manage
risk during these volatile periods. Assets ranging in risk levels from cash to
equities shield the Portfolio from drastic swings in one area of the financial
markets. This was evident in the fourth quarter when equity investments were
falling in value while fixed-income investments were enjoying a strong quarter.
The overall investment strategy for the period was to:
o Maintain an asset mix of 20% equities and 80% fixed-income in an attempt
to manage the overall risk of the Portfolio and to provide the potential
for capital appreciation
o Reduce risk levels by lowering exposure to foreign bond holdings and
increasing long-term fixed-income and large-capitalization equity holdings
PORTFOLIO REALLOCATION REVIEW
During the 6-month period, reallocation decisions significantly contributed to
the positive results. Third quarter shifts out of global bonds and into
long-term fixed-income assets and domestic equities proved to be quite
advantageous and quite prudent. These moves were prior to the Asian blow-up and
subsequent volatility in foreign markets. Moving out of the Sierra Short Term
Global Government Bond Fund and into the Sierra Corporate Income Fund during the
period enabled the Portfolio to significantly outperform its benchmark(3). The
additional assets in long-term bonds added to results as yields dropped
throughout the period, sending bond prices higher. Large-capitalization
companies bounced back from their October declines and appreciated (as measured
by the S&P 500) over 10% for the period.
Overall, the Portfolio had a 50% weight in the two longer-term Sierra
fixed-income funds, the Corporate Income and the U.S. Government Fund. During
the fourth quarter, these two Funds outperformed all available Funds, even their
equity counterparts. We have remained slightly over-weighed in equities,
focusing on large-cap domestic holdings. We have also maintained a larger than
normal cash position to help mitigate market volatility. This strategy has
served the portfolio well over the last two quarters and provided very positive
results.
OUTLOOK
We remain bullish on the U. S. economy (growth and inflation) and optimistic
that the economy is well positioned to weather the flow through impact from the
Asian crisis. The concentration in the Sierra Growth and Income Fund has served
to benefit the portfolio over the last year, providing potential for capital
appreciation. The balanced mix of fixed income investments should shield the
portfolio until the prospects for inflation and growth are more clear.
MUTUAL FUND ALLOCATION AS OF DECEMBER 31, 1997
1 Global Money Fund: 25%
2. Short Term High Quality Bond Fund: 5%
3 U.S. Government Fund: 35%
4. Corporate Income Fund: 15%
5. Growth and Income Fund: 20%
ASSET CLASS DIVERSIFICATION AS OF DECEMBER 31, 1997
1. Cash and Equivalents: 28%
2. Short Term Bond Funds: 4.5%
3. U.S. Govt. Mortgages: 27%
4. Treasuries: 8.9%
5. Corporates: 11.9
6. U.S. Equity Small Cap: 0.5%
7. U.S. Equity Mid Cap: 7.2%
8. U.S. Equity Large Cap: 11.8%
9. Foreign Stocks: 0.2%
15
<PAGE> 16
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)
<TABLE>
<CAPTION>
SEP 90 DEC JUN DEC 91 JUN DEC 92 JUN DEC 93 JUN
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund (Class A Shares; adjusted for 9550 9864 10406 11492 11858 12310 13245 13604 12654
the maximum 4.50% sales charge)
Fund (Class A Shares; not adjusted 10000 10328 10896 12033 12416 12890 13869 14245 13250
for sales charge)
Capital Market Benchmark(4) 10000 10284 10730 11387 11692 12024 12464 12712 12634
Lehman Brothers Aggregate 10000 10506 10975 12187 12518 13090 13993 14366 13810
Bond Index(5)
</TABLE>
<TABLE>
<CAPTION>
DEC 94 JUN DEC 95 JUN DEC 96 JUN DEC 97
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fund (Class A Shares; adjusted for 12584 13800 14681 14335 15004 15399 16247
the maximum 4.50% sales charge)
Fund (Class A Shares; not adjusted 13177 14450 15373 15011 15711 16124 17013
for sales charge)
Capital Market Benchmark(4) 12858 13705 14277 14448 14983 15420 16048
Lehman Brothers Aggregate 13947 15543 16523 16321 17121 17653 18779
Bond Index(5)
</TABLE>
Performance Review
The SAM Income Portfolio A shares benefited from falling interest rates and
returned 8.29% (3.41% adjusted for the maximum sales charge) for the year ended
December 31, 1997. For the six months covered in this report, the performance
was steadily positive; the Portfolio A shares returned 5.51% (0.76% adjusted for
the maximum sales charge). The Income Portfolio also provides a competitive
yield; as of December 31, 1997, the SEC yield for the Fund was 5.51% for A
shares, and 5.02% for B shares. The Fund continues to beat its benchmark index,
both for the period, and since inception.(4) In addition, the Fund is managed in
an
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 12/31/97(2) 1 Year 5 Year Since Inception
------ ------ ---------------
(September 30, 1990)
<S> <C> <C> <C>
CLASS A SHARES
Fund (not adjusted for sales charge) 8.29% 5.70% 7.62%
Fund (adjusted for the maximum 4.5% sales charge) 3.41% 4.73% 6.93%
Capital Market Benchmark(4) 7.12% 5.95% 6.74%
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES 1 Year 5 Year Since Inception
------ ------ ---------------
(June 30, 1994)
<S> <C> <C> <C>
Fund (not adjusted for sales charge) 7.48% N/A 6.61%
Fund (adjusted for the maximum 5% CDSC) 2.48% N/A 5.88%(6)
Capital Market Benchmark(4) 7.12% N/A 7.08%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) The stated goals may or may not be met and are in no way a guarantee.
(2) Annual rate of inflation: 2.79%. Source: Bloomberg Business News
(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 December 31, 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.
16
<PAGE> 17
effort to reduce volatility relative to individual bond holdings and single
asset class fixed-income investments. Long-term results continue to provide a
premium over inflation; since inception, the Fund's A shares returned over 4.8%
above the rate of inflation, 4.1% adjusted for the maximum sales charge(2).
ECONOMIC / MARKET REVIEW
Interest rates fell during the period, with the yield on the 30-year Treasury
Bond closing the year under 6%. Rates dropped throughout the fourth quarter,
boosting fixed-income investments. Previous worries over excess strength in
economic growth and the need for intervention from the Federal Reserve were
quelled by the crisis in Asia. The Fed maintained the status quo and allowed
markets to dictate the level of interest rates. The Asian turmoil caused a
flight to the U.S. Dollar as prices for longer-maturity assets were bid up.
Inflation pressures proved benign and yields dropped from their highs in April.
Throughout the volatility incited by this foreign activity, domestic economic
reports remained positive. Low inflation, higher income, strong employment, and
these low interest rates provided a very positive fundamental backdrop for U.S.
financial assets. The net effect was a fourth quarter where bond investments
outperformed stocks.
INVESTMENT STRATEGY
The SAM Income Portfolio remained well diversified in five fixed-income funds,
representing six major asset classes. This diversification allows for risk
management in addition to a strong yield. The Fund is invested in assets ranging
across the yield curve, from the shortest-maturity cash positions to long-term
corporate bonds. This strategy was maintained throughout the period to provide
yield and preserve capital.
The overall investment strategy for the period was to:
o Maintain a balanced mix of fixed-income assets with 30% short-term, 40%
intermediate, and 30% long-term investments
o Bolster yield by weighting the Portfolio in mortgage-backed securities
(33%) and corporate bonds (24%)
PORTFOLIO REALLOCATION REVIEW
During the 6-month period, there were no major shifts in investment strategy,
although continuous re-balancing was necessary to maintain the desired
allocation weights. We invested a majority of Portfolio assets in the individual
funds with the longest maturities. This provided positive results in the falling
interest rate environment. The combined weighting of U.S. Government securities
and corporate income funds totaled 70% of the portfolio, contributing
significantly to the returns for the period.
We targeted a slight bias towards a bullet strategy favoring the higher yielding
mortgage securities, while placing equal emphasis on the short- and long-term
funds. This structure provided a strong yield in addition to maintaining lower
than average risk. The cash position provides positive results and positions the
Portfolio to weather economic volatility, reducing overall risk levels.
OUTLOOK
The fund is conservatively positioned for two likely events:
o A back-up in interest rates due to higher than expected growth combined
with an easing of the Asian crisis. The Portfolio is shielded by its
relatively low duration (a measure of sensitivity to changes in interest
rates) of 4.34 years.
o The probability of an economy slowing more than initial estimates, largely
due to the uncertain flow through impact of Asia's deflation.
Overall, the outlook for low inflation continues to bode well for the
fixed-income arena while the Federal Reserve is on hold.
MUTUAL FUND ALLOCATION AS OF DECEMBER 31, 1997
1 Global Money Fund: 10%
2. Short Term High Quality Bond Fund: 10%
3 Short Term Global Government Fund: 10%
4. U.S. Government Fund: 40%
5. Corporate Income Fund: 30%
ASSET CLASS DIVERSIFICATION AS OF DECEMBER 31, 1997
1. Cash: 14.1%
2. Short Term Bond Funds: 12.7%
3. Foreign Bonds: 5.6%
4. U.S. Govt. Mortgages: 32.8%
5. Treasuries: 10.7%
6. Corporate Bonds: 24.1%
17
<PAGE> 18
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
SIERRA ASSET MANAGEMENT PORTFOLIOS
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
CAPITAL
GROWTH GROWTH BALANCED VALUE INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value (Note 2)
See portfolios of investments(a) $59,345,285 $284,194,884 $209,913,291 $17,863,159 $15,262,953
Cash......................................... 796 6,992 687 989 946
Dividends and/or interest receivable......... 13,229 290,582 436,089 76,232 188,187
Receivable for Portfolio shares sold......... 129,423 188,341 546,761 18,089 227
Unamortized organization costs (Note 8)...... 31,607 31,607 31,607 31,607 31,607
Prepaid expenses and other assets............ 536 3,207 2,284 222 201
----------- ------------ ------------ ----------- -----------
Total Assets........................ 59,520,876 284,715,613 210,930,719 17,990,298 15,484,121
----------- ------------ ------------ ----------- -----------
LIABILITIES:
Payable for Portfolio shares redeemed........ 188,629 460,498 315,879 22,195 33,088
Investment advisory fee payable (Note 3)..... 7,353 35,988 26,281 2,260 1,976
Administration fee payable (Note 3).......... 20,442 125,808 90,974 6,739 6,183
Shareholder servicing and distribution fees
payable (Note 5)........................... 38,856 160,871 110,515 8,670 6,265
Dividends payable............................ -- -- 180,589 28,349 78,452
Accrued legal and audit fees................. 10,132 15,890 13,926 9,409 9,155
Custodian fees payable (Note 3).............. 205 482 202 123 219
Accrued transfer agent fees (Note 3)......... 3,343 12,246 7,828 770 597
Accrued Trustees' fees and expenses
(Note 4)................................... 291 1,426 1,041 89 78
Accrued registration and filing fees......... 2,061 764 1,803 (150) 35
Accrued expenses and other payables.......... 6,857 31,467 23,221 2,281 2,021
----------- ------------ ------------ ----------- -----------
Total Liabilities................... 278,169 845,440 772,259 80,735 138,069
----------- ------------ ------------ ----------- -----------
NET ASSETS................................... $59,242,707 $283,870,173 $210,158,460 $17,909,563 $15,346,052
=========== ============ ============ =========== ===========
NET ASSETS CONSIST OF:
Undistributed net investment
income/(distributions in excess of net
investment income)......................... $(3,497,959) $(10,193,908) $ (8,304,707) $ (356,557) $ (1,507)
Accumulated net realized gain/(loss) on
investments................................ 6,955,325 21,379,985 15,915,250 728,006 18,615
Net unrealized appreciation/(depreciation) of
investments................................ (2,748,283) (10,056,151) (5,446,331) (7,017) 218,121
Paid-in capital.............................. 58,533,624 282,740,247 207,994,248 17,545,131 15,110,823
----------- ------------ ------------ ----------- -----------
Total Net Assets.................... $59,242,707 $283,870,173 $210,158,460 $17,909,563 $15,346,052
=========== ============ ============ =========== ===========
NET ASSETS:
Class A Shares............................... $16,187,099 $124,070,353 $102,260,130 $10,143,521 $10,657,691
=========== ============ ============ =========== ===========
Class B Shares............................... $43,055,608 $159,799,820 $107,898,330 $ 7,766,042 $ 4,688,361
=========== ============ ============ =========== ===========
SHARES OUTSTANDING:
Class A Shares............................... 1,482,518 11,845,054 9,712,017 969,821 1,034,871
=========== ============ ============ =========== ===========
Class B Shares............................... 3,968,866 15,335,855 10,247,408 742,500 455,255
=========== ============ ============ =========== ===========
CLASS A SHARES:
Net asset value per share of beneficial
interest outstanding*...................... $ 10.92 $ 10.47 $ 10.53 $ 10.46 $ 10.30
=========== ============ ============ =========== ===========
Maximum sales charge......................... 5.75% 5.50% 5.25% 4.50% 4.50%
Maximum offering price per share of
beneficial interest outstanding............ $ 11.59 $ 11.08 $ 11.11 $ 10.95 $ 10.79
=========== ============ ============ =========== ===========
CLASS B SHARES:
Net asset value and offering price per share
of beneficial interest outstanding*........ $ 10.85 $ 10.42 $ 10.53 $ 10.46 $ 10.30
=========== ============ ============ =========== ===========
- ---------------------
(a) Investments, at cost (Note 2)............ $62,093,568 $294,251,035 $215,359,622 $17,870,176 $15,044,832
</TABLE>
* Redemption price per share is equal to Net Asset Value less any applicable
contingent deferred sales charge.
See Notes to Financial Statements.
18
<PAGE> 19
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
SIERRA ASSET MANAGEMENT PORTFOLIOS
For the Six Months Ended December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
CAPITAL
GROWTH GROWTH BALANCED VALUE INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.......................................... $ 426,028 $ 4,433,865 $ 4,156,410 $ 467,146 $ 667,259
Interest........................................... 16,279 40,362 43,353 9,178 6,441
----------- ------------ ------------ ---------- ---------
Total investment income........................ 442,307 4,474,227 4,199,763 476,324 673,700
----------- ------------ ------------ ---------- ---------
EXPENSES:
Investment advisory fee (Note 3)................... 42,348 225,112 162,175 13,942 12,708
Administration fee (Note 3)........................ 141,158 750,374 540,582 46,472 42,361
Custodian fees (Note 3)............................ 713 1,642 869 730 606
Legal and audit fees............................... 7,278 11,575 16,326 5,079 6,927
Trustees' fees and expenses (Note 4)............... 384 1,924 1,404 117 105
Amortization of organization costs (Note 8)........ 4,515 4,515 4,515 4,515 4,515
Registration and filing fees....................... 12,152 10,542 10,718 3,195 8,226
Transfer agent fees (Note 3)....................... 18,626 73,253 46,429 4,629 3,680
Other.............................................. 2,284 6,114 5,325 617 543
Shareholder servicing and distribution fees
(Note 5):
Class A Shares................................... 19,616 168,389 136,721 13,730 15,410
Class B Shares................................... 203,852 827,193 534,279 38,023 23,083
Fees waived and/or expenses absorbed by
administrator (Note 3)........................... (32,276) (36,114) (31,933) (13,981) (20,056)
----------- ------------ ------------ ---------- ---------
Subtotal....................................... 420,650 2,044,519 1,427,410 117,068 98,108
Credits allowed by the custodian (Note 3).......... (14) -- (85) (202) (183)
----------- ------------ ------------ ---------- ---------
Net expenses................................... 420,636 2,044,519 1,427,325 116,866 97,925
----------- ------------ ------------ ---------- ---------
NET INVESTMENT INCOME.............................. 21,671 2,429,708 2,772,438 359,458 575,775
----------- ------------ ------------ ---------- ---------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS
(Notes 2 and 6):
Net realized gain/(loss) on investments during the
period........................................... (211,561) (899,947) 271,905 156,107 43,649
Capital gain distributions received................ 7,044,458 23,148,422 16,631,628 713,630 --
Net change in unrealized appreciation/
(depreciation) of investments during the
period........................................... (5,339,611) (19,683,586) (14,227,231) (228,900) 268,595
----------- ------------ ------------ ---------- ---------
Net Realized and Unrealized Gain on Investments.... 1,493,286 2,564,889 2,676,302 640,837 312,244
----------- ------------ ------------ ---------- ---------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS....................................... $ 1,514,957 $ 4,994,597 $ 5,448,740 $1,000,295 $ 888,019
=========== ============ ============ ========== =========
</TABLE>
See Notes to Financial Statements.
19
<PAGE> 20
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
SIERRA ASSET MANAGEMENT PORTFOLIOS
For the Six Months Ended December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
CAPITAL
GROWTH GROWTH BALANCED VALUE INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Net investment income............................ $ 21,671 $ 2,429,708 $ 2,772,438 $ 359,458 $ 575,775
Net realized gain/(loss) on investments during
the period..................................... (211,561) (899,947) 271,905 156,107 43,649
Capital gain distributions received.............. 7,044,458 23,148,422 16,631,628 713,630 --
Net unrealized appreciation/(depreciation) of
investments during the period.................. (5,339,611) (19,683,586) (14,227,231) (228,900) 268,595
----------- ------------ ------------ ----------- -----------
Net increase in net assets resulting from
operations..................................... 1,514,957 4,994,597 5,448,740 1,000,295 888,019
Distributions to shareholders from:
Net investment income:
Class A Shares............................... -- (1,234,956) (1,616,507) (204,997) (441,900)
Class B Shares............................... -- (1,020,306) (1,231,511) (176,915) (153,538)
Distributions in excess of net investment
income:
Class A Shares............................... (950,865) (4,507,932) (4,064,702) (201,175) --
Class B Shares............................... (2,366,606) (5,860,613) (4,241,241) (154,225) --
Net realized gains on investments:
Class A Shares............................... (53,136) (709,416) (1,050,143) (218,896) --
Class B Shares............................... (140,517) (922,336) (1,095,753) (167,811) --
Net increase/(decrease) in net assets from
Portfolio share transactions:
Class A Shares............................... 2,480,904 (8,280,347) (3,525,280) (2,431,561) (2,970,510)
Class B Shares............................... 8,703,179 6,573,744 12,292,610 466,599 77,536
----------- ------------ ------------ ----------- -----------
Net increase/(decrease) in net assets............ 9,187,916 (10,967,565) 916,213 (2,088,686) (2,600,393)
NET ASSETS:
Beginning of period.............................. 50,054,791 294,837,738 209,242,247 19,998,249 17,946,445
----------- ------------ ------------ ----------- -----------
End of period.................................... $59,242,707 $283,870,173 $210,158,460 $17,909,563 $15,346,052
=========== ============ ============ =========== ===========
Distributions in excess of net investment income
at end of period............................... $(3,497,959) $(10,193,908) $ (8,304,707) $ (356,557) $ (1,507)
=========== ============ ============ =========== ===========
</TABLE>
For the Period Ended June 30, 1997*
<TABLE>
<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
=========== ============ ============ =========== ===========
</TABLE>
- ---------------------
* The Portfolio's Class A Shares and Class B Shares commenced operations on July
25, 1996.
See Notes to Financial Statements.
20
<PAGE> 21
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS -- CAPITAL STOCK ACTIVITY
SIERRA ASSET MANAGEMENT PORTFOLIOS
For the Six Months Ended December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
CAPITAL
GROWTH GROWTH BALANCED VALUE INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
AMOUNT
CLASS A:
Sold............................................... $ 4,146,866 $ 11,296,646 $ 10,764,681 $ 726,273 $ 916,148
Issued as reinvestment of dividends................ 985,616 6,378,720 6,558,079 623,143 225,055
Redeemed........................................... (2,651,578) (25,955,713) (20,848,040) (3,780,977) (4,111,713)
----------- ------------ ------------ ----------- -----------
Net increase/(decrease)............................ $ 2,480,904 $ (8,280,347) $ (3,525,280) $(2,431,561) $(2,970,510)
=========== ============ ============ =========== ===========
CLASS B:
Sold............................................... $ 8,321,097 $ 16,486,924 $ 16,556,677 $ 1,223,025 $ 528,042
Issued as reinvestment of dividends................ 2,468,967 7,663,465 6,438,108 428,604 113,361
Redeemed........................................... (2,086,885) (17,576,645) (10,702,175) (1,185,030) (563,867)
----------- ------------ ------------ ----------- -----------
Net increase....................................... $ 8,703,179 $ 6,573,744 $ 12,292,610 $ 466,599 $ 77,536
=========== ============ ============ =========== ===========
SHARES
CLASS A:
Sold............................................... 349,189 1,006,545 951,988 67,329 88,867
Issued as reinvestment of dividends................ 93,681 628,445 621,356 59,148 21,848
Redeemed........................................... (226,370) (2,329,264) (1,854,979) (350,184) (399,254)
----------- ------------ ------------ ----------- -----------
Net increase/(decrease)............................ 216,500 (694,274) (281,635) (223,707) (288,539)
=========== ============ ============ =========== ===========
CLASS B:
Sold............................................... 712,602 1,480,864 1,476,484 112,872 51,343
Issued as reinvestment of dividends................ 236,325 758,711 612,015 40,811 11,003
Redeemed........................................... (178,833) (1,592,694) (957,901) (110,020) (54,800)
----------- ------------ ------------ ----------- -----------
Net increase....................................... 770,094 646,881 1,130,598 43,663 7,546
=========== ============ ============ =========== ===========
</TABLE>
For the Period Ended June 30, 1997*
<TABLE>
<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
=========== ============ ============ =========== ===========
</TABLE>
- ---------------------
* The Portfolio's Class A Shares and Class B Shares commenced operations on July
25, 1996.
See Notes to Financial Statements.
21
<PAGE> 22
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
CAPITAL GROWTH PORTFOLIO
For a Portfolio share outstanding throughout each period.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
--------------------------- ---------------------------
SIX MONTHS SIX MONTHS
ENDED PERIOD ENDED PERIOD
12/31/97 ENDED 12/31/97 ENDED
(UNAUDITED) 06/30/97* (UNAUDITED) 06/30/97*
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.............................. $ 11.26 $ 10.00 $ 11.19 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income/(loss)...................................... 0.04+++ (0.02)+++ (0.01)+++ (0.10)+++
Net realized and unrealized gain on investments................... 0.34 1.90 0.35 1.90
------- ------- ------- -------
Total from investment operations.................................. 0.38 1.88 0.34 1.80
LESS DISTRIBUTIONS:
Dividends from net investment income.............................. -- -- -- --
Distributions in excess of net investment income.................. (0.68) (0.62) (0.64) (0.61)
Distributions from net realized capital gains..................... (0.04) (0.00)*** (0.04) (0.00)***
------- ------- ------- -------
Total distributions............................................... (0.72) (0.62) (0.68) (0.61)
------- ------- ------- -------
Net asset value, end of period.................................... $ 10.92 $ 11.26 $ 10.85 $ 11.19
======= ======= ======= =======
TOTAL RETURN+..................................................... 3.60% 19.33% 3.25% 18.48%
======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's).............................. $16,187 $14,253 $43,056 $35,802
Ratio of operating expenses to average net assets++............... 0.95%** 0.90%** 1.70%** 1.65%**
Ratio of net investment income/(loss) to average net assets....... 0.62%** (0.19)%** (0.13)%** (0.94)%**
Portfolio turnover rate........................................... 9% 33% 9% 33%
Ratio of operating expenses to average net assets without credits
allowed by the custodian++...................................... 0.95%** 0.91%** 1.70%** 1.66%**
Ratio of operating expenses to average net assets without fee
waivers, expenses absorbed and/or credits allowed by the
custodian++..................................................... 1.06%** 1.45%** 1.81%** 2.20%**
Net investment income/(loss) per share without fee waivers,
expenses absorbed and/or credits allowed by the custodian....... 0.03+++ (0.07)+++ (0.02)+++ (0.15)+++
</TABLE>
- ---------------------
* 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.
22
<PAGE> 23
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
GROWTH PORTFOLIO
For a Portfolio share outstanding throughout each period.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
------------------------- -------------------------
SIX MONTHS SIX MONTHS
ENDED PERIOD ENDED PERIOD
12/31/97 ENDED 12/31/97 ENDED
(UNAUDITED) 06/30/97* (UNAUDITED) 06/30/97*
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.................................... $ 10.86 $ 10.00 $ 10.80 $ 10.00
--------- -------- --------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................................... 0.11+++ 0.08 +++ 0.07+++ 0.01 +++
Net realized and unrealized gain on investments......................... 0.07 1.32 0.08 1.31
--------- -------- --------- --------
Total from investment operations........................................ 0.18 1.40 0.15 1.32
LESS DISTRIBUTIONS:
Dividends from net investment income.................................... (0.11) (0.08) (0.07) (0.01)
Distributions in excess of net investment income........................ (0.40) (0.46) (0.40) (0.51)
Distributions from net realized capital gains........................... (0.06) -- (0.06) --
--------- -------- --------- --------
Total distributions..................................................... (0.57) (0.54) (0.53) (0.52)
--------- -------- --------- --------
Net asset value, end of period.......................................... $ 10.47 $ 10.86 $ 10.42 $ 10.80
========= ======== ========= ========
TOTAL RETURN+........................................................... 1.85% 14.39% 1.57% 13.59%
========= ======== ========= ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's).................................... $ 124,070 $136,141 $ 159,800 $158,697
Ratio of operating expenses to average net assets++..................... 0.95%** 0.92% ** 1.70%** 1.67% **
Ratio of net investment income to average net assets.................... 2.03%** 0.81% ** 1.28%** 0.06% **
Portfolio turnover rate................................................. 14% 20% 14% 20%
Ratio of operating expenses to average net assets without credits
allowed by the custodian++............................................ 0.95%** 0.93% ** 1.70%** 1.68% **
Ratio of operating expenses to average net assets without fee waivers,
expenses absorbed and/or credits allowed by the custodian++........... 0.97%** 1.17% ** 1.72%** 1.92% **
Net investment income/(loss) per share without fee waivers, expenses
absorbed and/or credits allowed by the custodian...................... $ 0.11+++ $ 0.06 +++ $ 0.07+++ $ (0.01) +++
</TABLE>
- ---------------------
<TABLE>
<C> <S>
* The Portfolio's Class A Shares and Class B Shares commenced operations on July 25, 1996.
** Annualized.
+ Total return represents aggregate total return for the period indicated and does not reflect any applicable sales charges.
The total returns would have been lower if certain fees had not been waived and/or expenses absorbed by the investment
advisor and/or administrator or 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>
23
<PAGE> 24
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
BALANCED PORTFOLIO
For a Portfolio share outstanding throughout each period.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
-------------------------- --------------------------
SIX MONTHS SIX MONTHS
ENDED PERIOD ENDED PERIOD
12/31/97 ENDED 12/31/97 ENDED
(UNAUDITED) 06/30/97* (UNAUDITED) 06/30/97*
------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.................................. $ 10.95 $ 10.00 $ 10.95 $ 10.00
-------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................................. 0.17+++ 0.20 +++ 0.12+++ 0.14+++
Net realized and unrealized gain on investments....................... 0.13 1.27 0.14 1.25
-------- -------- -------- -------
Total from investment operations...................................... 0.30 1.47 0.26 1.39
LESS DISTRIBUTIONS:
Dividends from net investment income.................................. (0.17) (0.20) (0.12) (0.14)
Distributions in excess of net investment income...................... (0.44) (0.32) (0.45) (0.30)
Distributions from net realized capital gains......................... (0.11) (0.00) *** (0.11) (0.00)***
-------- -------- -------- -------
Total distributions................................................... (0.72) (0.52) (0.68) (0.44)
-------- -------- -------- -------
Net asset value, end of period........................................ $ 10.53 $ 10.95 $ 10.53 $ 10.95
======== ======== ======== =======
TOTAL RETURN+......................................................... 2.88% 15.02% 2.49% 14.23%
======== ======== ======== =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's).................................. $102,260 $109,421 $107,898 $99,821
Ratio of operating expenses to average net assets++................... 0.95%** 0.92% ** 1.70%** 1.67%**
Ratio of net investment income to average net assets.................. 2.93%** 2.48% ** 2.18%** 1.73%**
Portfolio turnover rate............................................... 11% 46% 11% 46%
Ratio of operating expenses to average net assets without credits
allowed by the custodian++.......................................... 0.95%** 0.93% ** 1.70%** 1.68%**
Ratio of operating expenses to average net assets without fee waivers,
expenses absorbed and/or credits allowed by the custodian++......... 0.98%** 1.17% ** 1.73%** 1.92%**
Net investment income per share without fee waivers, expenses absorbed
and/or credits allowed by the custodian............................. $ 0.16+++ $ 0.18 +++ $ 0.11+++ $ 0.12+++
</TABLE>
- ---------------------
<TABLE>
<C> <S>
* 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>
24
<PAGE> 25
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
VALUE PORTFOLIO
For a Portfolio share outstanding throughout each period.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
---------------------------- ---------------------------
SIX MONTHS SIX MONTHS
ENDED PERIOD ENDED PERIOD
12/31/97 ENDED 12/31/97 ENDED
(UNAUDITED) 06/30/97* (UNAUDITED) 06/30/97*
------------- --------- ------------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.............................. $ 10.57 $ 10.00 $ 10.57 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................. 0.23+++ 0.43+++ 0.18+++ 0.38 +++
Net realized and unrealized gain on investments................... 0.36 0.70 0.37 0.68
------- ------- ------- -------
Total from investment operations.................................. 0.59 1.13 0.55 1.06
LESS DISTRIBUTIONS:
Dividends from net investment income.............................. (0.23) (0.43) (0.18) (0.38)
Distributions in excess of net investment income.................. (0.23) (0.13) (0.24) (0.11)
Distributions from net realized capital gains..................... (0.24) (0.00)*** (0.24) (0.00) ***
------- ------- ------- -------
Total distributions............................................... (0.70) (0.56) (0.66) (0.49)
------- ------- ------- -------
Net asset value, end of period.................................... $ 10.46 $ 10.57 $ 10.46 $ 10.57
======= ======= ======= =======
Total return+..................................................... 5.63% 11.58% 5.23% 10.80%
======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's).............................. $10,144 $12,613 $ 7,766 $ 7,385
Ratio of operating expenses to average net assets++............... 0.95%** 0.92%** 1.70%** 1.67% **
Ratio of net investment income to average net assets.............. 4.17%** 4.95%** 3.42%** 4.20% **
Portfolio turnover rate........................................... 19% 54% 19% 54%
Ratio of operating expenses to average net assets without credits
allowed by the custodian++...................................... 0.95%** 0.93%** 1.70%** 1.68% **
Ratio of operating expenses to average net assets without fee
waivers, expenses absorbed and/or credits allowed by the
custodian++..................................................... 1.10%** 1.67%** 1.85%** 2.42% **
Net investment income per share without fee waivers, expenses
absorbed and/or credits allowed by the custodian................ $ 0.23+++ $ 0.37+++ $ 0.18+++ $ 0.32 +++
</TABLE>
- ---------------------
* 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.
25
<PAGE> 26
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
INCOME PORTFOLIO
For a Portfolio share outstanding throughout each period.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
------------------------- -------------------------
SIX MONTHS SIX MONTHS
ENDED PERIOD ENDED PERIOD
12/31/97 ENDED 12/31/97 ENDED
(UNAUDITED) 06/30/97* (UNAUDITED) 06/30/97*
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.................................. $ 10.13 $ 10.00 $ 10.13 $ 10.00
----------- --------- ----------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................................. 0.36+++ 0.58+++ 0.32+++ 0.51+++
Net realized and unrealized gain on investments....................... 0.19 0.14# 0.19 0.14#
----------- --------- ----------- ---------
Total from investment operations...................................... 0.55 0.72 0.51 0.65
LESS DISTRIBUTIONS:
Dividends from net investment income.................................. (0.38) (0.58) (0.34) (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................................................... (0.38) (0.59) (0.34) (0.52)
----------- --------- ----------- ---------
Net asset value, end of period........................................ $ 10.30 $ 10.13 $ 10.30 $ 10.13
=========== ========= =========== =========
TOTAL RETURN+......................................................... 5.51% 7.38% 5.11% 6.63%
=========== ========= =========== =========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's).................................. $10,658 $13,410 $ 4,688 $ 4,537
Ratio of operating expenses to average net assets++................... 0.95%** 0.93%** 1.70%** 1.68%**
Ratio of net investment income to average net assets.................. 7.00%** 6.09%** 6.25%** 5.34%**
Portfolio turnover rate............................................... 3% 56% 3% 56%
Ratio of operating expenses to average net assets without credits
allowed by the custodian++.......................................... 0.95%** 0.93%** 1.70%** 1.68%**
Ratio of operating expenses to average net assets without fee waivers,
expenses absorbed and/or fees credits allowed by the custodian++.... 1.19%** 1.65%** 1.94%** 2.40%**
Net investment income per share without fee waivers, expenses absorbed
and/or credits allowed by the custodian............................. $ 0.35+++ $ 0.51+++ $ 0.31+++ $ 0.44+++
</TABLE>
- ---------------------
<TABLE>
<C> <S>
* 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>
26
<PAGE> 27
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
CAPITAL GROWTH PORTFOLIO
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ----------- -----------
<C> <S> <C> <C>
INVESTMENT COMPANY SECURITIES -- 99.3%
315,217 Emerging Growth Fund.................... $ 5,967,057
2,833,996 Global Money Fund....................... 2,833,996
1,706,632 Growth and Income Fund.................. 23,551,517
1,451,367 Growth Fund............................. 20,696,495
632,409 International Growth Fund............... 5,780,220
-----------
Total Investment Company Securities
(Cost $61,577,568).................... 58,829,285
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- -----------
<C> <S> <C> <C>
REPURCHASE AGREEMENT -- 0.9%
(Cost $516,000)
$516,000 Agreement with Boston Safe Deposit &
Trust Company, 5.000% dated
12/31/1997, to be repurchased at
$516,143 on 01/02/1998 collateralized
by $545,000 Student Loan Marketing
Association, 5.639% due 02/08/1999
(Par Value $545,000).................. $ 516,000
-----------
TOTAL INVESTMENTS
(Cost $62,093,568*)......................... 100.2% 59,345,285
OTHER ASSETS AND LIABILITIES (NET)............ (0.2) (102,578)
----- -----------
NET ASSETS.................................... 100.0% $59,242,707
===== ===========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
GROWTH PORTFOLIO
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------------ ------------
<C> <S> <C> <C>
INVESTMENT COMPANY SECURITIES -- 99.3%
1,521,196 Emerging Growth Fund.................. $ 28,796,237
27,341,582 Global Money Fund..................... 27,341,582
6,176,663 Growth and Income Fund................ 85,237,950
5,002,587 Growth Fund........................... 71,336,897
4,587,113 International Growth Fund............. 41,926,212
2,784,217 U.S. Government Fund.................. 27,341,006
------------
Total Investment Company Securities
(Cost $292,036,035)................. 281,979,884
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ------------ ------------
<C> <S> <C> <C>
REPURCHASE AGREEMENT -- 0.8%
(Cost $2,215,000)
$2,215,000 Agreement with Boston Safe Deposit &
Trust Company, 5.000% dated
12/31/1997, to be repurchased at
$2,215,615 on 01/02/1998
collateralized by $2,330,000 Student
Loan Marketing Association, 5.639%
due 02/08/1999 (Par Value
$2,330,000)......................... $ 2,215,000
------------
TOTAL INVESTMENTS (COST $294,251,035*)....... 100.1% 284,194,884
OTHER ASSETS AND LIABILITIES (NET)........... (0.1) (324,711)
----- ------------
NET ASSETS................................... 100.0% $283,870,173
----- ------------
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
BALANCED PORTFOLIO
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ----------- ------------
<C> <S> <C> <C>
INVESTMENT COMPANY SECURITIES -- 97.4%
40,228,932 Global Money Fund...................... $ 40,228,932
4,349,687 Growth and Income Fund................. 60,025,683
3,058,028 Growth Fund............................ 43,607,470
2,258,801 International Growth Fund.............. 20,645,443
4,092,440 U.S. Government Fund................... 40,187,763
------------
Total Investment Company Securities
(Cost $210,141,622).................. 204,695,291
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<C> <S> <C> <C>
REPURCHASE AGREEMENT -- 2.5%
(Cost $5,218,000)
Agreement with Boston Safe Deposit &
$5,218,000 Trust Company, 5.000% dated
12/31/1997, to be repurchased at
$5,219,449 on 01/02/1998
collateralized by $5,480,000 Student
Loan Marketing Association 5.639% due
02/08/1999
(Par Value $5,480,000)...............
$ 5,218,000
------------
TOTAL INVESTMENTS
(COST $215,359,622*)....................... 99.9% 209,913,291
OTHER ASSETS AND LIABILITIES (NET)........... 0.1 245,169
----- ------------
NET ASSETS................................... 100.0% $210,158,460
===== ============
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
See Notes to Financial Statements.
27
<PAGE> 28
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
VALUE PORTFOLIO
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ----------- -----------
<C> <S> <C> <C>
INVESTMENT COMPANY SECURITIES -- 94.2%
231,701 Corporate Income Fund................... $ 2,511,641
4,197,653 Global Money Fund....................... 4,197,653
250,551 Growth and Income Fund.................. 3,457,600
361,867 Short Term High Quality Bond Fund....... 839,531
597,835 U.S. Government Fund.................... 5,870,734
-----------
Total Investment Company Securities
(Cost $16,884,176).................... 16,877,159
-----------
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- -----------
<C> <S> <C> <C>
REPURCHASE AGREEMENT -- 5.5%
(Cost $986,000)
$986,000 Agreement with Boston Safe Deposit &
Trust Company, 5.000% dated
12/31/1997, to be repurchased at
$986,274 on 01/02/1998 collateralized
by $1,040,000 Student Loan Marketing
Association 5.639% due 02/08/1999 (Par
Value $1,040,000)..................... $ 986,000
-----------
TOTAL INVESTMENTS
(COST $17,870,176*)....................... 99.7% 17,863,159
OTHER ASSETS AND LIABILITIES (NET).......... 0.3 46,404
----- -----------
NET ASSETS.................................. 100.0% $17,909,563
===== ===========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
INCOME PORTFOLIO
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ----------- -----------
<C> <S> <C> <C>
INVESTMENT COMPANY SECURITIES -- 96.9%
410,816 Corporate Income Fund................... $ 4,453,249
1,488,592 Global Money Fund....................... 1,488,592
702,097 Short Term Global Government Fund....... 1,488,446
641,635 Short Term High Quality Bond Fund....... 1,488,592
605,710 U.S. Government Fund.................... 5,948,074
-----------
Total Investment Company Securities
(Cost $14,648,832)...................... 14,866,953
-----------
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- -----------
<C> <S> <C> <C>
REPURCHASE AGREEMENT -- 2.6%
(Cost $396,000)
$396,000 Agreement with Boston Safe Deposit &
Trust Company, 5.000% dated
12/31/1997, to be repurchased at
$396,110 on 01/02/1998 collateralized
by $420,000 Student Loan Marketing
Association, 5.639% due 02/08/1999
(Par Value $420,000).................. $ 396,000
-----------
TOTAL INVESTMENTS
(Cost $15,044,832*)......................... 99.5% 15,262,953
OTHER ASSETS AND LIABILITIES (NET)............ 0.5 83,099
----- -----------
NET ASSETS.................................... 100.0% $15,346,052
===== ===========
</TABLE>
- ---------------------
* Aggregate cost for federal tax purposes.
See Notes to Financial Statements.
28
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SIERRA ASSET MANAGEMENT PORTFOLIOS
1. ORGANIZATION AND BUSINESS
Sierra Asset Management Portfolios (the "Trust") was organized as a
Massachusetts business trust under the laws of the Commonwealth of Massachusetts
on March 26, 1996 and is registered under the Investment Company Act of 1940, as
amended, (the "1940 Act"), as an open-end management investment company. The
Trust was established in order to offer a range of asset allocation strategies
to accommodate different investment philosophies and goals. The Trust offers
five portfolios; the Capital Growth Portfolio, Growth Portfolio, Balanced
Portfolio, Value Portfolio and Income Portfolio (each a "Portfolio" and
collectively, the "Portfolios"). Each of the Portfolios offers two classes of
shares; Class A Shares and Class B Shares. Class A Shares are subject to an
initial sales charge at the time of purchase. Certain Class A Shares purchased
without an initial sales charge may be subject to a contingent deferred sales
charge ("CDSC") if redeemed within one or two years from the date of purchase,
depending on the circumstances. Class B Shares are subject to a CDSC if redeemed
within six years from the date of purchase.
Each Portfolio of the Trust invests, within certain percentage ranges, in Class
I Shares of the Sierra Trust Funds' Global Money and U.S. Government Money Funds
(the "Money Funds"); Short Term High Quality Bond, Short Term Global Government,
U.S. Government and Corporate Income Funds (the "Bond Funds"); and Growth and
Income, Growth, Emerging Growth and International Growth Funds (the "Equity
Funds") (collectively, the "Underlying Funds"). In order to achieve its
investment objective, each Portfolio typically allocates its assets, within
determined percentage ranges, among certain of the Underlying Funds. The
percentages reflect the extent to which each Portfolio will invest in the
particular market segment represented by each Underlying Fund, and the varying
degrees of potential investment risk and reward represented by each Portfolios'
investments in those market segments and their corresponding Underlying Funds.
Sierra Investment Services Corporation ("Sierra Services"), 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.
29
<PAGE> 30
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
SIERRA ASSET MANAGEMENT PORTFOLIOS
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.
30
<PAGE> 31
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
SIERRA ASSET MANAGEMENT PORTFOLIOS
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%
nondeductible excise tax on certain undistributed amounts of ordinary income and
capital gains. Income distributions and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatments of income and gains on various investment securities held
by the Portfolio, timing differences and differing characterization of
distributions made by each Portfolio as a whole.
FEDERAL INCOME TAXES:
It is each Portfolio's policy to qualify as a regulated investment company by
complying with the requirements of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and by, among other
things, distributing substantially all of its taxable and tax-exempt earnings to
its shareholders. Therefore, no Federal income tax provision is required.
EXPENSES:
Expenses that are directly related to one of the Portfolios are charged directly
to that Portfolio. General expenses of the Trust are allocated to all the
Portfolios based upon relative net assets of each Portfolio. In addition, the
Portfolios will indirectly bear their prorated share of expenses of the
Underlying Funds. Operating expenses directly attributable to a class of shares
are charged to the operations of that class of shares. Expenses of each
Portfolio not directly attributable to the operations of any class of shares are
prorated among the classes to which the expenses relate based on the relative
average net assets of each class of shares.
3. INVESTMENT ADVISORY, ADMINISTRATION FEES AND OTHER TRANSACTIONS
Sierra Services, 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 an indirect wholly-owned subsidiary of Washington Mutual,
Inc., ("Washington Mutual"), a publicly held corporation.
31
<PAGE> 32
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
SIERRA ASSET MANAGEMENT PORTFOLIOS
Sierra Fund Administration Corporation ("Sierra Administration"), an indirect
wholly-owned subsidiary of Washington Mutual 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 six months ended
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
NAME OF FUND FEES WAIVED
------------------------------------------------------------------------------- -----------
<S> <C>
Capital Growth Portfolio....................................................... 32,276
Growth Portfolio............................................................... 36,114
Balanced Portfolio............................................................. 31,933
Value Portfolio................................................................ 13,981
Income Portfolio............................................................... 20,056
</TABLE>
The Trust pays Boston Safe Deposit and Trust Company ("Boston Safe"), a
wholly-owned subsidiary of Mellon Bank Corporation, certain custodial
transaction charges for its services as the Trust's custodian.
Custodian fees for certain Portfolios have been reduced by credits allowed by
Boston Safe for the six months ended December 31, 1997 as follows:
<TABLE>
<CAPTION>
CREDITS ALLOWED
BY THE
NAME OF FUND CUSTODIAN
---------------------------------------------------------------------------- ---------------
<S> <C>
Capital Growth Portfolio.................................................... 14
Balanced Portfolio.......................................................... 85
Value Portfolio............................................................. 202
Income Portfolio............................................................ 183
</TABLE>
For the six months ended December 31, 1997, Great Western Financial Securities
Corporation ("GW Securities"), a registered broker-dealer and indirect wholly
owned subsidiary of Washington Mutual, and Sierra Services have informed the
Portfolios that they received $81,326 and $52,267 respectively, representing
commissions (front-end sales charges). In addition, for the six months ended
December 31, 1997, Sierra Services and Funds Distributor Inc. informed the
Portfolios that they received $592,232 from CDSCs.
4. TRUSTEES' FEES
No director, officer or employee of Washington Mutual or its subsidiaries 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
Washington Mutual or its subsidiaries 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.
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.
32
<PAGE> 33
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
SIERRA ASSET MANAGEMENT PORTFOLIOS
For the six months ended December 31, 1997, the Funds incurred the following
fees pursuant to the respective distribution plans described above:
<TABLE>
<CAPTION>
CLASS A CLASS B
------------ ---------------------------
DISTRIBUTION DISTRIBUTION SERVICE
NAME OF FUND FEE FEE FEE
--------------------------------------------------- ------------ ------------ --------
<S> <C> <C> <C>
Capital Growth Portfolio........................... $ 19,616 $152,889 $ 50,963
Growth Portfolio................................... 168,389 620,395 206,798
Balanced Portfolio................................. 136,721 400,709 133,570
Value Portfolio.................................... 13,730 28,517 9,506
Income Portfolio................................... 15,410 17,312 5,771
</TABLE>
6. PURCHASES AND SALES
The aggregate cost of purchases and proceeds from sales, excluding short-term
investments, for the six months ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
NAME OF FUND PURCHASES SALES
--------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Capital Growth Portfolio....................................... $19,690,872 $ 4,767,916
Growth Portfolio............................................... 48,473,710 40,680,032
Balanced Portfolio............................................. 33,828,614 23,405,283
Value Portfolio................................................ 3,333,785 6,108,826
Income Portfolio............................................... 525,936 3,670,490
</TABLE>
At December 31, 1997, aggregate gross unrealized appreciation for all Underlying
Funds in which there is an excess of value over tax cost was as follows:
<TABLE>
<CAPTION>
TAX BASIS TAX BASIS
UNREALIZED UNREALIZED
NAME OF FUND APPRECIATION DEPRECIATION
------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Capital Growth Portfolio........................................... $ 494,722 $ 3,243,005
Growth Portfolio................................................... 2,464,673 12,520,824
Balanced Portfolio................................................. 935,628 6,381,959
Value Portfolio.................................................... 235,865 242,882
Income Portfolio................................................... 345,065 126,944
</TABLE>
7. SHARES OF BENEFICIAL INTEREST
The Company may issue an unlimited number of shares of beneficial interest each
without par value.
8. ORGANIZATION 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.
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.
33
<PAGE> 34
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
SIERRA ASSET MANAGEMENT PORTFOLIOS
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 Securities 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 Washington Mutual,
the investment advisor of the Underlying Funds, are both indirect wholly-owned
subsidiaries of Washington Mutual. 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.
34
