<PAGE>
The Sierra
Variable Trust
Semi-Annual Report
For the Six Months Ended June 30, 1996
SIERRA
ADVANTAGE
A Tax-Deferred Variable Annuity
<PAGE>
CONTENTS
1 Message From The President
2 Financial Success Begins With A Sound
Investment Perspective
5 Individual Fund Reviews
22 Statements of Assets & Liabilities
24 Statements of Operations
26 Statements of Changes in Net Assets
28 Statements of Changes in Net Assets -
Capital Stock Activity
30 Financial Highlights
39 Portfolio of Investments
59 Notes to Financial Statements (Unaudited)
<PAGE>
MESSAGE FROM THE PRESIDENT
Dear Contract Owner:
We are pleased to provide you with The Sierra Variable Trust Semi-Annual Report
for the six-month period ended June 30, 1996.
Much attention has focused in the last year on record-breaking levels achieved
by the Dow Jones Industrial Average, the Standard & Poor's 500 (S&P 500), and
the Nasdaq Composite Index. Perhaps less well-known are the records individual
investors set in assets invested in mutual funds. Buoyed by investor confidence
and a stock market that has soared in recent years, the mutual fund industry
continues to grow at an extraordinary pace. In January of 1996, $28.9 billion
flowed into stock mutual funds, a single-month record. Through the first half
of 1996, inflows into all mutual funds totaled nearly $140 billion (Source:
Investment Company Institute).
The Sierra Variable Trust has participated in this industry-wide growth in
assets. Additionally, Contract owners of the SIERRA ADVANTAGE Tax-Deferred
Variable Annuity remain invested in one of the largest and fastest-growing
proprietary variable annuities in the U.S., with over $450 million in assets
under management as of June 30, 1996.
The strong increase in mutual fund assets helped propel the U.S. stock market's
gain of more than 10% in the first half of this year (Based on the S&P 500
Index. Source: Bloomberg Business News). The Federal Reserve's action to cut
short-term interest rates by one-quarter of a percent early in 1996 also
contributed to the market's robust performance. Through February of 1996, the
Dow Jones rose an average of nearly 1% per week. In this environment of good
news, one of the most difficult challenges facing the mutual fund industry is
not in managing assets, but in managing the expectations of investors.
At Sierra, we believe investors should neither be encouraged nor dissuaded by
short-term market performance. Since year-end 1994, the S&P 500 has returned
more than 50%, far in excess of the long-term historical average (Source:
Bloomberg Business News). However, as inflows into mutual funds began to slow
in May and June of this year, and as economic data begins to point to stronger
economic growth and the possibility of higher interest rates, investors can
expect market returns in coming months to more closely reflect longer-term
averages.
----------
We believe that the most
effective investment
approach is to plan and
invest for the long term.
----------
Rather than focusing on the market's current strength or weakness, we believe
that the most effective investment approach is to plan and invest for the long
term. To achieve investment success, it is important to establish specific
financial goals based on your needs and risk tolerance, develop an appropriate
long-term strategy, and then follow this strategy consistently over time.
Investing on a regular basis, diversifying your assets to control risk, and
maintaining a long-term investment perspective are all keys to achieving your
financial goals through changing market conditions.
As markets change, our goal at The Sierra Variable Trust remains the same: to
pursue long-term performance results consistent with the investment objectives
of each Sierra fund. Over time, our fund family has provided SIERRA ADVANTAGE
contract owners with this tradition of performance, as shown in recent
comparative reports by Lipper Analytical Services. The Emerging Growth Fund,
for example, ranked third among 35 funds in the Lipper Global Funds category for
the one year ended June 30, 1996.*
In addition to helping contract owners meet their long-term financial goals,
SIERRA ADVANTAGE remains committed to providing tax-deferred benefits and a
diverse array of high-quality investment options, including the Sierra Asset
Management (SAM) Program. SAM allocates your SIERRA ADVANTAGE investment among
various Sierra Variable Trust Funds based on specific performance objectives.
SAM provides a convenient and affordable way for you to build a diversified
portfolio that is periodically reallocated to take advantage of market
opportunities.
As always, we encourage you to meet at least annually with your Investment
Representative to review your investments. Your Investment Representative can
help ensure that your financial portfolio remains properly diversified and
positioned to meet your long-term goals in any market environment.
Thank you for selecting the SIERRA ADVANTAGE Variable Annuity with investments
in The Sierra Variable Trust. We appreciate the confidence you have placed in us
and look forward to serving your investment needs in the years to come.
Sincerely,
/s/ F. Brian Cerini
F. Brian Cerini
Chairman and President
The Sierra Variable Trust
* LIPPER RANKINGS EXCLUDE SALES CHARGES. RANKINGS REPRESENT PAST PERFORMANCE AND
ARE NO GUARANTEE OF FUTURE RESULTS.
1
<PAGE>
----------------------
Investment Perspective
----------------------
Financial Success Begins with a Sound Investment Perspective
The U.S. financial markets posted strong results over the 12-months ended June
30, 1996. Low interest rates and strong corporate earnings in 1995 contributed
to one of the strongest markets on record.
Record-breaking highs continued into early 1996, until a surprising uptrend in
economic strength returned the markets to a more normal state of variability. In
recent months, both the stock and bond markets have experienced greater short-
term fluctuations, and this has been a source of concern for some investors.
MANAGE INVESTMENT
RISK WITH A LONG-TERM
PERSPECTIVE
While investment risk cannot be eliminated, you can reduce it by maintaining a
long-term perspective. Focusing on your long-term financial goals can help you
feel more comfortable with normal, day-to-day market fluctuations.
================================================================================
The Benefits of Long-Term Investing
================================================================================
GROWTH OF $100,000 FOR THE HOLDING PERIODS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
U.S. Treasury Bills/1/ Long-Term Bonds/2/ Common Stocks/3/
<S> <C> <C> <C>
5-Year Holding Period 4.21% $122,918 10.45% $164,378 15.72% $207,480
10-Year Holding Period 5.47% $170,382 9.37% $244,903 13.79% $364,010
20-Year Holding Period 7.28% $407,509 10.29% $709,001 14.20% $1,424,249
</TABLE>
1 One-month U.S. Treasury Bills
2 Lehman Brothers Long-Term Government and Corporate Bond Index
3 Standard and Poor's 500 Stock Index
- --------------------------------------------------------------------------------
----------
The Sierra Asset
Management Program
in Sierra Advantage
in an intelligent,
structured approach to
diversification and risk
management.
----------
Time generally works to the advantage of the long-term investor. As historically
illustrated below, the longer the investment holding period, the greater the
chance for a positive return with significantly less volatility. This is
particularly true for common stocks which may show the highest fluctuation in
the short term, but can provide the greatest returns over time.
By maintaining a long-term perspective and following sound investment principles
aimed at managing investment risk, you can significantly increase the likelihood
of meeting your financial goals.
THE SIX MONTHS IN
REVIEW -- UPS AND
DOWNS IN THE STOCK &
BOND MARKETS
The six-month period ended June 30, 1996, provided both record market highs and
periods of increased fluctuation. In the first half of 1996, political events
took a back seat to the outlook for inflation and corporate earnings. On March
8, 1996, stock and bond prices reacted sharply to a government report showing
significantly higher job growth in February and declining unemployment.
Investors fearing higher inflation and a hike in short-term interest rates drove
prices of long-term bonds down 3.5%, in turn sending the Dow Jones Industrial
Average down 171 points. While this decline was the third highest in terms of
points in the history of the Dow, in percentage terms it wasn't even among the
top 100.
More strong economic reports continued to push bond prices higher through April
and May of 1996, with yields on the benchmark 30-year bond reaching above 7%.
Typically, stock prices fall when interest rates rise. But in April and May,
stock prices rose as investors focused on potential growth in corporate
earnings. The Dow posted new highs in May, while the Nasdaq Composite Index,
which includes many small-cap companies, peaked in June 1996.
2
<PAGE>
"BUT WHAT HAVE YOU DONE FOR ME LATELY?"
Despite record market highs throughout the past 12 months, at mid-year 1996,
both large and small cap stock markets corrected. By July 15, 1996, the Nasdaq
had fallen some 15% from its June 5th peak. The Dow had also declined 7.4% from
its high on May 22, 1996. These corrections followed lower-than-expected
earnings reports by several prominent technology companies, as well as continued
strength in employment growth which increased concerns about higher wages and
inflation.
Should investors be overly concerned about these market fluctuations? We believe
in most cases, no. While in the short run, it may seem difficult to stick with a
long-term investment plan, staying the course over time can offer you the best
chance of meeting your financial goals.
Temporary ups and downs in the stock market are normal, and have historically
occurred with surprising frequency. Unfortunately, individual investors who try
to "beat the market" by timing these corrections often fail. Reacting to a
market event after it has already occurred, getting into the market after a big
run up in prices, or selling after a decline represent three classic investor
"mistakes" that can result in buying high and selling low.
Leaping in and out of the market can negatively impact even the most well-
intentioned investor. And since there is no way of knowing when the best
investment days will occur, the only sure way to benefit from market rises is to
remain a market participant -- if not fully, at least partially invested.
As illustrated below, the risk of not being invested at the right time can
significantly outweigh the risk of riding out periods of short-term fluctuation.
SET YOUR SIGHTS ON YOUR GOALS
No matter what the market environment, following sound investment practices is
critical to achieving financial success. Asset allocation and diversification
are two of the most important strategies that can help you maintain your long-
term investment plan and effectively manage risk.
Asset allocation is the practice of spreading your money among different stock,
bond, and money market / cash equivalent investments based on your financial
goals, investment time frame, and tolerance for risk.
================================================================================
Penalty for Missing the Market
================================================================================
<TABLE>
<CAPTION>
Period of Average Annual $ Value of 100K $ Lost by Not Being
Investment Total Return Investment Fully Invested
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Fully 15.72% $207,480
Invested
Miss the 1 13.24% $186,198 $21,282
Best Month
Miss the 3 11.25% $170,377 $37,103
Best Months
Miss the 5 9.46% $157,130 $50,350
Best Months
Miss the 7 7.76% $145,303 $62,177
Best Months
Miss the 10 5.43% $130,261 $77,219
Best Months
Miss the 12 4.05% $121,930 $85,550
Best Months
</TABLE>
BASED ON FIVE YEARS ENDING JUNE 30, 1996. SOURCE: IBBOTSON ASSOCIATES; S&P 500
- --------------------------------------------------------------------------------
================================================================================
IMPACT OF ASSET ALLOCATION
ON TOTAL RETURN
================================================================================
2%
Timing
- --------------------------------------------------------------------------------
4%
Security
Selection
- -------------------------------------------------------------------------------
94%
Asset Allocation Policy
- --------------------------------------------------------------------------------
Research has proven that building the proper investment mix is critical to
achieving investment success. In fact, the applied asset allocation policy --
how you diversify and allocate your investment among various asset classes --
determines more than 94% of your portfolio's overall long-term performance.
Investment selection and market timing contribute only 4% and 2%, respectively.*
Your Investment Representative understands your financial needs, and he or she
can help you allocate your assets among the most appropriate investments for
your time horizon, return needs and tolerance for risk.
DIVERSIFY TO LOWER RISK
Asset allocation is often confused with diversification, but they are not the
same thing. Generally speaking, asset allocation puts you on the "road" to
pursuing your goals, while diversification helps you manage risk along the way.
Broad diversification provides the potential for reducing portfolio risk. As
illustrated on page four, over the past decade a diversified portfolio generated
an average return of 11.13% per year, second only to stocks. However, the
diversified portfolio had only about half the risk of a 100% stock portfolio.**
*FINANCIAL ANALYSTS JOURNAL, BRINSON, SINGER, BEEBOWER 1994
3
<PAGE>
================================================================================
The Power of Diversification
================================================================================
JUNE 1986 - JUNE 1996
<TABLE>
<CAPTION>
Return Risk (Standard Deviation)
<S> <C> <C>
T-BILLS 5.47% .52%
INTERMEDIATE-TERM BONDS 8.0% 3.79%
LONG-TERM BONDS 9.39% 8.67%
DIVERSIFIED PORTFOLIO 11.1% 9.0%
STOCKS 11.13% 8.87%
RISK (STANDARD DEVIATION)
</TABLE>
SOURCE: IBBOTSON ASSOCIATES. STOCKS ARE REPRESENTED BY THE STANDARD & POOR'S
INDEX OF 500 STOCKS (S&P 500). LONG-TERM BONDS AND INTERMEDIATE-TERM BONDS ARE
REPRESENTED BY THE LEHMAN BROTHERS LONG-TERM GOVERNMENT AND CORPORATE BOND INDEX
AND THE LEHMAN BROTHERS INTERMEDIATE-TERM GOVERNMENT AND CORPORATE BOND INDEX,
RESPECTIVELY. T-BILLS ARE REPRESENTED BY 30-DAY U.S. TREASURY BILLS. DIVERSIFIED
PORTFOLIO REPRESENTS A PORTFOLIO CONSISTING OF 40% STOCKS, 40% LONG-TERM BONDS,
AND 20% INTERMEDIATE-TERM BONDS. PAST PERFORMANCE OF THESE INDICES IS NOT A
GUARANTEE OF FUTURE RESULTS, AND THIS CHART IS NOT INTENDED TO REFLECT THE PAST
OR FUTURE PERFORMANCE OF ANY SAM PORTFOLIO. T-BILLS ARE GENERALLY CONSIDERED THE
SAFEST SECURITIES BECAUSE THEY ARE SHORT-TERM AND OFFER A FIXED YIELD AT
MATURITY, WHICH IS GUARANTEED BY THE U.S. GOVERNMENT. GOVERNMENT BONDS ARE
RISKER 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.
- --------------------------------------------------------------------------------
THE SIERRA ASSET
MANAGEMENT SOLUTION
Today, active asset management, diversification and tax deferral are essential
for achieving long-term financial goals and reducing risk. But, market
conditions are changing every day, and it is becoming increasingly difficult to
keep track of complex markets. Additionally, many investors are finding that
combining investments is not intuitively simple.
The SIERRA ASSET MANAGEMENT (SAM) Program offers the right solution for many
SIERRA ADVANTAGE contract owners. SAM is an active asset allocation program that
diversifies and allocates your SIERRA ADVANTAGE investment across a combination
of separate account divisions for which The Sierra Variable Trust provides the
underlying funds.
The SAM Program is designed to provide excellent value to contract owners --
offering variable annuity benefits and inflation-adjusted return objectives, as
well as active asset allocation to help manage and reduce overall portfolio
risk.
When you invest in SAM, your portfolio is automatically reviewed and/or adjusted
at least quarterly. That means you don't have to worry about choosing the right
mix of funds or changing that mix to take advantage of new market opportunities.
The Sierra Asset Management Program in SIERRA ADVANTAGE is an intelligent,
structured approach to diversification and risk management. SAM also offers a
convenient solution to complicated investment questions:
[] Which variable account divisions to choose
[] How much to invest in each division
[] When to make a change
Additionally, SAM provides:
[] Active asset allocation and a broad choice of investment strategies to help
manage investment risk
[] Regular portfolio monitoring and periodic reallocations to take advantage of
market opportunities
[] Diversification among Sierra's world-class portfolio managers, including
J.P. Morgan Investment Management Inc., Janus Capital Corporation, Scudder,
Stevens & Clark, Inc., Warburg, Pincus Counsellors, Inc., BlackRock
Financial Management, Inc., TCW Funds Management, Inc.,*etc.
KEEP YOUR INVESTMENT REPRESENTATIVE IN THE PICTURE
A sound, long-term plan incorporating the appropriate combination of investments
should provide you with the greatest return potential and the least amount of
investment risk, regardless of the market climate.
Your Investment Representative can help you develop a diversified investment
strategy tied to your future goals, rather than what the market is or isn't
doing today.
For more information on how the Sierra Asset Management Program in the SIERRA
ADVANTAGE Variable Annuity can provide diversification plus active asset
allocation to help reduce risk and meet long-term financial goals, contact your
Investment Representative.
================================================================================
A SAM Strategy For Any Investment Goal
================================================================================
<TABLE>
<CAPTION>
SAM Strategy Return Goal* Objective
----------------------------------------------------------------------
<S> <C> <C>
CAPITAL GROWTH STRATEGY EXCEED S&P 500 HIGH GROWTH
GROWTH STRATEGY INFLATION +7% GROWTH
BALANCED STRATEGY INFLATION +5% GROWTH & RELATIVE
STABILITY OF PRINCIPAL
VALUE STRATEGY INFLATION +4% PRESERVE PRINCIPAL
FIXED STRATEGY INFLATION +3% PRESERVE PRINCIPAL
</TABLE>
- --------------------------------------------------------------------------------
*EACH STRATEGY'S GOALS ASSUME INVESTMENT OVER A PERIOD OF SIX YEARS OR LONGER.
THE STATED GOALS OF THE STRATEGY MAY OR MAY NOT BE MET. THEY ARE NOT INTENDED TO
REFLECT PAST OR FUTURE PERFORMANCE OF ANY OF THE VARIABLE TRUST FUNDS OR SAM
STRATEGY, AND ARE IN NO WAY GUARANTEED.
**AS MEASURED BY THE STANDARD DEVIATIONS OF THE TWO PORTFOLIOS. STANDARD
DEVIATION IS A VOLATILITY MEASUREMENT THAT DESCRIBES THE RANGE OF PERFORMANCE
WITHIN WHICH AN INVESTMENT'S TOTAL RETURN HAS FALLEN. A HIGHER STANDARD
DEVIATION MEANS A WIDER RANGE OF RETURNS. A LOWER STANDARD DEVIATION MEANS LESS
VOLATILITY.
4
<PAGE>
INDIVIDUAL FUND REVIEWS
Sierra Investment Advisors Corporation
Sierra Investment Advisors Corporation ("Sierra Advisors"), a registered
investment advisor, is the investment advisor to The Sierra Variable Trust, and
has general oversight responsibility for the advisory services provided to the
Funds. These services include formulating the Funds' investment policies,
analyzing economic trends affecting the Funds, and directing and evaluating the
investment services provided by the Sub-Advisors and the Individual Portfolio
Managers of each Fund. Sierra Advisors supervises the Portfolio Managers'
day-to-day management of the Funds in The Sierra Variable Trust family to ensure
that the policies and guidelines are met, and to determine appropriate
investment performance measures.
Stephen C. Scott
President & Chief
Investment Officer
Mr. Scott received his B.A. and M.B.A. from California State University, Long
Beach. He joined the firm in 1988, and is responsible for providing economic
analysis, as well as conducting investment analysis and management for the
Sierra Asset Management (SAM) Program. Prior to joining Sierra Advisors, 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.
Michael D. Goth
Chief Operating Officer
Mr. Goth received his B.S. and M.S. degrees from Rensselaer Polytechnic
Institute of New York, and M.B.A. from Harvard Business School. He joined the
firm in 1991 and is responsible for the supervision of The Sierra Variable
Trust's Portfolio Managers. Previously, he served as Vice President of The
Boston Company Advisors, Inc. He also served as Executive Vice President of the
GIT Mutual Fund Group for over ten years.
Understanding the Enclosed Charts
In order to help you understand The Sierra Variable Trust's investment
performance, we have included the following discussions along with graphs that
compare the Funds' performance with certain market indices. Descriptions of
these indices are provided next to the individual graphs on the following pages.
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. The total returns shown for the Funds are not an estimate or
guarantee of future performance and do not take into account charges at the
annuity and separate account level.
The total returns of the Funds reflect Sierra Advisors' and Sierra Fund
Administration Corporation's ("Sierra Administration") voluntary waiver of fees,
Sierra Advisors' absorption of certain expenses, and the Custodian's reduction
of fees by credits. Total returns would have been lower if these fees and
expenses had not been waived, absorbed, or fees reduced by credits.
Both the Funds' performance results and the market indices reflect total
reinvestment of income, dividends, and capital gains. The unit values of these
variable options will fluctuate with market conditions.
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. 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.
To Our Contract Owners:
We are pleased to provide you with an overview of the Funds in The Sierra
Variable Trust family (except the Global Money Fund) for the six-month period
ended June 30, 1996. To help you better understand the high quality investment
management available to you as a Sierra Advantage Contract Owner, we have also
included biographies highlighting the individuals managing the Funds.
THE FUNDS OF THE SIERRA VARIABLE TRUST MAY NOT BE PURCHASED DIRECTLY BUT ARE
CURRENTLY AVAILABLE ONLY THROUGH PURCHASE OF SIERRA ADVANTAGE, A TAX-DEFERRED
VARIABLE ANNUITY ISSUED BY AMERICAN GENERAL LIFE INSURANCE COMPANY. ANNUITY
CONTRACT OWNER VALUES WILL DEPEND NOT ONLY ON THE PERFORMANCE OF THE FUNDS, BUT
ALSO ON THE MORTALITY AND EXPENSE RISK CHARGES AND THE ADMINISTRATIVE CHARGES
UNDER THE SIERRA ADVANTAGE VARIABLE ANNUITY CONTRACT.
5
<PAGE>
SHORT TERM HIGH QUALITY BOND FUND
Portfolio Manager:
Scudder, Stevens & Clark, Inc.
Thomas M. Poor
Mr. Poor, Managing Director of Scudder, is the portfolio manager for the Short
Term High Quality Bond Fund. He is a Chartered Financial Analyst and has been
with Scudder since 1970. Mr. Poor has had primary investment management
responsibility for the Fund since its inception.
Performance Review:
From the Fund's inception (January 12, 1994) through June 30, 1996, the Short
Term High Quality Bond Fund's average annual total return advanced 3.16%. For
the 12-month period ended June 30, 1996, the Fund's total return was 4.53%. The
Fund's 30-day SEC yield as of June 30, 1996, was 6.29%. For additional
information, see the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE SIX-MONTH PERIOD ENDED JUNE 30, 1996?
Going into 1996, bond investors faced what appeared to be a very favorable
environment featuring weak growth prospects and minimal inflation pressures.
However, the bright prospects quickly faded. Budget talks in Washington, which
appeared headed for meaningful deficit reduction, stalled. Commodity prices rose
in sharp fashion which led to increases in headline inflation measures. The
Federal Reserve cut managed rates in January; however, signs of renewed economic
strength, such as strong gains in employment and retail sales, put further
easing into question. The housing sector continued to show gains in the face of
higher interest rates. Manufacturing activity also firmed after a period of
weakness with leading indicators of manufacturers rising sharply. Economic
growth in Japan rose by a staggering 12% annualized during the first quarter,
signaling a potential turnaround abroad. By the end of the first half of 1996,
market participants pushed Treasury yields 95 to 110 basis points higher.
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
During the six-month period ended June 30, 1996, the Fund's duration, or
sensitivity to changes in interest rates, was actively managed given our
expectations of bond market performance. We began the year with a duration of
2.45 years, reflecting our view that weak domestic growth and low inflation
would lead to lower interest rates. Fund performance benefited from this
positioning as short- and intermediate- interest rates trended lower until
reaching a low point
Growth of a $10,000 investment
<TABLE>
<CAPTION>
LEHMAN BROTHERS MUTUAL
FUND SHORT(1-5)
INVESTMENT GRADE
FUND DEBT INDEX
<S> <C> <C>
Inception January 12, 1994 10,000 10,000
February 1994 9,960 9,898
April 1994 9,880 9,726
June 1994 9,880 9,770
August 1994 10,001 9,942
October 1994 9,994 9,899
December 1994 9,838 9,864
February 1995 9,921 10,227
April 1995 10,081 10,412
June 1995 10,324 10,750
August 1995 10,413 10,871
October 1995 10,583 11,049
December 1995 10,753 11,288
February 1996 10,753 11,323
April 1996 10,710 11,269
June 1996 10,797 11,384
</TABLE>
THE ABOVE LINE GRAPH DOES NOT REFLECT ADMINISTRATIVE FEES OR OTHER EXPENSES
CHARGED BY AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT D THROUGH
WHICH SHARES OF THE FUND ARE PURCHASED.
*INDEX TOTAL RETURNS WERE CALCULATED FROM 1/31/94 TO 6/30/96. THE LEHMAN
BROTHERS MUTUAL FUND SHORT (1-5) INVESTMENT GRADE DEBT INDEX INCLUDES ALL
INVESTMENT-GRADE CORPORATE DEBT SECURITIES WITH MATURITIES OF ONE TO FIVE YEARS,
ASSUMES REINVESTMENT OF ALL DIVIDENDS/DISTRIBUTIONS, AND DOES NOT REFLECT ANY
ASSET-BASED CHARGES FOR INVESTMENT MANAGEMENT OR OTHER EXPENSES. PAST INVESTMENT
PERFORMANCE DOES NOT GUARANTEE FUTURE PERFORMANCE. THE RETURNS FOR THE FUND
ASSUME REINVESTMENT OF ALL DIVIDENDS/DISTRIBUTIONS BY THE SHAREHOLDER.
DURING THE PERIOD NOTED, THE ADVISOR (SIERRA INVESTMENT ADVISORS CORPORATION)
AND ADMINISTRATOR (SIERRA FUND ADMINISTRATION CORPORATION) WAIVED A PORTION OF
THEIR MANAGEMENT FEES, AND THE CUSTODIAN REDUCED FEES BY CREDITS. IN THE ABSENCE
OF THE WAIVERS OR FEES REDUCED BY CREDITS, YIELD AND TOTAL RETURN WOULD HAVE
BEEN LOWER.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/96 6 Month 1 Year Since Inception
-------- ------- ----------------
(January 12, 1994)
<S> <C> <C> <C>
=== Fund 0.41% 4.53% 3.16%
- --- Lehman Brothers Mutual Fund Short (1-5) Investment Grade Debt Index* 0.85% 5.89% 5.51%
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE>
SHORT TERM HIGH QUALITY BOND FUND
by mid February. As economic indicators began to challenge our positive view,
the Fund's duration was reduced to 2.3 years by the end of February. Interest
rate exposure was further reduced to a neutral position of 1.7 years in April as
signals of economic growth continued into the second quarter. By the end of May,
the portfolio was positioned defensively at a 1.3 year duration, reflecting our
view that economic growth was accelerating and the risk of higher interest rates
had increased.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/ SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
During the first six months of 1996, we managed the Fund's exposure to the
various sectors of the bond market with emphasis on high credit quality
investments with high current income. Portfolio holdings have focused on
mortgage pass-throughs, asset-backed issues, corporate bonds, and Treasuries. As
of June 30, 1996, the Fund's largest sector weighting was in the mortgage
sector, with a concentration in GNMAs. These holdings reflect our preference for
seasoned mortgage holdings that have weathered several refinancing cycles and
offer greater prepayment protection than current coupon issues.
The Fund's holdings of corporate bonds steadily increased over the prior year
from 19% as of December 31, 1995, to 26% as of June 30, 1996. During this
period, our credit research identified several issuers with improving credit
prospects as well as issuers which offered attractive valuations. The Fund's
performance benefited from holdings in corporate issuers such as The Money
Store, Inc. (a consumer finance company), Taubman Realty Corporation and Sun
Communities Inc. (both real estate investment trusts), and Tenneco Inc. (a
diversified industrial company).
Within the asset-backed sector, we continue to hold issues backed by
manufactured housing loans, home equity loans, and credit card receivables. The
majority of the Fund's asset-backed holdings have short average lives in the
one- to three year area while offering attractive yields relative to similar
maturity alternatives.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
As we look forward to the second half of 1996 and into 1997, we see a less
certain environment for bond investors. The domestic economy appears to have
picked up momentum going into the third quarter while the economies of major
trading partners such as Japan and Mexico are showing signs of growth. The U.S.
unemployment rate continues to hover below 6% which historically has been a sign
of a tight labor market, thus increasing odds of a rise in wage inflation. These
factors will weigh heavily on the Federal Reserve as they contemplate monetary
policy and could ultimately lead to higher managed rates. The U.S. bond market
has benefited from a high level of foreign participation and a strong Dollar
which may or may not continue. On the other hand, real interest rates are high
by historical standards and inflation has yet to rise by any appreciable amount.
In addition, with the sharp rise in interest rates year to date, some slowing in
economic activity should be expected.
Given the uncertainties facing the bond market, we plan to continue positioning
the Fund defensively until there are clearer signs of a slowing economy or
interest rates rise to levels reflecting the current risks. This outlook would
anticipate that, over the near term, the Fund's returns will be generated mainly
from income rather than capital appreciation. Over the intermediate and long
term, we continue to believe that the Fund offers an attractive risk-adjusted
return potential given current income and modest increases in net asset value.
----------------------------
Broad Sector Diversification
----------------------------
<TABLE>
<S> <C>
NR 0.04%
BBB 16.67%
A 10.41%
AA 2.61%
AAA 70.27%
</TABLE>
ALLOCATION PERCENTAGES ARE BASED ON TOTAL INVESTMENT VALUE OF THE PORTFOLIO AS
OF 6/30/96.
7
<PAGE>
SHORT TERM GLOBAL GOVERNMENT FUND
Portfolio Manager:
Scudder, Stevens & Clark, Inc.
Adam M. Greshin
Adam M. Greshin is the lead portfolio manager for the Short Term Global
Government Fund. Mr. Greshin joined Scudder in 1986 as an international bond
analyst. Currently, he is Product Leader for Scudder's global and international
fixed-income investing. He was involved in the original design of the Fund and
has served as a member of the Fund's portfolio management team since 1993. Mr.
Greshin assumed responsibility for the Fund's day-to-day management and
investment strategies effective November 1995.
PERFORMANCE REVIEW:
From the Fund's inception (May 12, 1993) through June 30, 1996, the Short Term
Global Government Fund's average annual total return was 2.64%. For the 12-month
period ended June 30, 1996, the Fund's total return was 7.92%. The Fund's 30-day
SEC yield as of June 30, 1996, was 4.95%. For additional information, see the
accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE SIX-MONTH PERIOD ENDED JUNE 30, 1996?
The six-month period was characterized by varied and sudden changes in interest
rates and currency returns. The year started on an optimistic note for bond
markets worldwide as evidence of slowing economic growth and low inflationary
expectations convinced investors there would be further room for interest rate
cuts throughout 1996. Market sentiment quickly changed, however, especially
following an unexpected rise in U.S. payroll numbers and retail sales during the
first quarter of 1996. Rising gold and commodity prices resurrected inflation
fears, causing yields in the U.S. to jump higher. This negative sentiment was in
stark contrast to the euphoria of the previous quarter.
Somewhat surprisingly, the bearishness in the U.S. did not have the same
detrimental effect on global markets, particularly in Europe, where fundamentals
remained positive for bonds. In Germany, economic growth stayed sluggish.
Profit-taking occurred as yields touched historical lows, particularly in
Germany, and speculative money flows in Europe and Japan steered much of the
market action.
The U.S. Dollar continued its advance against the major reserve currencies due
to stronger U.S. economic growth and a booming equity market. This trend
suggested that the bottom had been reached in the U.S. interest rate cycle.
Against the Japanese Yen, the Dollar rose 5.9% for the six-month period ended
June 30, 1996. Against the German Mark, the U.S. currency rose 5.7% for the same
period as the prospects for rate cuts in Germany potentially weakened the Mark.
Returns against individual currencies in Europe were varied, with strong gains
registered from the Italian Lira and Swedish Krona. With the volatility in
interest and currency rates, the Fund's style of active currency management
contributed to the Fund's solid returns, especially when measured against
competitive funds within the Lipper Short Term World Income category.
Growth of a $10,000 Investment
<TABLE>
<CAPTION>
LEHMAN BROTHERS MUTUAL FUND
SHORT (1-5) INVESTMENT
FUND GRADE DEBT INDEX
<S> <C> <C>
Inception May 12, 1993 10,000 10,000
July 1993 9,932 9,814
September 1993 9,892 10,197
November 1993 9,932 10,078
February 1994 10,052 10,297
March 1994 9,972 10,259
May 1994 9,972 10,273
July 1994 9,972 10,469
September 1994 9,972 10,572
November 1994 10,053 10,555
January 1995 9,767 10,772
March 1995 9,809 11,301
May 1995 10,059 11,643
July 1995 10,143 11,872
September 1995 10,352 11,986
November 1995 10,519 12,084
January 1996 10,645 12,175
March 1996 10,687 12,195
June 1996 10,856 12,305
</TABLE>
THE ABOVE LINE GRAPH DOES NOT REFLECT ADMINISTRATIVE FEES OR OTHER EXPENSES
CHARGED BY AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT D THROUGH
WHICH SHARES OF THE FUND ARE PURCHASED.
* INDEX TOTAL RETURNS WERE CALCULATED FROM 5/31/93 TO 6/30/96. THE LEHMAN
BROTHERS MUTUAL FUND SHORT WORLD MULTI-MARKET INDEX INCLUDES ALL DEBT
INSTRUMENTS OF THE UNITED STATES AND 12 LEHMAN MAJOR COUNTRIES DENOMINATED IN
DOLLARS WITH MATURITIES OF ONE TO FIVE YEARS, ASSUMES REINVESTMENT OF ALL
DIVIDENDS/DISTRIBUTIONS, AND DOES NOT REFLECT ANY ASSET-BASED CHARGES FOR
INVESTMENT MANAGEMENT OR OTHER EXPENSES. PAST INVESTMENT PERFORMANCE DOES NOT
GUARANTEE FUTURE PERFORMANCE. THE RETURNS FOR THE FUND ASSUME REINVESTMENT OF
ALL DIVIDENDS/DISTRIBUTIONS BY THE SHAREHOLDER.
DURING THE PERIOD NOTED, THE ADVISOR (SIERRA INVESTMENT ADVISORS CORPORATION)
AND ADMINISTRATOR (SIERRA FUND ADMINISTRATION CORPORATION) WAIVED A PORTION OF
THEIR MANAGEMENT FEES AND THE ADVISOR ABSORBED OTHER EXPENSES, AND THE CUSTODIAN
REDUCED FEES BY CREDITS. IN THE ABSENCE OF THE WAIVERS AND ABSORPTION OF OTHER
EXPENSES OR FEES REDUCED BY CREDITS, YIELD AND TOTAL RETURN WOULD HAVE BEEN
LOWER.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/96 6 MONTH 1 YEAR SINCE INCEPTION
-------- ------- ----------------
(May 12, 1993)
<S> <C> <C> <C>
=== Fund 2.40% 7.92% 2.64%
- --- Lehman Brothers Mutual Fund Short World Multi-Market Index* 0.57% 4.77% 6.96%
</TABLE>
- --------------------------------------------------------------------------------
8
<PAGE>
SHORT TERM GLOBAL GOVERNMENT FUND
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
The Fund's primary concern for the period was to balance its dual goals of
generating high income and maintaining price stability. In an effort to achieve
both objectives, the Fund allocated its assets among a selection of high
quality, diversified issuers. European bonds continued to dominate the Fund's
portfolio, with weightings ranging from 60% to 70% of overall assets.
Research indicated that inflation-adjusted rates of return remained relatively
high in Europe, especially in the peripheral European markets. Holdings in such
higher-yielding markets as Italy, Sweden and Spain were a prominent component of
the Fund's yield and total return. With sluggish economic growth and contained
inflation, these markets have continued to register stellar returns. The two-
year government benchmark issues for Sweden, Italy and Spain returned 6.5%, 8.1%
and 6.1% respectively during the six-month period ended June 30, 1996.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
During the period, the U.S. Dollar staged a dramatic rebound against both the
Japanese Yen and German Mark, as well as other foreign currencies. The
appreciating U.S. Dollar would have had a negative impact on the Fund's returns
from foreign bond markets, especially those in Europe; however, this effect was
neutralized by the Fund's hedging strategy against the core European currencies.
In addition, we partially hedged our peripheral currency exposure and made gains
from the appreciating Italian Lira and Swedish Krona.
The Fund's holdings in the dollar-bloc markets of Canada, Australia and New
Zealand had a positive impact on performance. In addition to higher yields, the
Fund benefited from currency appreciation in this sector. The Australian Dollar
in particular rose strongly, gaining 5.7% against the U.S. currency during this
period.
The Fund's selective exposure to some of the higher-yielding emerging markets,
including Indonesia and the Czech Republic, provided shareholders with
attractive yields and limited price fluctuation. South African bonds were added
to the portfolio during the first quarter of 1996 on the premise that the
substantial yield advantage of these issues, combined with rising commodity
prices, would result in a potential credit upgrade by the rating agencies.
However, by the end of the first quarter of 1996, labor disputes in South Africa
led to pressure on the South African Rand and returns in U.S. Dollars were
negative. However, these issues only marginally affected Fund performance during
the period.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
The outlook for the Fund remains positive given the diversified global nature of
the portfolio. Evidence appears to indicate a resurgence in U.S. economic
activity and the possibility of higher inflation. This limits the scope for
further interest rate reductions in the U.S. by the Federal Reserve and could
possibly lead to tightening. In contrast, most overseas economies are at a
different stage in the economic cycle and have further room for rate cuts,
particularly in Europe. This interest rate scenario in the global bond markets
should lead to attractive investment opportunities for the Fund.
Due to the short-term nature of its portfolio, the Fund generally does not
experience the price volatility characterized by longer maturity issues. Within
this context, we will continue to monitor individual countries and issues, and
position the portfolio to take full advantage of changing bond and foreign
exchange markets, in order to achieve the highest income potential and
consistent price stability.
-------------------------
Diversification by Region
-------------------------
<TABLE>
<S> <C>
Americas 34.71%
Europe 53.74%
Australia/New Zealand 11.55%
</TABLE>
ALLOCATION PERCENTAGES ARE BASED ON TOTAL INVESTMENT VALUE OF THE PORTFOLIO AS
OF 6/30/96.
9
<PAGE>
U.S. GOVERNMENT FUND
PORTFOLIO MANAGER:
BLACKROCK FINANCIAL
MANAGEMENT, INC.
KEITH ANDERSON
ANDREW J. PHILLIPS
The day-to-day management of the U.S. GOVERNMENT FUND'S portfolio is the
responsibility of a committee composed of individuals who are officers of
BlackRock. This committee has managed the Fund since December 1994, and is
supervised by Keith Anderson and Andrew J. Phillips. Mr. Anderson, a Managing
Director of BlackRock, has been co-head of the Portfolio Management Group since
1988. Mr. Phillips has been a portfolio manager of BlackRock since 1991 and a
Vice President of BlackRock since 1993.
PERFORMANCE REVIEW:
From the Fund's inception (May 6, 1993) through June 30, 1996, the U.S.
GOVERNMENT FUND'S average annual total return was 4.02%. For the 12-month period
ended June 30, 1996, the Fund's total return was 4.10%. The Fund's 30-day SEC
yield as of June 30, 1996, was 6.17%. For additional information, see the
accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO
THE FUND'S PERFORMANCE OVER THE SIX-MONTH PERIOD ENDED JUNE 30, 1996?
The performance of the Fund was greatly influenced by two profoundly different
market environments for fixed-income securities. Throughout January and into
mid-February 1996, Treasury bond prices rose and yields fell significantly,
primarily in response to a moderation in economic growth, low inflation, and a
gradual easing by the Federal Reserve. However, investor sentiment toward the
fixed-income markets reversed during mid-February, 1996, as accelerating
economic growth, in addition to a sharp rise in commodity prices, rekindled
inflationary concerns. The possibility of a stronger economy dampened the
likelihood of a continued easing by the Federal Reserve and initiated concerns
of a potentially more restrictive Fed policy. These fears translated into a
sharp rise in bond yields across the Treasury yield curve, resulting in the
fixed-income markets rescinding much of their 1995 gains.
The mortgage-backed securities (MBS) market outperformed Treasuries for the
period, as rising interest rates coupled with a reduction in prepayment risk
provided investors an opportunity to reassess the mortgage market. Still, many
investors remained on the sidelines, convinced that even historically wide
mortgage yield spreads offered inadequate compensation for the perceived risks
of owning mortgages. As a result, MBS performance in 1996 has been good but
somewhat short of expectations, given the sharp rise in interest rates.
Growth of $10,000
<TABLE>
<CAPTION>
LEHMAN BROTHERS
MUTUAL FUND LEHMAN BROTHERS
U.S. GENERAL MUTUAL FUND
GOVERNMENT U.S. MORTGAGE
FUND INDEX INDEX
<S> <C> <C> <C>
Inception May 6, 1993 10,000 10,000 10,000
July 1993 10,153 10,116 10,284
September 1993 10,294 10,173 10,554
November 1993 10,163 10,182 10,477
January 1994 10,359 10,366 10,662
March 1994 9,921 10,026 10,201
May 1994 9,808 9,992 10,108
July 1994 9,928 10,169 10,270
September 1994 9,824 10,057 10,127
November 1994 9,760 10,020 10,102
January 1995 10,017 10,316 10,352
March 1995 10,329 10,629 10,642
May 1995 10,821 11,119 11,216
July 1995 10,853 11,201 11,260
September 1995 11,031 11,418 11,501
November 1995 11,403 11,650 11,858
January 1996 11,574 11,885 12,100
March 1996 11,333 11,743 11,755
June 1996 11,320 11,810 11,838
</TABLE>
THE ABOVE LINE GRAPH DOES NOT REFLECT ADMINISTRATIVE FEES OR OTHER EXPENSES
CHARGED BY AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT D THROUGH
WHICH SHARES OF THE FUND ARE PURCHASED.
* INDEX TOTAL RETURNS WERE CALCULATED FROM 5/31/93 TO 6/30/96. THE LEHMAN
BROTHERS MUTUAL FUND U.S. GENERAL GOVERNMENT INDEX REPRESENTS ALL U.S.
GOVERNMENT AGENCY AND TREASURY SECURITIES. THE LEHMAN BROTHERS MUTUAL FUND U.S.
MORTGAGE INDEX INCLUDES ALL AGENCY MORTGAGE-BACKED SECURITIES. THE INDICES
ASSUME REINVESTMENT OF ALL DIVIDENDS/DISTRIBUTIONS AND DO NOT REFLECT ANY ASSET-
BASED CHARGES FOR INVESTMENT MANAGEMENT OR OTHER EXPENSES. PAST INVESTMENT
PERFORMANCE DOES NOT GUARANTEE FUTURE PERFORMANCE. THE RETURNS FOR THE FUND
ASSUME REINVESTMENT OF ALL DIVIDENDS/DISTRIBUTIONS BY THE SHAREHOLDER.
DURING THE PERIOD NOTED, THE ADVISOR (SIERRA INVESTMENT ADVISORS CORPORATION)
AND ADMINISTRATOR (SIERRA FUND ADMINISTRATION CORPORATION) WAIVED A PORTION OF
THEIR MANAGEMENT FEES AND THE ADVISOR ABSORBED OTHER EXPENSES, AND THE CUSTODIAN
REDUCED FEES BY CREDITS. IN THE ABSENCE OF THE WAIVERS AND ABSORPTION OF OTHER
EXPENSES OR FEES REDUCED BY CREDITS, YIELD AND TOTAL RETURN WOULD HAVE BEEN
LOWER.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/96 6 MONTH 1 YEAR SINCE INCEPTION
-------- ------- ----------------
(May 6, 1993)
<S> <C> <C> <C>
=== Fund -1.30% 4.10% 4.02%
- --- Lehman Brothers Mutual Fund U.S. General Government Index* -1.80% 4.50% 5.54%
- --- Lehman Brothers Mutual Fund U.S. Mortgage Index* 0.35% 5.86% 5.62%
</TABLE>
- --------------------------------------------------------------------------------
10
<PAGE>
U.S. GOVERNMENT FUND
What market conditions affected the Fund's performance during the period, and
what investment techniques were used to address those conditions?
The Fund's duration, or price sensitivity to interest rate movements, was
continually adjusted to reflect our market bias and outlook. The Fund's duration
was modestly long relative to its benchmark at the beginning of the period,
reflecting a belief that the economy was growing at a moderate pace and that
inflation fears were unfounded. During February 1996, the Fund's duration was
adjusted to a more neutral stance, as mixed economic data and Federal Reserve
Chairman Alan Greenspan's congressional testimony suggested a pick-up in growth.
The February new jobs report, which was more than double economists' estimates,
produced the largest one-day price decline in U.S. bond prices in over seven
years. The Fund maintained its neutral duration positioning through the close of
the six-month period, reflecting our cautious approach to potentially higher
bond yields in response to strong employment and manufacturing data.
Were there any shifts in the Fund's portfolio holdings/sectors that had a
significant impact on Fund performance?
The Fund's asset mix remained concentrated in mortgages due to our positive
outlook on that sector of the fixed income markets. The significant rise in
interest rates in 1996 and the corresponding decrease in investor concerns over
prepayments afforded the Fund an opportunity to increase overall mortgage
exposure. For the six-month period, the mortgage market as represented by the
Lehman Mortgage Index outperformed the Fund's day-to-day performance benchmark,
the Merrill Lynch five- to seven-Year Treasury Index by 225 basis points
(2.25%).
Within the mortgage sector, we substantially reduced our holdings in
collateralized mortgage obligations (CMOs), a market that improved significantly
in 1996 and appeared to be nearing its upside potential. Since December 31,
1995, the Fund's exposure to CMOs has been reduced from nearly 30% of assets to
its current level of below 24%. Adjustable-rate mortgages (ARMs) were also sold
toward the end of the period to capitalize on the strong second quarter
performance of that market.
What is our intermediate- and long-term outlook for the Fund?
The Fund expects to maintain its neutral duration stance, as second-quarter
economic growth in the U.S. was well above that of the previous two quarters.
Although inflation levels have remained relatively subdued, consistently strong
employment data has elicited concerns about future inflationary pressures. The
Federal Reserve has so far appeared reluctant to slow economic growth, but it
seems likely that the Fed may reverse its easing of monetary policy and tighten
during the third quarter.
In this environment, we believe that the mortgage sector will continue to find
investor support. Interest rate volatility has decreased substantially from its
March peak and is expected to remain relatively benign. Additionally,
prepayments on mortgage securities have slowed and yields relative to other non-
Treasury sectors are attractive. Technically, new issue supply continues to move
lower in the higher interest rate environment, which should allow mortgage
prices to rise.
Longer-term, we believe that the higher-than-expected growth of the second
quarter will moderate over the rest of 1996. The level of consumer debt as a
percentage of disposable income has risen to record levels and credit card
delinquencies are at a 15-year high. With consumers accounting for two-thirds of
Gross Domestic Product (GDP) growth, these developments suggest constraints on
future spending. Additionally, both commercial and consumer lending have
declined sharply, further indicating an eventual slowdown in economic growth.
- --------------------------------------------------------------------------------
Portfolio Composition
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
U.S. Government Agency 23.39%
U.S. Treasury 15.62%
Asset-Banked 1.61%
SBA 2.89%
CMO 23.21%
ARM 11.31%
FNMA 4.03%
GNMA 4.80%
FHLMC 13.11%
Options 0.03%
</TABLE>
ALLOCATION PERCENTAGES ARE BASED ON TOTAL INVESTMENT VALUE OF THE PORTFOLIO AS
OF 6/30/96.
11
<PAGE>
CORPORATE INCOME FUND
PORTFOLIO MANAGER:
TCW FUNDS MANAGEMENT, INC.
JAMES M. GOLDBERG
Mr. Goldberg, a Chartered Financial Analyst and Chartered Investment Counselor,
has been Managing Director of TCW Management since 1989 and Managing Director of
the Trust Company of the West, the parent corporation of TCW Management, since
1984. He has had primary portfolio management responsibility for the Corporate
Income Fund since its inception.
PORTFOLIO REVIEW:
From the Fund's inception (May 7, 1993) through June 30, 1996, the Corporate
Income Fund's average annual total return was 4.71%. For the 12-month period
ended June 30, 1996, the Fund advanced 3.75% on a total return basis. The
Corporate Income Fund's 30-day SEC yield as of June 30, 1996, was 6.86%. For
additional information, see the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE SIX-MONTH PERIOD ENDED JUNE 30, 1996?
Several economic factors contributed significantly to the Fund's performance.
Fund results were mixed, with credit fundamentals improving due to the increased
efficiencies of U.S. manufacturers and the resiliency of the U.S. economy.
However, rising interest rates combined with the Fund's large portfolio of
longer-term bonds had a negative impact on overall performance. Since February
1996 interest rates have climbed higher, pushing down bond prices, especially
for longer-term corporate bonds like those in the Fund. With a higher duration
than most funds in its peer group--a result of our focus on long-term income--
the Fund underperformed its benchmark index for the six-month period ended June
30, 1996. The Fund returned -4.77%, compared to a return of -2.15% for the
Lehman Brothers Mutual Fund Corporate Debt BBB-Rated Index.
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
A period of rising interest rates coupled with fears of accelerating inflation
in the domestic economy affected the Fund's performance. As a defensive measure
against fluctuating interest rates, management efforts were directed to
upgrading the credit quality of the corporate bonds held in the Fund and to
decreasing the average maturity and duration of the Fund in an effort to lessen
price volatility. Over the past six months, we reduced the Fund's average
maturity from 19.6 years as of December 31, 1995, to 18.3 years on June 30,
1996. Duration, a measure of price sensitivity to interest rate changes, was
also reduced from 7.3 years to 6.9 years during this same period.
Growth of $10,000 Investment
<TABLE>
<CAPTION>
LEHMAN BROTHERS
MUTUAL FUND
CORPORTATE DEBT
FUND BBB-RATED INDEX
<S> <C> <C>
Inception May 7, 1993 10,000 10,000
July 1993 10,284 10,317
September 1993 10,590 10,599
November 1993 10,489 10,521
January 1994 10,766 10,780
March 1994 10,010 10,210
May 1994 9,782 10,075
July 1994 9,999 10,304
September 1994 9,735 10,123
November 1994 9,693 10,084
January 1995 9,917 10,383
March 1995 10,271 10,770
May 1995 11,097 11,468
July 1995 11,008 11,520
September 1995 11,432 11,844
November 1995 11,887 12,227
January 1996 12,127 12,509
March 1996 11,559 12,108
May 1996 11,394 11,986
June 1996 11,559 12,162
</TABLE>
THE ABOVE LINE GRAPH DOES NOT REFLECT ADMINISTRATIVE FEES OR OTHER EXPENSES
CHARGED BY AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT D THROUGH
WHICH SHARES OF THE FUND ARE PURCHASED.
* INDEX TOTAL RETURNS WERE CALCULATED FROM 5/31/93 TO 6/30/96. THE LEHMAN
BROTHERS MUTUAL FUND CORPORATE DEBT BBB-RATED INDEX REPRESENTS ALL INVESTMENT-
GRADE CORPORATE DEBT SECURITIES, ASSUMES REINVESTMENT OF ALL
DIVIDENDS/DISTRIBUTIONS, AND DOES NOT REFLECT ANY ASSET-BASED CHARGES FOR
INVESTMENT MANAGEMENT OR OTHER EXPENSES. PAST INVESTMENT PERFORMANCE DOES NOT
GUARANTEE FUTURE PERFORMANCE. THE RETURNS FOR THE FUND ASSUME REINVESTMENT OF
ALL DIVIDENDS/DISTRIBUTIONS BY THE SHAREHOLDER.
DURING THE PERIOD NOTED, THE ADVISOR (SIERRA INVESTMENT ADVISORS CORPORATION)
AND ADMINISTRATOR (SIERRA FUND ADMINISTRATION CORPORATION) WAIVED A PORTION OF
THEIR MANAGEMENT FEES AND THE ADVISOR ABSORBED OTHER EXPENSES, AND THE CUSTODIAN
REDUCED FEES BY CREDITS. IN THE ABSENCE OF THE WAIVERS AND ABSORPTION OF OTHER
EXPENSES OR FEES REDUCED BY CREDITS, YIELD AND TOTAL RETURN WOULD HAVE BEEN
LOWER.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/96 6 MONTH 1 YEAR SINCE INCEPTION
-------- ------- ----------------
(May 7, 1993)
<S> <C> <C> <C>
=== Fund -4.77% 3.75% 4.71%
- --- Lehman Brothers Mutual Fund Corporate Debt BBB-Rated Index* -2.15% 5.11% 6.55%
</TABLE>
- --------------------------------------------------------------------------------
12
<PAGE>
CORPORATE INCOME FUND
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
There were no major sector changes that had a critical impact on the Fund's
performance. The Fund's exposure to industrial issues was unchanged over the
past six months, remaining the largest sector allocation at approximately 46% of
total assets. The Fund's allocation to financial issues decreased during the
period, reflecting both the sale of Mellon Bank N.A. and the purchase of Dean
Witter Discover & Company. Due to our concerns about the risks of deregulation
in the electric utility sector, we continue to maintain an underweighting of
utility holdings in the Fund.
We also reduced the Fund's holdings in the services sector, in particular,
selling bonds issued by Dayton-Hudson Corporation because of deteriorating
credit fundamentals. The foreign component of the portfolio, which is comprised
of U.S. Dollar-denominated issues, increased due to our purchase of Northern
Telecom Capital, a Canadian provider of cellular telephone service. Finally,
holdings of U.S. Treasury and Agency issues increased slightly, and cash
declined modestly during the period.
Diversification remains a key element of the Fund's investment strategy. On June
30, 1996, the Fund held the securities of over 60 different issuers, with an
average credit quality rating of A2 by Moody's Investors Service and A by
Standard & Poor's. When selecting securities, we continue to focus on companies
that show improving fundamentals and are in favorable positions within their
business cycles.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
With interest rates expected to be relatively stable, the Fund's investment
approach to maturity and duration remains consistent with its long-term goals of
high current income and capital preservation. Although the robust pace of
economic growth has provoked anxiety in the bond market, reported inflation
statistics continue to be modest, and we see no reason to change our 1996 and
1997 estimates for the Consumer Price Index (CPI) of 3% and 3.2%, respectively.
Although inflation should remain contained in the present environment,
optimistic forecasts of further declines seem improbable. As a result, we
believe that interest rates are at a reasonable level with the long-term
Treasury bond expected to trade between 6.50% and 7.25%. Over the intermediate
term, the Fund should benefit from these stable interest rates.
The most surprising economic news in 1996 has been provided by the consumer
sector. Higher-than-expected consumer spending has been the result of solid
employment advances, which occurred despite persistent layoff announcements and
political allegations that the economy is failing to create jobs. However, due
to recent news concerning the rapid acceleration of personal bankruptcies and
lenders reporting growing losses on credit cards, we anticipate a slowing in
consumer spending in the second half of 1996. Business spending recently
displayed surprising strength. Similar to consumption, we anticipate a slowdown
in this sector as we progress through 1996 and 1997 since recent data indicate
that contracts for new plant expansion are subdued despite the recent increase
in consumer demand.
- ----------------------------
BROAD SECTOR DIVERSIFICATION
- ----------------------------
<TABLE>
<S> <C>
U.S. Government Agency Mortgaged-Backed Securities 10.70%
U.S. Treasury Bond 2.47%
Retail 2.81%
Media 2.67%
Other 3.95%
Transportation 8.91%
Financial 18.78%
Electric 4.36%
Yankee 5.76%
Forest Products 7.93%
Industrial 10.20%
Manufacturing 13.44%
Energy 4.71%
Gas 3.31%
</TABLE>
ALLOCATION PERCENTAGES ARE BASED ON TOTAL INVESTMENT VALUE OF THE PORTFOLIO AS
OF 6/30/96.
13
<PAGE>
GROWTH AND INCOME FUND
PORTFOLIO MANAGER:
J.P. MORGAN INVESTMENT MANAGEMENT INC.
HENRY D. CAVANNA
WILLIAM M. RIEGEL
Mr. Cavanna is a Senior Portfolio Manager in the J.P. Morgan Equity and Balanced
Accounts Group, and has been with J.P. Morgan since 1971.
Mr. Riegel is a Senior Equity Portfolio Manager in the Equity and Balanced
Accounts Group, and has been with J.P. Morgan since 1979. Mr. Cavanna and Mr.
Riegel have had primary portfolio management responsibility for the Growth and
Income Fund since January 1994.
PERFORMANCE REVIEW:
From the Fund's inception (January 12, 1994) through June 30, 1996, the GROWTH
AND INCOME FUND advanced 15.31% on an average annual total return basis. For the
12-month period ended June 30, 1996, the Fund's total return was 22.04%. For
additional information, see the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE SIX-MONTH PERIOD ENDED JUNE 30, 1996?
In the first quarter of 1996, stock picking created strong relative performance
as the Fund outperformed the S&P 500 in 14 of 17 economic sectors. Overall, the
Fund slightly outperformed both the S&P 500 and the Lipper Growth & Income Fund
Average during this time period. The Fund's strong performance can be attributed
to stock selection and solid corporate earnings growth. Sectors that lagged in
the latter part of 1995 began to improve their performance; basic industry,
retail, and capital goods all benefited from signs of renewed economic strength.
The economic strength caused inflation concerns to surface and interest rates to
increase, but the equity markets continued forward.
In the second quarter 1996, stock prices reached new highs with a rotation into
defensive growth stocks as investors became increasingly concerned about a
potential Fed tightening as a result of positive economic data. This flight to
quality had been driven by a concern over the sustainability of profits and
earnings growth. As a result, investors concentrated on the stocks with the
highest earnings stability, which were the largest companies in the S&P 500. Our
approach to investing, which avoids dependence on the strength of a few stocks
or industry sectors, can underperform the broader market when buying is heavily
focused on certain subsets of the market. Because of our diversified approach to
stock picking, the Fund slightly underperformed the S&P 500 in the second
quarter.
Growth of $10,000 Investment
<TABLE>
<CAPTION>
STANDARD & POORS
COMPOSITE INDEX OF
FUND 500 STOCKS
<S> <C> <C>
Inception January 12, 1994 10,000 10,000
March 1994 9,670 9,305
May 1994 9,900 9,579
July 1994 9,950 9,651
September 1994 10,040 9,801
November 1994 9,670 9,656
January 1995 10,040 10,053
March 1995 10,820 10,752
May 1995 11,440 11,510
July 1995 12,072 12,167
September 1995 12,437 12,712
November 1995 12,792 13,222
January 1996 13,016 13,477
March 1996 13,949 14,200
May 1996 14,415 14,780
June 1996 14,212 14,836
</TABLE>
* INDEX TOTAL RETURNS WERE CALCULATED FROM 1/31/94 TO 6/30/96. THE STANDARD &
POOR'S COMPOSITE INDEX OF 500 STOCKS (S&P 500) REPRESENTS AN UNMANAGED
WEIGHTED INDEX OF 500 INDUSTRIAL, TRANSPORTATION, UTILITY AND FINANCIAL
COMPANIES WIDELY REGARDED BY INVESTORS AS REPRESENTATIVE OF THE STOCK MARKET,
ASSUMES REINVESTMENT OF ALL DIVIDENDS/DISTRIBUTIONS, AND DOES NOT REFLECT ANY
ASSET-BASED CHARGES FOR INVESTMENT MANAGEMENT OR OTHER EXPENSES. PAST
INVESTMENT PERFORMANCE DOES NOT GUARANTEE FUTURE PERFORMANCE. THE RETURNS FOR
THE FUND ASSUME REINVESTMENT OF ALL DIVIDENDS/DISTRIBUTIONS BY THE
SHAREHOLDER.
DURING THE PERIOD NOTED, THE ADVISOR (SIERRA INVESTMENT ADVISORS CORPORATION)
AND ADMINISTRATOR (SIERRA FUND ADMINISTRATION CORPORATION) WAIVED A PORTION OF
THEIR MANAGEMENT FEES, AND THE CUSTODIAN REDUCED FEES BY CREDITS. IN THE
ABSENCE OF THE WAIVERS OR FEES REDUCED BY CREDITS, YIELD AND TOTAL RETURN
WOULD HAVE BEEN LOWER.
THE ABOVE LINE GRAPH DOES NOT REFLECT ADMINISTRATIVE FEES OR OTHER EXPENSES
CHARGED BY AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT D THROUGH
WHICH SHARES OF THE FUND ARE PURCHASED.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Average Annual Total Returns as of 6/30/96 6 Month 1 Year Since Inception
------- ------ ---------------
(January 12, 1994)
<S> <C> <C> <C>
===Fund 9.20% 22.04% 15.31%
- ---Standard & Poor's Composite Index of 500 Stocks* 10.09% 25.98% 17.73%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
During the first half of 1996, a calming of inflation and interest rate fears
drove stock prices to new highs with an S&P 500 record high of 661.5 on February
12. Volatility in the stock market also increased dramatically during this
period. In 1995, the market rose at a steady pace; this year, volatility has
taken the
14
<PAGE>
GROWTH AND INCOME FUND
form of big up days and big down days with significant rotation in industry
groups. Despite this volatility, the Fund's shareholders benefited in absolute
terms from the continued gains in the stock market. The rally was fueled by a
combination of declining interest rates, expanding corporate earnings and
profitability, continued prospects for benign inflation, and record flows of
money into domestic stock funds. As always, the Fund maintained its highly
diversified and value-oriented approach to stock selection. This technique seeks
to identify companies that are undervalued relative to our forecast of long-term
earnings and dividend payouts.
Although more volatile, the domestic equity markets continued their positive
performance in the second quarter of 1996. The S&P 500 hit a new high of 678.5
on May 24, returning 4.48% for the quarter. This was the sixth consecutive
quarter of positive performance for the S&P 500 with a total cumulative return
of 46%. In this environment, we continued to maintain our sector neutral
approach to investment management. Our diversification and focus on undervalued
stocks that we find fundamentally attractive for the long term, caused the Fund
to underperform relative to the S&P 500 in the second quarter.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
Over the past six months, our investment strategy involved maintaining our
sector neutral approach coupled with a continued focus on individual stock
selection. The Fund's slight underperformance versus the S&P 500 during the
second half of 1995 and the first half of 1996 was primarily due to stock
selection in a market that was still narrowly concentrated. Stocks that
contributed significantly to the underperformance included Quantum Corporation
and Novell Inc. from data processing and Humana Inc. from healthcare. Stocks
that positively impacted the Fund included Circuit City Stores Inc., Aluminum
Company of America, and Wellman Inc.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
Due to strong employment reports and intensifying wage/labor cost pressures, we
expect a Fed tightening by the end of the summer. We feel that the higher
interest rates will be sufficient to moderate the economy while simultaneously
controlling inflation. Looking at the financial markets, opinions continue to
vary widely on whether or not we have reached the top of the equity markets.
However, our approach to investing focuses on finding attractive stocks rather
than attempting the risky practice of timing the market. Therefore, the
portfolio continues to be fully invested in a diversified collection of stocks.
This diversified approach should be beneficial as the possibility of a sell-off
in technology and large multinational stocks becomes more likely, given their
price valuations.
---------------------------------
SECTOR DIVERSIFICATION
---------------------------------
U.S. Treasury 4.38%
Other 1.76%
Materials & Processing 15.28%
Consumer Discretionary 14.25%
Financial Services 12.03%
Consumer Staples 8.61%
Energy 8.54%
Telecommunications 7.95%
Health Care 7.76%
Autos & Transportation 7.54%
Technology 5.12%
Producer Durables 4.36%
Utilities 2.42%
ALLOCATION PERCENTAGES ARE BASED ON TOTAL INVESTMENT VALUE OF THE PORTFOLIO AS
OF 6/30/96.
15
<PAGE>
GROWTH FUND
PORTFOLIO MANAGER:
JANUS CAPITAL CORPORATION
WARREN B. LAMMERT
Mr. Lammert is a graduate of Yale University and the London School of Economics.
He first joined Janus in January 1987 and has been portfolio manager for the
Growth Fund since its inception. He is a Chartered Financial Analyst.
PERFORMANCE REVIEW:
From the Fund's inception (May 7, 1993) through June 30, 1996, the Growth Fund
advanced 19.22% on an average annual total return basis, outperforming the S&P
500* benchmark's 16.81% return for the same period. For the 12-month period
ended June 30, 1996, the Fund's total return was 24.81%. For additional
information, see the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE SIX-MONTH PERIOD ENDED JUNE 30, 1996?
As 1996 opened, surprising signs of economic strength caused concerns about
inflation, pushing interest rates up and lowering bond prices. As interest rates
increased, despite some volatility, the equity markets continued their advance,
and the major indices continued to post strong gains in the first half of 1996.
The volatility rotated through individual sectors. Those market sectors that had
performed well earlier in 1996--small stocks, technology, and biotechnology--
were hardest hit at the end of the second quarter. Even with the recent
volatility, holdings in the technology sector have contributed to the Fund's
strong performance over the past 12 months, and continue to comprise a large
percentage of fund assets.
Growth of $10,000 Investment
<TABLE>
<CAPTION>
STANDARD & POORS
COMPOSITE INDEX
FUND OF 500 STOCKS
<S> <C> <C>
Inception May 7, 1993 10,000 10,000
July 1993 10,220 9,989
September 1993 10,810 10,285
November 1993 10,900 10,398
January 1994 11,730 10,881
March 1994 11,390 10,125
May 1994 10,970 10,423
July 1994 10,910 10,502
September 1994 11,571 10,665
November 1994 11,451 10,507
January 1995 11,611 10,939
March 1995 12,232 11,699
May 1995 13,162 12,524
July 1995 14,838 13,239
September 1995 15,400 18,832
November 1995 15,721 14,387
January 1996 16,083 15,163
March 1996 16,956 15,451
May 1996 18,160 16,083
June 1996 17,392 16,144
</TABLE>
* INDEX TOTAL RETURNS WERE CALCULATED FROM 5/31/93 TO 6/30/96. THE STANDARD &
POOR'S COMPOSITE INDEX OF 500 STOCKS (S&P 500) REPRESENTS AN UNMANAGED
WEIGHTED INDEX OF 500 INDUSTRIAL, TRANSPORTATION, UTILITY AND FINANCIAL
COMPANIES WIDELY REGARDED BY INVESTORS AS REPRESENTATIVE OF THE STOCK MARKET,
ASSUMES REINVESTMENT OF ALL DIVIDENDS/DISTRIBUTIONS, AND DOES NOT REFLECT ANY
ASSET-BASED CHARGES FOR INVESTMENT MANAGEMENT OR OTHER EXPENSES. PAST
INVESTMENT PERFORMANCE DOES NOT GUARANTEE FUTURE PERFORMANCE. THE RETURNS FOR
THE FUND ASSUME REINVESTMENT OF ALL DIVIDENDS/DISTRIBUTIONS BY THE
SHAREHOLDER.
DURING THE PERIOD NOTED, THE ADVISOR (SIERRA INVESTMENT ADVISORS CORPORATION)
AND ADMINISTRATOR (SIERRA FUND ADMINISTRATION CORPORATION) WAIVED A PORTION OF
THEIR MANAGEMENT FEES AND THE ADVISOR ABSORBED OTHER EXPENSES, AND THE
CUSTODIAN REDUCED FEES BY CREDITS. IN THE ABSENCE OF THE WAIVERS AND
ABSORPTION OF OTHER EXPENSES OR FEES REDUCED BY CREDITS, YIELD AND TOTAL
RETURN WOULD HAVE BEEN LOWER.
THE ABOVE LINE GRAPH DOES NOT REFLECT ADMINISTRATIVE FEES OR OTHER EXPENSES
CHARGED BY AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT D THROUGH
WHICH SHARES OF THE FUND ARE PURCHASED.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Average Annual Total Returns as of 6/30/96 6 Month 1 Year Since Inception
------- ------ ---------------
(May 7, 1993)
<S> <C> <C> <C>
===Fund 10.20% 24.81% 19.22%
- ---Standard & Poor's Composite Index of 500 Stocks* 10.09% 25.98% 16.81%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
In early 1996 a surprising uptrend in economic strength returned the markets to
a more normal state of volatility. Evidence for this strength came across many
fronts, including robust employment data, vigorous demand in manufacturing, and
strength in the auto and housing markets. The increase in economic activity
incited inflation concerns with market participants. The prospects for an
increase in prices created a rise in interest rates and the forementioned
volatility in the equity markets.
Although trends in interest rates and market sentiment are closely watched, the
portfolio's fundamental strategy remains focused on finding attractive
individual ideas and purchasing them at inexpensive prices. These companies
should be able to grow their earnings and, therefore, their stock prices,
regardless of economic conditions.
16
<PAGE>
GROWTH FUND
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
Our management style is to construct portfolios on an individual stock-by-stock
basis. Each issue is selected according to its own merits as determined by
fundamental, bottom-up research. As such, assets are not allocated to particular
sectors, but they are accumulated as a result of the portfolio's overall stock
selection. Of course, certain themes may develop as our research locates a
number of companies capitalizing on a high growth area within the same or even
differing fields of a particular market sector.
Pharmaceuticals and health care stocks remain an area of focus for the
portfolio. Eli Lilly & Company, a major drug developer, is a significant holding
which currently has a new product line that includes treatments for diabetes,
schizophrenia, acute cardiovascular disease, and cancer. Centocor, Inc. is a
partner in the development of Reopro, Lilly's new cardiovascular drug. Also in
this group are SmithKline Beecham, ADR, Amgen Inc., and Genzyme Corporation.
Additionally, there seems to be growth opportunities with certain companies in
the networking business; the portfolio has positions in companies such as
CiscoSystems, Inc., Shiva Corporation, Stratacom Inc., and the recent addition
of Xylan Corporation. These stocks performed very well, but when prices in this
volatile industry appreciated to high levels, positions were sold. As a result,
we took profits in Westell Technologies, Inc., which makes a wide range of
telecommunications products, although we have since rebuilt the position at
lower prices, and Ascend Communications Inc., which makes networking access
products. Additionally, two PC makers, Dell Computer Corporation and Gateway
2000 Inc., contributed to the strong returns of the Fund. Both companies have
strong outlooks for earnings, despite the slowdown in PC sales.
Technology continues to be an important theme in the portfolio. In addition to
Netscape Communications Corporation, two other exciting technology holdings were
purchased during the quarter. Macronix International Company, Ltd., ADR
manufactures non-volatile memory circuits, and JDA Software Group Inc. provides
comprehensive integrated business management software. Another addition includes
Rentokil Group Plc, a British supplier of maintenance and environmental
services.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
The economic debate should continue as the Federal Reserve keeps a close watch
on price pressures and economic growth. Although economic growth usually
brings price pressures, this has not yet surfaced as commodity prices have come
down during the second quarter of 1996. Lower commodity prices are good news for
inflation, because they will take some of the supply pressure off prices.
Meanwhile, on the demand side of the equation, the unusually high rate of
consumer loan delinquencies suggests that consumer spending may slow down in the
near future. A slowdown in consumer demand would help put the brakes on economic
growth.
While higher interest rates could make stock selection more difficult in the
short run, long-term performance is dependent on owning great businesses,
purchased at reasonable prices. Market volatility, or even a substantial
decline, could ultimately facilitate this objective. Regardless of how the
economic debate turns out, we intend to pursue our long-term strategy of finding
attractive individual issues and purchasing them at inexpensive prices. As long
as we adhere to our investment methodology and select issues on their individual
merit, the portfolio should continue its strong relative performance.
------------------------------
SECTOR DIVERSIFICATION
------------------------------
U.S. Treasury Bill 0.92%
Materials & Processing 3.36%
Consumer Discretionary 12.06%
Financial Services 12.89%
Consumer Staples 0.26%
Energy 0.39%
Telecommunications 10.17%
Health Care 13.71%
Autos & Transportation 0.97%
Technology 24.77%
Producer Durables 2.13%
Other 7.23%
U.S. Government Agency 4.64%
Commercial Paper 6.50%
ALLOCATION PERCENTAGES ARE BASED ON TOTAL INVESTMENT VALUE OF THE PORTFOLIO AS
OF 6/30/96.
17
<PAGE>
EMERGING GROWTH FUND
PORTFOLIO MANAGER:
JANUS CAPITAL CORPORATION
JAMES P. GOFF
Mr. Goff has a degree from Yale University, and is a Chartered Financial
Analyst. He has been with Janus since 1988, and has had primary portfolio
management responsibility for the Emerging Growth Fund since its inception.
PERFORMANCE REVIEW:
From the Fund's inception (January 12, 1994) through June 30, 1996, the EMERGING
GROWTH FUND advanced 20.39% on an average annual total return basis,
outperforming the S&P 500* benchmark's 17.73% return for the same period. For
the 12-month period ended June 30, 1996, the Fund's total return was 38.01%. For
additional information, see the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE SIX-MONTH PERIOD ENDED JUNE 30, 1996?
At the start of the new year, interest rates moved steadily higher as investors
speculated about the strength of the overall economy. The increase in interest
rates put pressure on stocks. The result in the second quarter was increased
volatility, especially in small stocks, which had performed well earlier in
the year. On the whole, however, the market proved resilient. For the period,
the S&P MidCap 400 Index managed a respectable gain of 9.21% while the S&P 500
gained 10.09%. The strong overall relative performance for the Fund (14.60% not
adjusted for sales charge) was driven by individual stock selection, as the Fund
has benefited from extremely strong performance by many of its individual
holdings.
Growth of $10,000 Investment
<TABLE>
<CAPTION>
STANDARD & POORS
COMPOSITE INDEX
FUND OF 500 STOCKS
<S> <C> <C>
Inception January 12, 1994 10,000 10,000
March 1994 9,950 9,305
May 1994 9,800 9,579
July 1994 9,880 9,651
September 1994 10,520 9,801
November 1994 10,240 9,656
January 1995 10,530 10,053
March 1995 10,790 10,752
May 1995 10,630 11,510
July 1995 12,267 12,167
September 1995 13,261 12,712
November 1995 13,010 13,222
January 1996 13,592 13,477
March 1996 14,375 14,200
June 1996 13,807 14,836
</TABLE>
* INDEX TOTAL RETURNS WERE CALCULATED FROM 1/31/94 TO 6/30/96. THE STANDARD &
POOR'S COMPOSITE INDEX OF 500 STOCKS (S&P 500) REPRESENTS AN UNMANAGED
WEIGHTED INDEX OF 500 INDUSTRIAL, TRANSPORTATION, UTILITY AND FINANCIAL
COMPANIES WIDELY REGARDED BY INVESTORS AS REPRESENTATIVE OF THE STOCK MARKET,
ASSUMES REINVESTMENT OF ALL DIVIDENDS/DISTRIBUTIONS, AND DOES NOT REFLECT ANY
ASSET-BASED CHARGES FOR INVESTMENT MANAGEMENT OR OTHER EXPENSES. PAST
INVESTMENT PERFORMANCE DOES NOT GUARANTEE FUTURE PERFORMANCE. THE RETURNS FOR
THE FUND ASSUME REINVESTMENT OF ALL DIVIDENDS/DISTRIBUTIONS BY THE
SHAREHOLDER.
DURING THE PERIOD NOTED, THE ADVISOR (SIERRA INVESTMENT ADVISORS CORPORATION)
AND ADMINISTRATOR (SIERRA FUND ADMINISTRATION CORPORATION) WAIVED A PORTION OF
THEIR MANAGEMENT FEES, AND THE CUSTODIAN REDUCED FEES BY CREDITS. IN THE
ABSENCE OF THE WAIVERS OR FEES REDUCED BY CREDITS, YIELD AND TOTAL RETURN
WOULD HAVE BEEN LOWER.
THE ABOVE LINE GRAPH DOES NOT REFLECT ADMINISTRATIVE FEES OR OTHER EXPENSES
CHARGED BY AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT D THROUGH
WHICH SHARES OF THE FUND ARE PURCHASED.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/96 6 MONTH 1 YEAR SINCE INCEPTION
------- ------ ---------------
(January 12, 1994)
<S> <C> <C> <C>
===Fund 14.60% 38.01% 20.39%
- ---Standard & Poor's Composite Index of 500 Stocks* 10.09% 25.98% 17.73%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
The economy appeared to accelerate during the second quarter of 1996, and the
debate intensified over what this new strength meant for the future direction of
interest rates. Robust employment, rising wages, manufacturing demand, and a
general build-up in economic momentum indicated that the economy had picked up
speed. On the other hand, lower commodity prices, the high rate of consumer loan
delinquencies, and low inflation argued against a rise in rates. As the market
worked through this period of uncertainty, individual stocks and market sectors
continued to experience some volatility.
During this period of uncertainty, the Fund's strategy remained basically
unchanged: to find individual companies with exceptional potential for growth,
18
<PAGE>
EMERGING GROWTH FUND
regardless of economic conditions. These companies are evaluated on their
individual merits: their ability to generate earnings growth, and their superior
management teams, not on the broad analysis of a particular sector or market
trend.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
Since the SIERRA EMERGING GROWTH FUND is managed on an individual stock basis,
overall performance is most affected by the performance of individual companies.
Portfolio holdings that had a significant impact on performance included HFS,
Inc., a hotel franchiser that has developed a number of successful cross-selling
strategies in its lodging and real estate businesses. HFS is growing through
acquisitions and is currently in negotiations to buy rental car company Avis.
Global DirectMail Corporation sells a variety of computer peripherals and office
products through its commercial catalogue. The company is already growing at
25%-30% annually and is beginning to offer higher ticket computer hardware.
Insignia Financial Group Inc. is the largest real estate management company in
the U.S., and has a joint venture to cross-sell its services to Century 21, an
HFS subsidiary. Other good performers this quarter were Culligan Water
Technologies, Inc., the maker of water purification products, and Millicom
International Cellular SA, which is expanding its cellular services into
emerging economies.
Insignia Financial Group Inc., J.D. Wetherspoon Plc Ord, and Petco Animal
Supplies Inc., have been long-term holdings, and have all contributed strongly
to the Fund's performance. Although Minerals Technologies Inc., Trigen Energy
Corporation, and Paging Network Inc. have not performed as expected, we have
been patient with these underachievers because they remain outstanding
business franchises (i.e., competition is scarce) with excellent long-term
growth potential.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
Our outlook for the Fund continues to be positive over the intermediate and long
term. Although we anticipate some volatility over the near term, our longer-term
outlook for the Fund continues to be positive. With corporate earnings at
historically high levels for the last three years, some companies may face very
tough comparisons going forward. The ability of corporations to sustain their
profit and earnings growth will play an important role in the short-term
direction of the market. In this environment, we will continue to focus on
intensive fundamental research. We will continue to focus on intensive,
fundamental research to locate rapidly growing companies at reasonable prices.
This is not always an easy combination to find, of course, and if interest rates
rise further, it could be more difficult. However, this strategy should provide
superior portfolio performance over the long haul, despite any temporary price
fluctuation. In addition, any short-term volatility, or even a market decline,
can be used to acquire strong companies at lower prices.
-------------------------------------
SECTOR DIVERSIFICATION
-------------------------------------
Materials & Processing 6.64%
Consumer Discretionary 23.38%
Financial Services 8.17%
Consumer Staples 1.29%
Health Care 13.63%
Autos & Transportation 6.87%
Technology 4.74%
Other 7.35%
Producer Durables 7.95%
Commercial Paper 3.40%
Telecommunications 16.58%
ALLOCATION PERCENTAGES ARE BASED ON TOTAL INVESTMENT VALUE OF THE PORTFOLIO AS
OF 6/30/96.
19
<PAGE>
INTERNATIONAL GROWTH FUND
PORTFOLIO MANAGER:
WARBURG, PINCUS COUNSELLORS, INC.
The following people have been primarily responsible for managing the Fund since
April 8, 1996. Richard H. King, Senior Managing Director, joined the firm to
found the department and has 28 years of investment experience. Prior to joining
Warburg, Mr. King was chief investment officer and a director of Fiduciary Trust
Company International S.A. in London from 1984 to 1988. P. Nicholas Edwards,
Senior Vice President, has 12 years of investment experience. Prior to joining
Warburg, Mr. Edwards was a director and senior analyst at Jardine Fleming
Investment Advisers in Tokyo from 1991 to 1995. Harold W. Ehrlich, CFA, CIC,
Senior Vice President, has 13 years of investment experience. Prior to joining
Warburg, Mr. Ehrlich was a senior vice president, portfolio manager and analyst
at Templeton Investment Counsel Inc. Nicholas P.W. Horsley, Senior Vice
President, has 15 years of investment experience. Prior to joining Warburg, Mr.
Horsley was a director, portfolio manager and analyst at Barclays de Zoete Wedd
in New York. Vincent J. McBride, Vice President, has 9 years of investment
experience. Prior to joining Warburg, Mr. McBride was an international equity
analyst at Smith Barney Inc. from 1993 to 1994. He was an international equity
analyst at General Electric Investments from 1992 to 1993 and a portfolio
manager/analyst at United Jersey Bank from 1989 to 1992.
PERFORMANCE REVIEW:
From the Fund's inception (May 7, 1993) through June 30, 1996, the INTERNATIONAL
GROWTH FUND'S average annual total return was 8.81%. For the 12-month period
ended June 30, 1996, the Fund's total return was 14.51%. For additional
information, see the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE SIX-MONTH PERIOD ENDED JUNE 30, 1996?
Currency management, which sought to limit the potential volatility associated
with fluctuating international currencies, proved to be a major positive
contributor to the Fund's overall returns for the period. The emphasis on
Germany and France was helpful during this period as these markets performed
well and positively contributed to overall results relative to the benchmark.
The Fund's underweight positions in Italy and the United Kingdom contributed
positively to the performance as these countries lagged over the period. Our
underweight position in Switzerland, however, detracted from performance as this
market was one of the leaders for the first quarter of 1996. Stock selection
returns for the period were slightly behind the benchmark this period, with
selections in Hong Kong and France having the most negative impact and
selections in Japan having the most positive impact.
Warburg, Pincus Counsellors, Inc. assumed management of the Sierra International
Growth Fund on April 8, 1996. Since that date, the new portfolio managers have
assessed the holdings and realigned the portfolio, making sweeping changes to
the individual stocks, as well as country weightings. As of June 30, we have
completed about 90% of the realignment that we feel is desirable.
Growth of $10,000 Investment
<TABLE>
<CAPTION>
MORGAN STANLEY CAPITAL
FUND INTERNATIONAL CAFE INDEX
<S> <C> <C>
Inception May 7, 1993 10,000 10,000
July 1993 10,370 10,189
September 1993 11,080 10,497
November 1993 10,820 9,875
January 1994 11,800 11,482
March 1994 11,470 10,957
May 1994 11,890 11,356
July 1994 12,065 11,627
September 1994 11,864 11,527
November 1994 11,643 11,338
January 1995 11,021 10,972
March 1995 11,142 11,622
May 1995 11,543 11,916
July 1995 11,980 12,437
September 1995 11,686 12,196
November 1995 11,777 12,198
January 1996 12,680 12,742
March 1996 12,771 13,056
June 1996 13,044 13,249
</TABLE>
* INDEX TOTAL RETURNS WERE CALCULATED FROM 5/31/93 TO 6/30/96. THE MORGAN
STANLEY CAPITAL INTERNATIONAL EAFE INDEX ("EAFE") INCLUDES 1,050 COMPANIES
REPRESENTING THE STOCK MARKETS OF EUROPE, AUSTRALIA, NEW ZEALAND AND THE FAR
EAST WEIGHTED BY CAPITALIZATION. EAFE IS A BROAD-BASED INDEX OF EQUITY MARKETS
REPRESENTING 18 COUNTRIES, ASSUMES REINVESTMENT OF ALL
DIVIDENDS/DISTRIBUTIONS, AND DOES NOT REFLECT ANY ASSET-BASED CHARGES FOR
INVESTMENT MANAGEMENT OR OTHER EXPENSES. PAST INVESTMENT PERFORMANCE DOES NOT
GUARANTEE FUTURE PERFORMANCE. THE RETURNS FOR THE FUND ASSUME REINVESTMENT OF
ALL DIVIDENDS/DISTRIBUTIONS BY THE SHAREHOLDER.
DURING THE PERIOD NOTED, THE ADVISOR (SIERRA INVESTMENT ADVISOR CORPORATION)
AND ADMINISTRATOR (SIERRA FUND ADMINISTRATION CORPORATION) WAIVED A PORTION OF
THEIR MANAGEMENT FEES AND THE ADVISOR ABSORBED OTHER EXPENSES, AND THE
CUSTODIAN REDUCED FEES BY CREDITS. IN THE ABSENCE OF THE WAIVERS AND
ABSORPTION OF OTHER EXPENSES OR FEES REDUCED BY CREDITS, YIELD AND TOTAL
RETURN WOULD HAVE BEEN LOWER.
THE ABOVE LINE GRAPH DOES NOT REFLECT ADMINISTRATIVE FEES OR OTHER EXPENSES
CHARGED BY AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT D THROUGH
WHICH SHARES OF THE FUND ARE PURCHASED.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/96 6 MONTH 1 YEAR SINCE INCEPTION
------- ------ ---------------
(May 7, 1993)
<S> <C> <C> <C>
===Fund 6.19% 14.51% 8.81%
- ---Morgan Stanley Capital International EAFE Index* 4.52% 13.28% 9.59%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
INTERNATIONAL GROWTH FUND
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
There were several market factors that affected the Fund's performance--interest
rates, signs of economic recovery in Japan, and a more favorable currency
environment for international companies. While domestic interest rates
increased, rates have stayed very low in Japan and continued to edge down in
Europe. These falling interest rates have helped the international markets. The
currency environment added value to the international markets, as the Yen fell
against the Dollar and the Deutsche Mark appeared weak compared to its
neighboring currencies in Europe. Companies in Japan and Germany that are
exporting benefited from fluctuations in currency.
During this period, the Fund focused on three critical elements in order to
diversify its holdings while contributing to long-term performance. The three
elements were: selecting the most attractive markets, identifying within each
market the most attractive individual companies, and choosing the currencies
with the highest expected returns.
In the second quarter of 1996, foreign equity markets, with few exceptions,
continued to advance, building on momentum established in the first three months
of the year. By region, the strongest showing belonged to Latin America
(specifically Brazil and Mexico, where the portfolio remained under-weighted),
though European and Asian-Pacific markets also enjoyed solid gains. Throughout
the period, the managers of the Fund worked to reposition the portfolio to bring
it in line with our strategy of researching and uncovering good long-term
investments.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
We continued to reduce the Fund's holding in Japan, although Japan still
remained the single largest position and the specific stock selection within
Japan added value to the overall performance of the Fund. Positive returns came
from an increased emphasis on France and Malaysia. Reduced holdings in Italy,
England, and Australia also aided performance as these countries underperformed.
On the other hand, reduced weightings in Switzerland and Sweden detracted from
performance as those markets outperformed for the period.
Since assuming management of the portfolio on April 8, we have made significant
shifts in the Fund's portfolio holdings and sectors to reflect our style and
strategy. We have decreased the number of holdings in the Fund by approximately
30%. This is a reflection of our style, which is to manage with a more
concentrated focus. Also, we are active managers, making investment decisions by
selecting individual stocks that we feel have solid fundamentals with good long-
term prospects for growth; our portfolio will include stocks from the burgeoning
economies of the world, such as South Korea, Malaysia, and Argentina.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
We feel most, if not all, of the recent data on the Japanese economy have
strengthened our conviction that the country remains well on the road to
recovery. Strength in Japan stems from resurgence in both consumption and
capital spending. We believe that both these areas will provide fuel to the
Japanese economy in the coming future. The Fund is well-positioned to benefit
from the resurgence in these two areas, with concentrations in the retail and
machinery and industrial-components sectors.
Elsewhere, we remain positive on the Hong Kong market's prospects, its
vulnerability to higher U.S. interest rates notwithstanding. Hong Kong is, and
will likely remain for years, China's financial center; thus it stands to be a
direct beneficiary of the anticipated surge in growth in China through the rest
of the decade. We will search for attractive values on a selective basis in
South Korea, and remain very positive on the New Zealand stock market.
The Fund is currently underweighted in Europe. While we believe there is the
potential for stronger growth in Europe in 1997, we are currently finding more
dynamic opportunities within Asia. That being said, there still remain selective
values on a stock-by-stock basis in Europe.
In summary, we believe non-U.S. equities will continue to provide excellent
long-term growth opportunities, and we will continue to research, within select
markets of the world, those companies that we feel may provide long-term growth.
-----------------------------------
DIVERSIFICATION BY REGION
-----------------------------------
Asia 44.42%
Australia/New Zealand 7.40%
American 16.08%
Europe 31.88%
Other 0.22%
ALLOCATION PERCENTAGES ARE BASED ON TOTAL INVESTMENT VALUE OF THE PORTFOLIO AS
OF 6/30/96.
21
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
THE SIERRA VARIABLE TRUST
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL HIGH
MONEY QUALITY BOND
FUND FUND
----------- ------------
<S> <C> <C>
ASSETS:
Investments, at value (Note 2)
See portfolios of investments (a).................... $20,592,162 $11,911,352
Cash and/or foreign currency (b)...................... 1,745 30,045
Dividends and/or interest receivable.................. 20,194 116,969
Receivable for investment securities sold............. -- 5,798
Receivable for Fund shares sold....................... -- 7,897
Net unrealized appreciation of forward foreign
currency contracts (Note 2)
See portfolios of investments........................ -- --
Unamortized organization costs (Note 7)............... 11,375 --
Variation Margin (Note 2)............................. -- --
Receivable for dollar roll fee income (Notes 2 and
5)................................................... -- --
Other Assets.......................................... 1,934 504
----------- -----------
Total Assets.......................................... 20,627,410 12,072,565
----------- -----------
LIABILITIES:
Net unrealized depreciation of forward foreign
currency contracts (Note 2)
See portfolios of investments........................ -- --
Payable for investment securities purchased........... -- --
Payable for Fund shares redeemed...................... 106,578 --
Investment advisory fee payable (Note 3).............. 1,035 2,999
Administration fee payable (Note 3)................... 2,852 1,992
Sub-Transfer agent fees payable (Note 3).............. 45 32
Custodian fees payable (Note 3)....................... 903 1,213
Accrued Trustees' fees and expenses (Note 4).......... 421 294
Payable for dollar roll transactions (Notes 2 and 5).. -- --
Deferred income for dollar roll transactions.......... -- --
Variation margin...................................... -- 14,922
Options written, at value (Premium received of $7,860
and $49,868 for the Short Term High Quality Bond Fund
and the Short Term Global Government Fund,
respectively) (Note 2)
See portfolios of investments........................ -- 6,903
Accrued expenses and other payables................... 12,382 19,008
----------- -----------
Total Liabilities..................................... 124,216 47,363
----------- -----------
NET ASSETS............................................ $20,503,194 $12,025,202
=========== ===========
NET ASSETS CONSIST OF:
Undistributed net investment income/(accumulated net
investment loss)..................................... $ 8,764 $ 57,128
Accumulated net realized gain/(loss) on investments
sold, futures contracts, forward foreign currency
contracts, foreign currency transactions and written
options.............................................. 3,320 (298,121)
Net unrealized appreciation/(depreciation) of
investments, futures contracts, forward foreign
currency contracts, foreign currency, written options
and other assets and liabilities..................... -- (56,729)
Paid-in capital....................................... 20,491,110 12,322,924
----------- -----------
Total Net Assets...................................... $20,503,194 $12,025,202
=========== ===========
NET ASSET VALUE, offering price and redemption price
per share of beneficial interest outstanding......... $ 1.00 $ 2.43
=========== ===========
Number of Fund shares outstanding..................... 20,499,821 4,943,978
=========== ===========
- ------------
+ Represents accumulated net investment loss.
(a)INVESTMENTS, AT COST (NOTE 2)...................... 20,592,162 11,931,938
(b)CASH AND/OR FOREIGN CURRENCY, AT COST (NOTE 2)..... 1,745 29,290
</TABLE>
See Notes to Financial Statements.
22
<PAGE>
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL U.S. CORPORATE GROWTH AND EMERGING INTERNATIONAL
GOVERNMENT GOVERNMENT INCOME INCOME GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND FUND FUND
----------- ----------- ----------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
$21,123,483 $62,037,734 $58,283,927 $52,600,198 $107,462,410 $58,810,395 $55,869,697
1,087 8,059 1 3,995 71,228 9,096 1,575,344
626,282 473,995 1,110,103 92,644 20,982 4,997 170,716
1,033,328 1,035,952 -- 916,224 2,681,822 283,297 2,415,515
-- 3,211 -- 65,349 -- 50,128 4,116
324,881 -- -- -- 52,614 -- 214,856
11,410 11,309 11,325 -- 11,325 -- 11,325
-- 27,905 -- -- -- -- --
-- 1,758 -- -- -- -- --
930 1,771 2,038 1,359 2,966 1,233 1,686
----------- ----------- ----------- ----------- ------------ ----------- -----------
23,121,401 63,601,694 59,407,394 53,679,769 110,303,347 59,159,146 60,263,255
----------- ----------- ----------- ----------- ------------ ----------- -----------
-- -- -- -- -- 56,320 --
1,028,343 959,700 -- 1,082,434 1,410,948 775,828 4,018,301
8,652 -- 10,830 -- 7,190 -- --
13,906 29,600 30,633 35,281 79,682 42,141 42,671
3,247 8,880 8,483 7,938 16,076 8,707 8,168
52 141 135 126 256 139 130
1,402 1,056 1,440 2,819 9,491 4,700 7,703
479 1,311 1,252 1,172 2,373 1,285 1,206
-- -- 1,000,521 -- -- -- --
-- -- 1,188 -- -- -- --
-- -- -- -- 91,875 -- --
74,296 -- -- -- -- -- --
27,389 32,052 31,511 26,223 38,503 23,576 65,354
----------- ----------- ----------- ----------- ------------ ----------- -----------
1,157,766 1,032,740 1,085,993 1,155,993 1,656,394 912,696 4,143,533
----------- ----------- ----------- ----------- ------------ ----------- -----------
$21,963,635 $62,568,954 $58,321,401 $52,523,776 $108,646,953 $58,246,450 $56,119,722
=========== =========== =========== =========== ============ =========== ===========
$ 621,661 $ 82,952 $ 25,359 $ 241,591 $ 76,989 $ (215,534)+ $ 193,359
(524,462) (2,420,823) (2,252,361) 4,031,162 10,858,355 3,827,975 1,014,076
643,893 190,426 (603,157) 4,106,051 11,896,068 11,162,566 2,785,788
21,222,543 64,716,399 61,151,560 44,144,972 85,815,541 43,471,443 52,126,499
----------- ----------- ----------- ----------- ------------ ----------- -----------
$21,963,635 $62,568,954 $58,321,401 $52,523,776 $108,646,953 $58,246,450 $56,119,722
=========== =========== =========== =========== ============ =========== ===========
$ 2.52 $ 9.59 $ 9.64 $ 12.81 $ 15.19 $ 15.31 $ 12.69
=========== =========== =========== =========== ============ =========== ===========
8,704,142 6,525,498 6,049,026 4,099,894 7,153,310 3,805,525 4,420,788
=========== =========== =========== =========== ============ =========== ===========
20,775,507 61,743,138 58,887,084 48,494,147 95,418,708 47,591,524 53,264,835
1,087 8,059 1 3,995 71,228 9,096 1,572,820
</TABLE>
See Notes to Financial Statements.
23
<PAGE>
STATEMENTS OF OPERATIONS
THE SIERRA VARIABLE TRUST
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL HIGH
MONEY QUALITY BOND
FUND FUND
-------- ------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends................................................ $ -- $ --
Foreign witholding tax on dividend income................ -- --
Interest................................................. 510,858 499,598
Foreign witholding tax on interest income................ -- --
Fee income (Note 5)...................................... -- --
-------- ---------
Total Investment Income................................. 510,858 499,598
-------- ---------
EXPENSES:
Investment advisory fee (Note 3)......................... 47,100 35,896
Administration fee (Note 3).............................. 16,956 12,923
Trustees' fees and expenses (Note 4)..................... 990 857
Legal and audit fees..................................... 11,433 15,017
Custodian fees (Note 3).................................. 1,406 3,242
Amortization of organization costs (Note 7).............. 3,069 --
Other.................................................... 1,091 8,581
-------- ---------
Expenses before waiver of fees........................... 82,045 76,516
Fees waived by investment advisor (Note 3)............... (34,887) (6,719)
Fees reduced by credits allowed by the custodian (Note
3)...................................................... (72) (217)
-------- ---------
Total expenses before interest expense.................. 47,086 69,580
-------- ---------
Interest expense (Note 5)................................ -- --
-------- ---------
Total expenses.......................................... 47,086 69,580
-------- ---------
NET INVESTMENT INCOME/(LOSS)............................. 463,772 430,018
-------- ---------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
(NOTES 2 AND 5):
Realized gain/(loss) from:
Security transactions................................... 42 (132,451)
Forward foreign currency contracts and foreign currency
transactions........................................... -- (76)
Futures contracts....................................... -- (3,466)
Written options......................................... -- --
Net change in unrealized appreciation/(depreciation) of:
Securities.............................................. -- (217,065)
Forward foreign currency contracts...................... -- --
Foreign currency, written options, futures contracts and
other assets and liabilities........................... -- (36,143)
-------- ---------
Net realized and unrealized gain/(loss) on investments... 42 (389,201)
-------- ---------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS.............................................. $463,814 $ 40,817
======== =========
</TABLE>
See Notes to Financial Statements.
24
<PAGE>
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL U.S. CORPORATE GROWTH AND EMERGING INTERNATIONAL
GOVERNMENT GOVERNMENT INCOME INCOME GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND FUND FUND
---------- ----------- ----------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ 498,111 $ 416,481 $ 31,778 $ 571,750
-- -- -- -- (23,369) (2,152) (61,551)
805,436 2,063,734 2,272,504 54,361 302,426 54,726 87,790
(20,475) -- -- -- -- -- (153)
-- 12,519 6,637 -- -- -- --
--------- ----------- ----------- ---------- ----------- ---------- ----------
784,961 2,076,253 2,279,141 552,472 695,538 84,352 597,836
--------- ----------- ----------- ---------- ----------- ---------- ----------
84,170 168,859 189,598 210,444 463,670 223,615 246,554
20,201 50,658 52,504 47,350 93,466 46,037 46,967
1,222 3,309 3,226 3,079 5,798 3,049 3,172
25,103 20,028 19,713 17,981 26,461 17,576 26,997
5,314 3,048 3,916 10,482 24,211 10,527 22,198
3,069 3,069 3,069 -- 3,069 -- 3,069
4,747 12,387 11,543 9,297 17,033 7,799 17,645
--------- ----------- ----------- ---------- ----------- ---------- ----------
143,826 261,358 283,569 298,633 633,708 308,603 366,602
-- -- -- -- -- -- --
(192) (1,981) (38) (276) (2,178) (2,021) (1,666)
--------- ----------- ----------- ---------- ----------- ---------- ----------
143,634 259,377 283,531 298,357 631,530 306,582 364,936
--------- ----------- ----------- ---------- ----------- ---------- ----------
-- 71,065 -- -- -- -- --
--------- ----------- ----------- ---------- ----------- ---------- ----------
143,634 330,442 283,531 298,357 631,530 306,582 364,936
--------- ----------- ----------- ---------- ----------- ---------- ----------
641,327 1,745,811 1,995,610 254,115 64,008 (222,230) 232,900
--------- ----------- ----------- ---------- ----------- ---------- ----------
(231,493) (251,129) (153,343) 4,070,034 11,113,794 3,889,702 1,212,417
(128,116) -- (13) -- 105,298 (3,161) 371,599
-- (86,422) -- -- -- -- --
144,169 -- -- -- -- -- --
(319,631) (2,009,562) (4,721,923) 226,924 (1,629,679) 3,158,199 1,106,480
561,783 -- -- -- 181,713 (45,949) 184,803
(66,486) (57,427) 14 -- (219,991) (108) (27,739)
--------- ----------- ----------- ---------- ----------- ---------- ----------
(39,774) (2,404,540) (4,875,265) 4,296,958 9,551,135 6,998,683 2,847,560
--------- ----------- ----------- ---------- ----------- ---------- ----------
$ 601,553 $ (658,729) $(2,879,655) $4,551,073 $ 9,615,143 $6,776,453 $3,080,460
========= =========== =========== ========== =========== ========== ==========
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
THE SIERRA VARIABLE TRUST
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL HIGH
MONEY QUALITY BOND
FUND FUND
----------- ------------
<S> <C> <C>
Net investment income/(loss).......................... $ 463,772 $ 430,018
Net realized gain/(loss) on investments sold, forward
foreign currency contracts, foreign currency
transactions, futures contracts and written options
during the period.................................... 42 (135,993)
Net unrealized appreciation/(depreciation) of
investments, forward foreign currency contracts,
foreign currency, written options, futures contracts
and other assets and liabilities during the period... -- (253,208)
----------- -----------
Net increase/(decrease) in net assets resulting from
operations........................................... 463,814 40,817
Distributions to shareholders from:
Net investment income................................ (463,772) (399,518)
Net realized gains on investments.................... -- --
Net increase/(decrease) in net assets from Fund share
transactions......................................... 130,278 19,207
----------- -----------
Net increase/(decrease) in net assets................. 130,320 (339,494)
NET ASSETS:
Beginning of period................................... 20,372,874 12,364,696
----------- -----------
End of period......................................... $20,503,194 $12,025,202
=========== ===========
Undistributed net investment income/(accumulated net
investment loss)
at end of period..................................... $ 8,764 $ 57,128
=========== ===========
FOR THE YEAR ENDED DECEMBER 31, 1995
<CAPTION>
SHORT TERM
GLOBAL HIGH
MONEY QUALITY BOND
FUND FUND
----------- ------------
<S> <C> <C>
Net investment income/(loss).......................... $ 602,900 $ 864,781
Net realized gain/(loss) on investments sold, forward
foreign currency contracts, foreign currency
transactions, futures contracts and written options
during the year...................................... 3,309 (254,466)
Net unrealized appreciation/(depreciation) of
investments, forward foreign currency contracts,
foreign currency, written options, futures contracts
and other assets and liabilities during the year..... -- 630,236
----------- -----------
Net increase in net assets resulting from operations.. 606,209 1,240,551
Distributions to shareholders from:
Net investment income................................ (602,900) (652,464)
Net realized gains on investments.................... -- --
Net increase/(decrease) in net assets from Fund share
transactions......................................... 14,210,664 (3,770,768)
----------- -----------
Net increase/(decrease) in net assets................. 14,213,973 (3,182,681)
NET ASSETS:
Beginning of year..................................... 6,158,901 15,547,377
----------- -----------
End of year........................................... $20,372,874 $12,364,696
=========== ===========
Undistributed net investment income at end of year.... $ 8,764 $ 26,628
=========== ===========
</TABLE>
- ------------
+ Represents accumulated net investment loss.
See Notes to Financial Statements.
26
<PAGE>
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL U.S. CORPORATE GROWTH AND EMERGING INTERNATIONAL
GOVERNMENT GOVERNMENT INCOME INCOME GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND FUND FUND
----------- ----------- ----------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 641,327 $ 1,745,811 $ 1,995,610 $ 254,115 $ 64,008 $ (222,230) $ 232,900
(215,440) (337,551) (153,356) 4,070,034 11,219,092 3,886,541 1,584,016
175,666 (2,066,989) (4,721,909) 226,924 (1,667,957) 3,112,142 1,263,544
----------- ----------- ----------- ----------- ------------ ----------- -----------
601,553 (658,729) (2,879,655) 4,551,073 9,615,143 6,776,453 3,080,460
(342,861) (1,683,242) (1,999,764) (449,287) -- -- (741,545)
-- -- -- (4,043,586) (13,385,659) (1,615,533) --
(2,099,651) 12,607,431 2,524,570 6,103,734 12,718,556 7,027,130 7,871,949
----------- ----------- ----------- ----------- ------------ ----------- -----------
(1,840,959) 10,265,460 (2,354,849) 6,161,934 8,948,040 12,188,050 10,210,864
23,804,594 52,303,494 60,676,250 46,361,842 99,698,913 46,058,400 45,908,858
----------- ----------- ----------- ----------- ------------ ----------- -----------
$21,963,635 $62,568,954 $58,321,401 $52,523,776 $108,646,953 $58,246,450 $56,119,722
=========== =========== =========== =========== ============ =========== ===========
$ 621,661 $ 82,952 $ 25,359 $ 241,591 $ 76,989 $ (215,534)+ $ 193,359
=========== =========== =========== =========== ============ =========== ===========
<CAPTION>
SHORT TERM
GLOBAL U.S. CORPORATE GROWTH AND EMERGING INTERNATIONAL
GOVERNMENT GOVERNMENT INCOME INCOME GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND FUND FUND
----------- ----------- ----------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,692,902 $ 3,150,907 $ 3,952,227 $ 440,113 $ 233,207 $ (107,721) $ 393,734
(990,886) (1,055,040) (644,235) 4,042,494 13,163,281 2,215,290 (123,145)
1,264,750 5,154,571 9,369,643 4,545,904 11,252,480 6,817,899 2,505,368
----------- ----------- ----------- ----------- ------------ ----------- -----------
1,966,766 7,250,438 12,677,635 9,028,511 24,648,968 8,925,468 2,775,957
(375,446) (3,097,100) (4,433,630) (178,328) (231,062) (106,321) (3,103)
-- -- -- (277,094) (2,321) (1,520) (440,869)
(7,590,616) 4,568,328 (2,273,206) 12,883,369 12,520,757 17,356,044 (2,952,058)
----------- ----------- ----------- ----------- ------------ ----------- -----------
(5,999,296) 8,721,666 5,970,799 21,456,458 36,936,342 26,173,671 (620,073)
29,803,890 43,581,828 54,705,451 24,905,384 62,762,571 19,884,729 46,528,931
----------- ----------- ----------- ----------- ------------ ----------- -----------
$23,804,594 $52,303,494 $60,676,250 $46,361,842 $ 99,698,913 $46,058,400 $45,908,858
=========== =========== =========== =========== ============ =========== ===========
$ 323,195 $ 20,383 $ 29,513 $ 436,763 $ 12,981 $ 6,696 $ 702,004
=========== =========== =========== =========== ============ =========== ===========
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS -- CAPITAL STOCK ACTIVITY
THE SIERRA VARIABLE TRUST
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL HIGH
MONEY QUALITY BOND
FUND FUND
----------- ------------
<S> <C> <C>
AMOUNT
Sold.............................................. $ 7,032,005 $ 5,959,396
Issued as reinvestment of dividends............... 463,772 399,518
Redeemed.......................................... (7,365,499) (6,339,707)
----------- -----------
Net increase/(decrease)........................... $ 130,278 $ 19,207
=========== ===========
SHARES
Sold.............................................. 7,032,005 2,412,292
Issued as reinvestment of dividends............... 463,772 163,722
Redeemed.......................................... (7,365,499) (2,589,368)
----------- -----------
Net increase/(decrease)........................... 130,278 (13,354)
=========== ===========
FOR THE YEAR ENDED DECEMBER 31, 1995
<CAPTION>
SHORT TERM
GLOBAL HIGH
MONEY QUALITY BOND
FUND FUND
----------- ------------
<S> <C> <C>
AMOUNT
Sold.............................................. $19,730,400 $ 4,517,274
Issued as reinvestment of dividends............... 602,900 652,464
Redeemed.......................................... (6,122,636) (8,940,506)
----------- -----------
Net increase/(decrease)........................... $14,210,664 $(3,770,768)
=========== ===========
SHARES
Sold.............................................. 19,730,400 1,815,328
Issued as reinvestment of dividends............... 602,900 276,815
Redeemed.......................................... (6,122,636) (3,648,620)
----------- -----------
Net increase/(decrease)........................... 14,210,664 (1,556,477)
=========== ===========
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL U.S. CORPORATE GROWTH AND EMERGING INTERNATIONAL
GOVERNMENT GOVERNMENT INCOME INCOME GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND FUND FUND
------------ ----------- ------------ ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 130,763 $12,182,819 $ 2,697,661 $ 8,034,282 $ 8,944,442 $ 9,254,469 $ 8,063,945
342,861 1,683,242 1,999,764 4,492,873 13,385,659 1,615,533 741,545
(2,573,275) (1,258,630) (2,172,855) (6,423,421) (9,611,545) (3,842,872) (933,541)
------------ ----------- ------------ ----------- ----------- ----------- -----------
$ (2,099,651) $12,607,431 $ 2,524,570 $ 6,103,734 $12,718,556 $ 7,027,130 $ 7,871,949
============ =========== ============ =========== =========== =========== ===========
51,670 1,250,477 270,191 588,823 523,548 622,426 646,096
136,056 174,251 205,667 350,732 881,215 105,384 58,435
(1,020,372) (128,738) (218,832) (452,202) (593,865) (273,264) (74,247)
------------ ----------- ------------ ----------- ----------- ----------- -----------
(832,646) 1,295,990 257,026 487,353 810,898 454,546 630,284
============ =========== ============ =========== =========== =========== ===========
<CAPTION>
SHORT TERM
GLOBAL U.S. CORPORATE GROWTH AND EMERGING INTERNATIONAL
GOVERNMENT GOVERNMENT INCOME INCOME GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND FUND FUND
------------ ----------- ------------ ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 3,934,613 $ 6,842,404 $ 4,901,259 $14,462,238 $15,968,914 $17,893,152 $ 4,982,206
375,446 3,097,100 4,433,630 455,422 233,383 107,841 443,972
(11,900,675) (5,371,176) (11,608,095) (2,034,291) (3,681,540) (644,949) (8,378,236)
------------ ----------- ------------ ----------- ----------- ----------- -----------
$ (7,590,616) $ 4,568,328 $ (2,273,206) $12,883,369 $12,520,757 $17,356,044 $(2,952,058)
============ =========== ============ =========== =========== =========== ===========
1,661,187 699,076 489,186 1,230,772 1,131,853 1,510,732 430,784
150,178 317,046 449,642 39,671 16,814 9,451 39,534
(4,943,164) (559,408) (1,183,596) (192,119) (271,654) (57,838) (734,961)
------------ ----------- ------------ ----------- ----------- ----------- -----------
(3,131,799) 456,714 (244,768) 1,078,324 877,013 1,462,345 (264,643)
============ =========== ============ =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
FINANCIAL HIGHLIGHTS
GLOBAL MONEY FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR PERIOD
06/30/96 ENDED ENDED ENDED
(UNAUDITED) 12/31/95 12/31/94 12/31/93*
----------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------ -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.024 0.053 0.037 0.016
------- ------- ------ -------
Total from investment
operations............. 0.024 0.053 0.037 0.016
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (0.024) (0.053) (0.037) (0.016)
------- ------- ------ -------
Total distributions..... (0.024) (0.053) (0.037) (0.016)
------- ------- ------ -------
Net asset value, end of
period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ====== =======
TOTAL RETURN+ 2.49% 5.46% 3.69% 1.59%
======= ======= ====== =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in 000's)...... $20,503 $20,373 $6,159 $ 1,488
Ratio of operating
expenses to average net
assets................. 0.50%** 0.50% 0.49% 0.39%**
Ratio of net investment
income to average net
assets................. 4.92%** 5.30% 3.84% 2.54%**
Ratio of operating
expenses to average net
assets without fees
reduced by credits
allowed by the
custodian.............. 0.50%**(a) 0.51%(a) N/A N/A
Ratio of operating
expenses to average net
assets without fee
waivers, expenses
absorbed and/or fees
reduced by credits
allowed by the
custodian.............. 0.87%**(a) 1.01%(a) 1.25% 6.42%**
Net investment
income/(loss) per share
without fee waivers
and/or expenses
absorbed and/or fees
reduced by credits
allowed by the
custodian.............. $ 0.023 $ 0.048 $0.030 $(0.022)
</TABLE>
- ------------
* The Fund commenced operations on May 10, 1993.
** Annualized.
+ Total return represents aggregate total return for the period indicated. The
total return would have been lower if certain fees had not been waived by
the investment advisor and administrator and if certain expenses had not
been absorbed by the investment advisor or if fees had not been reduced by
credits allowed by the custodian.
(a) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
30
<PAGE>
FINANCIAL HIGHLIGHTS
SHORT TERM HIGH QUALITY BOND FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR PERIOD
06/30/96 ENDED ENDED
(UNAUDITED) 12/31/95 12/31/94*
----------- -------- ---------
<S> <C> <C> <C>
Net asset value,
beginning of period.... $ 2.49 $ 2.39 $ 2.50
------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.08 0.12 0.08
Net realized and
unrealized gain/(loss)
on investments......... (0.07) 0.10 (0.12)
------- ------- -------
Total from investment
operations............. 0.01 0.22 (0.04)
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (0.07) (0.12) (0.07)
------- ------- -------
Total distributions..... (0.07) (0.12) (0.07)
------- ------- -------
Net asset value, end of
period................. $ 2.43 $ 2.49 $ 2.39
======= ======= =======
TOTAL RETURN+ 0.41% 9.30% (1.62)%
======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in 000's)...... $12,025 $12,365 $15,547
Ratio of operating
expenses to average net
assets................. 0.97%** 0.85% 0.77%**
Ratio of net investment
income to average net
assets................. 5.99%** 6.14% 5.63%**
Portfolio turnover
rate................... 93% 188% 80%
Ratio of operating
expenses to average net
assets without fees
reduced by credits
allowed by the
custodian.............. 0.97%**(a) 0.87%(a) N/A
Ratio of operating
expenses to average net
assets without fee
waivers and/or fees
reduced by credits
allowed by the
custodian.............. 1.06%**(a) 1.01%(a) 1.10%**
Net investment income
per share without fee
waivers and/or fees
reduced by credits
allowed by the
custodian.............. $ 0.07 $ 0.11 $ 0.07
</TABLE>
- ------------
* The Fund commenced operations on January 12, 1994.
** Annualized.
+ Total return represents aggregate total return for the period indicated. The
total return would have been lower if certain fees had not been waived by the
investment advisor and administrator or if fees had not been reduced by
credits allowed by the custodian.
(a) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
31
<PAGE>
FINANCIAL HIGHLIGHTS
SHORT TERM GLOBAL GOVERNMENT FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR PERIOD
06/30/96 ENDED ENDED ENDED
(UNAUDITED) 12/31/95 12/31/94 12/31/93*
----------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 2.50 $ 2.35 $ 2.49 $ 2.50
------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.08 0.07 0.05 0.01
Net realized and
unrealized gain/(loss)
on investments......... (0.02) 0.12 (0.10) (0.01)
------- ------- ------- -------
Total from investment
operations............. 0.06 0.19 (0.05) 0.00
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (0.04) (0.04) (0.05) (0.01)
Distributions from
capital (Note 2)....... -- -- (0.04) --
------- ------- ------- -------
Total distributions..... (0.04) (0.04) (0.09) (0.01)
------- ------- ------- -------
Net asset value, end of
period................. $ 2.52 $ 2.50 $ 2.35 $ 2.49
======= ======= ======= =======
TOTAL RETURN+ 2.40% 8.09% (2.03)% 0.12%
======= ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in 000's)...... $21,964 $23,805 $29,804 $19,147
Ratio of operating
expenses to average net
assets................. 1.28%** 1.25% 0.92% 0.52%**
Ratio of net investment
income to average net
assets................. 5.71%** 6.22% 5.84% 4.06%**
Portfolio turnover
rate................... 47% 195% 286% 164%
Ratio of operating
expenses to average net
assets without fees
reduced by credits
allowed by the
custodian.............. 1.28%**(a) 1.25%(a) N/A N/A
Ratio of operating
expenses to average net
assets without fee
waivers, expenses
absorbed and/or fees
reduced by credits
allowed by the
custodian.............. 1.28%**(a) 1.26%(a) 1.28% 1.92%**
Net investment income
per share without fee
waivers and/or expenses
absorbed and/or fees
reduced by credits
allowed by the
custodian.............. $ 0.08 $ 0.07 $ 0.05 $ 0.01
</TABLE>
- ------------
* The Fund commenced operations on May 12, 1993.
** Annualized.
+ Total return represents aggregate total return for the period indicated. The
total return would have been lower if certain fees had not been waived by
the investment advisor and administrator and if certain expenses had not
been absorbed by the investment advisor or if fees had not been reduced by
credits allowed by the custodian.
(a) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
See notes to financial statements.
32
<PAGE>
FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR PERIOD
06/30/96 ENDED ENDED ENDED
(UNAUDITED) 12/31/95 12/31/94 12/31/93*
----------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 10.00 $ 9.13 $ 10.04 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.28 0.64 0.50 0.19
Net realized and
unrealized gain/(loss)
on investments......... (0.41) 0.87## (0.90)## 0.04##
------- ------- ------- -------
Total from investment
operations............. (0.13) 1.51 (0.40) 0.23
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (0.28) (0.64) (0.50) (0.19)
Distributions from net
realized gains......... -- -- (0.01) --
------- ------- ------- -------
Total distributions..... (0.28) (0.64) (0.51) (0.19)
------- ------- ------- -------
Net asset value, end of
period................. $ 9.59 $ 10.00 $ 9.13 $ 10.04
======= ======= ======= =======
TOTAL RETURN+ (1.30)% 16.89% (4.04)% 2.27%
======= ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in 000's)...... $62,569 $52,303 $43,582 $25,069
Ratio of operating
expenses to average net
assets................. 0.92%** 1.00% 0.85% 0.44%**
Ratio of net investment
income to average net
assets................. 6.20%** 6.68% 5.75% 5.37%**
Portfolio turnover
rate................... 117% 273% 74% 131%
Ratio of operating
expenses to average net
assets without fees
reduced by credits
allowed by the
custodian.............. 0.93%**(a) 1.02%(a) N/A N/A
Ratio of operating
expenses to average net
assets without fee
waivers, expenses
absorbed and/or fees
reduced by credits
allowed by the
custodian.............. 0.93%**(a) 1.03%(a) 1.02% 1.47%**
Ratio of operating
expenses to average net
assets including
interest expense....... 1.17%** 1.76% 0.86% 0.44%**
Net investment income
per share without fee
waivers and/or expenses
absorbed and/or fees
reduced by credits
allowed by the
custodian.............. $ 0.28 $ 0.63 $ 0.49 $ 0.15
</TABLE>
- ------------
* The Fund commenced operations on May 6, 1993.
** Annualized.
+ Total return represents aggregate total return for the period indicated. The
total return would have been lower if certain fees had not been waived by the
investment advisor and administrator and if certain expenses had not been
absorbed by the investment advisor or if fees had not been reduced by credits
allowed by the custodian.
## 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
Fund shares.
(a) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
33
<PAGE>
FINANCIAL HIGHLIGHTS
CORPORATE INCOME FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR PERIOD
06/30/96 ENDED ENDED ENDED
(UNAUDITED) 12/31/95 12/31/94 12/31/93*
----------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 10.48 $ 9.06 $ 10.34 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.34 0.70 0.47 0.23
Net realized and
unrealized gain/(loss)
on investments......... (0.84) 1.50 (1.30) 0.33##
------- ------- ------- -------
Total from investment
operations............. (0.50) 2.20 (0.83) 0.56
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (0.34) (0.78) (0.40) (0.22)
Distributions from net
realized gains......... -- -- (0.05) --
------- ------- ------- -------
Total distributions..... (0.34) (0.78) (0.45) (0.22)
------- ------- ------- -------
Net asset value, end of
period................. $ 9.64 $ 10.48 $ 9.06 $ 10.34
======= ======= ======= =======
TOTAL RETURN+ (4.77)% 25.09% (8.13)% 5.62%
======= ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in 000's)...... $58,321 $60,676 $54,705 $28,732
Ratio of operating
expenses to average net
assets................. 0.97%** 0.99% 0.93% 0.54%**
Ratio of net investment
income to average net
assets................. 6.84%** 7.00% 7.28% 6.37%**
Portfolio turnover
rate................... 20% 42% 23% 26%
Ratio of operating
expenses to average net
assets without fees
reduced by credits
allowed by the
custodian.............. 0.97%**(a) 0.99%(a) N/A N/A
Ratio of operating
expenses to average net
assets without fee
waivers, expenses
absorbed and/or fees
reduced by credits
allowed by the
custodian.............. 0.97%**(a) 0.99%(a) 1.07% 1.50%**
Ratio of operating
expenses to average net
assets including
interest expense....... -- 0.99% -- --
Net investment income
per share without fee
waivers and/or expenses
absorbed and/or fees
reduced by credits
allowed by the
custodian.............. $ 0.34 $ 0.70 $ 0.47 $ 0.19
</TABLE>
- ------------
* The Fund commenced operations on May 7, 1993.
** Annualized.
+ Total return represents aggregate total return for the period indicated. The
total return would have been lower if certain fees had not been waived by the
investment advisor and administrator and if certain expenses had not been
absorbed by the investment advisor or if fees had not been reduced by credits
allowed by the custodian.
## The amount shown may not accord with the change in the aggregate gains and
losses of portfolio securities due to the timing of sales and redemptions of
Fund shares.
(a) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
34
<PAGE>
FINANCIAL HIGHLIGHTS
GROWTH AND INCOME FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR PERIOD
06/30/96 ENDED ENDED
(UNAUDITED) 12/31/95 12/31/94*
----------- -------- ---------
<S> <C> <C> <C>
Net asset value,
beginning of period.... $ 12.83 $ 9.83 $ 10.00
------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.06 0.12 0.07
Net realized and
unrealized gain/(loss)
on investments......... 1.12 3.05 (0.24)
------- ------- -------
Total from investment
operations............. 1.18 3.17 (0.17)
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (0.12) (0.07) --
Distributions from net
realized gains......... (1.08) (0.10) --
------- ------- -------
Total distributions..... (1.20) (0.17) --
------- ------- -------
Net asset value, end of
period................. $ 12.81 $ 12.83 $ 9.83
======= ======= =======
TOTAL RETURN+ 9.20% 32.41% (1.70)%
======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in 000's)...... $52,524 $46,362 $24,905
Ratio of operating
expenses to average net
assets................. 1.13%** 1.06% 1.20%**
Ratio of net investment
income to average net
assets................. 0.97%** 1.31% 1.63%**
Portfolio turnover
rate................... 49% 70% 44%
Ratio of operating
expenses to average net
assets without fees
reduced by credits
allowed by the
custodian.............. 1.14%**(a) 1.06%(a) N/A
Ratio of operating
expenses to average net
assets without fee
waivers and/or fees
reduced by credits
allowed by the
custodian.............. 1.14%**(a) 1.16%(a) 1.55%**
Net investment income
per share without fee
waivers and/or fees
reduced by credits
allowed by the
custodian.............. $ 0.06 $ 0.11 $ 0.05
Average commission rate
paid (b)............... $0.0555 N/A N/A
</TABLE>
- ------------
* The Fund commenced operations on January 12, 1994.
** Annualized.
+ Total return represents aggregate total return for the period indicated. The
total return would have been lower if certain fees had not been waived by the
investment advisor and administrator or if fees had not been reduced by
credits allowed by the custodian.
(a) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
35
<PAGE>
FINANCIAL HIGHLIGHTS
GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR PERIOD
06/30/96 ENDED ENDED ENDED
(UNAUDITED) 12/31/95++ 12/31/94 12/31/93*
----------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 15.72 $ 11.48 $ 11.19 $ 10.00
--------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.01 0.04 0.04 0.02
Net realized and
unrealized gain on
investments............ 1.59 4.24 0.26 1.17
--------- -------- -------- --------
Total from investment
operations............. 1.60 4.28 0.30 1.19
LESS DISTRIBUTIONS:
Dividends from net
investment income...... -- (0.04) (0.01) --
Distributions from net
realized gains......... (2.13) (0.00)# -- --
--------- -------- -------- --------
Total distributions..... (2.13) (0.04) (0.01) --
--------- -------- -------- --------
Net asset value, end of
period................. $ 15.19 $ 15.72 $ 11.48 $ 11.19
========= ======== ======== ========
TOTAL RETURN+ 10.20% 37.34% 2.69% 11.90%
========= ======== ======== ========
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in 000's)...... $ 108,647 $ 99,699 $ 62,763 $ 22,795
Ratio of operating
expenses to average net
assets................. 1.22%** 1.24% 1.26% 0.78%**
Ratio of net investment
income to average net
assets................. 0.12%** 0.29% 0.74% 0.70%**
Portfolio turnover
rate................... 104% 187% 257% 86%
Ratio of operating
expenses to average net
assets without fees
reduced by credits
allowed by the
custodian.............. 1.22%**(a) 1.24%(a) N/A N/A
Ratio of operating
expenses to average net
assets without fee
waivers, expenses
absorbed and/or fees
reduced by credits
allowed by the
custodian.............. 1.22%**(a) 1.24%(a) 1.32% 1.92%**
Net investment
income/(loss) per share
without fee waivers
and/or expenses
absorbed and/or fees
reduced by credits
allowed by the
custodian.............. $ 0.01 $ 0.04 $ 0.04 $ (0.01)
Average commission rate
paid (b)............... $ 0.0485 N/A N/A N/A
</TABLE>
- ------------
* The Fund commenced operations on May 7, 1993.
** Annualized.
+ Total return represents aggregate total return for the period indicated. The
total return would have been lower if certain fees had not been waived by
the investment advisor and administrator and if certain expenses had not
been absorbed by the investment advisor or if fees had not been reduced by
credits allowed by the custodian.
++ Per share numbers have been calculated using the average shares method,
which more appropriately presents the per share data for the period since
the use of the undistributed income method did not accord with results of
operations.
# Amount represents less than $0.01 per share.
(a) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
36
<PAGE>
FINANCIAL HIGHLIGHTS
EMERGING GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR PERIOD
06/30/96 ENDED ENDED
(UNAUDITED) 12/31/95 12/31/94*
----------- -------- ---------
<S> <C> <C> <C>
Net asset value,
beginning of period.... $ 13.74 $ 10.53 $ 10.00
------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income/(loss).......... (0.06) (0.01) 0.06
Net realized and
unrealized gain on
investments............ 2.07 3.26 0.47
------- ------- -------
Total from investment
operations............. 2.01 3.25 0.53
LESS DISTRIBUTIONS:
Dividends from net
investment income...... -- (0.04) --
Distributions from net
realized gains......... (0.44) (0.00)# --
------- ------- -------
Total distributions..... (0.44) (0.04) --
------- ------- -------
Net asset value, end of
period................. $ 15.31 $ 13.74 $ 10.53
======= ======= =======
TOTAL RETURN+ 14.60% 30.99% 5.30%
======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in 000's)...... $58,246 $46,058 $19,885
Ratio of operating
expenses to average net
assets................. 1.20%** 1.20% 1.23%**
Ratio of net investment
income/(loss) to
average net assets..... (0.87)%** (0.35)% 1.03%**
Portfolio turnover
rate................... 59% 135% 192%
Ratio of operating
expenses to average net
assets without fees
reduced by credits
allowed by the
custodian.............. 1.21%**(a) 1.21%(a) N/A
Ratio of operating
expenses to average net
assets without fee
waivers and/or fees
reduced by credits
allowed by the
custodian.............. 1.21%**(a) 1.28%(a) 1.38%**
Net investment
income/(loss) per share
without fee waivers
and/or fees reduced by
credits allowed by the
custodian.............. $ (0.06) $ (0.01) $ 0.05
Average commission rate
paid (b)............... $0.0336 N/A N/A
</TABLE>
- ------------
* The Fund commenced operations on January 12, 1994.
** Annualized.
+ Total return represents aggregate total return for the period indicated. The
total return would have been lower if certain fees had not been waived by the
investment advisor and administrator or if fees had not been reduced by
credits allowed by the custodian.
# Amount represents less than $0.01 per share.
(a) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
37
<PAGE>
FINANCIAL HIGHLIGHTS
INTERNATIONAL GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR PERIOD
06/30/96++ ENDED ENDED ENDED
(UNAUDITED) 12/31/95 12/31/94 12/31/93*
----------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 12.11 $ 11.47 $ 11.31 $ 10.00
-------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.06 0.18 0.01 0.02
Net realized and
unrealized gain on
investments............ 0.69 0.58 0.19## 1.29
-------- -------- -------- --------
Total from investment
operations............. 0.75 0.76 0.20 1.31
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (0.17) (0.00)# (0.03) --
Distributions from net
realized gains......... -- (0.12) (0.01) --
-------- -------- -------- --------
Total distributions..... (0.17) (0.12) (0.04) --
-------- -------- -------- --------
Net asset value, end of
period................. $ 12.69 $ 12.11 $ 11.47 $ 11.31
======== ======== ======== ========
TOTAL RETURN+ 6.19% 6.61% 1.88% 13.10%
======== ======== ======== ========
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in 000's)...... $ 56,120 $ 45,909 $ 46,529 $ 10,638
Ratio of operating
expenses to average net
assets................. 1.40%** 1.47% 1.34% 0.83%**
Ratio of net investment
income to average net
assets................. 0.89%** 0.91% 0.83% 0.61%**
Portfolio turnover
rate................... 81% 72% 51% 24%
Ratio of operating
expenses to average net
assets without fees
reduced by credits
allowed by the
custodian.............. 1.41%**(a) 1.47%(a) N/A N/A
Ratio of operating
expenses to average net
assets without fee
waivers, expenses
absorbed and/or fees
reduced by credits
allowed by the
custodian.............. 1.41%**(a) 1.48%(a) 1.50% 2.85%**
Net investment
income/(loss) per share
without fee waivers
and/or expenses
absorbed and/or fees
reduced by credits
allowed by the
custodian.............. $ 0.06 $ 0.17 $ 0.01 $ (0.06)
Average commission rate
paid (b)............... $ 0.0237 N/A N/A N/A
</TABLE>
- ------------
* The Fund commenced operations on May 7, 1993.
** Annualized.
+ Total return represents aggregate total return for the period indicated. The
total return would have been lower if certain fees had not been waived by
the investment advisor and administrator and if certain expenses had not
been absorbed by the investment advisor or if fees had not been reduced by
credits allowed by the custodian.
++ Per share numbers have been calculated using the average shares method,
which more appropriately presents the per share data for the period since
the use of the undistributed income method did not accord with the results
of operations.
# Amount represents less than $0.01 per share.
## 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
Fund shares.
(a) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
38
<PAGE>
PORTFOLIO OF INVESTMENTS
GLOBAL MONEY FUND
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY DISCOUNT NOTES -- 43.3%
$ 920,000 Federal Home Loan Bank (FHLB),
5.600% due 07/01/1996++.............................. $ 920,000
Federal Home Loan Mortgage Corporation (FHLMC):
2,500,000 5.370% due 07/22/1996++............................... 2,492,315
2,500,000 5.390% due 07/31/1996++............................... 2,489,000
3,000,000 5.420% due 08/12/1996++............................... 2,981,450
-----------
Total U.S. Government
Agency Discount Notes
(Cost $8,882,765).................................... 8,882,765
-----------
MEDIUM-TERM NOTES -- 14.6%
Federal National Mortgage Association (FNMA):
1,500,000 5.600% due 11/01/1996................................. 1,499,178
1,500,000 5.300% due 12/26/1996................................. 1,498,454
-----------
Total Medium-Term Notes
(Cost $2,997,632).................................... 2,997,632
-----------
U.S. TREASURY BILLS -- 10.9%
655,000 5.090% due 07/25/1996++............................... 652,828
1,595,000 5.240% due 09/19/1996++............................... 1,576,888
-----------
Total U.S. Treasury Bills
(Cost $2,229,716).................................... 2,229,716
-----------
CERTIFICATES OF DEPOSIT -- (YANKEE) -- 9.7%
500,000 Bank of Montreal, Chicago,
5.300% due 07/02/1996................................ 500,000
500,000 Banque Nationale de Paris,
5.380% due 08/07/1996................................ 500,000
1,000,000 Canadian Imperial Bank of Commerce,
5.410% due 08/26/1996................................ 1,000,000
-----------
Total Certificates of Deposit --(Yankee)
(Cost $2,000,000).................................... 2,000,000
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
COMMERCIAL PAPER -- (FOREIGN) -- 8.5%
$1,000,000 Bayerische Vereinsbank,
5.400% due 07/03/1996++............................. $ 999,705
750,000 Weyerhaeuser Corporation,
5.420% due 07/17/1996++............................. 748,237
-----------
Total Commercial Paper --(Foreign)
(Cost $1,747,942)................................... 1,747,942
-----------
COMMERCIAL PAPER -- (DOMESTIC) -- 7.3%
1,000,000 Chase Manhattan Bank,
5.550% due 09/09/1996++............................. 989,500
500,000 Coca-Cola Company,
5.420% due 07/17/1996++............................. 498,824
-----------
Total Commercial Paper --(Domestic)
(Cost $1,488,324)................................... 1,488,324
-----------
PROMISSORY NOTES -- 6.1%
750,000 Paccar Financial,
5.430% due 07/16/1996++............................. 748,350
500,000 Walt Disney Company,
5.430% due 08/05/1996++............................. 497,433
-----------
Total Promissory Notes
(Cost $1,245,783)................................... 1,245,783
-----------
</TABLE>
<TABLE>
<S> <C> <C> <C>
TOTAL INVESTMENTS
(COST
$20,592,162*)... 100.4% 20,592,162
OTHER ASSETS AND
LIABILITIES
(NET)........... (0.4) (88,968)
----- ------------
NET ASSETS....... 100.0% $ 20,503,194
===== ============
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
++ Rate represents annualized yield at date of purchase.
See Notes to Financial Statements.
39
<PAGE>
PORTFOLIO OF INVESTMENTS
SHORT TERM HIGH QUALITY BOND FUND
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 26.4%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) -- 15.0%
$ 93,060 #121425, Seasoned,
11.000% due 04/15/2015............................... $ 103,600
140,261 #140834, Seasoned,
11.000% due 12/15/2015............................... 156,147
65,492 #144538, Seasoned,
11.000% due 12/15/2015............................... 72,994
144,383 #151670, Seasoned,
11.000% due 12/15/2015............................... 160,735
84,556 #254937, Seasoned,
10.000% due 06/15/2019............................... 92,245
119,960 #257814, Seasoned,
10.000% due 09/15/2018............................... 130,868
113,597 #293511, Seasoned,
10.000% due 07/15/2020............................... 123,856
294,835 #780081, Seasoned,
10.000% due 02/15/2025**............................. 321,645
80,637 #780121, Seasoned,
10.000% due 04/15/2025............................... 87,869
74,140 #780141, Seasoned,
10.000% due 12/15/2020............................... 80,835
441,588 #780317, Seasoned,
9.000% due 12/15/2020................................ 467,668
-----------
Total GNMAs (Cost $1,791,188)......................... 1,798,462
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 5.0%
28,185 #315451,
7.500% due 06/01/2010................................ 28,348
575,558 #346084,
7.500% due 05/01/2011**.............................. 578,615
-----------
Total FNMAs (Cost $610,290)........................... 606,963
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 3.3%
5 Year Balloon, GOLD:
366,079 #G50135,
5.500% due 03/01/1999................................. 352,809
39,801 #G50163,
5.000% due 05/01/1999................................. 37,773
-----------
Total FHLMCs (Cost $402,892).......................... 390,582
-----------
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES (ARM) -- 3.1%
178,066 Federal Home Loan Mortgage Corporation, #845988,
7.963% due 11/01/2021+............................... 184,856
Federal National Mortgage Association:
83,853 #124571,
7.674% due 11/01/2022+................................ 85,963
100,623 #152205,
7.363% due 01/01/2019+................................ 103,438
-----------
Total ARMs (Cost $370,238)............................ 374,257
-----------
Total U.S. Government Agency Mortgage-Backed
Securities
(Cost $3,174,608).................................... 3,170,264
-----------
CORPORATE NOTES -- 25.4%
275,000 Bayerische Landesbank, MTN, (Inverse Floater),
5.980% due 12/29/1997+............................... 271,975
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
General Motors Acceptance Corporation:
$300,000 Deb.,
8.625% due 06/15/1999**............................... $ 315,288
200,000 MTN,
7.850% due 11/17/1997**............................... 204,412
200,000 Lockheed Martin Corporation,
6.850% due 05/15/2001................................ 199,250
Lyondell Petrochemical Company:
175,000 10.000% due 06/01/1999................................ 189,017
100,000 9.125% due 03/15/2002................................. 108,071
150,000 9.750% due 09/04/2003................................. 162,750
250,000 Southern National Corporation, Sub. Note,
7.050% due 05/23/2003+................................ 248,748
300,000 Sun Communities Inc., Sr. Note,
7.625% due 05/01/2003................................ 297,498
100,000 Taubman Realty Corporation, MTN,
7.500% due 06/15/2002................................ 96,230
100,000 Tele-Communications, Inc., Sr. Note,
9.250% due 04/15/2002................................ 106,333
100,000 Tenneco Inc.,
10.375% due 11/15/2000............................... 112,141
The Money Store, Inc.:
200,000 9.160% due 09/09/1997+................................. 205,130
80,000 9.160% due 09/09/1997+................................. 82,052
300,000 7.630% due 04/15/1998+................................. 302,391
Time Warner Inc.:
100,000 7.450% due 02/01/1998................................. 101,083
50,000 7.950% due 02/01/2000................................. 51,075
-----------
Total Corporate Notes (Cost $3,056,352)............... 3,053,444
-----------
ASSET-BACKED SECURITIES -- 23.8%
170,982 Advanta Mortgage Loan Trust, 1996-2-A1,
6.740% due 11/25/2009................................ 171,854
250,000 Green Tree Financial Corporation, 1995-1-B2,
9.200% due 06/15/2025................................ 262,187
165,000 Green Tree Home Improvement, 1995-DB2,
7.450% due 09/15/2025................................ 160,359
113,854 Green Tree NIM, 1994-B, Class A,
7.850% due 07/15/2004................................ 113,569
129,390 Green Tree Recreational, Equipment & Consumer, 1996-A,
Class A1,
5.550% due 02/15/2018................................ 126,715
104,092 Green Tree Security Mortgage Trust, 1994-A,
6.900% due 02/15/2004................................ 103,084
10,000 Household Affinity Credit Card, 1993,
4.950% due 03/15/1999................................ 9,953
Merrill Lynch Mortgage Investors, Inc.:
80,329 1991-B-A,
9.200% due 04/15/2011................................. 81,835
95,660 1991-I-A,
7.650% due 01/15/2012................................. 96,436
307,607 1992-B-A4,
7.850% due 04/15/2012................................. 311,163
376,164 Mid-State Trust, Series 4, Class A,
8.330% due 04/01/2030................................ 390,255
184,234 Sec Pac Manufacturing Housing,
95-1, Class A1,
6.500% due 04/10/2020................................ 184,440
10,000 Standard Credit Card Trust, 94-1A,
4.650% due 03/07/1999................................ 9,925
</TABLE>
See Notes to Financial Statements.
40
<PAGE>
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
SHORT TERM HIGH QUALITY BOND FUND
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
ASSET-BACKED SECURITIES -- (CONTINUED)
The Money Store, Inc.:
$ 200,000 1996-A-A2,
6.330% due 06/15/2008............................... $ 200,048
240,000 1996-B-A1,
6.720% due 02/15/2010............................... 240,450
400,000 UCFC Home Equity Loan Trust, 1995-B1,
6.600% due 07/10/2009** ........................... 399,040
-----------
Total Asset-Backed Securities
(Cost $2,863,005).................................. 2,861,313
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 15.4%
Countrywide Funding Corporation:
30,801 1994-1-A3,
6.250% due 03/25/2024............................... 28,837
500,000 1994-2-A8,
6.500% due 02/25/2009** ............................ 497,030
Federal Home Loan Mortgage Corporation (FHLMC), P/O:
150,447 #167-A,
Zero coupon due 05/01/1999.......................... 130,748
226,466 REMIC, #1719-C,
Zero coupon due 04/15/1999.......................... 198,158
75,906 Federal National Mortgage Association (FNMA), REMIC,
1992-121-C,
7.000% due 07/25/1999.............................. 75,692
239,593 Fund America Investors Corporation, 1991-1-H,
7.950% due 02/20/2020**............................ 242,511
159,615 General Electric Capital Mortgage Association, 1994-
27-A1,
6.500% due 07/25/2024**............................ 157,806
Prudential Home Mortgage Securities:
98,562 1992-47,
7.500% due 01/25/2023............................... 98,438
317,538 1993-43-A1,
5.400% due 10/25/2023............................... 310,095
108,854 Ryland Acceptance Corporation,
8.950% due 08/20/2019.............................. 112,561
-----------
Total Collateralized Mortgage Obligations
(Cost $1,862,127).................................. 1,851,876
-----------
FOREIGN BOND -- 5.4% (Cost $650,856)
NZD 950,000 Government of New Zealand,
9.000% due 11/15/1996.............................. 650,610
-----------
U.S. GOVERNMENT AGENCY OBLIGATION -- 1.5%
(Cost $179,130)
$ 175,000 Federal National Mortgage Association (FNMA),
(Inverse Floater),
9.901% due 12/29/1997+............................. 181,781
-----------
COMMERCIAL PAPER -- 1.2% (Cost $138,000)
138,000 General Electric Capital Corporation,
5.560% due 07/01/1996.............................. 138,000
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL EXPIRATION STRIKE VALUE
AMOUNT DATE PRICE (NOTE 2)
--------- ---------- ------ --------
<C> <S> <C> <C> <C> <C>
PUT OPTION PURCHASED ON FOREIGN CURRENCY -- 0.0%#
(Cost $7,860)
NZD 988,700 New Zealand
Dollar Put................ 11/13/1996 $0.660 $ 4,064
-----------
TOTAL INVESTMENTS (COST $11,931,938*)..................... 99.1% 11,911,352
-----------
CALL OPTION WRITTEN ON FOREIGN CURRENCY -- (0.1)%
(Premium received $7,860)
NZD 988,700 New Zealand Dollar Call.... 11/13/1996 0.685 (6,903)
-----------
OTHER ASSETS AND LIABILITIES (NET)........................ 1.0 120,753
----- -----------
NET ASSETS................................................ 100.0% $12,025,202
===== ===========
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
** A portion or all of this security is pledged as collateral for futures
contracts.
+ Variable rate security. The interest rate shown reflects the rate currently
in effect.
+ Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
# Amount represents less than 0.1% of net assets.
<TABLE>
<CAPTION>
NUMBER OF UNREALIZED
CONTRACTS (DEPRECIATION)
--------- --------------
<S> <C> <C>
FUTURES CONTRACTS -- SHORT POSITION
15 U.S. Treasury Note,
Five Year, September 1996............. $(18,791)
10 U.S. Treasury Note,
Ten Year, September 1996.............. (18,600)
---------
Net Unrealized Depreciation of Futures
Contracts-- Short Position............ $(37,391)
=========
</TABLE>
GLOSSARY OF TERMS
BALLOON--Five- and seven-year
mortgages with larger
dollar amounts of
payments falling due in
the later years of the
obligation
GOLD-- Payments are on
accelerated 45-day
payment cycle instead of
75-day cycle
MTN-- Medium Term Note
NZD-- New Zealand Dollar
P/O-- Principal Only
REMIC--Real Estate Mortgage
Investment Conduit
See Notes to Financial Statements.
41
<PAGE>
PORTFOLIO OF INVESTMENTS
SHORT TERM GLOBAL GOVERNMENT FUND
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
FOREIGN BONDS AND NOTES -- 65.5%
ITALIAN LIRA BONDS -- 11.3%
Italian Treasury Bonds:
ITL 1,560,000,000 8.500% due 08/01/1997................. $ 1,017,934
2,220,000,000 8.500% due 01/01/1999................. 1,459,033
-----------
Total Italian Lira Bonds
(Cost $2,284,719).................... 2,476,967
-----------
GERMAN DEUTSCHE MARK BONDS -- 10.2%
Federal Republic of Germany:
DEM 1,500,000 6.625% due 01/20/1998................. 1,024,397
1,800,000 6.000% due 02/20/1998................. 1,219,571
-----------
Total German Deutsche Mark Bonds
(Cost $2,176,771).................... 2,243,968
-----------
DANISH KRONER BONDS -- 9.8%
Kingdom of Denmark:
DKK 3,800,000 5.250% due 08/10/1996................. 649,158
2,000,000 9.000% due 11/15/1996................. 341,628
6,200,000 9.000% due 11/15/1998................. 1,150,254
-----------
Total Danish Kroner Bonds
(Cost $2,117,941).................... 2,141,040
-----------
AUSTRALIAN DOLLAR BOND AND NOTE -- 6.3%
AUD 1,300,000 Commonwealth of Australia,
7.000% due 08/15/1998................ 999,028
500,000 New South Wales Treasury Note, 7.500%
due 02/01/1998....................... 392,157
-----------
Total Australian Dollar Bond and Note
(Cost $1,350,290).................... 1,391,185
-----------
NETHERLANDS GUILDER BONDS -- 5.9%
Government of Netherlands:
NLG 1,610,000 6.250% due 07/15/1998................. 982,709
500,000 7.500% due 06/15/1999................. 315,450
-----------
Total Netherlands Guilder Bonds
(Cost $1,363,274) ................... 1,298,159
-----------
SWEDISH KRONA BOND -- 5.0% (Cost $911,795)
SEK 6,600,000 Kingdom of Sweden,
11.000% due 01/21/1999............... 1,100,128
-----------
NEW ZEALAND DOLLAR BOND -- 4.8% (Cost $1,062,616)
NZD 1,560,000 Government of New Zealand,
8.000% due 07/15/1998 ............... 1,046,955
-----------
GREAT BRITAIN POUND STERLING NOTE -- 4.6%
(Cost $1,016,981)
GBP 665,000 United Kingdom Treasury Note,
7.000% due 11/06/2001................ 1,016,981
-----------
SPANISH PESETA BONDS -- 4.6%
Government of Spain:
ESP 85,000,000 11.450% due 08/30/1998 ............... 715,035
35,000,000 10.250% due 11/30/1998 ............... 289,121
-----------
Total Spanish Peseta Bonds
(Cost $998,087)...................... 1,004,156
-----------
CANADIAN DOLLAR BOND -- 3.0% (Cost $658,148)
CAD 900,000 Government of Canada,
6.500% due 09/01/1998................ 662,977
-----------
Total Foreign Bonds and Notes
(Cost $13,940,622)................... 14,382,516
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
U.S. TREASURY NOTES -- 12.9%
$ 500,000 5.125% due 03/31/1998........................... $ 492,540
2,325,000 6.375% due 01/15/1999**......................... 2,332,266
-----------
Total U.S. Treasury Notes
(Cost $2,858,281).............................. 2,824,806
-----------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 10.9%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) -- 8.3% (Cost $1,822,632)
1,676,054 Pass-through certificates,
10.000% due 12/15/2017--06/15/2020............. 1,827,968
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 1.5%
(Cost $332,029)
325,506 #141461,
7.667% due 11/01/2021+......................... 333,696
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 1.1%
(Cost $236,041)
234,689 #1223,
7.250% due 07/15/2020.......................... 236,374
-----------
Total U.S. Government Agency Mortgage-Backed
Securities
(Cost $2,390,702).............................. 2,398,038
-----------
CORPORATE NOTE -- 1.4% (Cost $299,090)
300,000 Sun Communities Inc., Sr. Note,
7.625% due 05/01/2003.......................... 297,498
-----------
COMMERCIAL PAPER -- 5.2%
149,000 Ford Motor Credit Company,
5.500% due 07/01/1996.......................... 149,000
1,000,000 General Electric Capital Corporation,
5.560% due 07/01/1996.......................... 1,000,000
-----------
Total Commercial Paper
(Cost $1,149,000).............................. 1,149,000
-----------
</TABLE>
<TABLE>
<CAPTION>
EXPIRATION STRIKE
DATE PRICE
---------- ------
<C> <S> <C> <C> <C>
OPTIONS PURCHASED -- 0.3%
PUT OPTIONS PURCHASED ON FOREIGN CURRENCY -- 0.2%
DEM 3,000,000 German Deutsche Mark Put...... 07/12/1996 $ 1.510 21,589
FRF 7,500,000 French Franc Put.............. 07/17/1996 5.150 6,488
SEK 1,300,000 Swedish Krona Put............. 07/22/1996 7.124 0
NZD 1,591,400 New Zealand Dollar Put........ 08/12/1996 0.655 216
ITL 3,784,450,000 Italian Lira Put.............. 08/21/1996 1,596.500 719
NZD 1,150,000 New Zealand Dollar Put........ 08/21/1996 0.658 484
SEK 7,000,000 Swedish Krona Put............. 08/21/1996 6.984 1,461
FRF 7,000,000 French Franc Put.............. 11/12/1996 5.290 7,868
------
Total Put Options Purchased
on Foreign Currency
(Cost $100,132).................................... 38,825
------
</TABLE>
See Notes to Financial Statements.
42
<PAGE>
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
SHORT TERM GLOBAL GOVERNMENT FUND
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION STRIKE VALUE
CONTRACTS DATE PRICE (NOTE 2)
- --------- ---------- ------ --------
<S> <C> <C> <C> <C>
OPTIONS PURCHASED -- (CONTINUED)
CALL OPTIONS PURCHASED ON FOREIGN INTEREST RATE
FUTURES -- 0.1%
16 Euro Dollar Call.. 09/30/1996 $94.250 $ 5,600
16 Euro Dollar Call.. 12/31/1996 94.000 10,000
16 Euro Dollar Call.. 03/31/1997 93.750 17,200
----------
Total Call Options Purchased on
Foreign Interest Rate Futures
(Cost $37,680)...................... 32,800
----------
Total Options Purchased
(Cost $137,812)..................... 71,625
----------
TOTAL INVESTMENTS (COST $20,775,507*).. 96.2% 21,123,483
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
---------
<C> <S> <C> <C> <C>
OPTIONS WRITTEN -- (0.3)%
CALL OPTIONS WRITTEN ON FOREIGN CURRENCY -- (0.3)%
SEK 1,300,000 Swedish Krona Call...... 07/22/1996 $ 6.748 (3,770)
NZD 1,591,400 New Zealand Dollar
Call................... 08/12/1996 0.676 (15,664)
ITL 3,784,450,000 Italian Lira Call....... 08/21/1996 1,550.770 (26,113)
SEK 7,000,000 Swedish Krona Call...... 08/21/1996 6.655 (15,652)
AUD 1,770,000 Australian Dollar Call.. 09/06/1996 0.786 (13,097)
-----------
Total Call Options Written on
Foreign Currency
(Premiums received $49,868).................. (74,296)
-----------
OTHER ASSETS AND LIABILITIES (NET).................... 4.1% 914,448
--------- -----------
NET ASSETS............................................ 100.0% $21,963,635
========= ===========
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
** A portion or all of this security is pledged as collateral for options
contracts.
+ Variable rate security. The interest rate shown reflects the rate currently
in effect.
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO BUY
<TABLE>
<CAPTION>
CONTRACTS TO RECEIVE UNREALIZED
------------------------------------------------- APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- ------------------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
08/20/1996 DEM 2,397,707 1,581,874 1,604,000 $(22,126)
08/20/1996 DEM 2,000,000 1,319,488 1,309,758 9,730
08/20/1996 DEM 3,920,850 2,586,758 2,578,319 8,439
08/20/1996 ECU 257,536 321,378 319,345 2,033
08/20/1996 ECU 406,721 507,545 500,000 7,545
09/18/1996 DEM 319,424 211,110 208,774 2,336
09/18/1996 DEM 1,015,656 671,256 663,827 7,429
09/18/1996 NLG 1,048,190 618,236 618,000 236
--------
$ 15,622
--------
</TABLE>
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
<TABLE>
<CAPTION>
CONTRACTS TO DELIVER UNREALIZED
-------------------------------------------------- APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- -------------------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
07/05/1996 FRF 3,376,386 656,432 652,909 $ (3,523)
08/06/1996 CHF 1,558,960 1,251,221 1,300,000 48,779
08/20/1996 DEM 650,358 429,070 447,319 18,249
08/20/1996 DEM 1,900,000 1,253,514 1,253,629 115
08/20/1996 DEM 5,768,200 3,805,537 4,000,000 194,463
08/20/1996 ECU 664,257 828,923 831,517 2,594
08/22/1996 BEF 17,148,400 549,830 575,450 25,620
09/10/1996 GBP 400,000 621,434 616,630 (4,804)
09/13/1996 CHF 210,652 169,608 178,066 8,458
09/18/1996 DEM 335,080 221,457 220,755 (702)
09/18/1996 DEM 1,000,000 660,909 685,871 24,962
09/18/1996 NLG 4,015,884 2,368,621 2,365,452 (3,169)
09/19/1996 DEM 487,500 322,212 320,429 (1,783)
--------
$309,259
--------
Net Unrealized Appreciation of Forward Foreign Currency
Contracts............................................. $324,881
========
</TABLE>
GLOSSARY OF TERMS
AUD--Australian Dollar
BEF--Belgian Franc
CAD--Canadian Dollar
CHF--Swiss Franc
DEM--German Deutsche Mark
DKK--Danish Kroner
ECU--European Currency Unit
ESP--Spanish Peseta
FRF--French Franc
GBP--Great Britain Pound
Sterling
ITL--Italian Lira
NLG--Netherlands Guilder
NZD--New Zealand Dollar
SEK--Swedish Krona
See Notes to Financial Statements.
43
<PAGE>
PORTFOLIO OF INVESTMENTS
U.S. GOVERNMENT FUND
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 34.6%
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 13.0%
$ 1,327,228 GOLD, 5.500% due 12/01/2008**....................... $ 1,236,804
5,452,090 GOLD, 6.500% due 09/01/2025-06/01/2026**............ 5,106,209
1,302,537 GOLD, 8.750% due 01/01/2013**....................... 1,350,351
420,529 GOLD, 9.000% due 09/01/2020**....................... 441,686
-----------
Total FHLMCs (Cost $8,103,264)...................... 8,135,050
-----------
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES (ARM) -- 11.2%
227,578 Federal Home Loan Mortgage Corporation, 7.236% due
04/01/2009+**...................................... 232,805
Federal National Mortgage Association:
786,220 7.250% due 05/01/2019+**............................ 814,107
1,286,222 7.050% due 01/01/2020+**............................ 1,319,187
Government National Mortgage Association II:
371,474 7.250% due 07/20/2018+**............................ 377,106
969,916 7.125% due 08/20/2020+**............................ 985,832
966,207 7.125% due 09/20/2020+**............................ 982,063
1,239,116 7.250% due 09/20/2022+**............................ 1,258,087
1,033,434 7.000% due 06/20/2023+**............................ 1,046,838
-----------
Total ARMs (Cost $6,957,369)........................ 7,016,025
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) -- 4.8%
3,000,643 7.000% due 02/15/2024-04/15/2026**.................. 2,877,330
94,808 9.000% due 08/15/2021**............................. 99,814
-----------
Total GNMAs (Cost $3,046,113)....................... 2,977,144
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 4.0%
823,249 8.000% due 05/01/2022**............................. 845,320
456,787 8.500% due 02/01/2023**............................. 472,999
1,083,314 10.000% due 07/01/2020**............................ 1,179,794
-----------
Total FNMAs (Cost $2,484,846)....................... 2,498,113
-----------
RESIDENTIAL FUNDING MORTGAGE SECURITY -- 1.6%
(Cost $963,750)
1,000,000 Trust 92-539, Class S39-A8,
7.500% due 11/25/2007**............................ 1,000,310
-----------
Total U.S. Government Agency
Mortgage-Backed Securities (Cost $21,555,342)...... 21,626,642
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 23.0%
Federal National Mortgage Association (FNMA), REMIC,
Pass-through certificates:
1,032,000 Trust G93-10, Class E,
5.000% due 04/25/2020**............................. 923,310
1,384,731 Trust 89-90, Class 90-E,
8.700% due 12/25/2019**............................. 1,431,023
4,154,512 Trust 92-55, Class 55-DZ,
8.000% due 04/25/2022**............................. 4,018,161
5,257,546 Trust 92-83, Class 83-X,
7.000% due 02/25/2022**............................. 4,670,962
1,814,248 Trust 93-159, Class 159-PA, P/O,
Zero coupon due 01/25/2021**........................ 1,578,395
1,995,069 Trust 93-161, Class E, P/O,
Zero coupon due 02/25/2023**........................ 1,190,807
922,953 Trust 94-57, Class 57-C, P/O,
Zero coupon due 01/25/2024**........................ 587,229
-----------
Total Collateralized Mortgage Obligations (Cost
$14,086,546)....................................... 14,399,887
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS -- 15.5%
U.S. TREASURY NOTES -- 14.3%
$ 2,080,000 6.125% due 03/31/1998**.............................. $ 2,081,622
1,500,000 6.000% due 05/31/1998**.............................. 1,496,715
960,000 6.250% due 06/30/1998................................ 962,246
1,900,000 6.375% due 05/15/1999**.............................. 1,904,161
1,650,000 6.875% due 08/31/1999**.............................. 1,673,463
600,000 6.875% due 03/31/2000**.............................. 608,718
120,000 6.250% due 02/15/2003**.............................. 117,881
95,000 6.875% due 05/15/2006**.............................. 96,054
-----------
Total U.S. Treasury Notes (Cost $8,944,595).......... 8,940,860
-----------
U.S. TREASURY BOND -- 1.2% (Cost $754,728)
830,000 6.250% due 08/15/2023**.............................. 752,445
-----------
Total U.S. Treasury Obligations
(Cost $9,699,323)................................... 9,693,305
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 10.1%
FEDERAL HOME LOAN BANK (FHLB) -- 7.2%
1,500,000 5.010% due 11/23/1998**.............................. 1,456,170
3,000,000 8.250% due 09/25/1996**.............................. 3,018,750
-----------
Total FHLBs (Cost $4,555,312)........................ 4,474,920
-----------
SMALL BUSINESS ADMINISTRATION (SBA) -- 2.9%
290,208 95-20A,
8.500% due 01/01/2015**.............................. 305,852
490,768 95-20I,
6.950% due 09/01/2015**.............................. 474,972
1,000,000 96-20E,
7.600% due 05/01/2016**.............................. 1,010,000
-----------
Total SBAs (Cost $1,803,649)......................... 1,790,824
-----------
Total U.S. Government Agency Obligations
(Cost $6,358,961)................................... 6,265,744
-----------
U.S. GOVERNMENT AGENCY DISCOUNT NOTE -- 16.0% (Cost $10,035,000)
10,035,000 Federal Home Loan Bank (FHLB),
5.600% due 07/01/1996++ **.......................... 10,035,000
-----------
</TABLE>
See Notes to Financial Statements.
44
<PAGE>
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
U.S. GOVERNMENT FUND
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION STRIKE VALUE
CONTRACTS DATE PRICE (NOTE 2)
--------- ---------- ------ --------
<C> <S> <C> <C> <C>
CALL OPTION PURCHASED ON U.S. TREASURY NOTE
FUTURES -- 0.0%# (Cost $7,966)
6 U.S. Treasury Note Call............ 09/21/1996 $105.00 $ 17,156
-----------
TOTAL INVESTMENTS (COST $61,743,138*).................... 99.2% 62,037,734
OTHER ASSETS AND LIABILITIES (NET)....................... 0.8 531,220
------- -----------
NET ASSETS............................................... 100.0% $62,568,954
======= ===========
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
** A portion or all of the securities are pledged as collateral for futures
contracts and dollar roll transactions.
+ Variable rate security. The interest rate shown reflects the rate currently
in effect.
++ Rate represents annualized yield at date of purchase.
# Amount represents less than 0.1% of net assets.
<TABLE>
<CAPTION>
NUMBER OF UNREALIZED
CONTRACTS APPRECIATION
--------- --------------
<C> <S> <C>
FUTURES CONTRACTS -- LONG POSITION
168 U.S. Treasury Note, Five Year,
September 1996..................................... $ 98,952
31 U.S. Treasury Note, Ten Year,
September 1996..................................... 32,822
---------
Net Unrealized Appreciation of
Futures Contracts -- Long Position................. $ 131,774
=========
<CAPTION>
UNREALIZED
(DEPRECIATION)
--------------
<C> <S> <C>
FUTURES CONTRACTS -- SHORT POSITION
72 U.S. Treasury Bond, Thirty Year, September 1996..... $(235,944)
=========
</TABLE>
GLOSSARY OF TERMS
GOLD--Payments are on an
accelerated 45-day payment
cycle instead of 75-day
cycle
P/O--Principal Only
REMIC--Real Estate Mortgage
Investment Conduit
See Notes to Financial Statements.
45
<PAGE>
PORTFOLIO OF INVESTMENTS
CORPORATE INCOME FUND
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- 82.8%
FINANCIAL -- 15.4%
$1,000,000 Abbey National Plc, Global Note,
6.690% due 10/17/2005............................... $ 962,500
500,000 American General Corporation,
Sinking Fund Deb.,
7.500% due 07/15/2025............................... 486,250
1,000,000 Barclays North American Capital Corporation, Capital
Note,
9.750% due 05/15/2021**............................. 1,141,250
50,000 Chase Manhattan Corporation, Sub. Note,
8.000% due 06/15/1999............................... 51,750
230,000 Citicorp, Sub. Note,
8.625% due 12/01/2002............................... 248,688
1,550,000 Dean Witter Discover & Company, Note,
6.300% due 01/15/2006 .............................. 1,441,500
First Chicago Corporation, Sub. Note:
600,000 11.250% due 02/20/2001............................... 701,250
100,000 9.250% due 11/15/2001................................ 110,000
1,000,000 First Tennessee National Corporation,
Sub. Capital Note,
10.375% due 06/01/1999.............................. 1,092,500
1,040,000 Fleet/Norstar Financial Group Inc.,
Sub. Note,
9.900% due 06/15/2001............................... 1,163,500
400,000 Ford Holdings, Inc., Deb.,
9.375% due 03/01/2020............................... 468,000
500,000 General Motors Acceptance Corporation, MTN,
7.550% due 01/14/1997............................... 504,930
516,000 Security Pacific Corporation, Sub. Note,
11.500% due 11/15/2000.............................. 604,365
-----------
8,976,483
-----------
MANUFACTURING -- 13.4%
1,000,000 Boeing Company, Deb.,
8.750% due 08/15/2021............................... 1,137,500
1,500,000 Caterpillar Inc., Sinking Fund Deb.,
9.750% due 06/01/2019............................... 1,672,500
Ford Motor Company, Deb.:
250,000 8.875% due 01/15/2022................................ 280,937
600,000 8.875% due 11/15/2022................................ 639,000
1,000,000 General Motors Corporation, Deb.,
9.400% due 07/15/2021............................... 1,171,250
2,550,000 Tyco Laboratories, Inc., Deb.,
9.500% due 05/01/2022............................... 2,935,687
-----------
7,836,874
-----------
INDUSTRIAL -- 10.2%
520,000 AMAX Inc., Note,
9.875% due 06/13/2001............................... 579,800
1,000,000 Circus Circus Enterprises Inc., Sr. Note,
6.450% due 02/01/2006............................... 926,250
1,000,000 Conrail Inc., Deb.,
9.750% due 06/15/2020 .............................. 1,225,000
1,000,000 Northrop Grumman Corporation, Deb.,
9.375% due 10/15/2024 .............................. 1,060,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
$ 200,000 Ogden Corporation, Deb.,
9.250% due 03/01/2022 .............................. $ 224,000
1,800,000 Praxair, Inc., Deb.,
8.700% due 07/15/2022............................... 1,930,500
-----------
5,945,550
-----------
TRANSPORTATION -- 8.9%
1,750,000 Carnival Corporation, Deb.,
7.200% due 10/01/2023............................... 1,592,500
2,000,000 Southwest Airlines Company, Pass-through
certificates, 94-A, Class A-4,
9.150% due 07/01/2016............................... 2,195,000
1,300,000 United Air Lines Inc., Pass-through certificates,
9.560% due 10/19/2018 .............................. 1,405,625
-----------
5,193,125
-----------
FOREST PRODUCTS -- 7.8%
1,200,000 Boise Cascade Corporation, Deb.,
9.450% due 11/01/2009............................... 1,356,000
Georgia-Pacific Corporation, Deb.:
1,000,000 9.500% due 05/15/2022................................ 1,073,750
300,000 8.125% due 06/15/2023................................ 288,000
700,000 International Paper Company, Deb.,
6.875% due 11/01/2023............................... 630,875
1,400,000 Mead Corporation, Deb.,
7.125% due 08/01/2025............................... 1,270,500
-----------
4,619,125
-----------
YANKEE (U.S. DOLLAR DENOMINATED) -- 5.8%
525,000 Laidlaw Inc., Deb.,
8.250% due 05/15/2023............................... 535,500
1,700,000 Northern Telecom Capital, Sub. Note,
7.400% due 06/15/2006............................... 1,725,500
500,000 Petro-Canada, Deb.,
9.250% due 10/15/2021............................... 580,000
500,000 Trans-Canada Pipeline Corporation, Deb.,
8.500% due 03/20/2023............................... 517,500
-----------
3,358,500
-----------
ENERGY -- 4.7%
1,300,000 Occidental Petroleum Corporation, Sr. Deb.,
11.125% due 08/01/2010 ............................. 1,667,250
1,000,000 Phillips Petroleum Company, Deb.,
9.180% due 09/15/2021 .............................. 1,077,500
-----------
2,744,750
-----------
ELECTRIC -- 4.4%
200,000 Duke Power Company, First and
Refundable Mortgage,
6.875% due 08/01/2023............................... 180,750
700,000 Florida Power & Light Company,
First Mortgage,
7.050% due 12/01/2026............................... 647,500
100,000 Philadelphia Electric Company,
First and Refundable Mortgage,
8.250% due 09/01/2022............................... 99,125
Texas Utilities Electric Company:
150,000 First and Collateral Mortgage,
8.500% due 08/01/2024................................ 154,125
1,500,000 First Mortgage,
7.875% due 04/01/2024................................ 1,460,625
-----------
2,542,125
-----------
</TABLE>
See Notes to Financial Statements.
46
<PAGE>
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
CORPORATE INCOME FUND
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
REGIONAL BANKS -- 3.4%
$ 400,000 Banc One Corporation, Sub. Note,
10.000% due 08/15/2010............................... $ 486,500
82,000 Barnett Banks, Florida, Inc., Sub. Note,
10.875% due 03/15/2003............................... 97,887
40,000 First Interstate Bancorp, MTN,
9.375% due 11/15/1998 ............................... 42,600
NCNB Corporation, Sub. Note:
1,100,000 9.375% due 09/15/2009................................. 1,269,125
60,000 10.200% due 07/15/2015................................ 74,700
-----------
1,970,812
-----------
GAS -- 3.3%
1,200,000 ANR Pipeline Company, Deb.,
9.625% due 11/01/2021................................ 1,416,000
500,000 Panhandle Eastern Pipe Line Company, Deb.,
8.625% due 04/15/2025................................ 510,625
-----------
1,926,625
-----------
RETAIL -- 2.8%
May Department Stores Company, Deb.:
1,000,000 8.375% due 10/01/2022................................. 1,021,250
600,000 8.375% due 08/01/2024................................. 616,500
-----------
1,637,750
-----------
MEDIA -- 2.7%
Tele-Communications, Inc.:
1,035,000 Sr. Deb.,
9.250% due 01/15/2023................................. 1,029,825
200,000 Sr. Note,
9.250% due 04/15/2002 ................................ 212,500
300,000 Time Warner, Inc., Deb.,
9.150% due 02/01/2023................................ 312,750
-----------
1,555,075
-----------
Total Corporate Bonds and Notes
(Cost $48,817,306)................................... 48,306,794
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 10.7%
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 5.1%
$2,033,493 #335369,
7.000% due 02/01/2026................................ $ 1,957,237
1,000,000 Commitment to Purchase,
7.500% due 07/01/2011 ............................... 1,005,313
-----------
Total FNMAs (Cost $3,053,240)......................... 2,962,550
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) -- 4.6%
1,582,898 #385118,
7.500% due 01/15/2026................................ 1,561,133
1,069,480 #386671,
9.000% due 02/15/2025................................ 1,120,281
-----------
Total GNMAs (Cost $2,679,295)......................... 2,681,414
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 1.0% (Cost $582,782)
566,495 #C00385, GOLD,
9.000% due 01/01/2025................................ 590,748
-----------
Total U.S. Government Agency
Mortgage-Backed Securities
(Cost $6,315,317).................................... 6,234,712
-----------
U.S. TREASURY BOND -- 2.5% (Cost $1,448,750)
1,000,000 13.750% due 08/15/2004................................ 1,436,710
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
------
<C> <S> <C> <C>
INVESTMENT COMPANY
SECURITY -- 3.9%
(Cost $2,305,711)
2,305,711 Lehman
Provident
Tempfund...... 2,305,711
-----------
TOTAL INVESTMENTS
(COST $58,887,084*).. 99.9% 58,283,927
OTHER ASSETS AND
LIABILITIES (NET).... 0.1 37,474
------ -----------
NET ASSETS............ 100.0% $58,321,401
====== ===========
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
** A portion or all of this security is pledged as collateral for dollar roll
transactions.
GLOSSARY OF TERMS
GOLD--Payments are on an
accelerated 45-day payment
cycle instead of 75-day
cycle
MTN--Medium Term Note
See Notes to Financial Statements.
47
<PAGE>
PORTFOLIO OF INVESTMENTS
GROWTH AND INCOME FUND
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
COMMON STOCKS -- 93.9%
MATERIALS & PROCESSING -- 15.3%
800 Albemarle Corporation.................................. $ 14,600
4,300 Allegheny Ludlum Corporation........................... 81,162
7,300 Aluminum Company of America............................ 418,837
12,100 du Pont (E.I.) de Nemours & Company.................... 957,412
8,200 Grainger (W.W.) Inc. .................................. 635,500
21,800 International Game Technology.......................... 367,875
4,800 Reynolds Metals Company................................ 250,200
31,600 Teledyne Inc........................................... 1,141,550
17,900 Tyco International Ltd. ............................... 729,425
29,700 Union Carbide Corporation.............................. 1,180,575
29,600 USG Corporation+....................................... 825,100
18,700 Wellman Inc. .......................................... 437,113
30,400 WMX Technologies, Inc. ................................ 995,600
-----------
8,034,949
-----------
CONSUMER DISCRETIONARY -- 14.3%
17,900 Bausch & Lomb Inc...................................... 760,750
15,700 Circuit City Stores Inc................................ 567,162
8,400 Colgate-Palmolive Company.............................. 711,900
20,100 Fruit of the Loom, Inc., Class A+...................... 512,550
21,000 General Instrument Corporation+........................ 606,375
8,800 International Flavors & Fragrances Inc................. 419,100
22,500 Limited Inc............................................ 483,750
10,000 Melville Corporation................................... 405,000
10,400 Procter & Gamble Company............................... 942,500
20,200 Time Warner, Inc....................................... 792,850
27,900 Toys R Us Inc.+........................................ 795,150
9,800 Turner Broadcasting Systems, Inc., Class B............. 269,500
5,900 Viacom Inc., Class B+.................................. 229,363
-----------
7,495,950
-----------
FINANCIAL SERVICES -- 12.0%
5,900 Aetna Life & Casualty Company.......................... 421,850
12,600 AMBAC Inc.............................................. 656,775
6,200 BankAmerica Corporation................................ 469,650
8,300 Dean Witter, Discover & Company........................ 475,175
4,200 First Hawaiian Inc..................................... 119,700
7,400 First Union Corporation................................ 450,475
10,400 Firstar Corporation.................................... 479,700
16,600 Fleet Financial Group Inc. (New)....................... 722,100
12,500 NationsBank Corporation................................ 1,032,813
7,500 Pinnacle West Capital Corporation...................... 227,813
20,600 Providian Corporation.................................. 883,225
10,100 Standard Federal Bancorporation........................ 388,850
-----------
6,328,126
-----------
CONSUMER STAPLES -- 8.6%
3,200 CPC International Inc.................................. 230,400
3,600 Kellogg Company........................................ 263,700
6,100 Nabisco Holdings Corporation, Class A.................. 215,787
18,600 PepsiCo Inc............................................ 657,975
13,100 Philip Morris Companies Inc............................ 1,362,400
12,100 Ralston Purina Company................................. 775,913
40,200 Wal-Mart Stores Inc.................................... 1,020,075
-----------
4,526,250
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
ENERGY -- 8.5%
9,100 Anadarko Petroleum Corporation ........................ $ 527,800
6,997 Cooper Cameron Corporation+............................ 306,119
15,600 Diamond Shamrock Inc. ................................. 450,450
8,700 Exxon Corporation ..................................... 755,812
14,100 Repsol SA, ADR ........................................ 489,975
5,000 Royal Dutch Petroleum Company, ADR .................... 768,750
23,200 Sun Company Inc. ...................................... 704,700
5,800 Texaco Inc. ........................................... 486,475
-----------
4,490,081
-----------
TELECOMMUNICATIONS -- 8.0%
15,300 AT&T Corporation ...................................... 948,600
11,800 GTE Corporation ....................................... 528,050
7,100 Harris Corporation .................................... 433,100
13,200 MCI Communications Corporation ........................ 338,250
5,300 Motorola, Inc. ........................................ 333,237
58,400 Tele-Communications Inc., TCI Group,
Class A+.............................................. 1,058,500
17,000 U.S. West Inc. ........................................ 541,875
-----------
4,181,612
-----------
HEALTH CARE -- 7.8%
24,600 ALZA Corporation+...................................... 673,425
17,000 Columbia/HCA Healthcare Corporation ................... 907,375
15,000 Forest Labs Inc.+...................................... 579,375
8,000 Gensia, Inc.+.......................................... 40,500
34,600 Humana Inc.+........................................... 618,475
6,800 Pfizer, Inc............................................ 485,350
14,100 Warner Lambert Company................................. 775,500
-----------
4,080,000
-----------
AUTOS & TRANSPORTATION -- 7.5%
9,400 Boeing Company ........................................ 818,975
18,700 Consolidated Freightways Inc. ......................... 395,037
27,700 Cooper Tire & Rubber Company .......................... 616,325
13,900 General Motors Corporation ............................ 728,012
3,100 Johnson Controls Inc. ................................. 215,450
17,100 Union Pacific Corporation ............................. 1,194,863
-----------
3,968,662
-----------
TECHNOLOGY -- 5.1%
5,700 Adobe Systems Inc. .................................... 204,487
11,600 Advanced Micro Devices Inc.+........................... 158,050
5,700 Autodesk Inc. ......................................... 170,287
5,000 Broderbund Software Corporation+....................... 161,250
25,600 EMC Corporation+....................................... 476,800
5,000 Hewlett-Packard Company ............................... 498,125
8,000 MagneTek Inc.+......................................... 77,000
9,400 Perkin Elmer Corporation .............................. 453,550
20,400 Quantum Corporation+................................... 298,350
10,300 Soft Key International Inc.+........................... 195,056
-----------
2,692,955
-----------
</TABLE>
See Notes to Financial Statements.
48
<PAGE>
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
GROWTH AND INCOME FUND
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
COMMON STOCKS -- (CONTINUED)
PRODUCER DURABLES -- 4.4%
13,000 AlliedSignal Inc...................................... $ 742,625
20,200 Coltec Industries, Inc.+.............................. 287,850
19,000 Cooper Industries, Inc................................ 788,500
2,800 General Electric Company.............................. 242,200
11,100 Rohr Inc.+............................................ 231,713
-----------
2,292,888
-----------
UTILITIES -- 2.4%
7,300 Entergy Corporation................................... 207,137
5,800 Illinova Corporation.................................. 166,750
21,200 Pacific Gas & Electric Company........................ 492,900
900 Southern Company...................................... 22,163
12,800 Western Resources Inc................................. 382,400
-----------
1,271,350
-----------
Total Common Stocks (Cost $45,409,854)................ 49,362,823
-----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<C> <S> <C>
U.S. TREASURY BILLS -- 4.4%
$ 129,000 4.970% due 07/25/1996++............................... 128,577
25,000 5.020% due 08/08/1996++............................... 24,868
2,032,000 5.080% due 09/19/1996++............................... 2,007,967
43,000 5.030% due 10/17/1996++............................... 42,316
105,000 5.140% due 11/14/1996++............................... 102,884
-----------
Total U.S. Treasury Bills (Cost $2,307,781)........... 2,306,612
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
CONVERTIBLE PREFERRED STOCKS -- 1.3%
5,800 K-Mart Financing, Conv. Pfd. ........................... $ 314,650
6,400 Owens-Corning, Conv. Pfd.+++............................ 360,800
----------
Total Convertible Preferred Stocks
(Cost $627,762)........................................ 675,450
----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<C> <S> <C>
CONVERTIBLE NOTE -- 0.5% (Cost $148,750)
$ 125,000 Rohr Inc., Conv. Sub. Note,
7.750% due 05/15/2004.................................. 255,313
----------
</TABLE>
<TABLE>
<S> <C> <C> <C>
TOTAL INVESTMENTS
(COST
$48,494,147*)... 100.1% 52,600,198
OTHER ASSETS AND
LIABILITIES
(NET)........... (0.1) (76,422)
----- -----------
NET ASSETS....... 100.0% $52,523,776
===== ===========
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
+ Non-income producing security.
++ Rate represents annualized yield at date of purchase.
+++ Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
GLOSSARY OF TERMS
ADR -- American Depositary
Receipt
See Notes to Financial Statements.
49
<PAGE>
PORTFOLIO OF INVESTMENTS
GROWTH FUND
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
COMMON STOCKS -- 83.6%
TECHNOLOGY -- 24.5%
850 ABR Information Services, Inc.+.......................... $ 42,712
4,275 ADTRAN, Inc.+............................................ 302,991
12,775 American Management Systems, Inc.+....................... 373,669
113,025 Analog Devices Inc.+..................................... 2,882,137
11,225 Aspen Technology Inc.+................................... 617,375
17,600 BMC Software Inc.+....................................... 1,051,600
61,475 Cisco Systems, Inc.+..................................... 3,481,022
700 Citrix Systems Inc.+..................................... 26,600
7,862 Computer Associates International, Inc. ................. 544,443
18,750 Cylink Corporation+...................................... 323,437
28,825 Dell Computer Corporation+............................... 1,466,472
2,800 FORE Systems Inc.+....................................... 101,150
10,175 Gateway 2000 Inc.+....................................... 345,950
10,925 Glenayre Technologies Inc.+.............................. 546,250
15,650 Indus Group Inc.+........................................ 316,912
32,825 Informix Corporation+.................................... 738,562
36,775 JDA Software Group Inc.+................................. 758,484
17,525 Lernout & Hauspie Speech Products N.V.+.................. 394,313
22,125 Linear Technology Corporation ........................... 663,750
24,375 Macromedia Inc.+......................................... 533,203
100,175 Macronix International Company, Ltd., ADR+............... 1,627,844
8,350 Netscape Communications Corporation+..................... 519,787
8,100 PairGain Technologies Inc.+.............................. 502,200
19,525 PC Docs Group International Inc.+........................ 388,059
11,675 Peoplesoft Inc.+......................................... 831,844
27,750 Pittway Corporation, Class A............................. 1,290,375
20,975 Sterling Commerce, Inc.+................................. 778,697
4,750 Sterling Software Inc.+.................................. 365,750
3,900 Technology Solutions Company+............................ 135,038
16,400 U.S. Satellite Broadcasting Company, Class A+............ 619,100
4,675 UUNET Technologies Inc.+................................. 309,719
5,550 VeriFone Inc.+........................................... 234,488
29,950 Westell Technologies, Inc.+.............................. 1,175,538
16,450 Wonderware Corporation+.................................. 310,494
16,125 Xeikon N.V., ADR+........................................ 183,422
39,425 Xylan Corporation+....................................... 1,833,263
-----------
26,616,650
-----------
HEALTH CARE -- 13.6%
9,725 Amgen Inc.+.............................................. 525,150
1,600 Arrow International ..................................... 43,200
13,100 ARV Assisted Living, Inc.+............................... 203,050
138,275 Centocor, Inc.+.......................................... 4,130,966
7,850 Coherent, Inc.+.......................................... 408,200
13,925 CompDent Corporation+.................................... 647,512
75,525 Eli Lilly & Company ..................................... 4,909,125
9,975 Genzyme Corporation+..................................... 501,244
10,225 Glaxo Wellcome Plc, ADR.................................. 273,519
9,896 Glaxo Wellcome Plc, Ord.................................. 133,284
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C> <C>
26,850 ICU Medical Inc.+............................. $ 369,187
10,850 Omnicare Inc.................................. 287,525
5,075 Oxford Health Plans Inc.+..................... 208,709
10,650 Respironics Inc.+............................. 197,025
22,375 SmithKline Beecham, ADR....................... 1,216,641
5,550 Sofamor/Danek Group Inc.+..................... 154,012
12,725 Target Therapeutics Inc.+..................... 521,725
-----------
14,730,074
-----------
FINANCIAL SERVICES -- 12.7%
29,575 Alco Standard Corporation..................... 1,338,269
24,025 Associates 1st Capital Corporation, Class A+.. 903,941
9,321 Banca Popolare Di Bergamo..................... 142,089
6,875 Bank of New York Company, Inc................. 352,344
33,650 First Data Corporation........................ 2,679,381
29,799 Grupo Financiero Inbursa, Series B............ 123,360
14,725 Keane Inc.+................................... 542,984
8,850 SunAmerica Inc................................ 500,025
36,725 UNUM Corporation.............................. 2,286,131
20,841 Wells Fargo & Company......................... 4,978,394
-----------
13,846,918
-----------
CONSUMER DISCRETIONARY -- 11.9%
18,175 Anchor Gaming+................................ 1,095,044
17,650 APAC Teleservices, Inc.+...................... 635,400
6,450 Business Objects SA, ADR+..................... 259,612
4,925 Coleman Company+.............................. 208,697
4,025 Extended Stay America, Inc.+.................. 126,787
14,650 FelCor Suite Hotels Inc....................... 446,825
11,625 Fila Holding SpA, ADR......................... 1,002,656
4,350 Grupo Casa Autrey SA, ADR..................... 93,525
30,950 Gucci Group+.................................. 1,996,275
8,750 ITT Corporation (New)+........................ 579,687
61,957 Kinnevik Investment, Series B................. 1,880,888
7,750 La Quinta Inns, Inc........................... 259,625
525 Nike Inc., Class B............................ 53,944
2,775 Papa John's International Inc.+............... 135,281
32,425 Renters Choice Inc.+.......................... 826,837
10,400 Shiva Corporation+............................ 832,000
42,000 Singer Company................................ 850,500
31,625 Thrifty PayLess Holdings, Inc., Class B+...... 545,531
5,450 Tommy Hilfiger Corporation+................... 292,256
11,875 W.R. Grace & Company.......................... 841,641
-----------
12,963,011
-----------
TELECOMMUNICATIONS -- 10.1%
7,886 Arch Communications Group Inc.+............... 146,877
7,500 Ascend Communications Inc.+................... 421,875
21,500 Cincinnati Bell, Inc.......................... 1,120,688
12,825 CommNet Cellular Inc.+........................ 384,750
34,150 Heartland Wireless Communications Inc.+....... 811,062
23,900 Itron Inc.+................................... 678,163
48,875 Korea Mobile Telecommunications, ADR+......... 836,984
</TABLE>
See Notes to Financial Statements.
50
<PAGE>
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
GROWTH FUND
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
COMMON STOCKS -- (CONTINUED)
TELECOMMUNICATIONS -- (CONTINUED)
12,125 MFS Communication Company, Inc.+........................ $ 456,203
23,700 Millicom International Cellular SA+..................... 1,128,713
66,152 NetCom Systems AB, Class B+............................. 749,343
81,175 Paging Network Inc.+.................................... 1,948,200
28,100 Palmer Wireless Inc., Class A+.......................... 562,000
12,150 PictureTel Corporation+................................. 478,406
5,850 Premisys Communications, Inc.+.......................... 356,850
15,050 Stratacom Inc.+......................................... 846,563
------------
10,926,677
------------
OTHER -- 3.8%
58,225 HFS, Inc.+.............................................. 4,075,750
------------
MATERIALS & PROCESSING -- 3.3%
30,575 Arcadian Corporation.................................... 603,856
23,425 Danka Business Systems, ADR............................. 685,181
54,525 International Game Technology........................... 920,109
8,269 Potash Corporation of Saskatchewan...................... 547,821
20,200 Praxair, Inc. .......................................... 853,450
------------
3,610,417
------------
PRODUCER DURABLES -- 2.1%
9,950 General Motors, Class H................................. 598,244
17,665 Metra AB, Series B, Ord................................. 792,563
141,325 Rentokil Group Plc...................................... 898,444
------------
2,289,251
------------
AUTOS & TRANSPORTATION -- 1.0%
3,750 Amway Asia Pacific Ltd.................................. 113,438
12,775 Trans World Airlines Inc.+.............................. 182,044
22,875 Wisconsin Central Transportation Corporation+........... 743,438
------------
1,038,920
------------
ENERGY -- 0.4%
8,600 Triton Energy Ltd.+..................................... 418,175
------------
CONSUMER STAPLES -- 0.2%
5,627 Cultor OY, Series 1..................................... 276,738
------------
Total Common Stocks (Cost $79,523,112).................. 90,792,581
------------
PREFERRED STOCK -- FOREIGN -- 3.4%
(Cost $2,919,431)
24,886 SAP, AG, Non-Voting, Pfd................................ 3,693,664
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
COMMERCIAL PAPER -- 6.4%
$5,000,000 Ford Motor Credit Company,
5.490% due 07/01/1996............................... $ 5,000,000
2,000,000 General Electric Capital Corporation,
5.400% due 07/02/1996............................... 1,999,703
------------
Total Commercial Paper
(Cost $6,999,703)................................... 6,999,703
------------
U.S. GOVERNMENT AGENCY DISCOUNT NOTE -- 4.6%
(Cost $4,989,831)
5,000,000 Federal Home Loan Mortgage Corporation (FHLMC),
5.344% due 07/15/1996++............................. 4,989,831
------------
U.S. TREASURY BILL -- 0.9% (Cost $986,631)
1,000,000 5.270% due 10/03/1996++**............................ 986,631
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (COST $95,418,708*)...................... 98.9% 107,462,410
OTHER ASSETS AND LIABILITIES (NET)......................... 1.1 1,184,543
----- ------------
NET ASSETS................................................. 100.0% $108,646,953
===== ============
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
** This security is pledged as collateral for futures contracts.
+ Non-income producing security.
++ Rate represents annualized yield at date of purchase.
<TABLE>
<CAPTION>
NUMBER OF UNREALIZED
CONTRACTS (DEPRECIATION)
- --------- --------------
<S> <C> <C>
FUTURES CONTRACTS -- SHORT POSITION
49 S&P 500 Index Futures, September 1996.. $ (200,529)
===========
</TABLE>
See Notes to Financial Statements.
51
<PAGE>
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
GROWTH FUND
JUNE 30, 1996 (UNAUDITED)
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO BUY
<TABLE>
<CAPTION>
CONTRACTS TO RECEIVE UNREALIZED
----------------------------------------------------- APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- ----------------------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
07/15/1996 FIM 375,000 80,955 82,095 $ (1,140)
07/15/1996 SEK 2,617,000 395,159 384,485 10,674
08/09/1996 ITL 700,000,000 455,130 443,810 11,320
08/09/1996 ITL 150,000,000 97,528 95,599 1,929
08/09/1996 ITL 445,000,000 289,333 282,342 6,991
08/12/1996 FIM 1,250,000 270,265 277,957 (7,692)
08/12/1996 FIM 1,134,000 245,185 245,545 (360)
09/12/1996 CHF 900,000 724,586 743,372 (18,786)
09/12/1996 CHF 550,000 442,803 448,326 (5,523)
09/12/1996 JPY 31,650,000 292,494 307,192 (14,698)
10/01/1996 CHF 350,000 282,221 285,864 (3,643)
10/01/1996 JPY 26,000,000 240,900 252,975 (12,075)
10/22/1996 JPY 15,000,000 139,410 146,341 (6,931)
11/15/1996 ITL 900,000,000 581,163 574,218 6,945
--------
$(32,989)
--------
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
<CAPTION>
CONTRACTS TO DELIVER UNREALIZED
----------------------------------------------------- APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- ----------------------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
07/02/1996 FIM 46,660 10,065 10,102 $ 37
07/02/1996 SEK 123,940 18,719 18,723 4
07/03/1996 FIM 20,324 4,384 4,385 1
07/03/1996 SEK 108,524 16,391 16,356 (35)
07/15/1996 DEM 250,000 164,566 175,821 11,255
07/15/1996 FIM 2,642,000 570,356 612,467 42,111
07/15/1996 SEK 2,617,000 395,159 393,179 (1,980)
07/25/1996 SEK 3,300,000 498,238 475,470 (22,768)
08/08/1996 DEM 832,000 548,482 569,045 20,563
08/09/1996 ITL 1,500,000,000 975,279 932,778 (42,501)
08/12/1996 DEM 543,000 358,055 370,724 12,669
08/12/1996 FIM 2,384,000 515,449 517,844 2,395
09/12/1996 CHF 1,450,000 1,167,389 1,233,150 65,761
09/12/1996 ITL 10,000,000 6,485 6,283 (202)
09/12/1996 JPY 31,650,000 292,494 307,341 14,847
09/13/1996 DEM 830,000 548,394 548,521 127
10/01/1996 CHF 350,000 282,221 299,529 17,308
10/01/1996 GBP 475,000 737,953 722,523 (15,430)
10/01/1996 JPY 26,000,000 240,900 250,784 9,884
10/22/1996 FIM 400,000 86,816 84,424 (2,392)
10/22/1996 GBP 70,000 108,750 105,564 (3,186)
10/22/1996 JPY 15,000,000 139,411 143,954 4,543
10/22/1996 SEK 7,000,000 1,056,761 1,041,760 (15,001)
11/15/1996 ITL 1,050,000,000 678,023 668,015 (10,008)
12/04/1996 DEM 188,000 124,866 124,380 (486)
12/04/1996 DEM 525,000 348,693 347,245 (1,448)
12/04/1996 GBP 200,000 310,740 308,006 (2,734)
12/04/1996 SEK 2,969,000 448,322 450,169 1,847
12/04/1996 SEK 700,000 105,701 106,123 422
--------
$ 85,603
--------
Net Unrealized Appreciation of Forward
Foreign Currency Contracts.................. $ 52,614
========
</TABLE>
GLOSSARY OF TERMS
ADR --American Depositary
Receipt
CHF --Swiss Franc
DEM --German Deutsche Mark
FIM --Finnish Markka
GBP --Great Britain Pound
Sterling
ITL --Italian Lira
JPY --Japanese Yen
SEK --Swedish Krona
See Notes to Financial Statements.
52
<PAGE>
PORTFOLIO OF INVESTMENTS
EMERGING GROWTH FUND
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ -----------
<C> <S> <C>
COMMON STOCKS -- 97.2%
CONSUMER DISCRETIONARY -- 23.6%
16,925 Barnett Inc.+.......................................... $ 486,594
39,775 Family Golf Centers Inc.+.............................. 999,347
2,388 Fotolabo SA............................................ 991,498
2,009 Grand Optical - Photoservices.......................... 258,923
25,823 Grosvenor Inns Plc..................................... 105,964
14,075 Heritage Media Corporation, Class A+................... 561,241
194,463 J. D. Wetherspoon Plc Ord. ............................ 3,037,748
9,800 MSC Industrial Direct Company, Class A+................ 316,050
34,550 Papa John's International Inc.+........................ 1,684,313
100,000 Petco Animal Supplies Inc.+............................ 2,875,000
96,212 PizzaExpress Plc....................................... 550,333
25,675 Premier Parks Inc.+.................................... 552,012
37,225 Renters Choice Inc.+................................... 949,237
9,275 Sunglass Hut International, Inc.+...................... 226,078
5,925 Wilmar Industries, Inc.+............................... 154,050
-----------
13,748,388
-----------
TELECOMMUNICATIONS -- 16.8%
22,175 Arch Communications Group, Inc.+....................... 413,009
52,800 CommNet Cellular Inc.+................................. 1,584,000
21,900 Millicom International Cellular SA+.................... 1,042,988
49,150 Omnipoint Corporation+................................. 1,280,972
154,850 Paging Network Inc.+................................... 3,716,400
54,312 Pricellular Corporation, Class A+...................... 658,533
37,325 360(degrees) Communications Company+................... 895,800
7,500 Western Wireless Corporation, Class A+................. 160,313
-----------
9,752,015
-----------
HEALTH CARE -- 13.8%
59,125 ARV Assisted Living Inc.+.............................. 916,437
87,275 DepoTech Corporation+.................................. 2,203,694
42,025 Exogen Inc.+........................................... 357,212
14,025 Gulf South Medical Supply Inc.+........................ 546,975
8,625 ICU Medical Inc.+...................................... 118,594
54,075 Matrix Pharmaceutical, Inc.+........................... 973,350
11,250 Medaphis Corporation+.................................. 447,187
6,500 Omnicare Inc........................................... 172,250
12,125 QLT Phototherapeutics Inc.+............................ 224,313
28,925 Respironics Inc.+...................................... 535,112
8,550 Steris Corporation+.................................... 273,600
64,755 TheraTech Inc.+........................................ 1,246,534
-----------
8,015,258
-----------
FINANCIAL SERVICES -- 8.3%
8,150 First Commonwealth Inc.+............................... 227,181
100,000 Insignia Financial Group Inc., Class A+................ 2,712,500
31,775 Profit Recovery Group International, Inc.+............. 643,444
16,175 Protective Life Corporation............................ 568,147
85,500 PT Lippo Life Insurance................................ 110,204
8,100 United Insurance Companies Ltd.+....................... 184,275
49,825 World Acceptance Corporation+.......................... 361,231
-----------
4,806,982
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ -----------
<C> <S> <C>
PRODUCER DURABLES -- 8.0%
57,500 APS Holding Corporation, Class A+........................ $ 1,265,000
21,700 Culligan Water Technologies, Inc.+....................... 824,600
8,650 Littlefuse Inc.+......................................... 324,375
314,910 Rentokil Group Plc....................................... 2,001,974
14,850 York Group Inc. ......................................... 256,163
-----------
4,672,112
-----------
OTHER -- 7.0%
46,500 Central Parking Corporation.............................. 1,377,562
22,425 Global DirectMail Corporation+........................... 885,787
26,125 HFS, Inc.+............................................... 1,828,750
-----------
4,092,099
-----------
AUTOS & TRANSPORTATION -- 6.9%
17,325 AutoZone Inc.+........................................... 602,044
25,500 O'Reilly Automotive Inc.+................................ 924,375
77,375 Wisconsin Central Transportation
Corporation+............................................ 2,514,688
-----------
4,041,107
-----------
MATERIALS & PROCESSING -- 6.7%
15,000 Hughes Supply Inc. ...................................... 521,250
27,300 Minerals Technologies Inc................................ 935,025
16,700 Philip Environmental, Inc.+.............................. 131,513
21,900 Sealed Air Corporation+.................................. 736,387
83,625 Trigen Energy Corporation................................ 1,578,422
-----------
3,902,597
-----------
TECHNOLOGY -- 4.8%
4,675 Acxiom Corporation+...................................... 159,534
26,750 American Business Information, Inc.+..................... 488,187
17,650 Bell & Howell Holdings Company+.......................... 575,831
14,000 Black Box Corporation+................................... 332,500
5,800 CIBER Inc.+.............................................. 127,600
8,475 Lernout & Hauspie Speech Products N.V.+.................. 190,688
14,550 SAES Getters SpA, Sponsored ADR+......................... 292,819
17,975 Technology Solutions Company+............................ 622,384
-----------
2,789,543
-----------
CONSUMER STAPLES -- 1.3%
30,350 JP Foodservice Inc.+..................................... 758,750
-----------
Total Common Stocks (Cost $45,442,438)................... 56,578,851
-----------
WARRANT -- 0.4% (Cost $149,086)
7,950 Littelfuse Inc., Series A, expires 12/27/2001+........... 231,544
-----------
</TABLE>
See Notes to Financial Statements.
53
<PAGE>
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
EMERGING GROWTH FUND
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- -----------
<C> <S> <C>
COMMERCIAL PAPER -- 3.4% (Cost $2,000,000)
$2,000,000 Ford Motor Credit Company,
5.490% due 07/01/1996................................ $ 2,000,000
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (COST $47,591,524*)....................... 101.0% 58,810,395
OTHER ASSETS AND LIABILITIES (NET).......................... (1.0) (563,945)
----- -----------
NET ASSETS.................................................. 100.0% $58,246,450
===== ===========
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
+ Non-income producing security.
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
<TABLE>
<CAPTION>
CONTRACTS TO DELIVER
------------------------------------------------------ UNREALIZED
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- -------------------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
07/15/1996 GBP 40,000 62,163 61,572 $ (591)
07/15/1996 GBP 96,000 149,192 144,780 (4,412)
10/01/1996 GBP 700,000 1,087,511 1,064,770 (22,741)
11/25/1996 GBP 620,000 963,265 935,642 (27,623)
12/04/1996 GBP 75,000 116,528 115,575 (953)
--------
Net Unrealized Depreciation of Forward
Foreign Currency Contracts............... $(56,320)
========
</TABLE>
GLOSSARY OF TERMS
ADR--American Depositary Receipt
GBP--Great Britain Pound
Sterling
See Notes to Financial Statements.
54
<PAGE>
PORTFOLIO OF INVESTMENTS
INTERNATIONAL GROWTH FUND
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
COMMON STOCKS -- 94.3%
JAPAN -- 31.0%
10,000 Advantest Corporation............................... $ 397,623
40,000 Anritsu Corporation................................. 555,759
25,000 Canon Inc. ......................................... 521,024
22,000 Cosmo Oil........................................... 136,344
25,000 Daiwa Securities Company............................ 322,212
92 DDI Corporation..................................... 803,949
35,000 Denki Kogyo Company Ltd. ........................... 361,517
70 East Japan Railway Company.......................... 367,916
25 Fuji Denki Reiki.................................... 320
50,000 Fujikura Ltd. ...................................... 414,991
27,000 Hankyu Realty....................................... 288,757
55,000 Hitachi Ltd. ....................................... 512,797
28,000 Honda Motor Company................................. 726,874
58,000 Japan Synthetic Rubber Company+..................... 418,300
20 Japan Tobacco Inc. ................................. 153,565
25,000 JUSCO Company....................................... 820,384
102,000 Kawasaki Heavy Industries........................... 517,459
40,000 Komatsu Forklift Company, Ltd. ..................... 290,676
15,000 Matsushita Electric Industrial Company.............. 279,707
53,000 Mitsubishi Estate Company........................... 731,536
68,000 Mitsubishi Heavy Industrials Ltd. .................. 592,358
40,000 Mitsui Mining & Smelt Company....................... 163,803
25,000 Nichii Company, Ltd. ............................... 415,905
2,000 Nitta Corporation................................... 37,477
190,000 NKK Corporation+.................................... 576,600
20,000 Nomura Securities Company Ltd. ..................... 391,225
14,000 Noritsu Koki Company Ltd. .......................... 708,958
5,000 North Pacific Bank.................................. 27,422
11 NTT Data Communication Systems Corporation.......... 329,799
13,000 Orix Corporation.................................... 482,450
36,000 Pioneer Electric Corporation........................ 858,866
6,000 Rohm Company........................................ 397,075
25,000 Sharp Corporation................................... 438,757
3,400 Shin Nippon Air Technologies........................ 51,280
11,000 Sony Corporation.................................... 724,954
110,000 Sumitomo Metal Industries........................... 337,843
12,000 Takashimaya Company Ltd. ........................... 186,472
8,000 TDK Corporation..................................... 478,245
16,000 Tokio Marine & Fire Insurance Company............... 213,528
75,000 Toray Industries Inc. .............................. 518,281
19,000 Toyota Motor Company................................ 475,868
34,000 Yokagawa Electric Corporation....................... 341,865
------------
17,370,741
------------
UNITED STATES -- 15.0%
16,794 Asia Cement, GDS.................................... 340,083
19,500 Banco de Edwards, ADR............................... 409,500
41,500 Buenos Aires Embotelladora SA, ADR.................. 549,875
2,300 Compania de Telefonos de Chile ADR.................. 225,688
6,000 ECI Telecommunications Ltd., ADR.................... 139,500
33,000 Enersis SA, ADR..................................... 1,023,000
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
22,500 Gaungshen Railway Ltd., ADR+............................. $ 430,313
6,500 Hansol Paper Company, GDS+............................... 126,750
345,000 Hong Kong Land Holdings.................................. 776,250
4,600 Hub Power Company, GDR+.................................. 111,550
10,200 Hyundai Motor Company Ltd., GDR+......................... 124,950
8,000 Jardine Matheson Holdings................................ 58,800
10,700 Korea Electric Power Corporation, ADR.................... 259,475
12,000 Macronix International Company Ltd., ADR+................ 195,000
15,737 Mavesa SA, ADR........................................... 61,925
12,000 Panamerican Beverages, Class A........................... 537,000
800 Pick Szeged, GDS+........................................ 32,800
7,000 Portugal Telecommunications, ADR......................... 183,750
20,000 Quantas Airways, ADR++................................... 338,733
57,000 Reliance Industries Ltd., GDS............................ 755,250
5,000 Repsol SA, ADR........................................... 173,750
7,814 Samsung Electronics Company Ltd., GDS.................... 189,483
25,000 Telefonica de Argentina, ADR............................. 740,625
29,000 YPF Sociedad Anonima, Sponsored ADR...................... 652,500
-----------
8,436,550
-----------
FRANCE -- 7.1%
7,000 Assurance Generale de France............................. 189,688
5,000 AXA Company.............................................. 273,704
6,400 Compagnie Bancaire SA.................................... 721,582
6,700 Credit Commercial de France.............................. 310,759
25,920 La Gardere Groupe........................................ 668,627
1,618 L'Air Liquide............................................ 285,904
1,950 Promodes................................................. 562,531
2,305 Societe Generale Paris................................... 253,609
50,600 Usinor Sacilor........................................... 730,340
-----------
3,996,744
-----------
UNITED KINGDOM -- 5.7%
77,000 British Airport Authority................................ 560,125
120,000 Cookson Group Plc........................................ 528,790
72,200 General Electric Company Plc Ord. ....................... 389,417
170,000 Pace Micro-Technology+ ++................................ 502,055
127,500 Rolls Royce Plc.......................................... 443,922
13,000 RTZ Corporation.......................................... 192,568
150,000 Vodafone Group........................................... 558,400
-----------
3,175,277
-----------
NEW ZEALAND -- 4.7%
587,800 Fletcher Challenge--Building Division+................... 1,152,559
718,800 Fletcher Challenge--Forest Division...................... 895,107
793,000 Wrightson Ltd. .......................................... 583,775
-----------
2,631,441
-----------
GERMANY -- 3.9%
520 Ava Allgemeine Handels Der Verbr AG...................... 160,721
700 M.A.N. AG................................................ 174,373
349 Munchener Ruckversicherungs.............................. 720,652
2,300 SGL Carbon AG............................................ 269,227
760 Thyssen AG............................................... 138,990
13,800 Veba AG.................................................. 733,901
-----------
2,197,864
-----------
</TABLE>
See Notes to Financial Statements.
55
<PAGE>
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
INTERNATIONAL GROWTH FUND
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
COMMON STOCKS -- (CONTINUED)
HONG KONG -- 3.0%
42,000 Cheung Kong Holdings................................ $ 302,490
61,000 Henderson China+.................................... 136,330
15,000 Henderson Land Development Company.................. 112,392
45,500 Hong Kong Electric Holdings......................... 138,720
102,000 Hong Kong Telecommunications........................ 183,161
8,000 HSBC Holdings Ord. ................................. 120,919
18,000 Hutchison Whampoa Ltd. ............................. 113,245
74,000 Luoyang Glass Company Ltd. ......................... 17,590
28,000 New World Development Company....................... 129,858
42,000 Swire Pacific Ltd., Class A......................... 359,461
22,000 Television Broadcasts Ltd. ......................... 82,563
------------
1,696,729
------------
AUSTRALIA -- 2.7%
85,000 Boral Ltd. ......................................... 220,431
15,830 Broken Hill Proprietary............................. 218,571
38,700 CSR................................................. 136,552
32,000 Lend Lease Corporation.............................. 490,371
18,800 National Australia Bank Ltd. ....................... 173,594
20,800 The News Corporation................................ 117,852
20,725 Western Mining Corporation Holdings, Ltd. .......... 148,209
------------
1,505,580
------------
SPAIN -- 2.6%
1,900 Banco Popular de Espanol............................ 339,018
108,100 Iberdrola SA........................................ 1,110,515
------------
1,449,533
------------
SINGAPORE -- 2.5%
81,000 D.B.S. Land Ltd. ................................... 277,846
38,000 Development Bank of Singapore (F)................... 473,990
18,000 Singapore International Airlines Ltd. (F)........... 190,078
11,000 Singapore Press Holdings (F)........................ 215,946
88,000 Singapore Telecommunications........................ 234,500
------------
1,392,360
------------
NORWAY -- 2.1%
113,000 Den Norske Bank..................................... 343,002
6,000 Kvaerner Industrier, Class B........................ 232,047
12,000 Norsk Hydro A.S. ................................... 587,977
------------
1,163,026
------------
SWITZERLAND -- 2.0%
940 Ciba Geigy AG....................................... 1,146,800
------------
FINLAND -- 2.0%
11,500 Metra AB, Class B................................... 515,962
37,000 Valmet Corporation, Class A......................... 626,510
------------
1,142,472
------------
PORTUGAL -- 1.4%
30,000 Portugal Telecommunications SA+..................... 784,350
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
MALAYSIA -- 1.3%
60,000 Commerce Asset Holdings Berhad...................... $ 365,604
75,000 New Straits Time Press Berhad....................... 390,860
------------
756,464
------------
THAILAND -- 1.2%
9,300 Advanced Information Service Public (F)............. 137,734
11,000 Bangkok Bank Public Company Ltd. (F)................ 149,047
6,400 International Cosmetics Public
Company Ltd. ...................................... 54,955
2,200 Siam Cement Public Company Ltd. (F)................. 107,972
15,000 Siam Commercial Bank (F)............................ 217,426
------------
667,134
------------
PHILLIPINES -- 1.1%
573,900 Filinvest Land Inc. ................................ 235,474
16,500 Manila Electric Company, Class B.................... 173,187
12,500 Philippine National Bank+........................... 208,731
------------
617,392
------------
SWEDEN -- 1.1%
1,920 ABB AB, B Shares.................................... 203,280
4,000 Astra AB, Class B................................... 174,596
70,000 Foreningsbanken AB.................................. 230,479
------------
608,355
------------
NETHERLANDS -- 1.0%
8,158 ABN Amro Holdings NV................................ 438,155
10,000 Elsevier NV......................................... 151,861
------------
590,016
------------
POLAND -- 1.0%
5,700 Bank Przemyscowo-Handlowy SA+....................... 411,566
30,700 Polifarb-Cieszyn SA+................................ 156,072
------------
567,638
------------
INDONESIA -- 0.8%
125,500 International Nickel of Indonesia (F)............... 285,779
54,000 Semen Gresik (F).................................... 157,186
------------
442,965
------------
DENMARK -- 0.7%
18,000 International Service Systems AS, Class B........... 402,458
------------
BELGIUM -- 0.4%
1,560 Fortis AG........................................... 206,106
------------
Total Common Stocks (Cost $50,373,546).............. 52,947,995
------------
PREFERRED STOCKS -- 0.7%
550 Henkel, Pfd. ....................................... 237,629
800 Jungheinrich AG, Pfd................................ 142,044
------------
Total Preferred Stocks (Cost $342,976).............. 379,673
------------
WARRANT -- 0.2% (Cost $149,785)
140,241 United Overseas Land, expires 06/09/1997+........... 103,367
------------
</TABLE>
See Notes to Financial Statements.
56
<PAGE>
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
INTERNATIONAL GROWTH FUND
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<S> <C> <C>
CORPORATE BONDS -- 1.5%
$ 45,000 Bangkok Bank, Convertible,
3.250% due 03/03/2004..................... $ 51,165
JPY 17,000,000 Izumiya, Convertible,
0.800% due 08/31/1999..................... 239,305
JPY 10,000,000 NEC Corporation, Convertible,
1.900% due 03/30/2001..................... 111,243
$ 405,000 Telekom Malaysia Berhad,
4.000% due 10/03/2004..................... 425,250
-----------
Total Corporate Bonds (Cost $792,130)...... 826,963
-----------
<CAPTION>
SHARES
------
<C> <S> <C> <C> <C> <C> <C>
INVESTMENT COMPANY SECURITY -- 1.9% (Cost
$1,006,397)
1,090,000 General Pacific Securities
Taiwan Index Fund ........................ 1,046,400
-----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<C> <S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENT -- 1.0% (Cost $550,000)
$ 550,000 Agreement with State Street Bank & Trust
Company 5.100% dated 06/28/1996 to be
repurchased at $550,234 on 07/01/1996,
collateralized by $555,000 U.S. Treasury
Note, 6.000% due 08/31/1997 (Market
Value -- $565,406)........................ 550,000
-----------
<CAPTION>
EXPIRATION STRIKE
DATE PRICE
---------- ------
<C> <S> <C> <C> <C> <C> <C>
CALL OPTION PURCHASED ON STOCK INDEX -- 0.0%#
(Cost $50,001)
KRW 3,832,385 Kospi 200 Stock Index... 12/06/1996 $0.126 15,299
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (COST $53,264,835*)....................... 99.6% 55,869,697
OTHER ASSETS AND LIABILITIES (NET).......................... 0.4 250,025
----- -----------
NET ASSETS.................................................. 100.0% $56,119,722
===== ===========
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
+ Non-income producing security.
++ A portion or all of this security is exempt from registration under Rule
144A of the Securities Act of 1933. This security may be resold in
transactions exempt from registration, normally to qualified institutional
buyers.
# Amount represents less than 0.1% of net assets.
AS OF JUNE 30, 1996, SECTOR DIVERSIFICATION WAS AS FOLLOWS:
<TABLE>
<CAPTION>
% OF VALUE
SECTOR DIVERSIFICATION NET ASSETS (NOTE 2)
---------------------- ---------- --------
<C> <S> <C>
COMMON STOCKS:
Financial Services.................. 18.1% $10,182,435
Materials & Processing.............. 17.1 9,590,566
Telecommunications.................. 11.3 6,343,942
Producer Durables................... 9.2 5,180,519
Consumer Discretionary.............. 7.9 4,417,613
Autos & Transportation.............. 6.3 3,510,199
Utilities........................... 6.1 3,438,798
Consumer Staples.................... 5.7 3,190,429
Technology.......................... 4.9 2,754,787
Energy.............................. 2.8 1,550,571
Health Care......................... 0.3 174,596
Other............................... 4.6 2,613,540
----- -----------
TOTAL COMMON STOCKS................. 94.3 52,947,995
OTHER INVESTMENTS................... 5.3 2,921,702
----- -----------
TOTAL INVESTMENTS................... 99.6 55,869,697
OTHER ASSETS AND LIABILITIES (NET).. 0.4 250,025
----- -----------
NET ASSETS.......................... 100.0% $56,119,722
===== ===========
</TABLE>
See Notes to Financial Statements.
57
<PAGE>
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
INTERNATIONAL GROWTH FUND
JUNE 30, 1996 (UNAUDITED)
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO BUY
<TABLE>
<CAPTION>
CONTRACTS TO RECEIVE UNREALIZED
--------------------------------- APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- ----------------- --------- ----------- --------------
<S> <C> <C> <C> <C>
07/01/1996 JPY 47,108,836 430,611 432,588 $ (1,977)
07/02/1996 JPY 145,708,958 1,331,892 1,331,892 0
07/02/1996 NZD 575,110 395,634 392,627 3,007
--------
$ 1,030
--------
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
<CAPTION>
CONTRACTS TO DELIVER UNREALIZED
--------------------------------- APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- ----------------- --------- ----------- --------------
<S> <C> <C> <C> <C>
07/01/1996 FRF 4,176,271 811,833 809,669 $ (2,164)
07/01/1996 GBP 134,485 209,036 206,973 (2,063)
07/01/1996 MYR 227,427 91,170 91,040 (130)
07/02/1996 MYR 216,247 86,686 86,669 (17)
03/05/1997 FRF 16,379,909 3,222,782 3,226,297 3,515
03/05/1997 JPY 1,038,600,000 9,836,128 10,000,000 163,872
03/05/1997 JPY 374,772,186 3,549,304 3,600,117 50,813
--------
$213,826
--------
Net Unrealized Appreciation of Forward
Foreign Currency Contracts................ $214,856
========
</TABLE>
GLOSSARY OF TERMS
ADR--American Depositary Receipt
ADS--American Depositary Share
(F)--Foreign or Alien Shares
FRF--French Franc
GBP--Great Britain Pound
Sterling
GDR--Global Depositary Receipt
GDS--Global Depositary Share
JPY--Japanese Yen
KRW--South Korean Won
MYR--Malaysian Ringgit
NZD--New Zealand Dollar
See Notes to Financial Statements.
58
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
THE SIERRA VARIABLE TRUST
1. ORGANIZATION AND BUSINESS
The Sierra Variable Trust (the "Trust") was organized under the laws of the
Commonwealth of Massachusetts on January 29, 1993 as a business entity commonly
known as a "Massachusetts business trust". The Trust is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a no-load,
open-end management investment company. The Trust offers nine managed
investment funds (the "Funds") to the public only through certain variable
annuity contracts offered by American General Life Insurance Company ("AG
Life"): the Global Money Fund (the "Money Fund"); the Short Term High Quality
Bond, Short Term Global Government, U.S. Government and Corporate Income Funds
(the "Bond Funds"); and the Growth and Income, Growth, Emerging Growth and
International Growth Funds (the "Equity Funds.")
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 Funds in the
preparation of their financial statements.
PORTFOLIO VALUATION:
Money Fund: The investments of the Money Fund are valued on the basis of
amortized cost so long as the Trust's Board of Trustees (the "Board of
Trustees") determines that this method constitutes fair value. Amortized cost
involves valuing a portfolio instrument at its cost initially, and, thereafter,
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. The Money Fund attempts to maintain a constant net asset value
of $1.00 per share.
Bond Funds and Equity Funds: A security that is primarily traded on a United
States ("U.S.") or foreign exchange (including securities traded through the
NASDAQ National Market System) is valued at the last sale price on that
exchange or, if there were no sales during the day, at the current quoted bid
price. Portfolio securities that are primarily traded on foreign exchanges are
generally valued at the most recent closing values of such securities on their
respective exchanges, except when an occurrence subsequent to the time a value
was so established is likely to have changed the value, then the fair value of
those securities will be determined in good faith through consideration of
other factors by or under the direction of the Board of Trustees or its
delegates. Over-the-counter securities that are not traded through the NASDAQ
National Market System and securities listed or traded on certain foreign
exchanges whose operations are similar to the U.S. over-the-counter market, are
valued on the basis of the bid price at the close of business on each day.
Investments in U.S. Government securities (other than short-term securities)
are valued at the average of the quoted bid and asked prices in the over-the-
counter market. The current market value of an option is the last price on the
principal exchange on which such option is traded or in the absence of a sale,
is the mean between the last bid and offering price. Short-term investments
that mature in 60 days or less are valued at amortized cost; such investments
denominated in foreign currencies are stated at amortized cost as determined in
the foreign currency, translated to U.S. dollars at the current day's exchange
rate.
Corporate debt securities and debt securities of U.S. issuers (other than U.S.
Government securities and short-term investments) are valued by an independent
pricing service which utilizes market quotations and transactions, quotations
from dealers and various relationships among securities in determining value.
If not valued by a pricing service, such securities are valued at prices
obtained from independent brokers. Investments with prices that cannot be
readily obtained, if any, are carried at fair value as determined in good faith
under consistently applied procedures established by and under the supervision
of the Board of Trustees.
REPURCHASE AGREEMENTS:
Each Fund may engage in repurchase agreement transactions. Under the terms of a
typical repurchase agreement, the Fund through its custodian takes possession
of an underlying debt obligation subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed upon price and
time, thereby determining the yield during the Fund's holding period.
This arrangement results in a fixed rate of return that is not subject to
market fluctuations during the Fund'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 Fund
has the right to use the collateral to offset losses incurred. There is
potential loss to
59
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
THE SIERRA VARIABLE TRUST
the Fund in the event the Fund 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
Fund seeks to assert its rights. Each Fund's respective Sub-advisor, acting
under the supervision of the Trust's investment advisor, Sierra Investment
Advisors Corporation ("Sierra Advisors") and the Board of Trustees, reviews the
value of the collateral and the creditworthiness of those banks and dealers
with which the Fund enters into repurchase agreements to evaluate potential
risks.
REVERSE REPURCHASE AGREEMENTS:
All Funds except the Money Fund may engage in reverse repurchase agreements.
Reverse repurchase agreements are the same as repurchase agreements except
that, in this instance, the Funds would assume the role of seller/borrower in
the transaction. The Funds may use reverse repurchase agreements to borrow
short term funds. The value of the reverse repurchase agreements that the Funds
have committed to sell are reflected in the Funds' Statements of Assets and
Liabilities. The Funds will maintain segregated accounts with the Trust's
custodian consisting of U.S. Government securities, cash or money market
instruments that at all times are in an amount equal to their obligations under
reverse repurchase agreements. Reverse repurchase agreements involve the risks
that the market value of the securities sold by the Funds may decline below the
repurchase price of the securities and, if the proceeds from the reverse
repurchase agreement are invested in securities, that the market value of the
securities bought may decline below the repurchase price of the securities
sold.
OPTION CONTRACTS:
All Funds except the Money Fund may engage in option contracts. The Funds may
use option contracts to manage their exposure to the stock and bond markets and
to fluctuations in interest rates and currency values. The underlying principal
amounts and option values are shown in the Portfolio of Investments under the
captions "Call Options Purchased on Foreign Interest Rate Futures", "Call
Option Purchased on U.S. Treasury Note Futures", "Options Written", "Options on
Foreign Currency Purchased", "Call Option Purchased on Stock Index" and "Call
Option Written on Foreign Currency". These amounts reflect each contract's
exposure to the underlying instrument at June 30, 1996. Writing puts and buying
calls tends to increase the Funds' exposure to the underlying instrument.
Buying puts and writing calls tends to decrease the Funds' exposure to the
underlying instrument or to hedge other Fund investments.
Upon the purchase of a put option or a call option by the Funds, the premium
paid is recorded as an investment, the value of which is marked-to-market
daily. When a purchased option expires, the Funds will realize a loss in the
amount of the cost of the option. When the Funds enter into a closing sale
transaction, the Funds 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 Funds exercise a put option, they will realize a
gain or loss from the sale of the underlying security and the proceeds from
such sale will be decreased by the premium originally paid. When the Funds
exercise a call option, the cost of the security which the Funds purchase upon
exercise will be increased by the premium originally paid.
When the Funds write a call option or a put option, an amount equal to the
premium received by the Funds are recorded as a liability, the value of which
is marked-to-market daily. When a written option expires, the Funds realize a
gain equal to the amount of the premium received. When the Funds enter into a
closing purchase transaction, the Funds 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
security, and the liability related to such option is eliminated. When a
written call option is exercised, the Funds realize a gain or loss from the
sale of the underlying security 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 Funds purchased upon exercise.
The risk associated with purchasing options is limited to the premium
originally paid. Options written by a Fund 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 Funds 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 Funds may incur a loss if the market price of the underlying
security decreases and the option is exercised. In addition, there is the risk
the Funds may not be able to enter into a closing transaction because of an
illiquid secondary market or, for over-the-counter options, because of a
counterparty's inability to perform.
60
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
THE SIERRA VARIABLE TRUST
The Short Term High Quality Bond, Short Term Global Government, Growth and
International Growth Funds may engage in options on foreign currency and
options on interest rate futures as a hedge to provide protection against
adverse movements in the value of foreign securities in the portfolio.
Certain risks are associated with the use of options on foreign currency and
options on interest rate futures contracts 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 Funds' hedging
strategy unsuccessful and could result in a loss to the Funds. In addition,
there is the risk that the Funds 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. Options written by
a Fund involve, to varying degrees, risk of loss in excess of the option value
reflected in the Statements of Assets and Liabilities.
FUTURES CONTRACTS:
All Funds except the Money Fund may engage in futures transactions. The Funds
may use futures contracts to manage their exposure to the stock and bond
markets and to fluctuations in interest rates and currency values. The
underlying value of a futures contract is incorporated within the unrealized
appreciation/(depreciation) shown in the Portfolio of Investments under the
caption "Futures Contracts". This amount reflects each contract's exposure to
the underlying instrument at June 30, 1996. Buying futures contracts tends to
increase the Fund's exposure to the underlying instrument. Selling futures
contracts tends to either decrease the Fund's exposure to the underlying
instrument, or to hedge other Fund investments.
Upon entering into a futures contract, the Fund 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 Fund each day, depending on
the daily fluctuation of the value of the contract. The daily changes in
contract value are recorded as unrealized gains or losses and the Fund
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 Fund may not be able to enter into a closing
transaction because of an illiquid secondary market.
FOREIGN CURRENCY:
The books and records of the Funds are maintained in U.S. dollars. Foreign
currencies, investments and other assets and liabilities are translated into
U.S. dollars at the exchange rates prevailing at the end of the period, and
purchases and sales of investment securities, income and expenses are
translated on the respective dates of such transactions. It is not practicable
to isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the portion that arises from changes
in market prices of investments during the period. Accordingly, all such
changes have been reflected as net gain/(loss) on security transactions in the
Statements of Operations.
Unrealized gains and losses, not relating to securities, which result from
changes in foreign currency exchange rates have been included in unrealized
appreciation/(depreciation) of foreign currency and other assets and
liabilities. Unrealized gains and losses of securities, which result from
changes in foreign currency exchange rates as well as changes in market prices
of securities, have been included in unrealized appreciation/(depreciation) of
securities. Net realized foreign currency gains and losses resulting from
changes in exchange rates include foreign currency gains and losses between
trade date and settlement date on investment securities transactions, gains and
losses on foreign currency transactions and the difference between the amounts
of interest and dividends recorded on the books of the Funds and the amount
actually received. The portion of foreign currency gains and losses related to
fluctuation in exchange rates between the initial purchase trade date and
subsequent sale trade date is included in realized gain/(loss) from investment
securities sold.
FORWARD FOREIGN CURRENCY CONTRACTS:
The Short Term High Quality Bond, Short Term Global Government, Corporate
Income, Growth and Income, Growth, Emerging Growth and International Growth
Funds may enter into forward foreign currency contracts. Forward foreign
61
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
THE SIERRA VARIABLE TRUST
currency contracts are agreements to exchange one currency for another at a
future date and at a specified price. The Funds may use forward foreign
currency contracts to facilitate transactions in foreign securities and to
manage the Funds' foreign currency exposure. The U.S. dollar market value,
contract value and the foreign currencies the Funds have committed to buy or
sell are shown in the Portfolio of Investments under the caption "Schedule of
Forward Foreign Currency Contracts". These amounts represent the aggregate
exposure to each foreign currency the Funds have acquired or hedged through
forward foreign currency contracts at June 30, 1996. Forward foreign currency
contracts are reflected as both a forward foreign currency contract to buy and
a forward foreign currency contract to sell. Forward foreign currency contracts
to buy generally are used to acquire exposure to foreign currencies, while
forward foreign currency contracts to sell are used to hedge the Funds'
investments against currency fluctuations. Also, a forward foreign currency
contract to buy or sell can offset a previously acquired opposite forward
foreign currency contract.
Forward foreign currency contracts are marked-to-market daily using foreign
currency exchange rates supplied by an independent pricing service. The change
in a contract's market value is recorded by the Funds as an unrealized gain or
loss. When the contract is closed or delivery is taken, the Funds record a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
The use of forward foreign currency contracts does not eliminate fluctuations
in the underlying prices of the Fund's securities, but it does establish a rate
of exchange that can be achieved in the future. These forward foreign currency
contracts involve market risk in excess of the unrealized
appreciation/(depreciation) of forward foreign currency contracts reflected in
the Funds' Statements of Assets and Liabilities. Although forward foreign
currency contracts used for hedging purposes limit the risk of loss due to a
decline in the value of the hedged currency, they also limit any potential gain
that might result should the value of the currency increase. In addition, the
Funds could be exposed to risks if the counterparties to the contracts are
unable to meet the terms of their contracts. The Fund's Sub-advisor will enter
into forward foreign currency contracts only with parties approved by the Board
of Trustees because there is a risk of loss to the Funds if the counterparties
do not complete the transaction.
DOLLAR ROLL TRANSACTIONS:
The Short Term High Quality Bond, Short Term Global Government, U.S. Government
and Corporate Income Funds, in order to seek a high level of current income,
may enter into dollar roll transactions with financial institutions to take
advantage of opportunities in the mortgage market. The value of the dollar roll
transactions are reflected in the Funds' Statements of Assets and Liabilities.
A dollar roll transaction involves a sale by the Funds of securities that they
hold with an agreement by the Funds to repurchase similar securities at an
agreed upon price and date. The securities repurchased will bear the same
interest as those sold, but generally will be collateralized at time of
delivery by different pools of mortgages with different prepayment histories
than those securities sold. The Funds are paid a fee for entering into a dollar
roll transaction, that is accrued as income over the life of the dollar roll
contract. During the period between the sale and repurchase, the Funds will not
be entitled to receive interest and principal payments on the securities sold.
Management anticipates that the proceeds of the sale will be invested in
additional instruments for the Funds, and the income from these investments,
together with any additional fee income received on the dollar roll transaction
will generate income for the Funds exceeding the interest that would have been
earned on the securities sold. Dollar roll transactions involve the risk that
the market value of the securities sold by the Funds may decline below the
repurchase price of those similar securities which the Fund is obligated to
purchase or that the return earned by the Fund with the proceeds of a dollar
roll may not exceed transaction costs.
INDEXED SECURITIES:
Each of the Funds, except for the Money Fund, may invest in indexed securities
whose value is linked either directly or inversely to changes in foreign
currencies, interest rates, commodities, indices, or other reference
instruments. Indexed securities may be more volatile than the reference
instrument itself, but any loss is limited to the amount of the original
investment.
ILLIQUID INVESTMENTS:
Up to 15% of the assets of each Bond and Equity Fund, and up to 10% of the
assets of the Money Fund, may be invested in securities that are not readily
marketable, including: (1) repurchase agreements with maturities greater than
seven calendar days; (2) time deposits maturing in more than seven calendar
days; (3) except for the Money Fund, to the extent a liquid secondary market
does not exist for the instruments, futures contracts and options thereon; (4)
certain over-the-counter options;
62
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
THE SIERRA VARIABLE TRUST
(5) for the Money Fund and Growth and Income Fund certain variable rate demand
notes having a demand period of more than seven days; and (6) securities, the
disposition of which are restricted under Federal securities laws, excluding
certain Rule 144A securities as defined below.
Illiquid securities generally cannot be sold or disposed of in the ordinary
course of business within seven days at approximately the value at which the
Funds have valued the investments. This may have an adverse effect on the
Fund's ability to dispose of particular illiquid securities at fair market
value and may limit the Fund's ability to obtain accurate market quotations for
purposes of valuing the securities and calculating the net asset value of
shares of the Fund. The Funds may also purchase securities that are not
registered under the Securities Act of 1933, as amended (the "Act"), but that
can be sold to qualified institutional buyers in accordance with Rule 144A
under the Act ("Rule 144A securities"). Rule 144A securities generally may be
resold only to other qualified institutional buyers. If a particular investment
in Rule 144A securities is not determined to be liquid under guidelines
established by the Board of Trustees, that investment will be included within
the 15% or 10% limitation, as applicable, on investment in illiquid securities.
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 and consists of interest accrued and, if applicable, discount
earned less premiums amortized. Dividend income is recorded on the ex-dividend
date, except that certain dividends from foreign securities are recorded as
soon as the Funds are informed of the ex-dividend date.
Securities purchased or sold on a when-issued or delayed-delivery basis may be
settled a month or more after the trade date; interest income is not accrued
until settlement date. Each Fund instructs the custodian to segregate assets of
the Fund in a separate account with a current value at least equal to the
amount of its when-issued purchase commitments.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income of the Money Fund are declared daily and
paid monthly. Dividends from net investment income of the Bond Funds are
declared and paid quarterly. Dividends from net investment income of the Equity
Funds are declared and paid annually. Distributions of any net long-term
capital gains earned by a Fund are made annually. Distributions of any net
short-term capital gains earned by a Fund are distributed no less frequently
than annually at the discretion of the Board of Trustees. 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 Funds, timing differences and
differing characterization of distributions made by each Fund as a whole.
FEDERAL INCOME TAXES:
It is each Fund'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:
General expenses of the Trust are allocated to the Funds based upon the
relative net assets of each Fund.
OTHER:
The Corporate Income Fund may purchase floating rate, inverse floating rate and
variable rate obligations. Floating rate obligations have an interest rate that
changes whenever there is a change in the external interest rate, while
variable rate obligations provide for a specified periodic adjustment in the
interest rate. The interest rate on an inverse floating rate obligation (an
"inverse floater") can be expected to move in the opposite direction from the
market rate of interest to which the inverse floater is indexed. The Fund may
purchase floating rate, inverse floating rate and variable rate obligations
that carry a demand feature which would permit the Fund to tender them back to
the issuer or remarketing agent at par value prior to maturity. Frequently,
floating rate, inverse floating rate and variable rate obligations are secured
by letters of credit or other
63
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
THE SIERRA VARIABLE TRUST
credit support arrangements provided by banks. The Corporate Income Fund may
purchase mortgage-backed securities that are floating rate, inverse floating
rate and variable rate obligations. The Money Fund and Growth and Income Fund
may purchase variable rate demand notes. Although variable rate demand notes
are frequently not rated by credit rating agencies, unrated notes purchased by
the Funds will be of comparable quality at the time of purchase to rated
instruments that may be purchased by such Fund, as determined by the Fund's
Sub-advisor. Moreover, while there may be no active secondary market with
respect to a particular variable rate demand note purchased by a Fund, the Fund
may, upon the notice specified in the note, demand payment of the principal of
and accrued interest on the note at any time and may resell the note at any
time to a third party. The absence of such an active secondary market, however,
could make it difficult for a Fund to dispose of a particular variable rate
demand note in the event the issuer of the note defaulted on its payment
obligations, and the Fund could, for this or other reasons, suffer a loss to
the extent of the default.
An inverse floater may be considered to be leveraged to the extent that its
interest rate varies by a magnitude that exceeds the magnitude of the change in
the index rate of interest. The higher degree of leverage inherent in inverse
floaters is associated with greater volatility in their market values.
Accordingly, the duration of an inverse floater may exceed its stated final
maturity. Inherent in these instruments is the risk of potential loss should
the Fund be delayed or prevented from exercising the put feature.
3. INVESTMENT ADVISORY, SUB-ADVISORY, ADMINISTRATION FEES AND OTHER
TRANSACTIONS
Sierra Advisors, an indirect wholly-owned subsidiary of Great Western Financial
Corporation ("GWFC"), a publicly held corporation, serves as investment advisor
to the Trust. J.P. Morgan Investment Management Inc. ("J.P. Morgan"), a wholly-
owned subsidiary of J.P. Morgan & Co. Incorporated, a publicly traded company,
serves as the Sub-advisor to the Money Fund and Growth and Income Fund and,
until April 8, 1996, served as the Sub-advisor to the International Growth
Fund. Warburg, Pincus Counsellors, Inc. ("Warburg"), a privately held
corporation, began serving as the Sub-advisor to the International Growth Fund
on April 8, 1996. BlackRock Financial Management, Inc. ("BlackRock"), an
indirect wholly-owned subsidiary of PNC Bank, N.A., an indirect wholly-owned
subsidiary of PNC Bank Corp. ("PNC"), a publicly traded multi-bank holding
company, serves as the Sub-advisor to the U.S. Government Fund. TCW Funds
Management, Inc. ("TCW"), a wholly-owned subsidiary of The TCW Group, Inc., a
privately held company, serves as the Sub-advisor to the Corporate Income Fund.
Janus Capital Corporation ("Janus"), an indirect majority-owned subsidiary of
Kansas City Southern Industries, Inc., which is a publicly traded holding
company, serves as the Sub-advisor to the Growth and Emerging Growth Funds.
Scudder, Stevens & Clark, Inc., a privately held corporation, serves as the
Sub-advisor to the Short Term High Quality Bond and Short Term Global
Government Funds. Each of the foregoing sub-advisors is referred to
individually as a "Sub-advisor" and collectively as the "Sub-advisors."
64
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
THE SIERRA VARIABLE TRUST
The Trust pays Sierra Advisors a monthly fee, in arrears, based on a percentage
of the average daily net assets of each Fund during the month, out of which
Sierra Advisors pays the Sub-advisor of each Fund a monthly fee, in arrears, at
annual rates as follows:
<TABLE>
<CAPTION>
FEES ON FEES ON
ASSETS EQUAL TO ASSETS
OR LESS THAN EXCEEDING
NAME OF FUND $500 MILLION $500 MILLION
------------ --------------- ----------------
<S> <C> <C> <C>
Global Money Fund
Sierra Advisors.......... .35% .25%
Sub-advisor.............. .15% .15%
--- ---
Total fees paid to
Sierra Advisors*....... .50% .40%
=== ===
<CAPTION>
FEES ON
ASSETS EXCEEDING
FEES ON $200 MILLION AND FEES ON
ASSETS EQUAL TO EQUAL TO OR ASSETS
OR LESS THAN LESS THAN EXCEEDING
$200 MILLION $500 MILLION $500 MILLION
--------------- ---------------- ------------
<S> <C> <C> <C>
Short Term High Quality
Bond Fund
Sierra Advisors.......... .35% .35% .30%
Sub-advisor.............. .15% .10% .10%
--- --- ---
Total fees paid to
Sierra Advisors*....... .50% .45% .40%
=== === ===
Short Term Global
Government Fund
Sierra Advisors.......... .47% .65% .55%
Sub-advisor.............. .28% .10% .10%
--- --- ---
Total fees paid to
Sierra Advisors*....... .75% .75% .65%
=== === ===
</TABLE>
<TABLE>
<CAPTION>
WHEN "COMBINED ASSETS"**
WHEN "COMBINED ASSETS"** EXCEED $650 MILLION AND
ARE EQUAL TO OR LESS THAN ARE EQUAL TO OR LESS WHEN "COMBINED ASSETS"**
$650 MILLION THAN $1 BILLION EXCEED $1 BILLION
---------------------------- ---------------------------- ----------------------------
FEES ON FEES ON FEES ON FEES ON FEES ON FEES ON
ASSETS EQUAL TO ASSETS ASSETS EQUAL TO ASSETS ASSETS EQUAL TO ASSETS
OR LESS THAN EXCEEDING OR LESS THAN EXCEEDING OR LESS THAN EXCEEDING
$500 MILLION $500 MILLION $500 MILLION $500 MILLION $500 MILLION $500 MILLION
--------------- ------------ --------------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government Fund
Sierra Advisors........ .415% .315% .45% .35% .50% .40%
Sub-advisor**.......... .185% .185% .15% .15% .10% .10%
---- ---- --- --- --- ---
Total fees paid to
Sierra Advisors*..... .600% .500% .60% .50% .60% .50%
==== ==== === === === ===
</TABLE>
<TABLE>
<CAPTION>
FEES ON FEES ON
ASSETS EQUAL TO ASSETS
OR LESS THAN EXCEEDING
$500 MILLION $500 MILLION
--------------- ------------
<S> <C> <C>
Corporate Income Fund
Sierra Advisors................... .35% .25%
Sub-advisor....................... .30% .25%
--- ---
Total fees paid to Sierra
Advisors*....................... .65% .50%
=== ===
</TABLE>
65
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
THE SIERRA VARIABLE TRUST
<TABLE>
<CAPTION>
FEES ON FEES ON FEES ON
ASSETS EXCEEDING ASSETS EXCEEDING ASSETS EXCEEDING
FEES ON $100 MILLION $200 MILLION $400 MILLION FEES ON
ASSETS EQUAL TO AND EQUAL TO AND EQUAL TO AND EQUAL TO ASSETS
OR LESS THAN OR LESS THAN OR LESS THAN OR LESS THAN EXCEEDING
NAME OF FUND $100 MILLION $200 MILLION $400 MILLION $500 MILLION $500 MILLION
------------ --------------- ---------------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Growth and Income Fund
Sierra Advisors........ .35% .35% .35% .35% .275%
Sub-advisor............ .45% .40% .35% .30% .300%
--- --- --- --- ----
Total fees paid to
Sierra Advisors*..... .80% .75% .70% .65% .575%
=== === === === ====
</TABLE>
<TABLE>
<CAPTION>
FEES ON FEES ON
ASSETS EQUAL TO ASSETS
OR LESS THAN EXCEEDING
$25 MILLION $25 MILLION
--------------- -----------
<S> <C> <C>
Growth Fund
Sierra Advisors.............................. .40% .375%
Sub-advisor.................................. .55% .500%
--- ----
Total fees paid to Sierra Advisors*......... .95% .875%
=== ====
</TABLE>
<TABLE>
<CAPTION>
FEES ON
ASSETS EXCEEDING
FEES ON $25 MILLION FEES ON
ASSETS EQUAL TO AND EQUAL TO ASSETS
OR LESS THAN OR LESS THAN EXCEEDING
$25 MILLION $500 MILLION $500 MILLION
--------------- ---------------- ------------
<S> <C> <C> <C>
Emerging Growth Fund
Sierra Advisors.......... .35% .35% .25%
Sub-advisor.............. .55% .50% .50%
--- --- ---
Total fees paid to
Sierra Advisors*....... .90% .85% .75%
=== === ===
</TABLE>
<TABLE>
<CAPTION>
FEES ON
ASSETS EXCEEDING
FEES ON $50 MILLION FEES ON
ASSETS EQUAL TO AND EQUAL TO ASSETS
OR LESS THAN OR LESS THAN EXCEEDING
$50 MILLION $125 MILLION $125 MILLION
--------------- ---------------- ------------
<S> <C> <C> <C>
International Growth Fund
Sierra Advisors.......... .45% .35% .25%
Sub-advisor***........... .50% .50% .50%
--- --- ---
Total fees paid to
Sierra Advisors*....... .95% .85% .75%
=== === ===
</TABLE>
------------
* Sierra Advisors retains only the net amount of the fees after sub-
advisory fees have been paid.
** The monthly fee paid to BlackRock is based upon the combined average
daily net assets of the U.S. Government Fund and the Sierra Trust
Funds' U.S. Government Fund (together, the "Combined Assets").
*** As of April 8, 1996, Warburg replaced J.P. Morgan as Sub-adviser to
the International Growth Fund pursuant to a sub-advisory agreement
pending shareholder approval. On June 21, 1996 at a special meeting
of shareholders, the shareholders of the International Growth Fund
approved the sub-advisory agreement. Prior to April 8, 1996, J.P.
Morgan received monthly fees at the following annual rates: (i) .60%
of the Fund's average daily net assets equal to or less than $50
million; (ii) .50% of the Fund's average daily net assets exceeding
$50 million and equal to or less than $125 million; and (iii) .50%
of the Fund's average daily net assets exceeding $125 million. As of
April 8, 1996, Warburg is paid a monthly fee at an annual rate of
.50% of the Fund's average daily net assets.
Sierra Advisors and certain Sub-advisors may voluntarily waive fees payable to
them from time to time. Any fee waivers by a Sub-advisor may be retained by
Sierra Advisors, or Sierra Advisors may pass part or all of such fee waivers
through to the Funds.
66
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
THE SIERRA VARIABLE TRUST
Fees voluntarily waived by Sierra Advisors for the six months ended June 30,
1996 are as follows:
<TABLE>
<CAPTION>
NAME OF FUND FEES WAIVED
------------ -----------
<S> <C>
Global Money Fund............................................. $34,887
Short Term High Quality Bond Fund............................. 6,719
</TABLE>
Sierra Fund Administration Corporation ("Sierra Administration"), an indirect
wholly-owned subsidiary of GWFC, serves as administrator and transfer agent to
each Fund. First Data Investor Services Group, Inc., ("FDISG"), a wholly-owned
subsidiary of First Data Corporation, serves as sub-administrator and sub-
transfer agent to each Fund. For its services as administrator and transfer
agent, each Fund pays Sierra Administration a monthly fee at an annual rate of
.18% of the value of each Fund's average daily net assets. Out of its fee,
Sierra Administration pays FDISG for its services as sub-administrator and sub-
transfer agent.
The Trust also pays FDISG certain out-of-pocket expenses and Boston Safe
Deposit and Trust Company ("Boston Safe"), the Trust's custodian, certain
custodial transaction charges reflected as administration fees. Boston Safe is
an indirect wholly-owned subsidiary of The Boston Company, Inc., which is a
wholly-owned subsidiary of Mellon Bank Corporation.
Custodian fees have been reduced by credits allowed by Boston Safe for the six
months ended June 30, 1996 as follows:
<TABLE>
<CAPTION>
CREDITS
ALLOWED BY THE
NAME OF FUND CUSTODIAN
------------ --------------
<S> <C>
Global Money Fund.......................................... $ 72
Short Term High Quality Bond Fund.......................... 217
Short Term Global Government Fund.......................... 192
U.S. Government Fund....................................... 1,981
Corporate Income Fund...................................... 38
Growth and Income Fund..................................... 276
Growth Fund................................................ 2,178
Emerging Growth Fund....................................... 2,021
International Growth Fund.................................. 1,666
</TABLE>
4. TRUSTEES' FEES
No director, officer or employee of Sierra Investment Services Corporation
("Sierra Services"), the Trust's distributor, Great Western Financial
Securities Corporation ("GW Securities"), a registered broker-dealer, Sierra
Advisors, Sierra Administration, the Sub-advisors or FDISG, or any of their
affiliates receives any compensation from the Trust for serving as an officer
or Trustee of the Trust. GW Securities is a wholly-owned subsidiary (directly
held as of January 1, 1996) and Sierra Services is an indirect wholly-owned
subsidiary of GWFC. The Trust pays each Trustee who is not a director, officer
or employee of Sierra Services, GW Securities, Sierra Advisors, Sierra
Administration, the Sub-advisors or FDISG, or any of their affiliates, $5,000
per annum plus $1,250 per board meeting attended, $1,000 per audit and/or
nominating committee meeting attended and reimbursement for travel and out-of-
pocket expenses. The Chairman of the Audit Committee receives $1,500 per audit
committee meeting attended.
Pursuant to an exemptive order granted by the Securities and Exchange
Commission on October 11, 1995, the Trust's eligible Trustees may participate
in a deferred compensation plan (the "Plan") which may be terminated at any
time. Under the Plan, Trustees may elect to defer receipt of all or a portion
of their fees which in accordance with the Plan are invested in mutual fund
shares. Upon termination of the Plan, Trustees that have deferred accounts
under the Plan will be paid benefits no later than the time the payments would
otherwise have been made without regard to such termination. All benefits
provided under these plans are funded and any payments to plan participants are
paid solely out of the Trust's assets.
67
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
THE SIERRA VARIABLE TRUST
5. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities,
excluding U.S. Government and short-term investments, for the six months ended
June 30, 1996 were as follows:
<TABLE>
<CAPTION>
NAME OF FUND PURCHASES SALES
------------ ------------ ------------
<S> <C> <C>
Short Term High Quality Bond Fund............. $ 5,583,731 $ 3,513,810
Short Term Global Government Fund............. 8,305,625 8,778,520
Corporate Income Fund......................... 4,229,135 3,124,372
Growth and Income Fund........................ 26,824,898 25,174,277
Growth Fund................................... 96,415,466 103,766,617
Emerging Growth Fund.......................... 34,420,578 29,476,541
International Growth Fund..................... 50,749,279 39,472,487
The aggregate cost of purchases and proceeds from sales of U.S. Government
Securities, excluding short-term investments, for the six months ended June 30,
1996 were as follows:
<CAPTION>
NAME OF FUND PURCHASES SALES
------------ ------------ ------------
<S> <C> <C>
Short Term High Quality Bond Fund............. $ 7,297,677 $ 9,211,787
Short Term Global Government Fund............. 1,332,892 615,336
U.S. Government Fund.......................... 63,582,259 67,755,437
Corporate Income Fund......................... 9,436,100 8,284,502
At June 30, 1996, aggregate gross unrealized appreciation for all securities in
which there is an excess of value over tax cost and aggregate gross unrealized
depreciation for all securities in which there is an excess of tax cost over
value were as follows:
<CAPTION>
TAX BASIS TAX BASIS
UNREALIZED UNREALIZED
NAME OF FUND APPRECIATION DEPRECIATION
------------ ------------ ------------
<S> <C> <C>
Short Term High Quality Bond Fund............. $ 58,926 $ 79,512
Short Term Global Government Fund............. 569,143 221,167
U.S. Government Fund.......................... 761,179 466,583
Corporate Income Fund......................... 973,065 1,576,222
Growth and Income Fund........................ 5,207,410 1,101,359
Growth Fund................................... 14,857,098 2,813,396
Emerging Growth Fund.......................... 12,669,124 1,450,253
International Growth Fund..................... 4,250,364 1,645,502
Option activity for the Short Term High Quality Bond Fund for the six months
ended June 30, 1996 was as follows:
<CAPTION>
NUMBER OF
WRITTEN OPTIONS: PREMIUMS CONTRACTS
---------------- ------------ ------------
<S> <C> <C>
Options outstanding at December 31, 1995...... $ 0 0
Options written............................... 7,860 988,700
----------- ------------
Options outstanding at June 30, 1996.......... $ 7,860 988,700
=========== ============
Option activity for the Short Term Global Government Fund for the six months
ended June 30, 1996 was as follows:
<CAPTION>
WRITTEN OPTIONS ON FOREIGN CURRENCY: PREMIUMS
------------------------------------ ------------
<S> <C>
Options outstanding at December 31, 1995...... $ 118,194
Options written............................... 186,438
Options closed................................ (164,074)
Options expired............................... (90,690)
-----------
Options outstanding at June 30, 1996.......... $ 49,868
===========
</TABLE>
68
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
THE SIERRA VARIABLE TRUST
Information regarding dollar roll transactions by the U.S. Government and
Corporate Income Funds is as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT CORPORATE
DOLLAR ROLL TRANSACTIONS: FUND INCOME FUND
------------------------- --------------- -----------
<S> <C> <C>
Maximum amount outstanding during the
period..................................... $3,740,313 $1,005,938
Average amount outstanding during the peri-
od*........................................ $1,803,255 $ 475,038
Average monthly shares outstanding during
the period................................. 5,767,712 5,910,586
Average debt per share outstanding during
the period................................. $ 0.31 $ 0.08
</TABLE>
------------
* The average amount outstanding during the period was calculated by
adding the borrowings at the end of each day and dividing the sum by
the number of days in the period ended June 30, 1996.
Fee income earned for the six months ended June 30, 1996 by the U.S. Government
and Corporate Income Funds for dollar roll transactions aggregated $12,519 and
$6,637, respectively.
Information regarding reverse repurchase agreement transactions by the U.S.
Government Fund is as follows:
<TABLE>
<CAPTION>
REVERSE REPURCHASE AGREEMENTS:
------------------------------
<S> <C>
Maximum amount outstanding during the period.................. $7,630,000
Average amount outstanding during the period*................. $2,499,133
Average monthly shares outstanding during the period.......... 5,767,712
Average debt per share outstanding during the period.......... $ 0.43
</TABLE>
------------
* The average amount outstanding during the period was calculated by
adding the borrowings at the end of each day and dividing the sum by
the number of days in the period ended June 30, 1996.
Interest rates ranged from 5.000% to 5.900% during the period. Interest paid
for the six months ended June 30, 1996, on borrowings by the Fund under reverse
repurchase agreements aggregated $71,065.
6. SHARES OF BENEFICIAL INTEREST
Each Fund of the Trust may issue an unlimited number of shares of beneficial
interest without par value.
7. ORGANIZATION COSTS
Expenses incurred in connection with the organization of the Global Money,
Short Term Global Government, U.S. Government, Corporate Income, Growth and
International Growth Funds, including the fees and expenses of registering and
qualifying each Fund's shares for distribution under Federal and state
securities regulations, are being amortized on a straight-line basis over a
period of 60 months from commencement of operations of each Fund. In the event
any of the initial shares of a Fund 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 the applicable Fund's unamortized
deferred organizational expenses in the same proportion as the number of shares
being redeemed bears to the number of initial shares of such Fund outstanding
at the time of such redemption.
8. CAPITAL LOSS CARRYFORWARDS
At December 31, 1995, the following Funds had available for federal income tax
purposes unused capital losses as follows:
<TABLE>
<CAPTION>
NAME OF FUND EXPIRING IN 2002 EXPIRING IN 2003
------------ ---------------- ----------------
<S> <C> <C>
Short Term High Quality Bond Fund..... $ 87,775 $ 71,035
Short Term Global Government Fund..... 217,952 91,070
U.S. Government Fund.................. 827,338 1,366,480
Corporate Income Fund................. 1,220,489 878,516
International Growth Fund............. -- 225,385
</TABLE>
69
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
THE SIERRA VARIABLE TRUST
9. GEOGRAPHIC AND INDUSTRY CONCENTRATION
All Funds except the U.S. Government Fund may invest in securities of foreign
companies and foreign governments. There are certain risks involved in
investing in foreign securities that are in addition to the usual risks
inherent in domestic investments. These risks include those resulting from
future adverse political and economic developments and the possible imposition
of currency exchange blockages or other foreign governmental laws or
restrictions.
In addition, the Money Fund may invest at least 25% of its assets in bank
obligations. As a result of this concentration policy, the Fund's investments
may be subject to greater risk than a fund that does not concentrate in the
banking industry. In particular, bank obligations may be subject to the risks
associated with interest rate volatility, changes in Federal and state laws and
regulations governing the banking industry and the inability of borrowers to
pay principal and interest when due. In addition, foreign banks present risks
similar to those investing in foreign securities generally and are not subject
to the same reserve requirements and other regulations as U.S. banks.
10. SUBSEQUENT EVENT
Effective July 1, 1996, the Trust has engaged FDISG as its Transfer Agent. The
transfer agent fees will be paid directly by the Trust rather than Sierra
Administration.
- --------------------------------------------------------------------------------
MEETING OF SHAREHOLDERS
On June 21, 1996 a Special Meeting of Shareholders of The Sierra Variable Trust
International Growth Fund (the "International Growth Fund") was held. The
purpose of the meeting was to approve the selection of Warburg, Pincus
Counsellors, Inc. ("Warburg") as Investment Sub-Advisor for the International
Growth Fund and also to approve the adoption of a new Investment Sub-Advisory
Agreement by and among The Sierra Variable Trust Funds (the "Trust"), Sierra
Investment Advisors Corporation and Warburg with respect to the International
Growth Fund.
At the meeting 3,701,786 votes were cast in favor of the proposal and 90,590
votes were cast against the proposal. In addition, there were 480,724
abstentions with respect to the proposal.
70
<PAGE>
This material is not an offer to sell nor a solicitation to buy The Sierra
Advantage Variable Annuity or shares of The Sierra Variable Trust. It is not
authorized for distribution unless preceded or accompanied by a current
prospectus that includes information regarding the risk factors, expenses,
policies, and objectives of The Sierra Advantage Variable Annuity program.
Please read it carefully before investing. Sierra Advantage may not be available
for sale in all states.
Shares of The Sierra Variable Trust are not insured by the FDIC. They are not
deposits or obligations of, nor are they guaranteed by, the depository
institution. These securities are subject to investment risk, including
possible loss of principal amount invested.
Distributed by
Sierra Investment Services Corporation
Member NASD
- ---------
SIERRA Bulk Rate
ADVANTAGE U.S. Postage
- --------- PAID
A TAX-DEFERRED VARIABLE ANNUITY Van Nuys, CA
Permit No.987
The Sierra Variable Trust
9301 Corbin Avenue, Suite 333
P.O. Box 1130
Northridge, California 91328-1130
