<PAGE> 1
As filed with the Securities and Exchange Commission on April 29, 1996
Securities Act File No. 33-57732
Investment Company Act File No. 811-7462
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /___/
PRE-EFFECTIVE AMENDMENT NO. ___ /___/
POST-EFFECTIVE AMENDMENT NO. 5 / X /
--- ---
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /___/
AMENDMENT NO. 6 / X /
--- ---
The Sierra Variable Trust
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<S> <C>
9301 Corbin Avenue
Northridge, CA 91324
---------------------------------------- ---------
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, including Area Code: (818) 725-0200
F. Brian Cerini
The Sierra Variable Trust
9301 Corbin Avenue
Northridge, California 91324
---------------------------------------
(Name and Address of Agent for Service)
Copies to:
<TABLE>
<S> <C>
Richard W. Grant, Esq. Lawrence Sheehan, Esq.
Morgan, Lewis & Bockius LLP O'Melveny & Myers
2000 One Logan Square 1999 Avenue of the Stars, #700
Philadelphia, Pennsylvania 19103 Los Angeles, California 90067
</TABLE>
It is proposed that this filing will become effective (check
appropriate box):
X
_____ immediately upon filing pursuant to paragraph (b), or
_____ on [date] pursuant to paragraph (b), or
_____ 60 days after filing pursuant to paragraph (a), or
_____ 75 days after filing pursuant to paragraph (a), or
_____ on [date] pursuant to paragraph (a) of Rule 485.
DECLARATION PURSUANT TO RULE 24f-2
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant has previously registered an indefinite number or amount of its
shares of beneficial interest under the Securities Act of 1933.
Registrant's Rule 24f-2 Notice with respect to the Global Money Fund,
Short Term High Quality Bond Fund, Short Term Global Government Fund, U.S.
Government Fund, Corporate Income Fund, Growth and Income Fund, Growth Fund,
Emerging Growth Fund and International Growth Fund for the fiscal year ended
December 31, 1995 was filed with the Securities and Exchange Commission on
February 27, 1996.
<PAGE> 2
THE SIERRA VARIABLE TRUST
FORM N-1A
CROSS REFERENCE SHEET
_______________________________________
PART A
<TABLE>
<CAPTION>
Item No. Prospectus Heading
- -------- ------------------
<S> <C>
1. Cover Page . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . Highlights
3. Condensed Financial
Information . . . . . . . . Financial Highlights
4. General Description of
Registrant . . . . . . . . Management of the Trust; Investment Policies; Certain
Investment Guidelines; Special Considerations; General
Information and History
5. Management of the Fund . . . Management of the Trust-Investment Advisor, -- Sub-
Advisors, -- Distributor and -Administration;
Investment Guidelines; Special Considerations
5A. Management's Discussion of Not Applicable
Fund Performance. . . . .
6. Capital Stock and Other
Securities . . . . . . . . Dividends, Distributions and Taxes; General
Information and History --The Trust
7. Purchase of Securities
Being Offered . . . . . . . General Information and History -- Purchase and
Redemption, and -- Net Asset Value; Management of the
Trust -- Distributor
8. Redemption or Repurchase . . General Information and History -- Purchase and
Redemption
9. Pending Legal Proceedings. . Not Applicable
</TABLE>
(i)
<PAGE> 3
PART B
<TABLE>
<CAPTION>
Heading in Statement of
Item No. Additional Information
- -------- ----------------------
<S> <C>
10. Cover Page . . . . . . . . . Cover Page
11. Table of Contents . . . . . Contents
12. General Information and
History . . . . . . . . . . General Information and History; Management of the
Trust; see Prospectus -- "General Information and
History"
13. Investment Objectives and
Policies . . . . . . . . . Investment Objectives and Policies of the Funds
14. Management of the Fund . . . Management of the Trust
15. Control Persons and Principal
Holders of Securities . . . Management of the Trust; see Prospectus -- "General
Information and History"
16. Investment Advisory and
Other Services . . . . . . Management of the Trust; see Prospectus -- "Management
of the Trust-- Administration"
17. Brokerage Allocation and
Other Practices . . . . . . Investment Objectives and Policies of the Funds
18. Capital Stock and Other
Securities . . . . . . . . Management of the Trust; see Prospectus -- "Dividends,
Distributions and Taxes" and "General Information and
History"
19. Purchase, Redemption and
Pricing of Securities
Being Offered . . . . . . . Purchase and Pricing of Shares; Net Asset Value
20. Tax Status . . . . . . . . . Taxes; see Prospectus -- "Dividends, Distributions and
Taxes"
21. Underwriters . . . . . . . . Purchase and Pricing of Shares; see Prospectus --
"Management of the Trust -- Distributor"
22. Calculation of Performance
Data . . . . . . . . . . . Performance; see Prospectus -- "Performance"
23. Financial Statements . . . . Financial Statements
</TABLE>
(ii)
<PAGE> 4
Part C
Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C to this Registration Statement.
(iii)
<PAGE> 5
THE SIERRA VARIABLE TRUST
9301 CORBIN AVENUE, SUITE 333
NORTHRIDGE, CALIFORNIA 91324
The Sierra Variable Trust (the "Trust") is a mutual fund consisting of nine
different investment funds (the "Funds"), each of which has a different
investment objective. The Funds are GLOBAL MONEY, SHORT TERM HIGH QUALITY BOND,
SHORT TERM GLOBAL GOVERNMENT, U.S. GOVERNMENT, CORPORATE INCOME, GROWTH AND
INCOME, GROWTH, EMERGING GROWTH AND INTERNATIONAL GROWTH. These Funds are
currently available to the public only through certain variable annuity
contracts ("Contracts") issued by American General Life Insurance Company
("AGL").
Please read this Prospectus before allocating premiums to the Trust and keep it
on file for future reference. It contains useful information that can help you
decide if a Fund's investment goals match your own.
A Statement of Additional Information ("SAI") about the Trust and the Funds,
dated May 1, 1996, has been filed with the Securities and Exchange Commission
("SEC") and is incorporated herein by reference. The SAI is available free upon
request by calling AGL at 800-247-6584 or by writing to American General Life
Insurance Company, Attention: Annuity Administration, P.O. Box 1401, Houston,
Texas 77251-1401.
Sierra Investment Services Corporation ("Distributor" or "Sierra Services"), the
distributor of the Trust's shares, is not a bank. THE FUNDS' SHARES ARE NOT
DEPOSITS OR OBLIGATIONS OF OR ENDORSED OR GUARANTEED BY ANY BANK, NOR ARE THEY
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENTS IN THE TRUST INVOLVE RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
INVESTMENTS IN THE GLOBAL MONEY FUND ARE NOT GUARANTEED OR INSURED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT IT WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE.
LIKE SHARES OF ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS DATED MAY 1, 1996
1
<PAGE> 6
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Highlights........................................................................ 3
Investment Policies............................................................... 14
Management of the Trust........................................................... 20
Board of Trustees...................................................... 20
Investment Management.................................................. 20
Distributor............................................................ 25
Administration......................................................... 26
General Information and History................................................... 26
The Trust.............................................................. 26
Purchase and Redemption................................................ 27
Purchase through the SAM Program....................................... 27
Net Asset Value........................................................ 28
Dividends, Distributions and Taxes................................................ 28
Performance....................................................................... 29
Appendix - Securities and Investment Practices.................................... A-1
Statement of Additional Information Table of Contents............................. A-16
</TABLE>
2
<PAGE> 7
HIGHLIGHTS
INTRODUCTION
The Sierra Variable Trust (the "Trust") is a no-load, open-end management
investment company. The Trust is intended exclusively as an investment vehicle
for variable annuity or variable life insurance contracts offered by the
separate accounts of various insurance companies. Currently the Trust is
available only through The Sierra Advantage Annuity issued by AGL. Owners of The
Sierra Advantage Annuity may elect to participate in the Sierra Asset Management
program ("SAM Program"), which periodically reallocates account values in light
of financial and investment objectives and changing economic and market
conditions, through Sierra Investment Services Corporation, the Trust's
Distributor.
INVESTMENT OBJECTIVES AND POLICIES
The Trust offers nine separate Funds, each with distinct investment objectives
and policies. Except for the Short Term Global Government Fund, each Fund is
diversified.
The GLOBAL MONEY FUND seeks to maximize current income consistent with safety of
principal and maintenance of liquidity. It will pursue this objective by
investing in U.S. dollar denominated money market instruments of foreign and
U.S. issuers. It also seeks to maintain a stable net asset value of $1.00 per
share.
The SHORT TERM HIGH QUALITY BOND FUND seeks as high a level of current income as
is consistent with prudent investment management and stability of principal. It
will pursue this objective by investing primarily in high quality short-term
bonds and other debt instruments.
The SHORT TERM GLOBAL GOVERNMENT FUND seeks to provide high current income
consistent with protection of principal. It will pursue this objective by
investing primarily in short-term bonds and money market instruments issued by
foreign and U.S. governments and denominated in foreign currencies or the U.S.
dollar.
The U.S. GOVERNMENT FUND seeks to maximize total return while providing
investors with a high level of current income, consistent with reasonable safety
of principal. Under normal market conditions, it will pursue this objective by
investing primarily in intermediate and long-term U.S. Government bonds.
The CORPORATE INCOME FUND seeks to provide a high level of current income,
consistent with the preservation of capital. Under normal market conditions, it
will pursue this objective by investing primarily in investment grade corporate
bonds of United States issuers.
The GROWTH AND INCOME FUND seeks long-term capital growth and current income
consistent with reasonable investment risk. Under normal market conditions, it
will pursue this objective by investing primarily in dividend-paying Common
Stock.
The GROWTH FUND seeks long-term capital appreciation. Under normal market
conditions, it will pursue this objective by investing primarily in Equity
Securities of U.S., multinational and foreign companies of all sizes that offer
potential for growth.
The EMERGING GROWTH FUND seeks long-term capital appreciation. Under normal
market conditions, it will pursue this objective by investing primarily in
Equity Securities of U.S. and foreign companies having market capitalization of
less than $1.4 billion.
The INTERNATIONAL GROWTH FUND is an equity fund that seeks long-term capital
appreciation. Under normal market conditions, it will pursue this objective by
investing primarily in equity securities of foreign issuers.
The investment objective of each Fund and policies and restrictions specifically
cited as fundamental may not be changed without the approval of a majority of
the outstanding shares of that Fund. A complete list of investment restrictions
that identifies additional restrictions that cannot be changed without the
3
<PAGE> 8
approval of a majority of an affected Fund's outstanding shares is contained in
the SAI. There is no assurance that a Fund will meet its stated objective.
INVESTMENT RISKS
The value of a Fund's shares will fluctuate with the value of the underlying
securities in its portfolio, and in the case of debt securities, with the
general level of interest rates. When interest rates decline, the value of a
portfolio invested in Fixed-Income Securities can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in
Fixed-Income Securities can be expected to decline. In the case of foreign
currency denominated securities, these trends may be offset or amplified by
fluctuations in foreign currencies. Lower-Rated Securities, such as those in
which the Short Term Global Government Fund may invest up to 10% and the Growth
and Emerging Growth Funds up to 35% of total assets, are subject to greater
market fluctuations and risk of loss of income and principal than investments in
lower yielding Fixed-Income Securities. The Funds intend to employ from time to
time certain investment techniques which are designed to enhance income or total
return or hedge against market or currency risks but which themselves involve
additional risks. These techniques include Options on Securities, Futures,
Options on Futures, Options on Indexes, Options on Foreign Currencies, Foreign
Currency Exchange Transactions, Lending of Securities and When-Issued Securities
and Delayed-Delivery Transactions. Because the Short Term Global Government Fund
is non-diversified, it is permitted greater flexibility to invest its assets in
the securities of any one issuer and therefore will be exposed to increased risk
of loss if such an investment underperforms expectations. The Funds may have
higher than average portfolio turnover which may result in higher than average
brokerage commissions and transaction costs.
INVESTMENT ADVISORS
Subject to the authority of the Board of Trustees, Sierra Investment Advisors
Corporation ("Advisor" or "Sierra Advisors") serves as the Trust's investment
advisor and has overall management of the investment strategies and policies of
the Funds. The Trust has secured the services of sub-advisors for each Fund to
make investment decisions and place orders.
DISTRIBUTION
Sierra Investment Services Corporation ("Distributor" or "Sierra Services")
distributes the Funds' shares to the separate accounts, which purchase and
redeem these shares at net asset value without sales or redemption charges.
ADMINISTRATION
Sierra Fund Administration Corporation ("Sierra Administration") serves as
Administrator and Transfer Agent to the Trust and has responsibility for the
Trust's administrative and recordkeeping functions. It has engaged First Data
Investor Services Group, Inc. ("FDISG") (formerly known as The Shareholders
Services Group, Inc.), a wholly-owned subsidiary of First Data Corporation, as
sub-administrator and Boston Safe Deposit & Trust Company ("Boston Safe") as
custodian.
TAXES
The tax consequences of your investment in the Trust depend upon the specific
provisions of your Contract. For more information, see the prospectus for that
Contract, which is attached to the front of this Prospectus.
PURCHASING AND SELLING SHARES
You cannot purchase shares of the Trust directly, but only through a Contract
offered through an insurance company separate account. Please refer to the
prospectus for your Contract for information on how to make investments and
redemptions.
4
<PAGE> 9
FINANCIAL HIGHLIGHTS
The financial highlights set forth certain information concerning the Trust's
investment results for the periods presented. The financial highlights have been
audited by Price Waterhouse LLP, the Trust's independent accountants, whose
report is contained in the Trust's Annual Report to Shareholders which is
included in the SAI. The SAI and Annual Report can be obtained at no charge by
calling AGL at 800-247-6584 or writing to them at the address shown on the first
page of this Prospectus.
GLOBAL MONEY FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/95 12/31/94 12/31/93*
-------- -------- ---------
<S> <C> <C> <C>
Net asset value, beginning of year................... $ 1.00 $ 1.00 $ 1.00
------- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................ 0.053 0.037 0.016
------- ------ ------
Total from investment operations..................... 0.053 0.037 0.016
------- ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income................. (0.053) (0.037) (0.016)
------- ------ ------
Total distributions.................................. (0.053) (0.037) (0.016)
------- ------ ------
Net asset value, end of year......................... $ 1.00 $ 1.00 $ 1.00
======= ====== ======
TOTAL RETURN+ 5.46% 3.69% 1.59%
======= ====== ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's)................... $20,373 $ 6,159 $1,488
Ratio of operating expenses to average net assets.... 0.50% 0.49% 0.39%**
Ratio of net investment income to average net
assets............................................. 5.30% 3.84% 2.54%**
Ratio of operating expenses to average net assets
without fees reduced by credits allowed by the
custodian.......................................... 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........ 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........ $ 0.048 $ 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.
5
<PAGE> 10
SHORT TERM HIGH QUALITY BOND FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
12/31/95 12/31/94*
---------- ------------
<S> <C> <C>
Net asset value, beginning of year.......................... $ 2.39 $ 2.50
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.12 0.08
Net realized and unrealized gain/(loss) on investments...... 0.10 (0.12)
------- -------
Total from investment operations............................ 0.22 (0.04)
------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.12) (0.07)
------- -------
Total distributions......................................... (0.12) (0.07)
------- -------
Net asset value, end of year................................ $ 2.49 $ 2.39
======= =======
TOTAL RETURN+ 9.30% (1.62)%
======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's).......................... $ 12,365 $ 15,547
Ratio of operating expenses to average net assets........... 0.85% 0.77%**
Ratio of net investment income to average net assets........ 6.14% 5.63%**
Portfolio turnover rate..................................... 188% 80%
Ratio of operating expenses to average net assets without
fees reduced by credits allowed by the custodian.......... 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................................................. 1.01%(a) 1.10%**
Net investment income per share without fee waivers and/or
fees reduced by credits allowed by the custodian.......... $ 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.
6
<PAGE> 11
SHORT TERM GLOBAL GOVERNMENT FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/95 12/31/94 12/31/93*
-------- -------- ---------
<S> <C> <C> <C>
Net asset value, beginning of year................... $ 2.35 $ 2.49 $ 2.50
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................ 0.07 0.05 0.01
Net realized and unrealized gain/(loss) on
investments........................................ 0.12 (0.10) (0.01)
------- ------- -------
Total from investment operations..................... 0.19 (0.05) 0.00
------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income................. (0.04) (0.05) (0.01)
Distributions from capital***........................ -- (0.04) --
------- ------- -------
Total distributions.................................. (0.04) (0.09) (0.01)
------- ------- -------
Net asset value, end of year......................... $ 2.50 $ 2.35 $ 2.49
======= ======= =======
TOTAL RETURN+ 8.09% (2.03)% 0.12%
======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's)................... $23,805 $29,804 $19,147
Ratio of operating expenses to average net assets.... 1.25% 0.92% 0.52%**
Ratio of net investment income to average net
assets............................................. 6.22% 5.84% 4.06%**
Portfolio turnover rate.............................. 195% 286% 164%
Ratio of operating expenses to average net assets
without fees reduced by credits allowed by the
custodian.......................................... 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........ 1.26% (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................... $ 0.07 $ 0.05 $ 0.01
</TABLE>
- --------------------------------------------------------------------------------
* The Fund commenced operations on May 12, 1993.
** Annualized.
*** Certain of these distributions which are reported as being from paid-in
capital for financial statement purposes may be reported to shareholders as
taxable distributions due to differing tax and accounting rules.
+ 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.
7
<PAGE> 12
U.S. GOVERNMENT FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/95 12/31/94 12/31/93*
---------- ---------- ---------
<S> <C> <C> <C>
Net asset value, beginning of year........... $ 9.13 $ 10.04 $ 10.00
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................ 0.64 0.50 0.19
Net realized and unrealized gain/(loss) on
investments................................ 0.87## (0.90)## 0.04##
------- ------- -------
Total from investment operations............. 1.51 (0.40) 0.23
------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income......... (0.64) (0.50) (0.19)
Distributions from net realized gains........ -- (0.01) --
------- ------- -------
Total distributions.......................... (0.64) (0.51) (0.19)
------- ------- -------
Net asset value, end of year................. $ 10.00 $ 9.13 $ 10.04
======= ======= =======
TOTAL RETURN+ 16.89% (4.04)% 2.27%
======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year (in 000's)........... $ 52,303 $ 43,582 $25,069
Ratio of operating expenses to average net
assets..................................... 1.00% 0.85% 0.44%**
Ratio of net investment income to average net
assets..................................... 6.68% 5.75% 5.37%**
Portfolio turnover rate...................... 273% 74% 131%
Ratio of operating expenses to average net
assets without fees reduced by credits
allowed by the custodian................... 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................... 1.03%(a) 1.02% 1.47%**
Ratio of operating expenses to average net
assets including interest expense.......... 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.................................. $ 0.63 $ 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.
8
<PAGE> 13
CORPORATE INCOME FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/95 12/31/94 12/31/93*
-------- -------- ---------
<S> <C> <C> <C>
Net asset value, beginning of year................... $ 9.06 $ 10.34 $ 10.00
------- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................ 0.70 0.47 0.23
Net realized and unrealized gain/(loss) on
investments........................................ 1.50 (1.30) 0.33##
------- ------ ------
Total from investment operations..................... 2.20 (0.83) 0.56
------- ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income................. (0.78) (0.40) (0.22)
Distributions from net realized gains................ -- (0.05) --
------- ------ ------
Total distributions.................................. (0.78) (0.45) (0.22)
------- ------ ------
Net asset value, end of year......................... $ 10.48 $ 9.06 $ 10.34
======= ====== ======
TOTAL RETURN+ 25.09% (8.13)% 5.62%
======= ====== ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's)................... $60,676 $54,705 $28,732
Ratio of operating expenses to average net assets.... 0.99% 0.93% 0.54%**
Ratio of net investment income to average net
assets............................................. 7.00% 7.28% 6.37%**
Portfolio turnover rate.............................. 42% 23% 26%
Ratio of operating expenses to average net assets
without fees reduced by credits allowed by the
custodian.......................................... 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........ 0.99%(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................... $ 0.70 $ 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.
9
<PAGE> 14
GROWTH AND INCOME FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
12/31/95 12/31/94*
-------- ---------
<S> <C> <C>
Net asset value, beginning of year............................. $ 9.83 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.......................................... 0.12 0.07
Net realized and unrealized gain/(loss) on investments......... 3.05 (0.24)
------- -------
Total from investment operations............................... 3.17 (0.17)
------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income........................... (0.07) --
Distributions from net realized gains.......................... (0.10) --
------- -------
Total distributions............................................ (0.17) --
------- -------
Net asset value, end of year................................... $ 12.83 $ 9.83
======= =======
TOTAL RETURN+ 32.41% (1.70)%
======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's)............................. $46,362 $24,905
Ratio of operating expenses to average net assets.............. 1.06% 1.20%**
Ratio of net investment income to average net assets........... 1.31% 1.63%**
Portfolio turnover rate........................................ 70% 44%
Ratio of operating expenses to average net assets without fees
reduced by credits allowed by the custodian.................. 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.................................................... 1.16% (a) 1.55%**
Net investment income per share without fee waivers and/or fees
reduced by credits allowed by the custodian.................. $ 0.11 $ 0.05
</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.
10
<PAGE> 15
GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/95++ 12/31/94 12/31/93*
---------- -------- ---------
<S> <C> <C> <C>
Net asset value, beginning of year............ $ 11.48 $ 11.19 $ 10.00
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income......................... 0.04 0.04 0.02
Net realized and unrealized gain on
investments................................. 4.24 0.26 1.17
------- ------- -------
Total from investment operations.............. 4.28 0.30 1.19
------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income.......... (0.04) (0.01 ) --
Distributions from net realized gains......... (0.00)# -- --
------- ------- -------
Total distributions........................... (0.04) (0.01 ) --
------- ------- -------
Net asset value, end of year.................. $ 15.72 $ 11.48 $ 11.19
======= ======= =======
TOTAL RETURN+ 37.34% 2.69% 11.90%
======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year (in 000's)............ $ 99,699 $62,763 $22,795
Ratio of operating expenses to average net
assets...................................... 1.24% 1.26% 0.78%**
Ratio of net investment income to average net
assets...................................... 0.29% 0.74% 0.70%**
Portfolio turnover rate....................... 187% 257% 86%
Ratio of operating expenses to average net
assets without fees reduced by credits
allowed by the custodian.................... 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.................... 1.24%(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................................... $ 0.04 $ 0.04 ($ 0.01)
</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 year 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.
11
<PAGE> 16
EMERGING GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
12/31/95 12/31/94*
---------- -----------
<S> <C> <C>
Net asset value, beginning of year.......................... $ 10.53 $ 10.00
-------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income/(loss)................................ (0.01) 0.06
Net realized and unrealized gain on investments............. 3.26 0.47
-------- --------
Total from investment operations............................ 3.25 0.53
-------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.04) --
Distributions from net realized gains....................... (0.00)# --
-------- --------
Total distributions......................................... (0.04) --
-------- --------
Net asset value, end of year................................ $ 13.74 $ 10.53
======== ========
TOTAL RETURN+ 30.99% 5.30%
======== ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........................ $ 46,058 $ 19,885
Ratio of operating expenses to average net assets........... 1.20% 1.23%**
Ratio of net investment income/(loss) to average net
assets.................................................... (0.35)% 1.03%**
Portfolio turnover rate..................................... 135% 192%
Ratio of operating expenses to average net assets without
fees reduced by credits allowed by the custodian.......... 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............................................. 1.28%(a) 1.38%**
Net investment income/(loss) per share without fee waivers
and/or fees reduced by credits allowed by the custodian... $ (0.01) $ 0.05
</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.
12
<PAGE> 17
INTERNATIONAL GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/95 12/31/94 12/31/93*
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of year.................... $ 11.47 $ 11.31 $ 10.00
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................. 0.18 0.01 0.02
Net realized and unrealized gain on investments....... 0.58 0.19## 1.29
------- ------- -------
Total from investment operations...................... 0.76 0.20 1.31
------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income.................. (0.00)# (0.03) --
Distributions from net realized gains................. (0.12) (0.01) --
------- ------- -------
Total distributions................................... (0.12) (0.04) --
------- ------- -------
Net asset value, end of year.......................... $ 12.11 $ 11.47 $ 11.31
======= ======= =======
TOTAL RETURN+ 6.61% 1.88% 13.10%
======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's).................... $45,909 $46,529 $10,638
Ratio of operating expenses to average net assets..... 1.47% 1.34% 0.83%**
Ratio of net investment income to average net
assets.............................................. 0.91% 0.83% 0.61%**
Portfolio turnover rate............................... 72% 51% 24%
Ratio of operating expenses to average net assets
without fees reduced by credits allowed by the
custodian........................................... 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......... 1.48%(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................. $ 0.17 $ 0.01 ($0.06)
</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.
# 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 the timing of sales and redemptions
of Funds 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.
13
<PAGE> 18
INVESTMENT POLICIES
The nine Funds follow distinct investment policies. An investment in a single
Fund is not designed to be a complete investment program. In implementing its
policies, each Fund uses a variety of instruments, strategies and techniques
that are capitalized in the text and described in more detail in the Appendix
and in the SAI. With respect to each Fund's investment policies, use of the term
"primarily" means that under normal circumstances, at least 65% of the Fund's
assets will be invested as indicated, except for the Global Money Fund, where
all of its assets will meet the quality and maturity standards described in the
SAI. A description of the rating systems used by the following nationally
recognized statistical rating organizations ("NRSROs") is also contained in the
SAI: Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation
("S&P"), Duff & Phelps, Inc. ("Duff") and Fitch Investors Service, Inc.
("Fitch"). New instruments, strategies and techniques, however, are evolving
continually and the Trust reserves authority to invest in or implement them to
the extent consistent with its investment objectives and policies.
THE MONEY MARKET FUND
GLOBAL MONEY FUND. The Global Money Fund invests in the following U.S. dollar
denominated high-quality, money market instruments issued by U.S. and foreign
financial institutions and nonfinancial corporations and by the U.S. Government,
its agencies or instrumentalities:
1. Bank Obligations;
2. Commercial paper (including variable rate demand notes);
3. Short-term corporate obligations;
4. U.S. Government Securities; and
5. Repurchase Agreements collateralized by the securities listed in 1
and 4 above.
The Global Money Fund follows industry-standard guidelines on the quality and
maturity of its investments designed to help maintain a stable $1.00 share
price. The Fund does not, however, guarantee a $1.00 share price, and a major
change in interest rates or a default on an investment could cause the share
price to change. Generally, securities with longer maturities are more
vulnerable to price changes, although they provide higher yields.
The Fund may invest in Foreign Investments that are U.S. dollar denominated. The
Fund may invest up to 50% of its assets in any foreign country but will normally
include issues having activities in at least three countries, including the
United States. In addition, the Fund may invest in U.S. Government Securities
without limit and normally will invest at least 25% of its assets in Bank
Obligations.
THE BOND FUNDS
SHORT TERM HIGH QUALITY BOND FUND. To accomplish its objective, the Fund will
invest primarily in high quality short-term bonds and other debt securities.
Under normal market conditions the Fund will maintain a dollar-weighted average
portfolio maturity of three years or less. The Fund may hold individual
securities with remaining maturities of more than three years as long as the
dollar-weighted average portfolio maturity is three years or less. For purposes
of the weighted average maturity calculation, a mortgage instrument's average
life will be considered to be its maturity.
The Fund intends to invest substantially all of its assets in a portfolio of
debt securities that are rated investment grade by one or more NRSROs, or, if
unrated, are judged to be of comparable quality by the Fund's Sub-Advisor.
Securities which are "investment grade" are rated in one of the four highest
rating categories. The Fund will invest primarily in U.S. Government Securities,
corporate debt obligations or Mortgage-Backed Securities rated in one of the two
highest categories by an NRSRO, that is, at least Aa by Moody's, at least AA by
S&P, Duff or Fitch, or, if unrated, that are judged to be of comparable quality
by the Sub-Advisor. Investment-grade bonds are generally of medium to high
quality. A bond
14
<PAGE> 19
rated in the lower end of the category (Baa/BBB) however, may have speculative
characteristics and may be more sensitive to economic changes and changes in the
financial condition of the issuer.
The debt securities in which the Fund may invest include obligations issued or
guaranteed by domestic and foreign governments and government agencies and
instrumentalities and high-grade corporate debt obligations, such as bonds,
debentures, notes, equipment lease and trust certificates, Mortgage-Backed
Securities, collateralized mortgage obligations and Asset-Backed Securities.
The Fund may invest up to 10% of its assets in foreign debt securities,
primarily bonds of foreign governments or their political subdivisions, foreign
companies and supranational organizations, including non-U.S. dollar denominated
securities and U.S. dollar denominated debt securities issued by foreign issuers
and foreign branches of U.S. banks. As discussed in the Appendix under
"Securities and Investment Practices - Foreign Investments," investment in
foreign securities is subject to special risks, such as future adverse political
and economic developments; possible seizure, nationalization, or expropriation
of foreign investments; less stringent disclosure and accounting requirements;
the possible establishment of exchange controls or taxation at the source; or
the adoption of other foreign governmental restrictions.
The Fund may also invest in high-quality, short-term obligations (with
maturities of 12 months or less), such as commercial paper issued by domestic
and foreign corporations, Bank Obligations and Repurchase Agreements. In
addition, the Fund may engage in certain Strategic Transactions, which include
Dollar Roll Transactions, Reverse Repurchase Agreements, Interest Rate
Transactions, Options on Securities and Indexes, Futures and Options on Futures,
Options on Foreign Currencies, Foreign Exchange Transactions and Over the
Counter Options. The Fund currently intends to invest up to 10% of its total
assets in Reverse Repurchase Agreements and up to 33 1/3% of its total assets in
Dollar Roll Transactions.
Although the Fund will invest in high quality investments and maintain a
dollar-weighted average portfolio maturity of three years or less, there will be
some variation in the extent to which the values of the Fund's investments will
vary in response to changes in generally prevailing interest rates. For example,
certain Mortgage-Backed Securities, collateralized mortgage obligations and
Asset-Backed Securities may have pre-payment features that tend to make their
values increase less in response to declining interest rates and decrease more
in response to increasing interest rates than would the values of otherwise
similar conventional debt securities. The Fund may also invest in "inverse
floater" instruments that may be more volatile than other variable rate debt
instruments.
The Fund may invest in certain Illiquid Securities.
SHORT TERM GLOBAL GOVERNMENT FUND. The Fund invests primarily in at least three
different countries, one of which may be the United States. The Fund maintains a
dollar-weighted average portfolio maturity not exceeding three years but may
hold individual securities with longer maturities. This policy helps minimize
the effect of interest rate changes on the Fund's share price. The Sub-Advisor's
determination of the expected average life of a portfolio mortgage security is
used as that security's maturity with regard to determining the above average
dollar-weighted portfolio maturity calculation. The Fund's share price and yield
will fluctuate primarily due to the movement of foreign currencies against the
U.S. dollar and changes in worldwide interest rates.
The Fund is not meant to be a substitute for a money market fund, which seeks to
maintain a fixed net asset value per share. The Fund seeks to maintain greater
price stability than longer-term bond funds.
Under normal market conditions, the Fund will invest primarily in: (i)
obligations issued or guaranteed by foreign national governments, their
agencies, instrumentalities, or political subdivisions (including any security
which is majority owned by such government, agency, instrumentality, or
political subdivision); (ii) U.S. Government Securities; and (iii) debt
securities issued or guaranteed by Supranational Organizations, considered to be
"government securities."
15
<PAGE> 20
The Fund may also invest in non-government foreign and domestic debt securities,
including corporate debt securities, Bank Obligations, Mortgage-Backed or
Asset-Backed Securities, and Repurchase Agreements.
To protect against credit risk, the Fund invests primarily in high-grade debt
securities. At least 65% of the Fund's investments will consist of securities
rated within the three highest rating categories of S&P (AAA, AA, A) or Moody's
(Aaa, Aa or A) or, if unrated, will be considered by the Sub-Advisor to be of
equivalent quality. The Fund may invest in Lower-Rated Securities.
In addition to U.S. dollar holdings, the Fund may invest in securities
denominated in foreign currencies and in multinational currency units, such as
the European Currency Unit ("ECU"), which is a "basket" consisting of specified
amounts of the currencies of certain states of the European Community. The
specific amounts of currencies comprising the ECU may be adjusted by the Council
of Ministers of the European Community to reflect changes in the relative values
of the underlying currencies. Securities of issuers within a given country may
be denominated in the currency of another country. In addition, when the Fund's
Sub-Advisor believes that U.S. securities offer superior opportunities for
achieving the Fund's investment objective, or for temporary defensive purposes,
the Fund may invest substantially all of its assets in securities of U.S.
issuers or securities denominated in U.S. dollars.
The Fund may engage in certain Strategic Transactions, which include Reverse
Repurchase Agreements, Interest Rate Transactions, Options on Securities and
Indexes, Futures and Options on Futures, Options on Foreign Currencies, Foreign
Exchange Transactions and Over the Counter Options. The Fund may also invest up
to 33 1/3% of its total assets in Dollar Roll Transactions.
The Fund's net asset value per share fluctuates, depending on (i) current
worldwide market interest rates, (ii) the value of the currencies in which the
Fund's portfolio securities are denominated when compared to the U.S. dollar,
(iii) the success of the Sub-Advisor's currency hedging techniques, and (iv) the
creditworthiness of the issuers in which the Fund is invested. In pursuing the
Fund's investment objective, however, the Sub-Advisor actively manages the Fund
in an effort to minimize the effect of such factors on the Fund's net asset
value per share. The Sub-Advisor allocates the Fund's investments among those
markets, issuers and currencies that it believes offer the most attractive
combination of high income and principal stability. In evaluating investments
for the Fund, the Sub-Advisor analyzes relative yields and appreciation
potential of securities in particular markets; world interest rates and monetary
trends; economic, political and financial market conditions in different
countries; credit quality; and the relationship of individual foreign currencies
to the U.S. dollar. The Sub-Advisor relies on internally and externally
generated financial, economic, and credit research to evaluate alternative
investment opportunities. In addition, Sierra Advisors may, from time to time,
direct the Sub-Advisor with respect to investment strategies and specific Fund
investments including, but not limited to, the Fund's currency hedging strategy,
U.S. dollar currency exposure and certain investments which are unrated or rated
below investment grade.
The Short Term Global Government Fund is classified as a "non-diversified"
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), which means that the Fund is not limited by the 1940 Act in the
proportion of its assets that may be invested in the obligations of a single
issuer. The Fund may assume large positions in the obligations of a small number
of issuers which may subject the Fund to greater credit and other risks than a
more broadly diversified portfolio. The Fund must, however, meet certain
diversification standards to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). See "Taxes" in the SAI.
U.S. GOVERNMENT FUND. Under normal market conditions, the Fund pursues its
objective by investing at least 65% and up to 100% of its assets in
intermediate- and long-term U.S. Government Securities. Depending on current
market conditions, the Fund may invest in U.S. Government Securities of varying
maturities, which may range up to 40 years. Securities in the Fund's portfolio
are high quality securities that will generally yield less income than lower
quality securities; higher quality securities, however,
16
<PAGE> 21
generally have less credit and market risk and are more readily marketable than
lower quality securities. Depending on market conditions, the Fund's portfolio
will consist of various types of U.S. Government Securities in varying
proportions; it may invest up to 35% of its assets in the types of securities in
which the Corporate Income Fund may invest except as otherwise prohibited in
this Prospectus or the SAI, including preferred stock, Convertible Securities,
U.S. Government Securities (including Government Stripped Mortgage-Backed
Securities), Asset-Backed Securities and interests in Lease Obligations Bonds. A
substantial portion of the Fund's assets at any time may consist of
Mortgage-Backed Securities. For more detailed information regarding the types of
securities in which the Corporate Income Fund may invest, see "Corporate Income
Fund."
The Fund may invest up to 20% of its assets in money market instruments
consisting of short-term U.S. Government Securities and Repurchase Agreements
with respect to such U.S. Government Securities, and for temporary defensive
purposes may invest in these instruments without limitation. In addition, the
Fund may engage in Reverse Repurchase Agreements and certain Strategic
Transactions. The Fund may also invest up to 33 1/3% of its total assets in
Dollar Roll Transactions.
GUARANTEES OF THE FUND'S SECURITIES BY THE U.S. GOVERNMENT, ITS AGENCIES OR
INSTRUMENTALITIES GUARANTEE ONLY THE PAYMENT OF PRINCIPAL AND INTEREST ON THE
GUARANTEED SECURITIES, AND DO NOT GUARANTEE THE SECURITIES' YIELD OR VALUE OR
THE YIELD OR VALUE OF THE FUND'S SHARES.
CORPORATE INCOME FUND. Under normal market conditions, the Fund pursues its
investment objective by investing primarily in corporate bonds of United States
issuers that are rated investment grade by one or more NRSROs, or, if not rated,
that the Fund's Sub-Advisor believes to have credit characteristics equivalent
to such investment grade rated corporate bonds. Securities that are rated
"investment grade" are rated in one of the four highest categories. Generally,
at least 65% of the corporate bonds held by the Fund will have had remaining
maturities of 10 years or more at the date of purchase, unless the Sub-Advisor
believes that investing in corporate bonds with shorter maturities would be
appropriate in light of prevailing market conditions. Corporate bonds with
longer maturities generally tend to produce higher yields and are subject to
greater market risk than debt securities with shorter maturities. The value of
the Fund's portfolio securities can be expected to vary inversely with changes
in the prevailing interest rates.
The Fund may also invest in preferred stock and Convertible Securities, which
are rated investment grade by an NRSRO, or, if not rated, that the Sub-Advisor
believes to have credit characteristics equivalent to such investment grade
rated bonds; U.S. Government Securities (including Government Stripped
Mortgage-Backed Securities); Asset-Backed Securities; interests in Lease
Obligation Bonds for which the payment of interest and principal is
unconditionally guaranteed by companies with debt that is rated at least
investment grade by an NRSRO, provided that, no more than 20% of the Fund's
assets will be invested in such Lease Obligation Bonds. The Fund also may invest
in bonds issued by foreign governments and corporations, provided that no more
than 20% of the Fund's assets will be invested in such bonds and no more than 5%
will be denominated in any one currency. For temporary defensive purposes, the
Fund may also invest, without limitation, in money market instruments, including
short-term U.S. Government Securities, commercial paper rated in the highest
category by an NRSRO, Bank Obligations and cash and cash equivalents. In
addition, the Fund may engage in Reverse Repurchase Agreements and certain
Strategic Transactions. The Fund may also invest up to 33 1/3% of its total
assets in Dollar Roll Transactions.
THE EQUITY FUNDS
GROWTH AND INCOME FUND. Under normal market conditions, the Fund invests
primarily in dividend-paying Equity Securities. The Fund may also invest in
other Equity Securities, consisting of nondividend-paying Equity Securities,
preferred stock and Convertible Securities, such as convertible preferred stock,
convertible bonds rated in the highest three rating categories by Moody's or
S&P, or, if unrated, are determined to be of equal quality by the Fund's
Sub-Advisor, and warrants. The Fund is not subject to any limit on the size of
companies in which it may invest, but intends to be primarily invested, under
17
<PAGE> 22
normal circumstances, in the large- and medium-sized companies included in the
Standard & Poor's 500 Stock Index ("S&P 500 Index"). The Fund may also invest up
to 10% of its total assets in American Depositary Receipts. The Fund is designed
for investors who want an actively managed diversified portfolio of selected
equity securities that seeks to outperform the total return of the S&P 500
Index.
The Fund attempts to reduce risk by investing in many different economic
sectors, industries and companies. The Fund's Sub-Advisor may under- or
over-weight selected economic sectors against the S&P 500 Index's sector
weightings to seek to enhance the Fund's total return or reduce fluctuations in
market value relative to the S&P 500 Index.
During ordinary market conditions, the Sub-Advisor will keep the Fund
essentially fully invested in the equity securities described above. The
Sub-Advisor may, however, invest in money market instruments including U.S.
Government Securities; Bank Obligations; and commercial paper and corporate
obligations, including variable rate demand notes, that are issued by U.S. and
foreign issuers and that are rated in the highest three rating categories by
Moody's or S&P, or, if unrated, are determined to be of equal quality by the
Sub-Advisor. Under normal circumstances, the Fund will invest in such money
market instruments to invest temporary cash balances or to maintain liquidity to
meet redemptions. The Fund may also, however, invest in these instruments,
without limitation, as a temporary defensive measure taken during, or in
anticipation of, adverse market conditions. In addition, the Fund may engage in
certain Strategic Transactions.
GROWTH FUND. Under normal market conditions, the Fund invests primarily in
Equity Securities of U.S., multinational and foreign companies of all sizes that
offer potential for growth. Generation of income is not an objective of the
Fund, and any income received is only an incidental consideration of the Fund.
The Fund intends to invest primarily in Equity Securities believed by management
to have appreciation potential. However, no class of security represents at all
times the greatest promise for capital appreciation. Therefore, the Fund may
invest in debt securities, including Lower-Rated Securities, if in the opinion
of management, doing so would further the long-term capital appreciation
objective of the Fund.
The Fund may invest up to 25% of its assets in foreign securities, usually
foreign Equity Securities, and up to 5% of its assets in securities of companies
in (or governments of) developing or emerging countries (sometimes referred to
as "emerging markets"). A developing or emerging country is generally considered
by the international financial community, and in the opinion of management, to
be a country that is in the initial stages of its industrialization cycle. The
Fund may also, for temporary defensive purposes, in an effort to protect its
assets against major adverse market declines or when investment opportunities
with desirable risk/reward characteristics are unavailable, pursue a policy of
retaining cash or investing part or all of its assets in cash equivalents or
investment-grade debt securities. In addition, the Fund may engage in certain
Strategic Transactions.
Pursuant to an exemptive order granted by the SEC, the Growth Fund and Emerging
Growth Fund (and other funds advised by Janus Capital Corporation) may transfer
daily uninvested cash balances into one or more joint trading accounts. Assets
in the joint trading accounts are invested in money market instruments and the
proceeds are allocated to the participating funds on a pro rata basis.
EMERGING GROWTH FUND. Under normal market conditions, the Fund invests
primarily in Equity Securities of companies with market capitalizations of less
than $1.4 billion at the time of purchase. Income is only an incidental
consideration of the Fund. A company's market capitalization is calculated by
multiplying the total number of shares of its Equity Securities outstanding by
the market price per share of its stock.
Small capitalization companies typically are subject to a greater degree of
change in earnings and business prospects than larger, more established
companies. In addition, securities of small capitalization companies are traded
in lower volume than those issued by larger companies and may be more volatile
18
<PAGE> 23
and less liquid than those of larger companies. In light of these
characteristics of small capitalization companies and their securities, the Fund
may be subject to greater investment risk than that assumed when investing in
the equity securities of larger capitalization companies.
The Fund has been designed to provide investors with potentially greater
long-term rewards than those provided by an investment in a fund that seeks
capital appreciation from equity securities of larger, more established
companies. Small capitalization companies generally are not as well known to the
investing public and have less of an investor following than larger companies,
and therefore may provide opportunities for greater investment gains as a result
of relative inefficiencies in the marketplace.
In selecting investments for the Fund, the Fund's Sub-Advisor seeks small
capitalization companies that it believes are undervalued in the marketplace, or
that the Sub-Advisor believes have earnings that may be expected to grow faster
than the United States economy in general. These companies typically would
possess one or more characteristics, including high quality management, a
leading or dominant position in a major product line, a sound financial position
and a relatively high rate of return on invested capital so that future growth
can be financed from internal sources. The Fund also may invest in companies
that offer the possibility of accelerating earnings growth because of management
changes, new products or structural changes in the economy.
The Fund may invest up to 25% of its assets in securities of foreign issuers and
up to 5% of its assets in securities in developing or emerging countries.
The Fund may invest in other Equity Securities, including Convertible Securities
and warrants to purchase Equity Securities, as well as cash and cash
equivalents. In addition, the Fund may invest in Lower Rated Securities and
engage in certain Strategic Transactions. Furthermore, the Emerging Growth Fund
may transfer daily uninvested cash balances into one or more joint trading
accounts advised by the Sub-Advisor. See "Growth Fund".
INTERNATIONAL GROWTH FUND. Under normal market conditions, the Fund invests
primarily in Equity Securities of foreign issuers located in countries that the
Fund's Sub-Advisor deems to have attractive investment opportunities. Income is
only an incidental consideration of the Fund. The Fund will emphasize
established companies, although it may invest in companies of varying sizes as
measured by assets, sales and capitalization.
The Fund may invest in securities of issuers located in a variety of different
foreign regions and countries which includes, but is not limited to, the
following: Argentina, Australia, Austria, Belgium, Canada, Chile, Denmark,
Finland, France, Germany, Greece, Hong Kong, Indonesia, Ireland, Italy, Japan,
Luxembourg, Malaysia, Mexico, The Netherlands, New Zealand, Norway, Philippines,
Portugal, Singapore, Spain, Sweden, Switzerland, Thailand and The United
Kingdom. More than 25% of the Fund's total assets may be invested in the
securities of issuers located in the same country. The relative strength or
weakness of a particular country's currency or economy may dictate whether
securities of issuers located in such country will be purchased or sold.
Criteria for determining the appropriate distribution of investments among
various countries and regions include prospects for relative economic growth
among foreign countries, expected levels of inflation, government policies
influencing business conditions, the outlook for currency relationships, and the
range of investment opportunities available to international investors.
The Fund invests in Equity Securities and may invest in other securities with
equity characteristics, consisting of trust or limited partnership interests,
preferred stock, rights and warrants. The Fund may also invest in Convertible
Securities. The Fund invests in securities listed on foreign or domestic
securities exchanges and securities traded in foreign or domestic
over-the-counter markets, and may invest in restricted or unlisted securities.
The Fund intends to stay invested in the securities described above to the
extent practical. Fund assets may be invested in short-term debt instruments to
meet anticipated day-to-day operating expenses, and
19
<PAGE> 24
for temporary defensive purposes. In addition, when the Fund experiences large
cash inflows, the Fund may hold short-term investments pending availability of
desirable equity securities.
The short-term instruments in which the Fund may invest include foreign and
domestic: (i) short-term obligations of foreign governments, their agencies,
instrumentalities, authorities or political subdivisions; (ii) other short-term
debt securities rated in one of the three highest categories by an NRSRO, or if
unrated, of comparable quality in the opinion of the Fund's Sub-Advisor; (iii)
commercial paper, including master notes; (iv) Bank Obligations; and (v)
Repurchase Agreements. At the time the Fund invests in any commercial paper,
Bank Obligations or Repurchase Agreements, the issuer must have outstanding debt
rated in one of the three highest categories by an NRSRO, the issuer's parent
corporation, if any, must have outstanding commercial paper rated Prime-1 by
Moody's or A-1 by S&P; or, if no such ratings are available, the investment must
be of comparable quality in the opinion of the Fund's Sub-Advisor.
The Fund may invest up to 30% of its assets in the securities of companies or
governments of developing or emerging countries provided that no more than 5% of
the Fund's total assets are invested in any one such country. For temporary
defensive purposes, the Fund may invest a major portion of its assets in
securities of United States issuers. Furthermore, the Fund may invest up to 5%
of its total assets in corporate debt securities having maturities longer than
one year and which are rated BBB or better by S&P, including Euro-currency
instruments and securities.
In addition, the Fund may engage in certain Strategic Transactions, which
include Options on Securities and Indexes, Futures and Options on Futures,
Options on Foreign Currencies, Foreign Exchange Transactions and Over the
Counter Options.
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The Board of Trustees is responsible for the management of the business and
affairs of the Trust as provided in the laws of the Commonwealth of
Massachusetts and the Trust's Declaration of Trust and By-Laws. The Trustees are
experienced business persons who meet several times during the year to oversee
the Trust's activities, review contractual arrangements with companies that
provide services to the Trust, and review performance. The majority of the
Trustees are not otherwise affiliated with Sierra Advisors or any of the
Sub-Advisors.
INVESTMENT MANAGEMENT
INVESTMENT ADVISOR. Sierra Advisors, 9301 Corbin Avenue, Northridge, California
91324, is the investment advisor to the Trust. Sierra Advisors is an indirect
wholly-owned subsidiary of Great Western Financial Corporation ("Great
Western"), a publicly owned financial services company listed on the New York,
London and Pacific stock exchanges, and has general oversight responsibility for
the investment advisory services provided to the Funds. Responsibilities of
Sierra Advisors include formulating the Funds' investment policies, analyzing
economic trends affecting the Funds, and directing and evaluating the investment
services provided by the Sub-Advisors, including their adherence to the Funds'
investment objectives and policies and the Funds' investment performance. In
connection with these activities, Sierra Advisors may initiate action to change
a Sub-Advisor if it deems such action to be in the best interest of a Fund's
shareholders. Sierra Advisors is registered as an investment advisor under the
Investment Advisers Act of 1940. Sierra Advisors, which performs similar
services for Sierra Trust Funds and Sierra Prime Income Fund, had aggregate
assets under management of approximately $3.2 billion as of December 31, 1995.
For its services, Sierra Advisors is paid a monthly fee at annual rates equal to
percentages of each Fund's average net assets, described in "Advisory Fees."
SUB-ADVISORS. In accordance with each Fund's investment objective and policies
and under the supervision of Sierra Advisors and the Trust's Board of Trustees,
each Fund's Sub-Advisor is responsible
20
<PAGE> 25
for the day-to-day investment management of the Fund, makes investment decisions
for the Fund and places orders on behalf of the Fund to effect the investment
decisions made.
The following organizations act as Sub-Advisors to the Funds as indicated below:
BLACKROCK FINANCIAL MANAGEMENT, INC. ("BlackRock"), Sub-Advisor of the U.S.
Government Fund, 345 Park Avenue, New York, New York 10154, provides
investment advice to a wide variety of institutional and investment
company-related clients. BlackRock, a Delaware corporation, is an
indirectly, wholly-owned subsidiary of PNC Bank, N.A. PNC Bank, N.A. is an
indirectly, wholly-owned subsidiary of PNC Bank Corp. ("PNC"). PNC is a
publicly-owned multi-bank holding company incorporated under the laws of
the Commonwealth of Pennsylvania in 1983 and registered under the Bank
Holding Company Act of 1956, as amended. As of December 31, 1995, BlackRock
had aggregate assets under management or supervision of more than $34
billion.
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. Keith Anderson and E.G. Fisher are members of the committee and
have had primary responsibility for the day-to-day management of the Fund's
portfolio since December 8, 1994. Mr. Anderson, a Managing Director of
BlackRock, has been co-head of the Portfolio Management Group since 1988.
Mr. Fisher has been a portfolio manager of BlackRock since 1990 and a
Principal of BlackRock since 1994.
JANUS CAPITAL CORPORATION ("Janus"), Sub-Advisor of the Growth Fund and
Emerging Growth Fund, 100 Fillmore Street, Denver, Colorado 80206, provides
investment advice to mutual funds and other large institutional clients.
Janus is an indirect majority owned subsidiary of Kansas City Southern
Industries, Inc., a publicly traded holding company whose primary
subsidiaries are engaged in transportation, financial services and real
estate. As of December 31, 1995, Janus' assets under management were in
excess of $30 billion.
Warren B. Lammert, Senior Analyst and Portfolio Manager of Janus, has been
the portfolio manager for the Growth Fund since its inception. Mr. Lammert
is a graduate of Yale University and is a Chartered Financial Analyst. He
served as a securities analyst at Janus from 1987-1988, before leaving to
receive his Masters in Economic History with Distinction from the London
School of Economics. He rejoined Janus as Senior Analyst in January, 1990,
and is Portfolio Manager to a number of equity funds, including the Growth
Fund.
James P. Goff, Portfolio Manager and Senior Analyst at Janus, has been the
portfolio manager of the Emerging Growth Fund since inception. Mr. Goff
joined Janus in 1988, and also manages the Janus Enterprise Fund. He holds
a Bachelor of Arts in Economics from Yale University and is a Chartered
Financial Analyst. His duties at Janus also include the management of
separate equity accounts.
J.P. MORGAN INVESTMENT MANAGEMENT INC. ("J.P. Morgan"), Sub-Advisor of the
Global Money Fund and Growth and Income Fund, 522 Fifth Avenue, New York,
New York 10036, provides investment services to employee benefit plans of
corporations, labor unions and state and local governments and the accounts
of other institutional investors. As of December 31, 1995, J.P. Morgan had
investment management authority with respect to approximately $139 billion.
Henry D. Cavanna, Managing Director of J.P. Morgan, and William M. Riegel,
Vice President of J.P. Morgan, have been the portfolio managers for the
Growth and Income Fund since inception. Mr. Cavanna is a senior portfolio
manager in the Equity and Balanced Accounts Group. Mr. Cavanna was with the
Wall Street firm, Harris Upham & Co., prior to joining J.P. Morgan in 1971.
He received his B.A. degree from Boston College and LL.B. degree from the
University of Pennsylvania. Mr. Riegel is also a senior portfolio manager
in the Equity and Balanced Accounts Group. He joined J.P. Morgan in 1979 as
an investment research analyst in energy and machinery companies after
completing the firm's commercial bank management training program. Mr.
Riegel
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<PAGE> 26
joined the Equity group in 1984, assisting with the management of the
Convertible Fund and separately managed accounts. Mr. Riegel graduated from
Williams College in 1978 and is a Chartered Financial Analyst.
SCUDDER, STEVENS & CLARK, INC. ("Scudder"), Sub-Advisor of the Short Term
High Quality Bond Fund and Short Term Global Government Fund, Two
International Place, Boston, Massachusetts 02110, provides investment
management services for institutions, individuals and mutual funds. As of
December 31, 1995, Scudder's assets under management were in excess of $106
billion. Scudder is a privately held corporation, owned and operated by
active firm employees, concentrating primarily on investment management.
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 1991. Mr. Greshin assumed responsibility for the
Fund's day-to-day management and investment strategies effective November
1995.
Thomas M. Poor, Managing Director of Scudder, has been the portfolio
manager of the Short Term High Quality Bond Fund since inception. Mr. Poor
graduated from Amherst College in 1965 and taught mathematics before
joining Scudder in 1970. He has worked entirely in fixed income research
and institutional bond portfolio management and is currently director of
the firm's Limited Volatility Bond Product, where he is responsible for the
policy, coordination and promotion of this style. In addition, he manages
institutional portfolios, Scudder Short Term Bond Fund and Scudder Managed
GIC Trust. He became a Chartered Financial Analyst in 1975 and has received
that organization's Certificate of Achievement in 1987-1992.
TCW FUNDS MANAGEMENT, INC. ("TCW"), Sub-Advisor of the Corporate Income
Fund, 865 S. Figueroa Street, Suite 1800, Los Angeles, California 90017,
along with the other wholly-owned subsidiaries of The TCW Group, Inc., is a
privately held company, and provides a variety of investment management and
investment advisory services for institutional investors, including
investment companies. As of December 31, 1995, these companies had
aggregate assets under management of over $50.0 billion.
James M. Goldberg, Managing Director of TCW and Chairman of its
Fixed-Income Policy Committee, has been the portfolio manager for the
Corporate Income Fund since its inception. Mr. Goldberg joined TCW in 1984
after serving as Senior Vice President and Director of Portfolio Management
at Crocker National Corporation. He received his B.S. and M.B.A. in Finance
from the University of California at Berkeley. He is a guest lecturer at
Berkeley and Stanford and is a Chartered Financial Analyst and a Chartered
Investment Counselor.
WARBURG, PINCUS COUNSELLORS, INC. ("Warburg"), Sub-Advisor of the
International Growth Fund, 466 Lexington Avenue, New York, New York
10017-3147, was incorporated in 1970 and is a wholly-owned subsidiary of
Warburg, Pincus Counsellors G.P. ("Counsellors G.P."), a New York general
partnership. E.M. Warburg, Pincus & Co., Inc. ("EMW") controls Warburg
through its ownership of a class of voting preferred stock of Warburg.
Lionel I. Pincus may be deemed a controlling person of EMW. Counsellors
G.P. has no business other than being a holding company of Warburg and its
subsidiaries. Warburg is a professional investment counselling firm which
provides investment services to investment endowment funds, foundations and
other institutions and individuals. As of February 29, 1996, Warburg
managed approximately $14.0 billion of assets, including approximately $7.7
billion of investment company assets.
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
22
<PAGE> 27
and a director of Fiduciary Trust Company International S.A. in London
beginning in 1984. Nicholas P. 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. from 1987 to 1995. 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 from 1986 to 1993. 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.
ADVISORY FEES. For investment advisory services, monthly fees are paid to
Sierra Advisors by each Fund based upon a percentage of the average net assets
of such Fund. Absent fee waivers, the Advisor is paid the following effective
annual rates:
MONEY MARKET AND BOND FUND ADVISORY FEES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Short Term
Global Short Term Global U.S. Corporate
Money High Quality Government Government Income
Assets Fund Bond Fund Bond Fund Fund Fund
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
First $200 million .50% .50% .75% .60% .65%
- -------------------------------------------------------------------------------------------------------
From $200 million
to $500 million .50% .45% .75% .60% .65%
- -------------------------------------------------------------------------------------------------------
More than $500 million .40% .40% .65% .50% .50%
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
EQUITY FUND ADVISORY FEES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Growth and Emerging International
Assets Income Fund Growth Fund Growth Fund Growth Fund
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
First $25 million .80% .95% .90% .95%
- ------------------------------------------------------------------------------------------------------
From $25 million to $50 million .80% .875% .85% .95%
- ------------------------------------------------------------------------------------------------------
From $50 million to $100 million .80% .875% .85% .85%
- ------------------------------------------------------------------------------------------------------
From $100 million to $125 million .75% .875% .85% .85%
- ------------------------------------------------------------------------------------------------------
From $125 million to $200 million .75% .875% .85% .75%
- ------------------------------------------------------------------------------------------------------
From $200 million to $400 million .70% .875% .85% .75%
- ------------------------------------------------------------------------------------------------------
From $400 to $500 million .65% .875% .85% .75%
- ------------------------------------------------------------------------------------------------------
More than $500 million .575% .875% .75% .75%
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 28
Out of the investment advisory fee received by the Advisor for each Fund, the
Advisor would pay monthly to the Sub-Advisor, absent fee waivers by the
Sub-Advisor, the following percentages of average net assets for each Fund:
MONEY MARKET AND BOND FUND SUB-ADVISORY FEES
<TABLE>
<CAPTION>
Short Term
Global Short Term Global U.S. Corporate
Money High Quality Government Government Income
Assets Fund Bond Fund Bond Fund Fund* Fund
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First $200 million .15% .15% .28% .185% .30%
- -------------------------------------------------------------------------------------------------------
From $200 million
to $500 million .15% .10% .10% .185% .30%
- -------------------------------------------------------------------------------------------------------
From $500 million
to $650 million .15% .10% .10% .185% .25%
- -------------------------------------------------------------------------------------------------------
From $650 million
to $1 billion .15% .10% .10% .15% .25%
- -------------------------------------------------------------------------------------------------------
More than $1 billion .15% .10% .10% .10% .25%
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
* For purposes of calculating the annual rate of compensation for the U.S.
Government Fund's Sub-Advisor, (i) the assets reflected in the table above
include the combined assets of the Trust's U.S. Government Fund and the Sierra
Trust Fund's U.S. Government Fund, and (ii) the percentages indicated at a
given asset level apply to the entire amount of assets in the Fund if the
Fund's assets exceed the asset level indicated.
EQUITY FUND SUB-ADVISORY FEES
<TABLE>
<CAPTION>
Growth and Emerging International
Assets Income Fund Growth Fund Growth Fund Growth Fund
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First $25 million .45% .55% .55% .50%
- ------------------------------------------------------------------------------------------------------
From $25 million to $50 million .45% .50% .50% .50%
- ------------------------------------------------------------------------------------------------------
From $50 million to $100 million .45% .50% .50% .50%
- ------------------------------------------------------------------------------------------------------
From $100 million to $200 million .40% .50% .50% .50%
- ------------------------------------------------------------------------------------------------------
From $200 million to $400 million .35% .50% .50% .50%
- ------------------------------------------------------------------------------------------------------
More than $400 million .30% .50% .50% .50%
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
The management fees for the Short Term Global Government, Growth and Income,
Growth, Emerging Growth and International Growth Funds are higher than those
paid by most mutual funds, but comparable to other mutual funds with like
investment objectives and policies.
Sierra Advisors and certain Fund 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 it may pass part or all of such fee waivers through to the
Funds. The Advisor and the administrator of the Funds have each voluntarily
undertaken to waive its fees and/or bear certain expenses, if necessary, from
time to time so that average annual total expenses will not exceed 1.00%, 1.45%,
1.30%, 1.40%, 1.55%, 1.10%. 1.00%, 1.15% and 1.35% for the Global Money, Growth,
Growth and Income, Emerging Growth, International Growth, U.S. Government, Short
Term High Quality Bond, Corporate Income and Short Term Global Government Funds,
respectively. In addition, the Advisor and administrator have each agreed to
further limit the average annual total expenses of the Global Money Fund so that
they will not exceed 0.65%.
24
<PAGE> 29
Absent these voluntary waivers and reimbursements, the annual management fees,
other expenses and total expenses for the Global Money Fund would be 0.50%,
0.51% and 1.01%, respectively. Expenses for a Fund may be accrued at a rate in
excess of such limits for short periods of time so long as the limit is met on
an annual basis. Actual expenses for a Fund may vary from day to day. The
Advisor and the administrator retain the ability to be repaid by a Fund if
expenses fall below the specified limit prior to the end of the fiscal year, but
will not recover these amounts in later years. The Advisor and the administrator
may each, at its sole discretion, vary the level of or eliminate its voluntary
fee waivers and expense reimbursements at any time. Waivers of fees and
reimbursement of expenses have the effect of increasing yield or improving total
return for the period when such waivers and reimbursements are in effect. During
the fiscal year ended December 31, 1995, the following fees based upon the
average net assets of each Fund were paid by the Trust to Sierra Advisors:
Global Money Fund: 0.06%; Short Term High Quality Bond Fund: 0.36%; Short Term
Global Government Fund: 0.74%; U.S. Government Fund: 0.59%; Corporate Income
Fund: 0.65%; Growth and Income Fund: 0.70%; Growth Fund: 0.90%; Emerging Growth
Fund: 0.82% and International Growth Fund: 0.94%.
TRUST EXPENSES. In addition to investment advisory and certain administrative
expenses incurred by Sierra Administration, each Fund pays all expenses not
assumed by Sierra Advisors. Such expenses include or could include
investment-related expenses, such as brokers' commissions, transfer taxes and
fees related to the purchase, sale, or loan of securities; fees and expenses for
Trustees not affiliated with Sierra Advisors or the Sub-Advisors; fees and
expenses of its independent auditors and legal counsel; costs of Trustee and
shareholder meetings; SEC fees; expenses of preparing and filing registration
statements; the cost of the printing and mailing to existing Contract owners of
proxy statements, prospectuses and statements of additional information; proxy
solicitors' fees; expenses of preparation, printing and mailing to Contract
owners of semi-annual shareholder reports; bank transaction charges and certain
custodians' fees and expenses; federal, state or local income or other taxes;
costs of maintaining the Trust's corporate existence; membership fees for the
Investment Company Institute and similar organizations; fidelity bond and
Trustees' liability insurance premiums; and any extraordinary expenses such as
indemnification payments or damages awarded in litigation or settlements made.
All these expenses will be passed on to the shareholders through a daily charge
made to the assets held in the Funds, which will be reflected in share prices.
PORTFOLIO TRANSACTIONS AND TURNOVER. All orders for the purchase or sale of
securities on behalf of a Fund are placed by its Sub-Advisor with broker-dealers
that it selects. A Fund may, at the discretion of its Sub-Advisor, utilize Great
Western Financial Securities Corporation, an indirect wholly-owned subsidiary of
Great Western, or other brokers affiliated with a Sub-Advisor (such as J.P.
Morgan Securities Inc. or J.P. Morgan Securities Limited) in connection with a
purchase or sale of securities, in accordance with procedures adopted by
Trustees and in accordance with the 1940 Act which require periodic review of
these transactions.
Under certain market conditions, a Fund may experience high portfolio turnover
as a result of its investment strategies. For example, the purchase or sale of
securities by a Fund in anticipation of a rise or decline in interest rates or
to take advantage of yield disparities among different issues of U.S. Government
Securities could result in high portfolio turnover. As a result of their
investment strategies, the Short Term High Quality Bond, Short Term Global
Government, U.S. Government and Growth Funds' annual portfolio turnover rates
are expected to be as high as 200%. Higher portfolio turnover rates for the
Funds can result in corresponding increases in expenses such as brokerage
commissions and transaction costs. The Funds will not consider portfolio
turnover rate a limiting factor in making investment decisions consistent with
their respective objectives and policies.
DISTRIBUTOR
Sierra Services is the distributor of the Trust's shares on a best efforts
basis. Sierra Services is located at 9301 Corbin Avenue, Northridge, California
91324. Sierra Services, as principal underwriter, or
25
<PAGE> 30
insurance companies whose variable products are funded by the Trust, will bear
all of the Trust's marketing expenses. This includes the cost of reproducing
prospectuses, statements of additional information or any other Trust documents
(such as semi-annual reports) used as sales materials.
ADMINISTRATION
Subject to the authority of the Board of Trustees, Sierra Administration is
responsible for all administrative and recordkeeping functions of the Trust. It
provides office facilities and supplies; provides clerical, executive,
accounting and administrative services; prepares reports to shareholders and
filings with regulatory authorities; prepares materials for the Board of
Trustees' meetings; computes and pays dividends to shareholders; and provides
securities accounting and calculates net assets. Pursuant to the terms of the
Administration Agreement, Sierra Administration has delegated certain of these
functions to FDISG and Boston Safe. In addition, Sierra Administration acts as
the Trust's transfer and dividend paying agent. Sierra Administration is also an
indirect wholly-owned subsidiary of Great Western. Boston Safe, One Boston
Place, Boston, Massachusetts 02108, acts as custodian of the Funds' assets.
For its services, Sierra Administration is paid a monthly fee at an effective
annual rate of 0.18% of each Fund's average net assets. Sierra Administration
pays FDISG a fee based on the average daily assets of the Trust and its
expenses. In addition, Sierra Administration pays the basic fees and charges of
Boston Safe. Sierra Administration may voluntarily waive fees payable to it and
reimburse expenses from time to time. During the fiscal year ended December 31,
1995, the following fees based upon the average net assets of each Fund were
paid by the Trust to Sierra Administration: Global Money Fund: 0.12%; Short Term
High Quality Bond Fund: 0.18%; Short Term Global Government Fund: 0.18%; U.S.
Government Fund: 0.18%; Corporate Income Fund: 0.18%; Growth and Income Fund:
0.18%; Growth Fund: 0.18%; Emerging Growth Fund: 0.18%; and International Growth
Fund: 0.18%.
GENERAL INFORMATION AND HISTORY
THE TRUST
The Trust is a diversified, open-end management investment company. It was
organized on January 29, 1993 under the laws of the Commonwealth of
Massachusetts as a "Massachusetts business trust." The Trust has the power to
issue separate series of shares and has authorized nine separate series. The
Trust offers shares of beneficial interest, each without par value. Additional
series may be established.
Currently, the shares of the Funds are sold only to separate accounts of AGL to
fund Contracts. In the future, the Trust may offer its shares to separate
accounts funding variable annuities of insurance companies affiliated or
unaffiliated with AGL and to separate accounts which fund variable life
insurance or other variable funding arrangements. The Trust's Board of Trustees
will monitor potential conflicts between variable life insurance policies and
variable annuity contracts or among insurance company shareholders and will
determine what, if any, action should be taken to resolve any conflicts. Until
other insurance companies have made investments in the Funds, AGL will be the
sole shareholder of the Trust.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholders' meetings. On occasion, however, special meetings may be called to
elect or remove trustees, change fundamental policies, approve management
contracts, or for other purposes. Generally, shares of the Trust vote by
individual Fund on all matters except when the 1940 Act permits shares of the
Funds to be voted in the aggregate. The shareholders of the Trust are the
insurance companies whose separate accounts invest in it. The Trust expects that
its shareholders will offer their Contract owners the opportunity to instruct
them as to how shares allocable to their Contracts will be voted with respect to
certain matters, such as approval of investment advisory agreements. AGL has
advised the Trust that, whenever a shareholder vote is taken, AGL will give
Contract owners and annuitants the opportunity to instruct them how to vote the
number of shares attributable to such Contracts. AGL also stated that it will
vote any shares that
26
<PAGE> 31
it is entitled to vote directly, because of their attributable interests in the
Trust, and any shares attributable to Contracts for which instructions are not
received, in the same proportion that Contract owners vote.
Under Massachusetts law, in certain circumstances, shareholders may be held
personally liable as partners for the obligations of a business trust such as
the Trust. The Trust's Declaration of Trust contains provisions designed to
protect shareholders from such liability to the extent of the Trust's assets. As
a result, the risk of personal liability for the insurance company shareholders
is remote.
PURCHASE AND REDEMPTION
The shares of the Funds are sold in a continuous offering to separate accounts
of insurance companies to fund Contracts. Net purchase payments under the
Contracts are placed in one or more of the divisions of the relevant separate
accounts and the assets of each division of each separate account are invested
in the shares of the Funds corresponding to such divisions. Each of the separate
accounts purchases and redeems shares of these Funds for its divisions at net
asset value without sales or redemption charges.
For each day on which a Fund's net asset value is calculated, each separate
account transmits to the Trust any orders to purchase or redeem shares of the
Fund(s) based on the purchase payments, redemption (surrender) requests and
transfer requests from Contract owners, annuitants or beneficiaries which are
priced as of that day. The separate accounts purchase and redeem shares of each
Fund at the Fund's net asset value per share calculated as of that same day.
Orders which are not based on actions by Contract owners, annuitants or
beneficiaries or routine deductions of charges by AGL will be effected at the
Fund's net asset value per share next computed after the order is placed.
All redemption requests will be processed and payment with respect thereto will
be made according to applicable regulations. The Trust may also suspend
redemption, if permitted by the 1940 Act, for any period during which the New
York Stock Exchange ("NYSE") is closed or during which trading is restricted by
the SEC or the SEC declares that an emergency exists. Redemption may also be
suspended during other periods permitted by the SEC for the protection of the
Trust's shareholders.
PURCHASE THROUGH THE SAM PROGRAM
Owners of the Sierra Advantage Annuity may elect to participate in the Sierra
Asset Management Program ("SAM Program"). The SAM Program is an active
investment management service offered through Sierra Services, the SAM Program
investment advisor, that allocates separate account values across a number of
investment divisions selected to meet different long-term investment objectives.
Depending on market conditions, Sierra Services from time to time changes or
reallocates the combination of separate account divisions, or the amount
invested in each, to implement the various SAM strategies. In addition, account
balances of Contract owners participating in the SAM Program will be
periodically rebalanced to maintain the chosen strategy's current asset
allocation mix, if and when Fund performance unbalances the strategy's mix.
Normally, Sierra Services will reallocate once a quarter.
From time to time, one or more of the separate account investment divisions may
experience relatively large investments or redemptions due to SAM Program
allocations or rebalancings recommended by Sierra Services. These transactions
will affect the Funds that are available through the SAM Program, since Funds
that experience redemptions as a result of reallocations or rebalancings in the
separate account may have to sell portfolio securities and Funds that receive
additional cash will have to invest it. While it is impossible to predict the
overall impact of these transactions over time, there could be adverse effects
on portfolio management to the extent that Funds may be required to sell
securities or invest cash at times when they would not otherwise do so. These
transactions could also increase transaction costs. The Advisor, representing
the interests of the Trust, is committed to minimizing the impact of SAM Program
transactions on the Funds; Sierra Services, representing the interests of SAM
Program
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participants, is also committed to minimizing such impact on the Funds to the
extent it is consistent with pursuing the investment objective of the SAM
Program. The Advisor and Sierra Services will nevertheless face conflicts in
fulfilling their respective responsibilities, because they are affiliates and
employ some of the same professionals. In addition, Sierra Services is the
Trust's Distributor and the Distributor of the Sierra Advantage Annuity.
Although Sierra Services is not compensated for sales of Trust shares, it is
compensated for sales of the Sierra Advantage Annuity. Sierra Services is
registered as an investment advisor under the Investment Advisers Act of 1940,
as amended. The SAM Program is currently being offered at no additional cost to
Contract owners, although Sierra Services has reserved the right to impose a
charge for this service in the future. All of the Funds are available through
the SAM Program.
Sierra Services may restrict or terminate the participation of Sierra Advantage
Contract owners in the SAM Program at any time. In addition, AGL has reserved
the right to place restrictions on transactions permitted by the Sierra
Advantage Annuity that could result in restrictions or terminations of the SAM
Program.
NET ASSET VALUE
The net asset value (the current market value of a Fund share) of each Fund's
shares is determined at the close of regular trading on the NYSE (currently 1:00
p.m., Pacific Time), each business day the NYSE is open, except as noted. The
NYSE is currently scheduled to be closed on New Year's Day, Washington's
Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day, and on the preceding Friday or subsequent Monday when one
of these holidays falls on a Saturday or Sunday, respectively. In addition, net
asset values will not be calculated on the Friday following Thanksgiving. Net
asset value per share is calculated for purchases and redemptions of shares of
each Fund by dividing the value of total Fund assets, less liabilities
(including Trust expenses, which are accrued daily), by the total number of
shares of that Fund outstanding. The net asset value per share of each Fund is
determined each business day at the close of business. Values of assets in each
Fund's portfolio (except the Global Money Fund and certain short-term debt
securities) are determined on the basis of their market values or valuations
determined as described in the SAI. The Global Money Fund values its assets by
the amortized cost method, which approximates market value.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The tax consequences of your investment in the Trust depend upon the specific
provisions of your Contract. For more information, see the attached prospectus
for that Contract. The following discussion is only a brief summary of the
federal income tax consequences to the Funds and their insurance company
shareholders based on current tax laws and regulations, which may be changed by
subsequent legislative, judicial, or administrative action.
Each Fund intends to qualify separately each year as a "regulated investment
company" ("RIC") as defined under Subchapter M of the Code. The requirements for
qualification may cause a Fund to restrict the extent of its short-term trading
or its transactions in options or futures contracts.
As a RIC, each Fund will not be subject to federal income tax on its net
investment income and net realized capital gains which are timely distributed to
its insurance company shareholders. Accordingly, each Fund intends to distribute
all or substantially all of its net investment income and net realized capital
gains to its shareholders. Very generally, an insurance company which is a
shareholder of a Fund will determine its federal income tax liability with
respect to distributions from that Fund pursuant to the special rules of
Subchapter L of the Code.
Although the Trust intends that it and the Funds will be operated so that they
will have no federal income tax liability, if any such liability is nevertheless
incurred, the investment performance of the Fund or Funds incurring such
liability will be adversely affected. In addition, Funds investing in foreign
securities
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and currencies may be subject to foreign taxes. These taxes would reduce the
investment performance of such Funds.
Because the Trust funds certain types of variable annuities, each Fund is also
subject to the investment diversification requirements of Subchapter L of the
Code. Were any Fund to fail to comply with those requirements, owners of annuity
contracts (other than certain tax-qualified retirement Contracts) funded through
the Trust would be taxed on investment earnings under their Contracts and would
thereby lose any benefit of tax deferral. Accordingly, the Trust will carefully
monitor compliance with the diversification requirements.
Certain additional tax information appears in the SAI.
The amounts of dividends of net investment income (i.e., all income other than
long-term and short-term capital gains) and distributions of net realized long-
and short-term capital gains payable to shareholders will be determined
separately for each Fund. Dividends and distributions paid by a Fund will be
automatically reinvested (at current net asset value) in additional full and
fractional shares of that Fund. The Global Money Fund intends to distribute its
net income as dividends every day net asset value is determined. Such dividends
will be declared daily and paid monthly. The Short Term High Quality Bond, Short
Term Global Government, U.S. Government and Corporate Income Funds will declare
and pay quarterly dividends from net investment income, and the Growth and
Income, Growth, Emerging Growth and International Growth Funds will declare and
pay such dividends annually. All Funds will distribute any net long-term capital
gains annually. Distributions of any net short-term capital gains earned by a
Fund will be distributed no less frequently than annually at the discretion of
the Board of Trustees.
PERFORMANCE
The Trust may, from time to time, calculate the yield and effective yield of the
Global Money Fund, the yield of other Funds or total return of all Funds, and
may include such information in reports to shareholders. Performance information
should be considered in light of the Fund's investment objectives and policies,
characteristics and quality of the portfolios, and the market conditions during
the given time period, and should not be considered as a representation of what
may be achieved in the future.
Current yield for the Global Money Fund will be based on income received by a
hypothetical investment over a given 7-day period (less expenses accrued during
the period), and then annualized (i.e., assuming that the 7-day yield would be
received for 52 weeks, stated in terms of an annual percentage return on the
investment). Effective yield for the Global Money Fund is calculated in a manner
similar to that used to calculate yield, but reflects the compounding effect of
earnings on reinvested dividends. For the remaining Funds, any quotations of
yield will be based on all investment income per share earned during a given
30-day period (including dividends and interest), less expenses accrued during
the period (net investment income), and will be computed by dividing net
investment income by the maximum public offering price per share on the last day
of the period. Quotations of average annual total return for a Fund will be
expressed in terms of the average annual compounded rate of return on a
hypothetical investment in the Fund over certain periods that will include
periods of 1, 5, and 10 years (up to the life of the Fund), will reflect the
deduction of a proportional share of Trust's expenses (on an annual basis), and
will assume that all dividends and distributions are reinvested when paid.
Total returns and yields quoted for the Funds include each Fund's expenses, but
may not include charges and expenses attributable to any particular insurance
product. Since shares of the Funds may only be purchased through variable
annuity and variable life insurance contracts, you should carefully review the
prospectus of the insurance product you have chosen for information on relevant
charges and expenses. Excluding these charges from quotations of each Fund's
performance has the effect of increasing the performance quoted. You should bear
in mind the effect of these charges when comparing a performance to that of
other mutual funds.
For a description of the methods used to determine yield and total return for
the Funds, see the SAI.
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APPENDIX
SECURITIES AND INVESTMENT PRACTICES
In attempting to achieve its investment objective or policies each Fund employs
a variety of instruments, strategies and techniques, which are described in
greater detail below. Risks and restrictions associated with these practices are
also described. Policies and limitations are considered at the time a security
or instrument is purchased or a practice initiated. Generally, securities need
not be sold if subsequent changes in market value would prevent applicable
limitations to be met.
A Fund might not buy all of these securities or use all of these techniques to
the full extent permitted unless its Sub-Advisor, subject to oversight by Sierra
Advisors, believes that doing so will help the Fund achieve its goal. Sierra
Advisors may, from time to time, direct a Sub-Advisor with respect to investment
policies and strategies. As a shareholder, you will receive fund reports every
six months detailing your Fund's holdings and describing recent investment
practices.
Except for the limitations on borrowing, the investment guidelines set forth
below may be changed at any time without shareholder consent by vote of the
Board of Trustees of the Trust. A complete list of investment restrictions that
identifies additional restrictions that cannot be changed without the approval
of a majority of an affected Fund's outstanding shares is contained in the SAI.
AMERICAN DEPOSITARY RECEIPTS, EUROPEAN DEPOSITARY RECEIPTS, CONTINENTAL
DEPOSITARY RECEIPTS AND GLOBAL DEPOSITARY RECEIPTS
All Funds except the U.S. Government Fund may invest in securities of foreign
issuers directly or in the form of American Depositary Receipts ("ADRs"),
European Depositary Receipts ("EDRs"), Continental Depositary Receipts ("CDRs")
and Global Depositary Receipts ("GDRs") or other similar securities representing
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities they represent. ADRs are
receipts typically issued by a United States bank or trust company evidencing
ownership of the underlying foreign securities. EDRs, which are sometimes
referred to as CDRs, are securities, typically issued by a non-U.S. financial
institution, that evidence ownership interests in a security or a pool of
securities issued by either a U.S. or foreign issuer. GDRs are issued globally
and evidence a similar ownership arrangement. Generally, ADRs, in registered
form, are designed for use in the United States securities markets, and EDRs, in
bearer form, are designed for use in European securities markets.
ASSET-BACKED SECURITIES
The Short Term High Quality Bond, Short Term Global Government, U.S. Government,
Corporate Income and Growth and Income Funds may purchase Asset-Backed
Securities, which represent a participation in, or are secured by and payable
from, a stream of payments generated by particular assets, most often a pool of
assets similar to one another. Assets generating such payments will consist of
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. The Short Term High Quality Bond Fund will not invest more than
25%, and the Short Term Global Government, U.S. Government, Corporate Income and
Growth and Income Funds will not invest more than 10%, of their respective total
assets in Asset-Backed Securities.
BANK OBLIGATIONS
All of the Funds may invest in Bank Obligations, which include certificates of
deposit, time deposits and bankers' acceptances of U.S. commercial banks or
savings and loan institutions with assets of at least $500 million as of the end
of their most recent fiscal year. All of the Funds, except the Global Money and
U.S. Government Funds, may invest in foreign-currency denominated Bank
Obligations, including Euro-currency instruments and securities of U.S. and
foreign banks and thrifts. The Global Money Fund may invest in U.S. dollar
denominated Bank Obligations of foreign banks and thrifts.
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BORROWING
The Funds may borrow money for temporary or emergency purposes. However, if a
Fund borrows money, its share price may be subject to greater fluctuation until
the borrowing is paid off. If the Fund makes additional investments while
borrowings are outstanding, this may be construed as a form of leverage.
A Fund may borrow money from banks solely for temporary or emergency purposes,
but not in an amount exceeding 30% of its total assets. For each of the Funds
except the Short Term High Quality Bond, Short Term Global Government, U.S.
Government, Corporate Income, Growth and Income and Emerging Growth Funds,
whenever borrowings by a Fund, including Reverse Repurchase Agreements, exceed
5% of the value of a Fund's total assets, the Fund will not purchase any
securities. The Short Term High Quality Bond, Short Term Global Government, U.S.
Government, Corporate Income, Growth and Income and Emerging Growth Funds are
prohibited from borrowing money or entering Reverse Repurchase Agreements or
Dollar Roll Transactions in the aggregate in excess of 33 1/3% of the Fund's
total assets (after giving effect to such borrowings). This investment guideline
may be changed only with shareholder consent.
Borrowing, including reverse repurchase agreements and, in certain
circumstances, dollar rolls, creates leverage which increases a Fund's
investment risk. If the income and gains on the securities purchased with the
proceeds of borrowings exceed the cost of the arrangements, the Fund's earnings
or net asset value will increase faster than would be the case otherwise.
Conversely, if the income and gains fail to exceed the costs, earnings or net
asset value will decline faster than would otherwise be the case.
CONVERTIBLE SECURITIES
A convertible security is a security that may be converted either at a stated
price or rate within a specified period of time into a specified number of
shares of Equity Securities. By investing in Convertible Securities, the Fund
seeks the opportunity, through the conversion feature, to participate in the
capital appreciation of the Equity Securities into which the securities are
convertible, while obtaining a higher fixed rate of return than generally is
payable on the underlying Equity Securities.
CURRENCY MANAGEMENT
A Fund's flexibility to participate in higher yielding debt markets outside of
the United States may allow the Fund to achieve higher yields than those
generally obtained by domestic money market funds and short-term bond
investments. When a Fund invests significantly in securities denominated in
foreign currencies, however, movements in foreign currency exchange rates versus
the U.S. dollar are likely to impact the Fund's share price stability relative
to domestic short-term income funds. Fluctuations in foreign currencies can have
a positive or negative impact on returns. Normally, to the extent that the Fund
is invested in foreign securities, a weakening in the U.S. dollar relative to
the foreign currencies underlying a Fund's investments should help increase the
net asset value of the Fund. Conversely, a strengthening in the U.S. dollar
versus the foreign currencies in which a Fund's securities are denominated will
generally lower the net asset value of the Fund. The Fund's Sub-Advisor may
attempt to minimize exchange rate risk through active portfolio management,
including hedging currency exposure through the use of futures, options and
forward currency transactions and may attempt to identify bond markets with
strong or stable currencies.
DEBT SECURITIES ISSUED OR GUARANTEED BY SUPRANATIONAL ORGANIZATIONS
Funds authorized to invest in securities of foreign issuers may invest assets in
debt securities issued or guaranteed by Supranational Organizations, such as
obligations issued or guaranteed by the Asian Development Bank, Inter-American
Development Bank, International Bank for Reconstruction and Development (World
Bank), African Development Bank, European Coal and Steel Community, European
Economic Community, European Investment Bank and the Nordic Investment Bank.
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DOLLAR ROLL TRANSACTIONS
Any Fund which seeks a high level of current income, except the Equity and
Global Money Funds, may enter into dollar rolls or "covered rolls" in which the
Fund sells securities (usually Mortgage-Backed Securities) and simultaneously
contracts to purchase, typically in 30 or 60 days, substantially similar, but
not identical securities, on a specified future date. The proceeds of the
initial sale of securities in the Dollar Roll Transactions may be used to
purchase long-term securities which will be held during the roll period. During
the roll period, the Fund forgoes principal and interest paid on the securities
sold at the beginning of the roll period, but may earn interest on the
reinvested cash proceeds of the initial sale. The Fund is compensated either by
the difference between the current sales price and the forward price for the
future purchase (often referred to as the "drop"), or by a fee paid by the
dealer at the time of the initial sale. A "covered roll" is a specific type of
dollar roll for which there is an offsetting cash position or cash equivalent
securities position that matures on or before the forward settlement date of the
Dollar Roll Transaction. As used herein the term "dollar roll" refers to dollar
rolls that are not "covered rolls." At the end of the roll commitment period,
the Fund may or may not take delivery of the securities the Fund has contracted
to purchase. The risks of engaging in Dollar Roll Transactions include the
following: If the dealer to whom the Fund sells the security becomes insolvent,
the Fund's right to purchase or repurchase the security may be restricted; the
value of the security may change adversely over the term of the dollar roll; the
security that the Fund is required to repurchase may be worth less than the
security that the Fund originally held; and the return earned by the Fund with
the proceeds of a dollar roll may not exceed transaction costs.
The Fund will establish a segregated account with its custodian in which it will
maintain cash, U.S. Government Securities or other liquid high-grade debt
obligations equal in value at all times to its obligations in respect of dollar
rolls, and, accordingly, the Fund will not treat such obligations as senior
securities for purposes of the 1940 Act. "Covered rolls" are not subject to
these segregation requirements. Dollar Roll Transactions may be considered
borrowings and are, therefore, subject to the borrowing limitations applicable
to the Funds. See "Borrowing." Each of the Short Term High Quality Bond, Short
Term Global Government, U.S. Government and Corporate Income Funds may invest up
to 33 1/3% of its total assets in such transactions.
EQUITY SECURITIES
The Equity, U.S. Government and Corporate Income Funds may invest in Equity
Securities or rights to acquire Equity Securities. Equity Securities represent
an equity (ownership) interest in a corporation, which generally gives a Fund
the right to vote on measures affecting the company's organization and
operations.
Equity Securities include common stock, preferred stock and securities
exchangeable for shares of common stock, such as convertible debt, convertible
preferred stock and warrants.
EXCHANGE RATE-RELATED SECURITIES
A Fund may invest in securities that are indexed to certain specific foreign
currency exchange rates. The terms of such security provide that the principal
amount or interest payments are adjusted upwards or downwards (but not below
zero) at payment to reflect fluctuations in the exchange rate between two
currencies while the obligation is outstanding, depending on the terms of the
specific security. The Fund will purchase such security with the currency in
which it is denominated and will receive interest and principal payments thereon
in the currency, but the amount of principal or interest payable by the issuer
will vary in proportion to the change (if any) in the exchange rate between the
two specified currencies between the date the instrument is issued and the date
the principal or interest payment is due. The staff of the SEC is currently
considering whether a mutual fund's purchase of this type of security would
result in the issuance of a "senior security" within the meaning of the 1940
Act. The Fund believes that such investments do not involve the creation of such
a senior security, but nevertheless undertakes, pending the
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resolution of this issue by the staff, to establish a segregated account with
respect to such investments and to maintain in such account cash not available
for investment or U.S. Government Securities or other liquid high quality debt
securities having a value equal to the aggregate principal amount of outstanding
securities of this type.
Investments in Exchange Rate-Related Securities entail certain risks. There is
the possibility of significant changes in rates of exchange between the U.S.
dollar and any foreign currency to which an Exchange Rate-Related Security is
linked. In addition, there is no assurance that sufficient trading interest to
create a liquid secondary market will exist for a particular Exchange
Rate-Related Security due to conditions in the debt and foreign currency
markets. Illiquidity in the forward foreign exchange market and the high
volatility of the foreign exchange market may from time to time combine to make
it difficult to sell an Exchange Rate-Related Security prior to maturity without
incurring a significant price loss.
FIXED-INCOME SECURITIES
The market value of fixed-income obligations held by the Funds and,
consequently, the net asset value per share of the Funds can be expected to vary
inversely to changes in prevailing interest rates. Investors should also
recognize that, in periods of declining interest rates, the yields of the Bond
Funds will tend to be somewhat higher than prevailing market rates and, in
periods of rising interest rates, the Bond Funds' yields will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net new
money to the Bond Funds from the continuous sale of their shares will likely be
invested in instruments producing lower yields than the balance of their assets,
thereby reducing current yields. In periods of rising interest rates, the
opposite can be expected to occur. In addition, obligations purchased by certain
of the Bond Funds that are rated in the lowest of the top four ratings (Baa by
Moody's or BBB by S&P, Duff or Fitch) are considered to have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade securities.
FLOATING RATE, INVERSE FLOATING RATE AND VARIABLE RATE OBLIGATIONS
The Corporate Income and Short Term High Quality Bond Funds may purchase
floating rate, inverse floating rate and variable rate obligations, including
Mortgage-Backed Securities. 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 credit support arrangements provided by banks.
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.
The Global Money Fund may purchase variable rate demand notes issued by
industrial development authorities and other governmental entities, as well as
participation interests therein. Although variable rate demand notes are
frequently not rated by credit rating agencies, a Fund may purchase unrated
notes that are determined by the Fund's Sub-Advisor to be of comparable quality
at the time of purchase to rated instruments that may be purchased by the Fund.
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
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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.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
All Funds except the Global Money and U.S. Government Funds may engage in
foreign currency exchange transactions. Funds that buy and sell securities
denominated in currencies other than the U.S. dollar, and receive interest,
dividends and sale proceeds in currencies other than the U.S. dollar, may enter
into foreign currency exchange transactions to convert to and from different
foreign currencies and to convert foreign currencies to and from the U.S.
dollar. The Fund either enters into these transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
uses forward contracts to purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by the Fund to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement, and is traded at a net
price without commission. Except in circumstances where segregated accounts are
not required by the 1940 Act and the rules adopted thereunder, each Fund
maintains with its custodian a segregated account of cash, U.S. Government
Securities or high-grade debt obligations in an amount at least equal to its
obligations under each forward foreign currency exchange contract. Neither spot
transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Fund's portfolio securities or in foreign
exchange rates, or prevent loss if the prices of these securities should
decline.
A Fund may enter into foreign currency transactions in an attempt to protect
against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. The precise matching of the forward
contract amounts and the value of the securities involved will not generally be
possible because the future value of these securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and the date it matures.
The projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain. In addition,
when the Sub-Advisor believes that the currency of a specific country may
deteriorate against another currency, it may enter into a forward contract to
sell the less attractive currency and buy the more attractive one. The amount in
question could be less than or equal to the value of the Fund's securities
denominated in the less attractive currency. The Fund may also enter into a
forward contract to sell a currency which is linked to a currency or currencies
in which some or all of the Fund's portfolio securities are or could be
denominated, and to buy U.S. dollars. These practices are referred to as "cross
hedging" and "proxy hedging."
Forward currency exchange contracts are agreements to exchange one currency for
another -- for example, to exchange a certain amount of U.S. dollars for a
certain amount of Japanese Yen -- at a future date and specified price.
Typically, the other party to a currency exchange contract will be a commercial
bank or other financial institution. Because there is a risk of loss to the Fund
if the other party does not complete the transaction, the Fund's Sub-Advisor
will enter into foreign currency exchange contracts only with parties approved
by the Fund's Board of Trustees.
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A Fund may maintain "short" positions in forward currency exchange transactions
in which the Fund agrees to exchange currency that it currently does not own for
another currency -- for example, to exchange an amount of Japanese Yen that it
does not own for a certain amount of U.S. dollars -- at a future date and
specified price in anticipation of a decline in the value of the currency sold
short relative to the currency that the Fund has contracted to receive in the
exchange.
When such actions are intended to protect the Fund from adverse currency
movements, there is a risk that currency movements involved will not be properly
anticipated. Use of this technique may also be limited by management's need to
protect the status of the Fund as a regulated investment company under the Code.
The projection of currency market movements is extremely difficult, and the
successful execution of currency strategies is highly uncertain.
FOREIGN INVESTMENTS
All of the Funds except the U.S. Government Fund may invest in securities of
foreign issuers. There are certain risks involved in investing in foreign
securities, including those resulting from fluctuations in currency exchange
rates, devaluation of currencies, future political or economic developments and
the possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions, reduced availability of public information
concerning issuers, and the fact that foreign companies are not generally
subject to uniform accounting, auditing and financial reporting standards or to
other regulatory practices and requirements comparable to those applicable to
domestic companies. Moreover, securities of many foreign companies may be less
liquid and the prices more volatile than those of securities of comparable
domestic companies. Although the Funds' Sub-Advisors do not intend to expose the
Funds to such risks, with respect to certain foreign countries, there is the
possibility of expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of funds or other assets of the Funds,
including the withholding of dividends. When the Fund's Sub-Advisor believes
that currency in which a portfolio security or securities is denominated may
suffer a decline against the U.S. dollar, it may hedge such risk by entering
into a forward contract to sell an amount of foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and the Funds hold various foreign currencies
from time to time, the value of the net assets of the Funds as measured in U.S.
dollars will be affected favorably or unfavorably by changes in exchange rates.
The cost of the Funds' currency exchange transactions will generally be the
difference between the bid and offer spot rate of the currency being purchased
or sold. In order to protect against uncertainty in the level of future foreign
currency exchange rates, the Funds are authorized to enter into certain foreign
currency exchange transactions. Investors should be aware that exchange rate
movements can be significant and can endure for long periods of time. The
Sub-Advisors of the Short Term Global Government and International Growth Funds
attempt to manage exchange rate risk through active Currency Management.
Extensive research of the economic, political and social factors that influence
global markets is conducted by the Sub-Advisors. Particular attention is given
to country-specific analysis, reviewing the strength or weakness of a country's
overall economy, the government policies influencing business conditions and the
outlook for the country's currency.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the NYSE. Accordingly, the Funds' foreign investments may be less
liquid and their prices may be more volatile than comparable investments in
securities of United States companies. Moreover, the settlement periods for
foreign securities, which are often longer than those for securities of United
States issuers, may affect portfolio liquidity. In buying and selling securities
on foreign exchanges, the Fund normally pays fixed commissions that are
generally higher than the negotiated commissions charged in the United States.
In addition, there is generally less
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governmental supervision and regulation of securities exchanges, brokers and
issuers in foreign countries than in the United States.
FUTURES AND OPTIONS ON FUTURES
When deemed advisable by its Sub-Advisor, all Funds except the Global Money Fund
may enter into financial futures and related options that are traded on a U.S.
exchange or board of trade. If entered into, these transactions may be made for
the purpose of hedging against the effects of changes in the value of portfolio
securities due to anticipated changes in interest rates and market conditions,
when transactions are economically appropriate to the reduction of risks
inherent in the management of the Funds and for other purposes described under
"Strategic Transactions." A Fund may not enter into futures and options
contracts for which aggregate initial margin deposits and premiums paid for
unexpired futures options entered into for purposes other than "bona fide
hedging" positioning as defined in regulations adopted by the Commodities Future
Trading Commission exceed 5% of the fair market value of the Fund's assets,
after taking into account unrealized profits and unrealized losses on futures
contracts into which it has entered. With respect to each long position in a
futures contract or option thereon, the underlying commodity value of such
contract will always be covered by cash and cash equivalents set aside plus
accrued profits held at the futures commission merchant.
A financial futures contract provides for the future sale by one party and the
purchase by the other party of a specified amount of a particular financial
instrument (debt security) at a specified price, date, time and place. An index
futures contract is an agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to the difference between the value of
the index at the close of the last trading day of the contract and the price at
which the index contract was originally written. An option on a financial or
index futures contract generally gives the purchaser the right, in return for
the premium paid, to assume a position in a futures contract at a specified
exercise price at any time prior to the expiration date of the option.
The purpose of entering into a futures contract by a Fund is to either enhance
return or to protect the Fund from fluctuations in the value of its securities
caused by anticipated changes in interest rate or market conditions without
necessarily buying or selling the securities. The use of futures contracts and
options on futures contracts involves several risks. There can be no assurance
that there will be a correlation between price movements in the underlying
securities, currencies or index, on the one hand, and price movements in the
securities which are the subject of the futures contract or option on futures
contract, on the other hand. Positions in futures contracts and options on
futures contracts may be closed out only on the exchange or board of trade on
which they were entered into, and there can be no assurance that an active
market will exist for a particular contract or option at any particular time. If
a Fund has hedged against the possibility of an increase in interest rates or
bond prices adversely affecting the value of securities held in its portfolio
and rates or prices decreased instead, a Fund will lose part or all of the
benefit of the increased value of securities that it has hedged because it will
have offsetting losses in its futures positions. In addition, in such
situations, if a Fund has insufficient cash, it may have to sell securities to
meet daily variation margin requirements at a time when it may be
disadvantageous to do so. These sales of securities may, but will not
necessarily, be at increased prices that reflect the decline in interest rates
or bond prices, as the case may be. In addition, the Fund would pay commissions
and other costs in connection with such investments, which may increase the
Fund's expenses and reduce its return. While utilization of options, futures
contracts and similar instruments may be advantageous to the Fund, if the Fund's
Sub-Advisor is not successful in employing such instruments in managing the
Fund's investments, the Fund's performance will be worse than if the Fund did
not make such investments.
Losses incurred in futures contracts and options on futures contracts and the
costs of these transactions will adversely affect a Fund's performance.
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GEOGRAPHICAL AND INDUSTRY CONCENTRATION
The Global Money Fund will invest at least 25% of its assets in Bank Obligations
unless the Fund is in a temporary defensive position. As a result of this
concentration policy, which is a fundamental policy of the Fund, 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 banking and the inability of borrowers to pay
principal and interest when due. In addition, foreign banks present the risks of
investing in foreign securities generally and are not subject to reserve
requirements and other regulations comparable to those of U.S. Banks.
GOVERNMENT STRIPPED MORTGAGE-BACKED SECURITIES
All of the Funds may invest in Government Stripped Mortgage-Backed Securities
issued or guaranteed by the Government National Mortgage Association ("GNMA"),
Federal National Mortgage Association ("FNMA") and Federal Home Loan Mortgage
Corporation ("FHLMC"). These securities represent beneficial ownership interests
in either periodic principal distributions ("principal-only") or interest
distributions ("interest-only") on mortgage-backed certificates issued by GNMA,
FNMA or FHLMC, as the case may be. The certificates underlying the Government
Stripped Mortgage-Backed Securities represent all or part of the beneficial
interest in pools of mortgage loans. The Funds will invest in interest-only
Government Stripped Mortgage-Backed Securities in order to enhance yield or to
benefit from anticipated appreciation in value of the securities at times when
the appropriate Sub-Advisor believes that interest rates will remain stable or
increase. In periods of rising interest rates, the value of interest-only
Government Stripped Mortgage-Backed Securities may be expected to increase
because of the diminished expectation that the underlying mortgages will be
prepaid. In this situation the expected increase in the value of interest-only
Government Stripped Mortgage-Backed Securities may offset all or a portion of
any decline in value of the portfolio securities of the Funds. Investing in
Government Stripped Mortgage-Backed Securities involves the risks normally
associated with investing in Mortgage-Backed Securities issued by government or
government-related entities. See "Mortgage-Backed Securities" in this section.
In addition, the yields on interest-only and principal-only Government Stripped
Mortgage-Backed Securities are extremely sensitive to the prepayment experience
on the mortgage loans underlying the certificates collateralizing the
securities. If a decline in the level of prevailing interest rates results in a
rate of principal prepayments higher than anticipated, distributions of
principal will be accelerated, thereby reducing the yield to maturity on
interest-only Government Stripped Mortgage-Backed Securities and increasing the
yield to maturity on principal-only Government Stripped Mortgage-Backed
Securities. Conversely, if an increase in the level of prevailing interest rates
results in a rate of principal prepayments lower than anticipated, distributions
of principal will be deferred, thereby increasing the yield to maturity on
interest-only Government Stripped Mortgage-Backed Securities and decreasing the
yield to maturity on principal-only Government Stripped Mortgage-Backed
Securities. Sufficiently high prepayment rates could result in the Fund not
fully recovering its initial investment in an interest-only Government Stripped
Mortgage-Backed Security. Government Stripped Mortgage-Backed Securities are
currently traded in an over-the-counter market maintained by several large
investment banking firms. There can be no assurance that the Fund will be able
to effect a trade of a Government Stripped Mortgage-Backed Security at a time
when it wishes to do so. The Funds will acquire Government Stripped
Mortgage-Backed Securities only if a liquid secondary market for the Securities
exists at the time of acquisition.
ILLIQUID SECURITIES
Up to 15% (10% for the Global Money Fund) of the net assets of a Fund may be
invested in securities that are not readily marketable, including, where
applicable: (1) Repurchase Agreements with maturities greater than seven
calendar days; (2) time deposits maturing in more than seven calendar days; (3)
to the extent a liquid secondary market does not exist for the instruments,
futures contracts and
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options thereon; (4) certain over-the-counter options, as described in the SAI;
(5) certain variable rate demand notes having a demand period of more than seven
days; and (6) securities the disposition of which is restricted under federal
securities laws (excluding Rule 144A Securities, described below). The Funds
will not include for purposes of the restrictions on illiquid investments
securities sold pursuant to Rule 144A under the Securities Act of 1933, as
amended, so long as such securities meet liquidity guidelines established by the
Trust's Board of Trustees. Under Rule 144A, securities which would otherwise be
restricted may be sold by persons other than issuers or dealers to qualified
institutional buyers.
INTEREST RATE TRANSACTIONS
All of the Funds except the Global Money Fund may engage in certain Interest
Rate Transactions, such as swaps, caps, floors and collars. Interest rate swaps
involve the exchange with another party of commitments to pay or receive
interest (e.g., an exchange of floating rate payments for fixed rate payments).
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. An interest rate collar combines the elements
of purchasing a cap and selling a floor. The collar protects against an interest
rate rise above the maximum amount but gives up the benefits of an interest rate
decline below the minimum amount. The net amount of the excess, if any, of a
Fund's obligations over its entitlements with respect to each interest rate swap
will be accrued on a daily basis and an amount of cash or liquid securities
having an aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Trust's custodian. If there is a
default by the other party to the transaction, the Fund will have contractual
remedies pursuant to the agreements related to the transactions.
INVESTMENT COMPANIES
When a Fund's Sub-Advisor believes that it would be beneficial to the Fund and
appropriate under the circumstances, the Sub-Advisor may invest up to 10% of the
Fund's assets in securities of mutual funds that are not affiliated with Sierra
Advisors or any Sub-Advisor. As a shareholder in any such mutual fund, the Fund
will bear its ratable share of the mutual fund's expenses, including management
fees, and will remain subject to the Fund's advisory and administration fees
with respect to the assets so invested.
LEASE OBLIGATION BONDS
Lease Obligation Bonds are mortgages on a facility that is secured by the
facility and are paid by a lessee over a long term. The rental stream to service
the debt as well as the mortgage are held by a collateral trustee on behalf of
the public bondholders. The primary risk of such instrument is the risk of
default. Under the lease indenture, the failure to pay rent is an event of
default. The remedy to cure default is to rescind the lease and sell the asset.
If the lease obligation is not readily marketable or market quotations are not
readily available, such lease obligations will be subject to a Fund's 15% (10%
for the Global Money Fund) limit on Illiquid Securities.
LENDING OF SECURITIES
All of the Funds except the U.S. Government Fund have the ability to lend
portfolio securities to brokers and other financial organizations. By lending
its securities, a Fund can increase its income by continuing to receive interest
on the loaned securities as well as by either investing the cash collateral in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. Government Securities are used as collateral. These loans, if
and when made, may not exceed 20% of a Fund's total assets taken at value. Loans
of portfolio securities by a Fund will be collateralized by cash, letters of
credit or U.S. Government Securities that are maintained at all times in an
amount at least equal to the
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current market value of the loaned securities. Any gain or loss in the market
price of the securities loaned that might occur during the term of the loan
would be for the account of the Fund involved. Each Fund's Sub-Advisor will
monitor on an ongoing basis the creditworthiness of the institutions to which
the Fund lends securities.
LOWER-RATED SECURITIES
The Growth and Emerging Growth Funds may each invest up to 35%, and the Short
Term Global Government Fund up to 10%, of its total assets in debt securities
rated below the fourth highest rating by an NRSRO or of equivalent quality as
determined by the Sub-Advisor. Non-investment-grade debt securities are
securities rated BB or lower and are commonly referred to as "junk bonds."
Securities rated below investment grade as well as unrated securities are often
considered to be speculative and usually entail greater risk (including the
possibility of default or bankruptcy of the issuers). Such securities generally
involve greater price volatility and risk of principal and income, and may be
less liquid, than securities in higher rated categories. Both price volatility
and illiquidity may make it difficult for the Fund to value certain of these
securities at certain times and these securities may be difficult to sell under
certain market conditions. Prices for non-investment-grade debt securities may
be affected by legislative and regulatory developments. For further information,
see "Investment Objectives and Policies of the Funds -- Strategy Available to
Short Term Global Government, Growth and Emerging Growth Funds" in the SAI and
the Appendix.
MORTGAGE-BACKED SECURITIES
All of the Funds may invest in Mortgage-Backed Securities, which represent an
interest in a pool of mortgage loans. The primary government issuers or
guarantors of Mortgage-Backed Securities are GNMA, FNMA and FHLMC.
Mortgage-Backed Securities provide a monthly payment consisting of interest and
principal payments. Additional payments may be made out of unscheduled
repayments of principal resulting from the sale of the underlying residential
property, refinancing or foreclosure, net of fees or costs that may be incurred.
Prepayments of principal on Mortgage-Backed Securities may tend to increase due
to refinancing of mortgages as interest rates decline. Prompt payment of
principal and interest on GNMA mortgage pass-through certificates is backed by
the full faith and credit of the U.S. Government. FNMA-guaranteed mortgage
pass-through certificates and FHLMC participation certificates are solely the
obligations of those entities but are supported by the discretionary authority
of the U.S. Government to purchase the agencies' obligations. Collateralized
Mortgage Obligations are a type of bond secured by an underlying pool of
mortgages or mortgage pass-through certificates that are structured to direct
payments on underlying collateral to different series or classes of the
obligations.
To the extent that a Fund purchases mortgage-related or mortgage-backed
securities at a premium, prepayments may result in some loss of the Fund's
principal investment to the extent of the premium paid. The yield of the Fund
may be affected by reinvestment of prepayments at higher or lower rates than the
original investment. In addition, like other debt securities, the value of
mortgage-related securities, including government and government-related
mortgage pools, will generally fluctuate in response to market interest rates.
NEW ISSUERS
A Fund may invest up to 5% of its assets in the securities of issuers which have
been in continuous operation for less than three years.
OPTIONS ON SECURITIES
OPTION PURCHASE. All Funds except the Global Money Fund may purchase put and
call options on portfolio securities in which it may invest that are traded on a
U.S. or foreign securities exchange or in the over-the-counter market. A Fund
may utilize up to 10% of its assets to purchase put options on portfolio
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securities and may do so at or about the same time that it purchases the
underlying security or at a later time. By buying a put, the Funds limit their
risk of loss from a decline in the market value of the security until the put
expires. Any appreciation in the value of the underlying security, however, will
be partially offset by the amount of the premium paid for the put option and any
related transaction costs. A Fund may also utilize up to 10% of its assets to
purchase call options on securities in which it is authorized to invest. Call
options may be purchased by the Fund in order to acquire the underlying
securities for the Fund at a price that avoids any additional cost that would
result from a substantial increase in the market value of a security. The Funds
may also purchase call options to increase its return to investors at a time
when the call is expected to increase in value due to anticipated appreciation
of the underlying security. Prior to their expirations, put and call options may
be sold in closing sale transactions (sales by the Fund, prior to the exercise
of options that it has purchased, of options of the same series), and profit or
loss from the sale will depend on whether the amount received is more or less
than the premium paid for the option plus the related transaction costs.
COVERED OPTION WRITING. All Funds except the Global Money Fund may write put
and call options on securities for hedging purposes. The Funds realize fees
(referred to as "premiums") for granting the rights evidenced by the options. A
put option embodies the right of its purchaser to compel the writer of the
option to purchase from the option holder an underlying security at a specified
price at any time during the option period. In contrast, a call option embodies
the right of its purchaser to compel the writer of the option to sell to the
option holder an underlying security at a specified price at any time during the
option period.
Upon the exercise of a put option written by a Fund, the Fund may suffer a loss
equal to the difference between the price at which the Fund is required to
purchase the underlying security and its market value at the time of the option
exercise, less the premium received for writing the option. Upon the exercise of
a call option written by the Fund, the Fund may suffer a loss equal to the
excess of the security's market value at the time of the option exercise over
the Fund's acquisition cost of the security, less the premium received for
writing the option.
The U.S. Government and Corporate Income Funds may also write covered options on
portfolio securities to enhance current return. Accordingly, whenever a Fund
writes a call option, it will continue to own or have the present right to
acquire the underlying security without the payment of additional consideration
for as long as it remains obligated as the writer of the option. To support its
obligation to purchase the underlying security if a put option is written, the
Funds will either (1) deposit with Boston Safe in a segregated account cash,
U.S. Government Securities or other short-term high-grade debt obligations
having a value at least equal to the exercise price of the underlying securities
or (2) continue to own an equivalent number of puts on the same "series" (that
is, puts on the same underlying security having the same exercise prices and
expiration dates as those written by the Fund), or an equivalent number of puts
on the same "class" (that is, puts on the same underlying security) with
exercise prices greater than those that it has written (or, if the exercise
prices of the puts it holds are less than the exercise prices of those it has
written, it will deposit the difference with Boston Safe in a segregated
account).
The principal reason for writing covered call and put options on portfolio
securities is to attempt to realize, through the receipt of premiums, a greater
return than would be realized on the securities alone. In return for a premium,
the writer of a covered call option forfeits the right to any appreciation in
the value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
the call writer retains the risk of a decline in the price of the underlying
security. Similarly, the principal reason for writing covered put options is to
realize income in the form of premiums. The writer of the covered put option
accepts the risk of a decline in the price of the underlying security. The size
of the premiums that the Funds may receive may be adversely affected as new or
existing institutions, including other investment companies, engage in or
increase their option-writing activities.
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The Funds may engage in closing purchase transactions to realize a profit, to
prevent an underlying security from being called or put or, in the case of a
call option, to unfreeze an underlying security (thereby permitting its sale or
the writing of a new option on the security prior to the outstanding option's
expiration). To effect a closing purchase transaction, the Funds would purchase,
prior to the holder's exercise of an option that the Fund has written, an option
of the same series as that on which the Fund desires to terminate its
obligation. The obligation of the Fund under an option that it has written would
be terminated by a closing purchase transaction, but the Fund would not be
deemed to own an option as the result of the transaction. There can be no
assurance that the Fund will be able to effect closing purchase transactions at
a time when it wishes to do so. The ability of the Fund to engage in closing
transactions with respect to options depends on the existence of a liquid
secondary market. While the Fund will generally purchase or write options only
if there appears to be a liquid secondary market for the options purchased or
sold, for some options no such secondary market may exist or the market may
cease to exist. To facilitate closing purchase transactions, however, the Fund
will ordinarily write options only if a secondary market for the options exists
on a U.S. securities exchange or in the over-the-counter market.
Option writing for the Funds may be limited by position and exercise limits
established by U.S. securities exchanges and the National Association of
Securities Dealers, Inc. and by requirements of the Code for qualification as a
regulated investment company. In addition to writing covered put and call
options to generate current income, the Funds may enter into options
transactions as hedges to reduce investment risk, generally by making an
investment expected to move in the opposite direction of a portfolio position. A
hedge is designed to offset a loss on a portfolio position with a gain on the
hedge position; at the same time, however, a properly correlated hedge will
result in a gain on the portfolio position's being offset by a loss on the hedge
position. The Funds bear the risk that the prices of the securities being hedged
will not move in the same amount as the hedge. A Fund will engage in hedging
transactions only when deemed advisable by its Sub-Advisor. Successful use by
the Fund of options will depend on its Sub-Advisor's ability to correctly
predict movements in the direction of the stock underlying the option used as a
hedge. Losses incurred in hedging transactions and the costs of these
transactions will adversely affect the Fund's performance.
OPTIONS ON FOREIGN CURRENCIES
A Fund may purchase and write put and call options on foreign currencies for the
purpose of hedging against declines in the U.S. dollar value of foreign
currency-denominated portfolio securities and against increases in the U.S.
dollar cost of such securities to be acquired. Generally, transactions relating
to Options on Foreign Currencies occur in the over-the-counter market. As in the
case of other kinds of options, however, the writing of an option on a foreign
currency constitutes only a partial hedge, up to the amount of the premium
received, and the Fund could be required to purchase or sell foreign currencies
at disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates, although, in the event of rate movements adverse
to the Fund's position, it may forfeit the entire amount of the premium plus
related transaction costs. There is no specific percentage limitation on the
Fund's investments in Options on Foreign Currencies. See the SAI for further
discussion of the use, risks and costs of Options on Foreign Currencies and Over
the Counter Options.
OPTIONS ON INDEXES
A Fund may, subject to applicable securities regulations, purchase and write put
and call options on stock and fixed income indexes listed on foreign and
domestic stock exchanges. A stock index fluctuates with changes in the market
values of the stocks included in the index. An example of a domestic stock index
is the S&P 500 Index. Examples of foreign stock indexes are the Canadian Market
Portfolio Index (Montreal Stock Exchange), The Financial Times -- Stock Exchange
100 (London Stock Exchange)
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and the Toronto Stock Exchange Composite 300 (Toronto Stock Exchange). Examples
of fixed-income indexes include the Lehman Government/Corporate Bond Index and
the Lehman Treasury Bond Index.
Options on Indexes are generally similar to options on securities except for
delivery requirements. Instead of giving the right to take or make delivery of a
security at a specified price, an option on an index gives the holder the right
to receive a cash "exercise settlement amount" equal to (a) the amount, if any,
by which the fixed exercise price of the option exceeds (in the case of a put)
or is less than (in the case of a call) the closing value of the underlying
index on the date of exercise, multiplied by (b) a fixed "index multiplier."
Receipt of this cash amount will depend upon the closing level of the index upon
which the option is based being greater than, in the case of a call, or less
than, in the case of a put, the exercise price of the option. The amount of cash
received will be equal to such difference between the closing price of the index
and the exercise price of the option expressed in dollars or a foreign currency,
as the case may be, times a specified multiple. The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
The writer may offset its position in index options prior to expiration by
entering into a closing transaction on an exchange or the option may expire
unexercised.
The effectiveness of purchasing or writing index options as a hedging technique
will depend upon the extent to which price movements in the portion of the
securities portfolio of the Fund correlate with price movements of the stock
index selected. Because the value of an index option depends upon movements in
the level of the index rather than the price of a particular stock, whether the
Fund will realize a gain or loss from the purchase or writing of options on an
index depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in the price of a particular stock. Accordingly,
successful use of Options on Indexes by the Fund will be subject to its
Sub-Advisor's ability to predict correctly movements in the direction of the
market generally or of a particular industry. This requires different skills and
techniques than predicting changes in the price of individual stocks.
Options on securities indexes entail risks in addition to the risks of options
on securities. Because exchange trading of options on securities indexes is
relatively new, the absence of a liquid secondary market to close out an option
position is more likely to occur, although the Fund generally will only purchase
or write such an option if the Sub-Advisor believes the option can be closed
out. Because options on securities indexes require settlement in cash, the Fund
may be forced to liquidate portfolio securities to meet settlement obligations.
The Fund will engage in stock index options transactions only when determined by
its Sub-Advisor to be consistent with its efforts to control risk. There can be
no assurance that such judgment will be accurate or that the use of these
portfolio strategies will be successful.
When the Fund writes an option on an index, it will establish a segregated
account with Boston Safe or with a foreign sub-custodian in which the Fund will
deposit cash or cash equivalents or a combination of both in an amount equal to
the market value of the option, and will maintain the account while the option
is open.
OVER THE COUNTER OPTIONS
All Funds except the Global Money Fund may write or purchase options in
privately negotiated domestic or foreign transactions ("OTC Options"), as well
as exchange-traded or "listed" options. OTC Options can be closed out only by
agreement with the other party to the transaction, and thus any OTC Options
purchased by a Fund will be considered an Illiquid Security. In addition,
certain OTC Options on foreign currencies are traded through financial
institutions acting as market-makers in such options and the underlying
currencies.
OTC Options entail risks in addition to the risks of exchange-traded options.
Exchange-traded options are in effect guaranteed by the Options Clearing
Corporation while a Fund relies on the party from whom it purchases an OTC
Option to perform if the Fund exercises the option. With OTC Options, if the
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transacting dealer fails to make or take delivery of the securities or amount of
foreign currency underlying an option it has written, in accordance with the
terms of that option, the Fund will lose the premium paid for the option as well
as any anticipated benefit of the transaction. Furthermore, OTC Options are less
liquid than exchange-traded options.
REPURCHASE AGREEMENTS
Repurchase Agreements are agreements to purchase underlying debt obligations
from financial institutions, such as banks and broker-dealers, subject to the
seller's agreement to repurchase the obligations at an established time and
price. The collateral for such Repurchase Agreements will be held by the Fund's
custodian or a duly appointed sub-custodian. The Fund will enter into Repurchase
Agreements only with banks and broker-dealers that have been determined to be
creditworthy by the Fund's Board of Trustees under criteria established with the
assistance of the Advisor. The seller under a Repurchase Agreement is required
to maintain the value of the obligations subject to the Repurchase Agreement at
not less than the repurchase price. Default by the seller would, however, expose
the Fund to possible loss because of adverse market action or delay in
connection with the disposition of the underlying obligations. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the
obligations, the Fund may be delayed or limited in its ability to sell the
collateral.
REVERSE REPURCHASE AGREEMENTS
All Funds except the Global 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 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 risk that the market value of the securities sold by a Fund 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. Each Fund's Sub-Advisor, acting under the supervision of the
Board of Trustees, reviews on an on-going basis the creditworthiness of the
partners with which it enters into Reverse Repurchase Agreements. Under the 1940
Act, Reverse Repurchase Agreements may be considered borrowings by the seller.
Whenever borrowings by a Fund, including Reverse Repurchase Agreements, exceed
5% of the value of a Fund's total assets, the Fund will not purchase any
securities. See "Borrowing."
STRATEGIC TRANSACTIONS
Subject to the investment limitations and restrictions for each of the Funds as
stated elsewhere in the Prospectus and SAI of the Funds, each of the Funds
except the Global Money Fund may, but is not required to, utilize various
investment strategies as described in this Appendix to hedge various market
risks, to manage the effective maturity or duration of Fixed-Income Securities,
or to seek potentially higher returns. Utilizing these investment strategies,
the Fund may purchase and sell, to the extent not otherwise limited or
restricted for such Fund, exchange-listed and over-the-counter put and call
options on securities, equity and fixed-income indexes and other financial
instruments, purchase and sell financial futures contracts and options thereon,
enter into various Interest Rate Transactions such as swaps, caps, floors or
collars, and enter into various currency transactions such as currency forward
contracts, currency futures contracts, currency swaps or options on currencies
or currency futures (collectively, all the above are called "Strategic
Transactions").
Strategic Transactions may be used to attempt to protect against possible
changes in the market value of securities held in or to be purchased for the
Fund's portfolio resulting from securities markets or currency exchange rate
fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities,
A-14
<PAGE> 48
to facilitate the sale of such securities for investment purposes, to manage the
effective maturity or duration of the Fund's portfolio, or to establish a
position in the derivatives markets as a temporary substitute for purchasing or
selling particular securities. Some Strategic Transactions may also be used to
seek potentially higher returns, although no more than 5% of the Fund's assets
will be used as the initial margin or purchase price of options for Strategic
Transactions entered into for purposes other than "bona fide hedging" positions
as defined in the regulations adopted by the Commodity Futures Trading
Commission. Any or all of these investment techniques may be used at any time,
as use of any Strategic Transaction is a function of numerous variables
including market conditions. The ability of the Fund to utilize these Strategic
Transactions successfully will depend on the Sub-Advisor's ability to predict,
which cannot be assured, pertinent market movements. The Fund will comply with
applicable regulatory requirements when utilizing Strategic Transactions.
Strategic Transactions involving financial futures and options thereon will be
purchased, sold or entered into only for bona fide hedging, risk management or
portfolio management purposes.
U.S. GOVERNMENT SECURITIES
U.S. Government Securities include direct obligations of the U.S. Treasury (such
as U.S. Treasury bills, notes and bonds) and obligations directly issued or
guaranteed by U.S. Government agencies or instrumentalities. Some obligations
issued or guaranteed by agencies or instrumentalities of the U.S. Government are
backed by the full faith and credit of the U.S. Government (such as GNMA Bonds),
others are backed only by the right of the issuer to borrow from the U.S.
Treasury (such as securities of Federal Home Loan Banks) and still others are
backed only by the credit of the instrumentality (such as FNMA and FHLMC Bonds).
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS
In order to secure yields or prices deemed advantageous at the time, all Funds
except the Global Money Fund may purchase or sell securities on a when-issued or
a delayed-delivery basis. The Funds will enter into a when-issued transaction
for the purpose of acquiring portfolio securities and not for the purpose of
leverage. In such transactions delivery of the securities occurs beyond the
normal settlement periods, but no payment or delivery is made by, and no
interest accrues to, the Funds prior to the actual delivery or payment by the
other party to the transaction. Due to fluctuations in the value of securities
purchased on a when-issued or a delayed-delivery basis, the yields obtained on
such securities may be higher or lower than the yields available in the market
on the dates when the investments are actually delivered to the buyers.
Similarly, the sale of securities for delayed-delivery can involve the risk that
the prices available in the market when delivery is made may actually be higher
than those obtained in the transaction itself. The Funds will establish a
segregated account with Boston Safe consisting of cash, U.S. Government
Securities or other high grade debt obligations in an amount equal to the amount
of its when-issued and delayed-delivery commitments.
A-15
<PAGE> 49
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
General Information and History.................................................. B-3
Management of the Trust.......................................................... B-3
Investment Objectives and Policies of the Funds.................................. B-15
(See the Prospectus "Highlights" and "Investment
Policies")
Purchase and Pricing of Shares................................................... B-43
(See the Prospectus "Highlights" and
"Purchase and Redemption")
Net Asset Value.................................................................. B-44
Performance...................................................................... B-46
Taxes............................................................................ B-51
(See the Prospectus "Dividends, Distributions
and Taxes")
Appendix - Description of Ratings................................................ B-53
Financial Statements............................................................. FS-1
</TABLE>
A-16
<PAGE> 50
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1996
THE SIERRA VARIABLE TRUST
9301 Corbin Avenue, Suite 333
Northridge, California 91324
o GLOBAL MONEY FUND
o SHORT TERM HIGH QUALITY BOND FUND
o SHORT TERM GLOBAL GOVERNMENT FUND
o U.S. GOVERNMENT FUND
o CORPORATE INCOME FUND
o GROWTH AND INCOME FUND
o GROWTH FUND
o EMERGING GROWTH FUND
o INTERNATIONAL GROWTH FUND
THIS STATEMENT OF ADDITIONAL INFORMATION ("SAI") IS NOT A PROSPECTUS
BUT SUPPLEMENTS THE INFORMATION CONTAINED IN THE CURRENT PROSPECTUS OF THE
SIERRA VARIABLE TRUST (THE "TRUST") DATED MAY 1, 1996. IT SHOULD BE READ IN
CONJUNCTION WITH THAT PROSPECTUS, AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME.
THE TRUST'S PROSPECTUS MAY BE OBTAINED WITHOUT CHARGE BY WRITING TO AMERICAN
GENERAL LIFE INSURANCE COMPANY ("AGL"), ATTENTION: ANNUITY ADMINISTRATION, P.O.
BOX 1401, HOUSTON, TEXAS 77251-1401 OR BY CALLING AGL AT 800-247-6584. THIS
STATEMENT OF ADDITIONAL INFORMATION IS INCORPORATED BY REFERENCE INTO THE
PROSPECTUS IN ITS ENTIRETY.
B-1
<PAGE> 51
CONTENTS
For ease of reference, the same section headings are used in the
Prospectuses and in this Statement of Additional Information, except as
indicated below.
<TABLE>
<CAPTION>
Page
----
<S> <C>
General Information and History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-3
Management of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-3
Investment Objectives and Policies of the Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-15
(See the Prospectus "Highlights" and "Investment
Policies")
Purchase and Pricing of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-43
(See the Prospectus "Highlights" and
"Purchase and Redemption")
Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-44
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-46
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-51
(See the Prospectus "Dividends, Distributions
and Taxes")
Appendix - Description of Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-53
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FS-1
</TABLE>
B-2
<PAGE> 52
GENERAL INFORMATION AND HISTORY
The Sierra Variable Trust (the "Trust") is an open-end management
investment company. Under the rules and regulations of the Securities and
Exchange Commission (the "SEC"), all mutual funds are required to furnish
prospective investors with certain information concerning the activities of the
company being considered for investment. Some of the information required to
be in this SAI is also included in the Trust's current Prospectus. To avoid
unnecessary repetition, references are made to related sections of the
Prospectus. In addition, the Prospectus and this SAI omit certain information
about the Trust and its business that is contained in "Part C" of the
Registration Statement respecting the Trust and its Shares filed with the SEC.
Copies of the Registration Statement as filed, including Part C, may be
obtained from the SEC by paying the charges prescribed under its rules and
regulations.
The Trust was organized under the laws of the Commonwealth of
Massachusetts on January 29, 1993. The Trust filed a registration statement
with the SEC registering itself as an open-end diversified management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), and its shares under the Securities Act of 1933, as amended.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS OF THE TRUST
The names of the Trustees and executive officers of the Trust,
together with information as to their dates of birth and principal business
occupations during the past five years, are set forth below. Each Trustee who
is an "interested person" of the Trust, as defined in the 1940 Act, is
indicated by an asterisk.
TRUSTEES:
*F. BRIAN CERINI (1/23/51)
President
Sierra Capital Management Corporation
9301 Corbin Avenue
Northridge, California 91324
Since October 1990, he has served as President and CEO of Sierra
Capital Management Corporation ("SCMC"). Formed Great Western Financial
Securities Corporation ("GW Securities") in 1985 as President and also serves
as Chairman of the Trust. Prior to joining GW Securities, he served as First
Vice President, Financial Services for Bateman Eichler, Hill Richards, Inc., a
regional brokerage firm where he directed the firm's off exchange product
responsibilities and marketing. Previously, he worked for Pacific Southwest
Airlines for seven years as
B-3
<PAGE> 53
Assistant to the President. He holds a BA degree in Economics from the
University of Southern California and an MBA from the USC Graduate School of
Business.
ARTHUR H. BERNSTEIN, ESQ. (6/8/25)
Managing General Partner
California Capital Investors
11661 San Vicente Blvd., #608
Los Angeles, California 90049
Has held this position with the firm since 1981. Also President of
Bancorp Capital Group, Inc. and President of Bancorp Venture Capital, Inc.
since 1988. Previously served on the Board of Directors of Great Western
Leasing Corporation, a subsidiary of Great Western Financial Corporation, until
the subsidiary was sold in 1987. Director of Ryder System, Inc.; Trustee,
California Family Studies Center since 1984.
DAVID E. ANDERSON (11/17/26)
Retired, Former President & CEO
GTE California, Inc.
17960 Seabreeze Drive
Pacific Palisades, California 90272
Retired in 1988 from GTE California, Inc. after 40 years of service.
Held the position of President and CEO from 1979 to 1988. Director of
Barclay's Bank of California until 1988. Currently involved in the following
charitable organizations as a director on the following boards: public
television station KCET; Past Campaign Chairman of United Way; LA Project for
the Homeless; Task Force Chairman for The Year 2000 Partnership; and California
Economic Development Corporation. Holds BSEE degree from Iowa State.
EDMOND R. DAVIS, ESQ. (9/4/28)
Partner
Brobeck, Phleger & Harrison
550 South Hope Street, 21st Floor
Los Angeles, California 90071-2604
Joined the firm as a Partner in 1987 and is responsible for estate
planning, and trusts and estate matters in the Los Angeles office. Prior to
joining the firm, had a similar position for 20 years with the law firm of
Overton, Lyman & Prince in Los Angeles. His expertise has been recognized in
Who's Who in California, The Best Lawyers of America, and Who's Who in American
Law. Member of the Board of Directors of the following non-profit, charitable
organizations: Fifield Manors, Children's Bureau of Los Angeles, Children's
Bureau Foundation, and Braille Institute of America, Inc. Educated at
Pepperdine University and is an Order of the Coif graduate of Hastings College
of the Law.
B-4
<PAGE> 54
JOHN W. ENGLISH (3/27/33)
Retired, former Vice President & Chief Investment Officer
Ford Foundation
50 H New England Ave.
P.O. Box 640
Summit, New Jersey 07902-0640
Retired Vice President and Chief Investment Officer, the Ford
Foundation (a non-profit charitable organization). Chairman of the Board and
Director, The China Fund, Inc. (a closed-end mutual fund). Director, Paribas
Trust for Institutions (an open-end mutual fund). Trustee, Retail Property
Trust (a company providing management services for a shopping center).
OFFICERS:
F. BRIAN CERINI (1/23/51), CHAIRMAN AND PRESIDENT
Acts as a Trustee of the Trust as well as President. Information
regarding Mr. Cerini's background is listed previously under "Management of the
Trust -- Trustees."
KEITH B. PIPES (12/20/55), EXECUTIVE VICE PRESIDENT, TREASURER AND SECRETARY
As Senior Vice President, Chief Financial Officer and Secretary of
SCMC, he is responsible for its general accounting, financial planning,
compliance administration systems development and advisory operations. Joined
Great Western Bank in 1983 as Manager of Strategic Planning for the Bank and
later served as product manager for the Bank's savings products before joining
GW Securities in 1986. Prior to joining the firm, served as Senior Planning
Analyst in the Mergers and Acquisitions Department of Mattel Corporation.
Holds a B.A. degree in Economics as well as an MBA in finance from UCLA.
MICHAEL D. GOTH (8/13/45), SENIOR VICE PRESIDENT
Since January 1991, serves as Chief Operating Officer and Portfolio
Manager of Sierra Investment Advisors Corporation ("Sierra Advisors"). Prior
to joining Great Western, Mr. Goth worked for 2-1/2 years as a senior manager
of Transfer Agent operations at First Data Investor Services Group, Inc.
("First Data", formerly, The Shareholder Services Group, Inc.) and The Boston
Company. In addition, Mr. Goth has 10 years experience as executive vice
president of the GIT mutual fund group, responsible for most aspects of that
fund group, including investments. Other experience includes 4 years as a
corporate banking officer at Citibank and 1-1/2 years in investment banking
with Drexel Firestone. He holds B.S. and M.S. degrees from Rensselaer
Polytechnic Institute and an MBA in finance from Harvard Business School.
B-5
<PAGE> 55
STEPHEN C. SCOTT (1/18/45), SENIOR VICE PRESIDENT
Joined GW Securities in August 1988 to form Sierra Advisors and
currently serves as the President and Chief Investment Officer of Sierra
Advisors. Prior to joining GW Securities, served as President and Chairman of
SDS Investment Advisors, a firm he founded in which he developed asset
allocation technology. Previously, President and Chairman of Smathers and Co.,
an investment advisory firm. For nine years, served as the Senior Pension
Investment Consultant for the Group Pension Investment Division of Equitable
Life Insurance responsible for their major corporate clients. Has served as a
member on Board of Directors of several corporations and private organizations.
For 17 years, has served as a Trustee on the Long Beach State University
Foundation and currently chairs the Investment Committee. He holds a B.A.
degree in Economics and Finance from Long Beach State University, and continued
with an MBA in finance.
RICHARD W. GRANT (10/25/45), ASSISTANT SECRETARY
Has been a Partner in the firm of Morgan, Lewis & Bockius LLP since
1989. Prior to that he was a Partner in the firm of Ballard, Spahr, Andrews &
Ingersoll beginning in 1983. He received his A.B. in 1968 from Brown
University and his J.D. in 1971 from the Boston University School of Law.
RICHARD H. ROSE (7/8/55), ASSISTANT TREASURER
Currently acts as Senior Vice President of First Data, a subsidiary of
First Data Corp. (prior to May 6, 1994, a subsidiary of The Boston Company
Advisors, Inc. ("Boston Advisors")). He joined Boston Advisors in 1988 as Vice
President and Fund Manager in the Fund Accounting Department. Prior to 1988,
he acted as Senior Audit Manager for Peat Marwick Main (KPMG Peat Marwick) &
Co. He holds a Master's degree in Accounting from Northeastern University, and
a B.A. in Economics from Dartmouth.
CRAIG M. MILLER (10/7/59), ASSISTANT TREASURER
Joined SCMC in July 1993. Currently acts as Vice President and
Controller of SCMC. Prior thereto, acted as Audit Manager for Coopers &
Lybrand LLP. He holds a Master's degree in Taxation from Bentley College,
where he also received his B.S. in Accountancy.
Each of the Trustees and officers of the Trust is also a trustee or
officer of Sierra Trust Funds and Sierra Prime Income Fund, each an investment
company advised by Sierra Advisors.
The address of each trustee and officer of the Trust affiliated with
Sierra Advisors is 9301 Corbin Avenue, Suite 333, Northridge, California 91324.
B-6
<PAGE> 56
REMUNERATION. No director, officer or employee of Sierra Advisors,
the sub-advisors of the Funds (the "Sub-Advisors"), or of any affiliate of
Sierra Advisors or the Sub-Advisors will receive any compensation from the
Trust for serving as an officer or Trustee of the Trust. The Trust pays each
Trustee, who is not a director, officer or employee of Sierra Advisors or the
Sub-Advisors, or any of their affiliates, a fee of $5,000 per annum plus $1,250
per Board meeting attended and $1,000 per Audit and Nominating Committee
meeting attended (except that the Audit Committee chairman receives $1,500 per
committee meeting attended), and reimburses them for travel and out-of-pocket
expenses.
The aggregate remuneration paid to Trustees by the Trust for
attendance at Board and committee meetings for the period ended December 31,
1995 was $55,692 (including reimbursement for travel and out-of-pocket
expenses). As of December 31, 1995, the Trustees and officers of the Trust
owned, in the aggregate, less than 1% of the outstanding shares of any of the
Funds.
The following Compensation Table shows aggregate compensation paid to
each of the Fund's Directors by the Fund and the Fund Complex, respectively, in
the year ended December 31, 1995.
COMPENSATION TABLE
<TABLE>
<CAPTION>
(1) Name of Person, (2) Aggregated (3) Pension or (4) Estimated Annual (5) Total Compensation
Position Compensation From Retirement Benefits Benefits Upon From Registrant and
Registrant for the Accrued as Part of Retirement Fund Complex* Paid to
Fiscal Year ended Fund Expenses Directors for the
December 31, 1995 Fiscal Year ended
December 31, 1995
<S> <C> <C> <C> <C>
**F. Brian Cerini $0 $0 $0 $0
Chairman of the Board,
President and Trustee
Arthur H. Bernstein, Esq. $12,250 $0 $0 $31,250
Trustee for service on 2 boards
David E. Anderson $12,750*** $0 $0 $32,250***
Trustee for service on 2 boards
Edmond R. Davis, Esq. $12,250 $0 $0 $31,250
Trustee for service on 2 boards
John W. English $12,250 $0 $0 $31,250
Trustee for service on 2 boards
</TABLE>
* The Fund Complex consisted of the Trust and the Sierra Trust Funds as
of December 31, 1995.
** A Trustee who is an "interested person" as defined in the 1940 Act.
*** Mr. Anderson was paid $1,500 for Audit Committee Meetings held by the
Sierra Trust Funds and The Sierra Variable Trust.
B-7
<PAGE> 57
INVESTMENT ADVISOR AND SUB-ADVISORS,
CUSTODIAN AND TRANSFER AGENT
Sierra Advisors serves as Investment Advisor to each of the Funds and
each Sub-Advisor serves as Investment Sub-Advisor to one or more Funds pursuant
to separate written agreements. Certain of the services provided by, and the
fees paid to, Sierra Advisors and the Sub-Advisors, are described in the
Prospectus under "Management - Investment Advisor and - Sub-Advisors." Sierra
Advisors and the Sub-Advisors each (i) compensates its respective Directors and
pays the salaries of its respective officers and employees employed by such
companies, (ii) compensates its respective officers and employees that are
employed by the Trust, and (iii) maintains office facilities for the Trust.
Warburg, Pincus Counsellors, Inc. ("Warburg") replaced J.P. Morgan
Investment Management Inc. as the sub-advisor of the International Growth Fund
on April 8, 1996. The sub-adviser agreement with Warburg is subject to
shareholder approval at a Special Meeting of the Shareholders of the Trust to
be held on June 21, 1996. The sole shareholder of the Trust currently is AGL.
Those persons who are Contract owners of record of the investment division that
corresponds to the International Growth Fund of AGL's Separate Account D as of
the close of business on April 23, 1996 will be given the opportunity to
instruct AGL as to how it should vote at the Special Meeting.
BlackRock Financial Management L.P. replaced Van Kampen Merritt
Management Inc. ("Van Kampen") as the sub-advisor of the U.S. Government Fund
on December 8, 1994. On February 28, 1995, BlackRock Financial Management L.P.
was acquired and reorganized as BlackRock Financial Management, Inc.
("BlackRock"), a Delaware corporation, by a wholly-owned subsidiary of PNC Bank
Corp.
The assets of the Trust are held under bank custodianship in
accordance with the 1940 Act. Boston Safe Deposit and Trust Company ("Boston
Safe") serves as Custodian for the Funds. Sierra Fund Administration
Corporation ("Sierra Administration") serves as the Funds' Transfer Agent.
Under its custodial agreement with the Trust, Boston Safe is authorized to
appoint one or more U.S. banking institutions as sub-custodians of assets
owned by any of the Funds. In addition, the Trust may employ foreign
sub-custodians that are approved by the Board of Trustees to hold foreign
assets.
B-8
<PAGE> 58
For the fiscal years ended December 31, 1993, 1994, and 1995, the
Funds paid to Sierra Advisors the following advisory fees*:
<TABLE>
<CAPTION>
1995
------------------------------------------------
Fees Fees Expenses
Paid Waived Reimbursed
---- ------ ----------
<S> <C> <C> <C>
Global Money Fund $ 6,779 $50,091 $0
Short Term High Quality Bond Fund $ 50,278 $19,478 $0
Short Term Global Government Fund $201,327 $ 2,945 $0
U.S. Government Fund $280,013 $ 2,943 $0
Corporate Income Fund $367,022 $ 0 $0
Growth and Income Fund $234,524 $34,257 $0
Growth Fund $718,734 $ 0 $0
Emerging Growth Fund $250,932 $19,826 $0
International Growth Fund $407,005 $ 4,326 $0
</TABLE>
<TABLE>
<CAPTION>
1994
------------------------------------------------
Fees Fees Expenses
Paid Waived Reimbursed
---- ------ ----------
<S> <C> <C> <C>
Global Money Fund $ 0 $19,714 $2,983
Short Term High Quality Bond Fund $ 19,651 $23,014 $ 0
Short Term Global Government Fund $142,816 $63,650 $ 0
U.S. Government Fund $211,737 $23,870 $ 0
Corporate Income Fund $284,782 $22,786 $ 0
Growth and Income Fund $ 55,204 $30,881 $ 0
Growth Fund $423,638 $ 0 $ 0
Emerging Growth Fund $ 85,541 $ 8,613 $ 0
International Growth Fund $270,165 $23,985 $ 0
</TABLE>
B-9
<PAGE> 59
<TABLE>
<CAPTION>
1993
---------------------------------------------
Fees Fees Expenses
Paid Waived Reimbursed
---- ------ ----------
<S> <C> <C> <C>
Global Money Fund $0 $ 2,408 $25,747
Short Term High Quality Bond Fund -- -- --
Short Term Global Government Fund $0 $ 26,934 $16,855
U.S. Government Fund $0 $ 38,193 $15,862
Corporate Income Fund $0 $ 44,712 $ 9,066
Growth and Income Fund -- -- --
Growth Fund $0 $ 49,497 $ 481
Emerging Growth Fund -- -- --
International Growth Fund $0 $ 19,018 $17,769
- -----------------
</TABLE>
* The Global Money, the Short Term High Quality Bond, the Short Term
Global Government, the U.S. Government, the Corporate Income, the
Growth and Income, the Growth, the Emerging Growth and the
International Growth Funds commenced operations on May 10, 1993,
January 12, 1994, May 12, 1993, May 6, 1993, May 7, 1993, January 12,
1994, May 7, 1993, January 12, 1994 and May 7, 1993, respectively.
For the fiscal years ended December 31, 1993, 1994, and 1995, Sierra
Advisors paid to the Sub-Advisors the following sub-advisory fees*:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------- ------------------- ---------------------
FEES FEES FEES FEES FEES FEES
PAID WAIVED PAID WAIVED PAID WAIVED
---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Global Money Fund $ 17,061 $0 $ 5,914 $0 $ 722 $0
Short Term High Quality Bond $ 21,114 $0 $ 12,800 $0 $ 0 $0
Fund
Short Term Global $ 76,262 $0 $ 77,081 $0 $10,055 $0
Government Fund
U.S. Government Fund
BlackRock** $ 88,293 $0 $ 5,754 $0 $ 0 $0
Van Kampen $ 72,782 $0 $12,731 $0
Corporate Income Fund $ 169,395 $0 $141,954 $0 $20,638 $0
Growth and Income Fund $ 151,189 $0 $ 48,423 $0 $ 0 $0
Growth Fund $ 412,538 $0 $243,892 $0 $28,657 $0
Emerging Growth Fund $ 164,136 $0 $ 57,538 $0 $ 0 $0
International Growth Fund $ 259,788 $0 $185,779 $0 $12,012 $0
</TABLE>
B-10
<PAGE> 60
- ------
* The Global Money, the Short Term High Quality Bond, the Short Term
Global Government, the U.S. Government, the Corporate Income, the
Growth and Income, the Growth, the Emerging Growth and the
International Growth Funds commenced operations on May 10, 1993,
January 12, 1994, May 12, 1993, May 6, 1993, May 7, 1993, January 12,
1994, May 7, 1993, January 12, 1994 and May 7, 1993, respectively.
** On December 8, 1994 BlackRock replaced Van Kampen as the investment
Sub-advisor for the U.S. Government Fund.
For the fiscal years ended December 31, 1993, 1994, and 1995 the Funds
paid to Sierra Administration the following administration fees*:
<TABLE>
<CAPTION>
1995 1994 1993
------------------- ----------------------- -------------------
FEES FEES FEES FEES FEES FEES
PAID WAIVED PAID WAIVED PAID WAIVED
------------------- ----------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Global Money Fund $ 13,156 $7,317 $ 0 $ 7,097 $0 $ 868
Short Term High Quality $ 25,337 $ 0 $ 9,777 $ 5,583 -- --
Bond Fund
Short Term Global $ 49,025 $ 0 $14,152 $35,400 $0 $ 6,464
Government Fund
U.S. Government Fund $ 84,887 $ 0 $33,462 $37,220 $0 $11,458
Corporate Income Fund $101,657 $ 0 $41,686 $43,487 $0 $12,382
Growth and Income Fund $ 60,476 $ 0 $12,587 $ 6,782 -- --
Growth Fund $143,997 $ 0 $54,385 $28,906 $0 $ 9,376
Emerging Growth Fund $ 54,833 $ 0 $11,510 $ 7,321 -- --
International Growth Fund $ 77,936 $ 0 $32,169 $23,565 $0 $ 3,603
- ------
</TABLE>
* The Global Money, the Short Term High Quality Bond, the Short Term
Global Government, the U.S. Government, the Corporate Income, the
Growth and Income, the Growth, the Emerging Growth and the
International Growth Funds commenced operations on May 10, 1993,
January 12, 1994, May 12, 1993, May 6, 1993, May 7, 1993, January 12,
1994, May 7, 1993, January 12, 1994 and May 7, 1993, respectively.
COUNSEL AND AUDITOR
O'Melveny & Myers serves as counsel to the Trust and provides legal
services to Great Western Financial Corporation and a number of its
subsidiaries, including Sierra Advisors, Sierra Administration and GW
Securities. Morgan, Lewis & Bockius LLP also provides legal services to the
Trust, GW Securities, Sierra Advisors, Sierra Administration and Sierra
Investment Services Corporation.
Price Waterhouse LLP, independent accountants, located at 160 Federal
Street, Boston, Massachusetts 02110, serves as auditor of the Trust.
B-11
<PAGE> 61
ORGANIZATION OF THE TRUST
The Trust is organized as an unincorporated business trust under the
laws of the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust dated January 27, 1993, as amended from time to time (the
"Declaration of Trust"). Certificates representing shares in the Trust are not
physically issued. The Trust's Custodian and the Trust's Transfer Agent
maintain a record of each shareholder's ownership of Trust shares. Shares do
not have cumulative voting rights, which means that holders of more than 50% of
the shares voting for the election of Trustees can elect all Trustees. Shares
are transferable but have no preemptive, conversion or subscription rights.
Shareholders generally vote by Fund, except with respect to the election of
Trustees and the selection of independent accountants.
Under normal circumstances, there will be no meetings of shareholders
for the purpose of electing Trustees unless and until such time as less than a
majority of the Trustees holding office have been elected by shareholders, at
which time the Trustees then in office promptly will call a shareholders'
meeting for the election of Trustees. Under the 1940 Act, shareholders of
record of no less than two-thirds of the outstanding shares of the Trust may
remove a Trustee through a declaration in writing or by vote cast in person or
by proxy at a meeting called for that purpose. Under the Declaration of Trust,
the Trustees are required to call a meeting of shareholders for the purpose of
voting upon the question of removal of any such Trustee when requested in
writing to do so by the shareholders of record of not less than 10% of the
Trust's outstanding shares.
The record owner of all of the Trust's shares is Separate Account D of
AGL. Because of current federal securities laws requirements, the Trust
expects its shareholders to offer their Contract owners the opportunity to
instruct them as to how Trust shares allocable to their Contracts will be voted
with respect to certain issues. Therefore, Contract owners could be deemed to
have beneficial ownership of shares allocable to their Contracts. As of March
31, 1996 to the Trust's knowledge, no Contract Owner had shares allocable to
Contracts equal to more than five percent of any Fund.
Massachusetts law provides that shareholders, under certain
circumstances, could be held personally liable for the obligations of the
Trust. However, the Declaration of Trust disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation or instrument entered into or executed by
the Trust or a Trustee. The Declaration of Trust provides for indemnification
from the Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust would be unable to
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meet its obligations, a possibility that the Trust's management believes is
remote. Upon payment of any liability incurred by the Trust, the shareholder
paying the liability will be entitled to reimbursement from the general assets
of the Trust. The Trustees intend to conduct the operations of the Trust in
such a way so as to avoid, to the extent possible, ultimate liability of the
shareholders for liabilities of the Trust.
CERTAIN MATTERS RELATING TO J.P. MORGAN INVESTMENT MANAGEMENT INC. AND ITS
AFFILIATES
J.P. Morgan Investment Management Inc. ("J.P. Management"), the
Sub-Advisor to the Global Money and Growth and Income Funds, and Morgan
Guaranty Trust Company of New York ("Morgan Guaranty") are both wholly owned
subsidiaries of J.P. Morgan & Co. Incorporated ("J.P. Morgan"). Through its
Corporate Finance Division, Morgan Guaranty has relationships as a bank of
deposit, as a lender, as a financial advisor and in other capacities, with a
significant number of United States corporations. Such corporate customers of
Morgan Guaranty obtain short-term funds to finance the operation of their
business generally through two sources: (i) short-term bank borrowings from
commercial banks such as Morgan Guaranty; and (ii) the issuance of commercial
paper of the type in which certain of the Funds may invest. Normally the
decision of a corporation as to which medium of short-term financing to utilize
will be influenced primarily by interest rate differentials between the
available sources of short-term funds. When interest rate differentials
between short-term bank borrowings and the commercial paper market narrow, the
Corporate Finance Division of Morgan Guaranty may be competing with the
commercial paper market to provide short-term funds to corporate borrowers.
J.P. Morgan Securities Inc. ("J.P. Securities"), a wholly owned
subsidiary of J.P. Morgan, is a broker-dealer registered with the Securities
and Exchange Commission ("SEC") and a member of the National Association of
Securities Dealers, Inc. ("NASD"). J.P. Securities is active as a dealer in
the securities of the United States Government and an underwriter of and dealer
in securities of the United States Government agencies and money market
securities. To a limited extent, J.P. Securities also underwrites and deals in
commercial paper, certain mortgage-related securities, and consumer receivable
securities. J.P. Morgan Securities Limited ("J.P. Limited"), also a wholly
owned subsidiary of J.P. Morgan, underwrites, distributes and trades
international securities, including Eurobonds, commercial paper and foreign
government bonds. To the extent that the Global Money or Growth and Income
Funds are permitted to invest in such securities, the foregoing activities of
J.P. Securities and J.P. Limited may affect the manner in which J.P. Management
makes investments for such Funds and may affect such Funds' portfolios or the
markets for the securities in which such portfolios are invested. Such effects
would be primarily on: (1) the price of securities already held in the Global
Money or Growth and Income Funds or securities considered for purchase,
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which are the same as or similar to issues underwritten or traded by J.P.
Securities, J.P. Limited, J.P. Morgan or Morgan Guaranty ("Morgan Affiliates"),
and (2) the supply of issues available for purchase by the Global Money or
Growth and Income Funds. Particularly, where the positions of Morgan
Affiliates constitute a large percentage of a given issue, the price at which
that issue is traded may influence the price of securities of that issue or of
similar securities in the Global Money or Growth and Income Funds or securities
being considered for purchase. Also, since the Global Money and Growth and
Income Funds will not purchase directly from Morgan Affiliates, if the
positions of Morgan Affiliates in given issues is large, it may limit the
selection of available securities in that particular maturity, yield or price
range.
In addition, the Global Money and Growth and Income Funds will not
purchase securities of U.S. Government agencies during the existence of any
underwriting or selling group of which a Morgan Affiliate is a member except to
the extent permitted by law. Portfolio securities may not be purchased from or
sold to J.P. Management or any affiliated person (as defined in the 1940 Act)
of J.P. Management except as may be permitted by the Commission and subject to
the rules and regulations of the Comptroller of the Currency.
J.P. Morgan issues commercial paper and long-term debt securities, and
Morgan Guaranty and some of its affiliates issue certificates of deposit and
create bankers' acceptances. The Global Money and Growth and Income Funds will
not invest in the commercial paper or other debt securities of J.P. Morgan or
in certificates of deposit or bankers' acceptances of Morgan Guaranty or such
affiliates. However, the activities of J.P. Morgan and Morgan Guaranty and any
of such affiliates in the market for such instruments might affect the
portfolios of such Funds or the market for such instruments.
The limitations discussed in the preceding three paragraphs, in the
opinion of J.P. Management, will not significantly affect the ability of the
Global Money and Growth and Income Funds to pursue their respective investment
objectives. However, in the future in other circumstances, such Funds may be
at a disadvantage because of such limitations in comparison to other funds with
similar investment objectives which are not subject to such limitations. The
management of Sierra Advisors believes that the effects of such limitations are
more than offset by the experience and expertise J.P. Management provides to
such Funds.
The Treasurer's Division of Morgan Guaranty manages Morgan Guaranty's
own investment portfolio, composed primarily of securities of the United States
Government and United States Government agencies. Such activities may affect
the portfolios of the Global Money and Growth and Income Funds or the markets
for the securities in which such portfolios invest. In acting for its
fiduciary accounts, including such Funds, J.P. Management will not discuss its
investment decisions or positions with the
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personnel of any Morgan Affiliates. J.P. Management will not execute any
transactions for such Funds with Morgan Affiliates and will execute such
transactions only with unaffiliated dealers.
The commercial banking divisions of Morgan Guaranty or its affiliates
may have deposit, loan and other commercial banking relationships with issuers
of securities purchased by the Global Money and Growth and Income Funds,
including outstanding loans to such issuers that may be repaid in whole or in
part with the proceeds of securities purchased by such Funds in primary public
offerings. Such Funds will not purchase, except as may be permitted by
applicable law, securities in any primary public offering when the prospectus
discloses that the proceeds will be used to repay in whole or in part the loans
to such issuers. J.P. Management will not cause such Funds to make
investments for the direct purpose of benefitting other commercial interests of
Morgan Affiliates at the expense of such Funds. J.P. Management has advised
such Funds that, in making investment decisions, J.P. Management will not
obtain or use material inside information in the possession of any other
division or department of J.P. Management or from Morgan Affiliates. J.P.
Management has also advised such Funds that its investment personnel do not
disclose any material inside information in their possession regarding such
Funds to any other division or department of J.P. Management or Morgan
Affiliates.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
The Prospectus discusses the investment objective or objectives of
each of the Funds and the policies to be employed to achieve such objectives.
This section contains supplemental information concerning the types of
securities and other instruments in which the Funds may invest, the investment
policies and portfolio strategies that the Funds may utilize and certain risks
attendant to such investments, policies and strategies.
MONEY MARKET QUALITY AND MATURITY REQUIREMENTS
The Global Money Fund will purchase only those instruments which meet
the applicable quality requirements described below. The Fund will not
purchase a security (other than a U.S. Government security) unless the security
or the issuer with respect to comparable securities (i) is rated by at least
two nationally recognized statistical rating organizations ("NRSROs") (such as
Standard & Poor's Corporation ("S&P"), Moody's Investors Service, Inc.
("Moody's"), Duff & Phelps ("Duff") or Fitch Investors Service, Inc. ("Fitch"))
in one of the two highest rating categories for short-term debt securities,
(ii) is rated by the only NRSRO that has issued a rating in one of such NRSRO's
two highest categories for short-term debt, or (iii) if not so rated, the
security is determined to be of comparable quality. In addition, no more than
5% of the Fund's total assets will be invested in securities rated in the
second highest rating
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category by the requisite NRSROs and, no more than 1% of the Fund's total
assets will be invested in the securities of any one such issuer. A
description of the rating systems of S&P, Moody's, Duff and Fitch is contained
in the Appendix to this SAI.
At the time of investment, no security purchased by the Fund (except
securities subject to repurchase agreements and variable rate demand notes) can
have a maturity exceeding 397 days, and the Fund's average portfolio maturity
cannot exceed 90 days. The short average maturity of the portfolio enhances
the Fund's ability to maintain share prices at $1.00 which, in turn, provides
both stability of value and liquidity to shareholders. There can be no
assurances, however, that the Fund will be able to maintain net asset values at
$1.00 per share.
STRATEGIES AVAILABLE TO ALL FUNDS
BANK OBLIGATIONS. Domestic commercial banks organized under federal
law are supervised and examined by the Comptroller of the Currency and are
required to be members of the Federal Reserve System and to be insured by the
Federal Deposit Insurance Corporation (the "FDIC"). Domestic banks organized
under state law are supervised and examined by state banking authorities but
are members of the Federal Reserve System only if they elect to join. Most
state banks are insured by the FDIC (although such insurance may not be of
material benefit to a Fund, depending upon the principal amount of certificates
of deposit ("CDs") of each state bank held by a Fund) and are subject to
federal examination and to a substantial body of federal law and regulation.
As a result of federal and state laws and regulations, domestic branches of
domestic banks are, among other things, generally required to maintain specific
levels of reserves, and are subject to other supervision and regulation
designed to promote financial soundness.
Obligations of foreign branches of U.S. banks and of foreign branches
of foreign banks, such as CDs and time deposits ("TDs"), may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and governmental regulation.
Obligations of foreign branches of U.S. banks and foreign banks are subject to
the risks associated with investing in foreign securities generally. Foreign
branches of U.S. banks and foreign branches of foreign banks are not
necessarily subject to the same or similar regulatory requirements that apply
to U.S. banks, such as mandatory reserve requirements, loan limitations, and
accounting, auditing and financial recordkeeping requirements. In addition,
less information may be publicly available about a foreign branch of a U.S.
bank or about a foreign bank than about a U.S. bank.
Obligations of U.S. branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal and state
regulation as well as governmental action in the country in which the foreign
bank has its head office. A U.S
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branch of a foreign bank may or may not be subject to reserve requirements
imposed by the Federal Reserve System or by the state in which the branch is
located if the branch is licensed in that state. In addition, branches
licensed by the Comptroller of the Currency and branches licensed by certain
states ("State Branches") may or may not be required to (1) pledge to the
regulator by depositing assets with a designated bank within the state an
amount of its assets equal to 5% of its total liabilities, or (2) maintain
assets within the state in an amount equal to a specified percentage of the
aggregate amount of liabilities of the foreign bank payable at or through all
of its agencies or branches within the state. The deposits of State Branches
may not necessarily be insured by the FDIC. In addition, there may be less
publicly available information about a U.S. branch of a foreign bank than about
a U.S. bank.
In view of the foregoing factors associated with the purchase of CDs
and TDs issued by foreign banks and foreign branches of U.S. banks, a Fund's
Sub-Advisor will carefully evaluate such investments on a case-by-case basis.
A Fund may purchase a CD, TD or bankers' acceptances issued by a bank,
savings and loan association or other banking institution with less than $1
billion in assets (a "Small Issuer Bank Obligation") only so long as the issuer
is a member of the FDIC or supervised by the Office of Thrift Supervision (the
"OTS"), and so long as the principal amount of the Small Issuer Bank Obligation
is fully insured by the FDIC and is no more than $100,000. Each of the Funds
will at any one time hold only one Small Issuer Bank Obligation from any one
issuer.
Savings and loan associations whose CDs, TDs and bankers' acceptances
may be purchased by the Funds are supervised by the OTS and insured by the
Savings Association Insurance Fund, which is administered by the FDIC and is
backed by the full faith and credit of the United States Government. As a
result, such savings and loan associations are subject to regulation and
examination.
MORTGAGE-BACKED SECURITIES. The mortgage-backed securities in which
the Funds may invest may be classified as governmental or government-related,
depending on the issuer or guarantor. Governmental mortgage-backed securities
are backed by the full faith and credit of the United States. GNMA, the
principal U.S. guarantor of such securities, is a wholly owned U.S. Government
corporation within the Department of Housing and Urban Development.
Government-related mortgage-backed securities which are not backed by the full
faith and credit of the United States include those issued by FNMA and FHLMC.
FNMA is a government-sponsored corporation owned entirely by private
stockholders, which is subject to general regulation by the Secretary of
Housing and Urban Development. Pass-through securities issued by FNMA are
guaranteed as to timely payment of principal and interest by FNMA. FHLMC is a
corporate instrumentality of the United States, the stock of which is owned
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by the Federal Home Loan Bank. Participation certificates representing
interests in mortgages from FHLMC's national portfolio are guaranteed as to the
timely payment of interest and ultimate collection of principal by FHLMC.
Governmental or government-related entities may create mortgage loan
pools offering pass-through investments in addition to those described above.
The mortgages underlying these securities may be alternative mortgage
instruments, that is, mortgage instruments in which principal or interest
payments may vary or terms to maturity may be shorter than previously
customary. As new types of mortgage-backed securities are developed and
offered to investors, the Funds will, consistent with their respective
investment objectives and policies, consider making investments in such new
types of securities.
The average maturity of pass-through pools of mortgage-backed
securities varies with the maturities of the underlying mortgage instruments.
In addition, a pool's stated maturity may be shortened by unscheduled payments
on the underlying mortgages. Factors affecting mortgage prepayments include
the level of interest rates, general economic and social conditions, the
location of the mortgaged property and the age of the mortgage. Because
prepayment rates of individual mortgage pools vary widely, it is not possible
to accurately predict the average life of a particular pool. Common industry
practice, for example, is to assume that prepayments will result in a 7- to
9-year average life for pools of fixed-rate 30-year mortgages. Pools of
mortgages with other maturities of different characteristics will have varying
average life assumptions.
RATINGS AS INVESTMENT CRITERIA. In general, the ratings of NRSROs,
such as Moody's, S&P, Duff and Fitch, represent the opinions of these agencies
as to the quality of securities which they rate. It should be emphasized,
however, that such ratings are relative and subjective and are not absolute
standards of quality. These ratings will be used by the Funds as initial
criteria for the selection of portfolio securities, but the Funds will also
rely upon the independent advice of their respective Sub-Advisors to evaluate
potential investments. The Appendix to this SAI contains further information
concerning the ratings of these services and their significance.
To the extent that the rating given by a rating service for securities
may change as a result of changes in such organizations or their rating
systems, the Funds will attempt to use comparable ratings as standards for its
investments in accordance with the investment policies contained in the
Prospectus and in this SAI.
REPURCHASE AGREEMENTS. The Funds may invest in repurchase agreements
without limitation as to amount.
U.S. GOVERNMENT SECURITIES. U.S. Government Securities include debt
obligations of varying maturities issued or
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guaranteed by the U.S. Government, its agencies or instrumentalities. U.S.
Government Securities include direct obligations of the U.S. Treasury, and
securities issued or guaranteed by the Federal Housing Administration, Farmers
Home Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association ("GNMA"), General
Services Administration, Central Bank for Cooperatives, Federal Farm Credit
Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation
("FHLMC"), Federal Intermediate Credit Banks, Resolution Trust Corporation,
Federal Land Banks, Federal National Mortgage Association ("FNMA"), Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board
and Student Loan Marketing Association. Direct obligations of the U.S.
Treasury include a variety of securities that differ in their interest rates,
maturities and dates of issuance. Because the U.S. Government is not obligated
by law to provide support to an instrumentality it sponsors, a Fund will invest
in obligations issued by such an instrumentality only if the Fund's Sub-Advisor
determines that the credit risk with respect to the instrumentality does not
make its securities unsuitable for investment by the Fund.
STRATEGIES AVAILABLE TO ALL FUNDS EXCEPT THE GLOBAL MONEY FUND
FUTURES ACTIVITIES. The Funds may enter into futures contracts and
options on futures contracts that are traded on a U.S. exchange or board of
trade. These investments may be made by the Fund involved for the purpose of
hedging against changes in the value of its portfolio securities due to
anticipated changes in interest rates and market conditions. The ability of a
Fund to trade in futures contracts and options on futures contracts may be
materially limited by the requirement of the Internal Revenue Code of 1986, as
amended (the "Code"), applicable to a regulated investment company. See
"Taxes" below. In addition to the uses of futures described above, all Funds
except the Global Money Fund may use futures for certain other purposes. See
"Strategic Transactions."
FUTURES CONTRACTS. An interest rate futures contract provides for the
future sale by one party and the purchase by the other party of a certain
amount of a specific financial instrument (debt security) at a specified price,
date, time and place. A bond index futures contract is an agreement pursuant
to which two parties agree to take or make delivery of an amount of cash equal
to the difference between the value of the index at the close of the last
trading day of the contract and the price at which the index contract was
originally written. No physical delivery of the underlying securities in the
index is made.
The purpose of entering into a futures contract by a Fund is to
protect the Fund from fluctuations in the value of its securities caused by
anticipated changes in interest rates or market conditions without necessarily
buying or selling the securities. Of course, since the value of portfolio
securities will far exceed the value of the futures contracts entered into
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by a Fund, an increase in the value of the futures contract would only mitigate
- -- but not totally offset -- the decline in the value of the portfolio.
No consideration is paid or received by a Fund upon entering into a
futures contract. Initially, a Fund would be required to deposit with the
broker an amount of cash or cash equivalents equal to approximately 1% to 10%
of the contract amount (this amount is subject to change by the board of trade
on which the contract is traded and members of such board of trade may charge a
higher amount). This amount is known as "initial margin" and is in its nature
the equivalent of a performance bond or good faith deposit on the contract,
which is returned to a Fund upon termination of the futures contract, assuming
all contractual obligations have been satisfied. Subsequent payments, known as
"variation margin," to and from the broker, will be made daily as the price of
the index or securities underlying the futures contract fluctuates, making the
long and short positions in the futures contract more or less valuable, a
process known as "marking-to-market." At any time prior to the expiration of a
futures contract, a Fund may elect to close the position by taking an opposite
position, which will operate to terminate the Fund's existing position in the
contract.
There are several risks in connection with the use of futures
contracts as a hedging device. Successful use of futures contracts by a Fund
is subject to the ability of the Fund's Sub-Advisor to correctly predict
movements in the direction of interest rates or changes in market conditions.
These predictions involve skills and techniques that may be different from
those involved in the management of the portfolio being hedged. In addition,
there can be no assurance that there will be a correlation between movements in
the price of the underlying index or securities and movements in the price of
the securities which are the subject of the hedge. A decision of whether, when
and how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected trends in interest rates.
Although the Funds intend to enter into futures contracts only if
there is an active market for such contracts, there is no assurance that an
active market will exist for the contracts at any particular time. Most U.S.
futures exchanges and boards of trade limit the amount of fluctuation permitted
in futures contract prices during a single trading day. Once the daily limit
has been reached in a particular contract, no trades may be made that day at a
price beyond that limit. It is possible that futures contract prices would
move to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses. In such event, and in
the event of adverse price movements, a Fund would be required to make daily
cash payments of variation margin. In such circumstances, an increase in the
value of the portion of the
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portfolio being hedged, if any, may partially or completely offset losses on
the futures contract. However, as described above, there is no guarantee that
the price of the securities being hedged will, in fact, correlate with the
price movements in a futures contract and thus provide an offset to losses on
the futures contract.
To ensure that transactions constitute bona fide hedges in instances
involving the purchase or sale of a futures contract, the Funds will be
required to either (i) segregate sufficient cash or high-grade liquid assets to
cover the outstanding position or (ii) cover the futures contract by either
owning the instruments underlying the futures contract or by holding a
portfolio of securities with characteristics substantially similar to the
underlying index or stock index comprising the futures contract or by holding a
separate option permitting it to purchase or sell the same futures contract.
Because of the imperfect correlation between the movements in the price of
underlying indexes or stock indexes of various futures contracts and the
movement of the price of securities in the Funds' portfolios, the Funds will
periodically make adjustments to its index futures contracts positions to
appropriately reflect the relationship between the underlying portfolio and the
indexes. The Fund will not maintain short positions in index or stock index
futures contracts, options written on index or stock index futures contracts
and options written on indexes or stock indexes, if in the aggregate, the value
of these positions exceeds the current market value of its securities portfolio
plus or minus the unrealized gain or loss on those positions, adjusted for the
historical volatility relationship between the portfolio and the index
contracts.
OPTIONS ON FUTURES CONTRACTS. An option on a futures contract, as
contrasted with the direct investment in such a contract, gives the purchaser
the right, in return for the premium paid, to assume a position in the futures
contract at a specified exercise price at any time prior to the expiration date
of the option. Upon exercise of an option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account, which represents the amount by which the market price of the
futures contract exceeds, in the case of a call, or is less than, in the case
of a put, the exercise price of the option on the futures contract. The
potential loss related to the purchase of an option on futures contracts is
limited to the premium paid for the option (plus transaction costs). Because
the price of the option to the purchaser is fixed at the point of sale, there
are no daily cash payments to reflect changes in the value of the underlying
contract; however, the value of the option does change daily and that change
would be reflected in the net asset value of the Fund holding the options.
The Funds may purchase and write put and call options on futures
contracts that are traded on a U.S. exchange or board of
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trade as a hedge against changes in the value of its portfolio securities, and
may enter into closing transactions with respect to such options to terminate
existing positions. There is no guarantee that such closing transactions can
be effected.
There are several risks relating to options on futures contracts. The
ability to establish and close out positions on such options will be subject to
the existence of a liquid market. In addition, the purchase of put or call
options will be based upon predictions as to anticipated interest rate and
market trends by the Funds' Sub-Advisors, which could prove to be inaccurate.
Even if the expectations of the Sub-Advisors are correct, there may be an
imperfect correlation between the change in the value of the options and the
portfolio securities hedged. In addition to the uses of options described
above, all Funds except the Global Money Fund may use options for certain other
purposes. See "Strategic Transactions."
OPTIONS ON SECURITIES. The Funds may write covered put options and
covered call options on securities, purchase put and call options on securities
and enter into closing transactions. The Funds may not write put options with
respect to more than 50% of their total assets.
Options written by a Fund will normally have expiration dates between
one and nine months from the date written. The exercise price of the options
may be below, equal to or above the market values of the underlying securities
at the times the options are written. In the case of call options, these
exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. A Fund may write (1) in-the-money call
options when its Sub-Advisor expects that the price of the underlying security
will remain flat or decline moderately during the option period, (2)
at-the-money call options when its Sub-Advisor expects that the price of the
underlying security will remain flat or advance moderately during the option
period and (3) out-of-the-money call options when its Sub-Advisor expects that
the premiums received from writing the call option plus the appreciation in the
market price of the underlying security up to the exercise price will be
greater than the appreciation in the price of the underlying security alone.
In any of the preceding situations, if the market price of the underlying
security declines and the security is sold at this lower price, the amount of
any realized loss will be offset wholly or in part by the premium received.
Out-of-the-money, at-the-money and in-the-money put options (the reverse of
call options as to the relation of exercise price to market price) may be
utilized in the same market environments as such call options described above.
So long as the obligation of the Fund as the writer of an option
continues, the Fund may be assigned an exercise notice by the broker-dealer
through which the option was sold, requiring the Fund to deliver, in the case
of a call, or take delivery of, in the case of a put, the underlying security
against payment of
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the exercise price. This obligation terminates when the option expires or the
Fund effects a closing purchase transaction. The Fund can no longer effect a
closing purchase transaction with respect to an option once it has been
assigned an exercise notice. To secure its obligation to deliver the
underlying security when it writes a call option, or to pay for the underlying
security when it writes a put option, the Fund will be required to deposit in
escrow the underlying security or other assets in accordance with the rules of
the Options Clearing Corporation (the "OCC") and of the securities exchange on
which the option is written.
An option may be closed out only when there exists a secondary market
for an option of the same series on a recognized securities exchange or in the
over-the-counter market (see "Over the Counter Options," below). In light of
this fact and current trading conditions, the Fund expects to purchase or write
call or put options issued by the OCC, as well as the following national
securities exchanges on which options are traded: The Chicago Board Options
Exchange (CBOE), The Board of Trade of the City of Chicago (CBT), American
Stock Exchange (AMEX), Philadelphia Stock Exchange (PHLX), Pacific Stock
Exchange (PSE) and the New York Stock Exchange (NYSE).
The Fund may realize a profit or loss upon entering into closing
transactions. In cases where the Fund has written an option, it will realize a
profit if the cost of the closing purchase transaction is less than the premium
received upon writing the original option, and will incur a loss if the cost of
the closing purchase transaction exceeds the premium received upon writing the
original option. Similarly, when the Fund has purchased an option and engages
in a closing sale transaction, the Fund will realize a profit or loss to the
extent that the amount received in the closing sale transaction is more or less
than the premium the Fund initially paid for the original option plus the
related transaction costs.
To facilitate closing transactions, the Fund will generally purchase
or write only those options for which its Sub-Advisor believes there is an
active secondary market although there is no assurance that sufficient trading
interest to create a liquid secondary market on a securities exchange will
exist for any particular option or at any particular time, and for some options
no such secondary market may exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past, for example, higher than
anticipated trading activity or order flow, or other unforeseen events, have at
times rendered certain of the facilities of the OCC and the securities
exchanges inadequate and resulted in the institution of special procedures,
such as trading rotations, restrictions on certain types of orders or trading
halts or suspensions in one or more options. There can be no assurance that
similar events, or events that may otherwise interfere with the timely
execution of customers' orders, will not recur. In such events, it might not
be possible to effect closing transactions in particular options. If as a
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covered call option writer the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise.
Securities exchanges have established limitations governing the
maximum number of calls and puts of each class which may be held or written, or
exercised within certain time periods, by an investor or group of investors
acting in concert (regardless of whether the options are written on the same or
different securities exchanges or are held, written or exercised in one or more
accounts or through one or more brokers). It is possible that the particular
Fund and other clients of Sierra Advisors and its Sub-Advisors and certain of
their affiliates may be considered to be such a group. A securities exchange
may order the liquidation of positions found to be in violation of these limits
and it may impose certain other sanctions.
In the case of options written by a Fund that are deemed covered by
virtue of the Fund's holding convertible or exchangeable preferred stock or
debt securities, the time required to convert or exchange and obtain physical
delivery of the underlying security with respect to which the Fund has written
options may exceed the time within which the Fund must make delivery in
accordance with an exercise notice. In these instances, the Fund may purchase
or temporarily borrow the underlying securities for purposes of physical
delivery. By so doing, the Fund will not bear any market risk, since the Fund
will have the absolute right to receive from the issuer of the underlying
security an equal number of shares to replace the borrowed stock. The Fund may
however, incur additional transaction costs or interest expenses in connection
with any such purchase or borrowing.
Additional risks exist with respect to mortgage-backed U.S. Government
Securities for which the Fund may write covered call options. If a Fund writes
covered call options on a mortgage-backed security, the security that it holds
as cover may, because of scheduled amortization of unscheduled prepayments,
cease to be sufficient cover. The Fund will compensate by purchasing an
appropriate additional amount of mortgage-backed securities. In addition to
the uses of options described above, all Funds except the Global Money Fund may
use options for certain other purposes. See "Strategic Transactions."
OPTIONS ON SECURITIES INDEXES. In addition to options on securities,
the Funds may also purchase and sell call and put options on securities
indexes. Such options give the holder the right to receive a cash settlement
during the term of the option based upon the difference between the exercise
price and the value of the index.
Options on securities indexes entail risks in addition to the risks of
options on securities. Because exchange trading of
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options on securities indexes is relatively new, the absence of a liquid
secondary market to close out an option position is more likely to occur,
although the Fund generally will purchase or write such an option only if its
Sub-Advisor believes the option can be closed out.
Use of options on securities indexes also entails the risk that
trading in such options may be interrupted if trading in certain securities
included in the index is interrupted. The Fund will not purchase or write such
options unless its Sub-Advisor believes the market is sufficiently developed
for the risk of trading in such options to be no greater than the risk of
trading in options on securities.
Price movements in the Fund's portfolio may not correlate precisely
with movements in the level of an index and, therefore, the use of options on
securities indexes cannot serve as a complete hedge. Because options on
securities indexes require settlement in cash, the Fund may be forced to
liquidate portfolio securities to meet settlement obligations. In addition to
the uses of options described above, all Funds except the Global Money Fund may
use options for certain other purposes. See "Strategic Transactions."
OVER THE COUNTER OPTIONS. The Funds may write or purchase options in
privately negotiated domestic or foreign transactions ("OTC Options"), as well
as exchanged-traded or "listed" options. OTC Options can be closed out only by
agreement with the primary dealer in the transaction, and thus any OTC Options
and their underlying securities or currencies are considered illiquid. With
OTC Options, terms such as expiration date, exercise price and premium are
agreed upon between the Fund and the transacting dealer, without the
intermediation of a third party such as the OCC. Any OTC Options written by a
Fund will be with a qualified dealer pursuant to an agreement under which the
Fund may repurchase the option at a formula price at which the Fund would have
the absolute right to repurchase an OTC Option it has sold. In addition,
certain OTC Options on foreign currencies are traded through financial
institutions acting as market-makers in such options and the underlying
currencies. OTC Options will be considered illiquid in an amount equal to the
formula price, less the amount by which the option is "in-the-money."
OTC Options entail risks in addition to the risks of exchange-traded
options. Exchange-traded options are in effect guaranteed by an exchange such
as the OCC, while a Fund relies on the party from whom it purchases an OTC
Option to perform if the Fund exercises the option. With OTC Options, if the
transacting dealer fails to make or take delivery of the securities or amount
of foreign currency underlying an option it has written, in accordance with the
terms of that option, the Fund will lose the premium paid for the option as
well as any anticipated benefit of the transaction. Furthermore, OTC Options
are less liquid than exchange-traded options.
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REVERSE REPURCHASE AGREEMENTS. Under the 1940 Act, reverse repurchase
agreements may be considered borrowings by the seller; accordingly each of the
Funds will limit its investments in reverse repurchase agreements and other
borrowings to no more than 33 1/3% of its total assets. A Fund will not engage
in reverse repurchase transactions for the purpose of leverage.
STRATEGIC TRANSACTIONS. Each Fund may, but is not required to,
utilize various investment strategies to hedge various market risks, to manage
the effective maturity or duration of fixed-income securities, or to seek
potentially higher returns. Utilizing these investment strategies, the Fund
may purchase and sell exchange-listed and over-the-counter put and call options
on securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the Fund's portfolio,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities. Some Strategic Transactions
may also be used to seek potentially higher returns, although no more than 5%
of the Fund's assets will be used as the initial margin or purchase price of
options for Strategic Transactions entered into for purposes other than "bona
fide hedging" positions as defined in the regulations adopted by the Commodity
Futures Trading Commission ("CFTC"). Moreover, no Fund currently intends to
enter into Strategic Transactions, excluding Strategic Transactions that are
"covered" or entered into for bona fide hedging purposes, that are in the
aggregate principal amount in excess of 15% of the Fund's net assets. Any or
all of these investment techniques may be used at any time, as use of any
Strategic Transaction is a function of numerous variables including market
conditions. The ability of the Fund to utilize these Strategic Transactions
successfully will depend on the Sub-Advisor's ability to predict, which cannot
be assured, pertinent market movements. The Fund will comply with the
applicable regulatory requirements when utilizing Strategic Transactions.
Strategic Transactions involving financial futures and options thereon will be
purchased, sold or entered into only for bona fide hedging, risk management or
portfolio management purposes.
Strategic Transactions have associated risks including possible
default by the other party to the transaction,
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illiquidity and, to the extent the Sub-Advisor's view as to certain market
movements is incorrect, losses greater than if they had not been used. Use of
put and call options, currency transactions or options and futures transactions
entails certain risks as described herein and in the Appendix to the Prospectus
in sections relating to such investment or instruments. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
not been utilized.
The Funds may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple foreign currency
transactions (including forward foreign currency exchange contracts) and any
combination of futures, options and foreign currency transactions (each
separately, a "component" transaction), instead of a single transaction, as
part of a single strategy when, in the opinion of the Sub-Advisor, it is in the
best interest of the Fund to do so. A combined transaction may contain
elements of risk that are present in each of its component transactions.
The use of Strategic Transactions for portfolio management purposes
involves special considerations and risks. Additional risks pertaining to
particular strategies that make up Strategic Transactions are described in
other sections to this SAI. Successful use of most Strategic Transactions
depends upon the Sub-Advisor's ability to predict movements of the overall
securities and interest rate markets, which requires different skills than
predicting changes in the prices of individual securities. There can be no
assurance that any particular strategy adopted will succeed. There may be
imperfect correlation, or even no correlation, between price movements of
Strategic Transactions and price movements of the related portfolio or currency
positions. Such a lack of correlation might occur due to factors unrelated to
the value of the related portfolio or currency positions, such as speculative
or other pressures on the markets in which Strategic Transactions are traded.
Strategic Transactions, if successful, can reduce risk of loss or enhance
income, by wholly or partially offsetting the negative effect of, or accurately
predicting, unfavorable price movements or currency fluctuations in the related
portfolio or currency position. However, Strategic Transactions can also
reduce the opportunity for gain by offsetting the positive effect of favorable
price movements in the positions. In addition, a Fund might be required to
maintain assets as "cover," maintain segregated accounts or make margin
payments when it takes positions in Strategic Transactions involving
obligations to third parties (i.e., Strategic Transactions other than purchased
options). These requirements might impair the Fund's ability to sell a
portfolio security or currency position or make an investment at a time when it
would otherwise be favorable to do so, or require that the Fund sell a
portfolio security or currency position at a disadvantageous time.
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WHEN-ISSUED SECURITIES AND DELAYED DELIVERY TRANSACTIONS. A
segregated account in the name of the Funds consisting of cash or liquid debt
securities equal to the amount of when-issued or delayed-delivery commitments
will be established at Boston Safe, the Trust's custodian. For the purpose of
determining the adequacy of the securities in the accounts, the deposited
securities will be valued at market or fair value. If the market or fair value
of the securities declines, additional cash or securities will be placed in the
account daily so that the value of the account will equal the amount of such
commitments by the Fund. On the settlement date, the Fund will meet its
obligations from then-available cash flow, the sale of securities held in the
segregated account, the sale of other securities or, although it would not
normally expect to do so, from the sale of securities purchased on a
when-issued or delayed-delivery basis themselves (which may have a greater or
lesser value than the Fund's payment obligations).
STRATEGIES AVAILABLE TO ALL FUNDS EXCEPT THE U.S. GOVERNMENT FUND
AMERICAN DEPOSITARY RECEIPTS ("ADRS"), EUROPEAN DEPOSITARY RECEIPTS
("EDRS"), CONTINENTAL DEPOSITARY RECEIPTS ("CDRS") AND GLOBAL DEPOSITARY
RECEIPTS ("GDRS") ADRs are securities, typically issued by a U.S. financial
institution (a "depositary"), that evidence ownership interests in a security
or a pool of securities issued by a foreign issuer and deposited with the
depositary. ADRs include American Depositary Shares and New York Shares.
EDRs, which are sometimes referred to as CDRs, are securities, typically issued
by a non-U.S. financial institution, that evidence ownership interests in a
security or a pool of securities issued by either a U.S. or foreign issuer.
GDRs are issued globally and evidence a similar ownership arrangement.
Generally, ADRs are designed for trading in the U.S. securities market, EDRs
are designed for trading in European securities market and GDRs are designed
for trading in non-U.S. securities markets. ADRs, EDRs, CDRs and GDRs may be
available for investment through "sponsored" or "unsponsored" facilities. A
sponsored facility is established jointly by the issuer of the security
underlying the receipt and a depositary, whereas an unsponsored facility may be
established by a depositary without participation by the issuer of the
receipt's underlying security. Holders of an unsponsored depositary receipt
generally bear all the costs of the unsponsored facility. The depositary of an
unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited security
or to pass through to the holders of the receipts voting rights with respect to
the deposited securities.
LENDING OF PORTFOLIO SECURITIES. Each of the Funds will adhere to the
following conditions whenever its portfolio securities are loaned: (1) the Fund
must receive at least 100% cash collateral or equivalent securities from the
borrower; (2) the borrower must increase the collateral whenever the market
value of the securities rises above the level of the collateral; (3) the Fund
must be able to terminate the loan at any time; (4)
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the Fund must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities and any
increase in market value; (5) the Fund may pay only reasonable custodian fees
in connection with the loan; and (6) voting rights on the loaned securities may
pass to the borrower, provided that if a material event adversely affecting the
investment occurs, the Trust's Board of Trustees must terminate the loan and
regain the right to vote the securities. From time to time, the Funds may pay
a part of the interest earned from the investment of the collateral received
for securities loaned to the borrower and/or a third party that is unaffiliated
with the Trust and that is acting as a "finder." A Fund will not lend more
than 20% of its total assets.
STRATEGIES AVAILABLE TO ALL FUNDS EXCEPT GLOBAL MONEY AND U.S. GOVERNMENT FUNDS
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Funds may engage in
currency exchange transactions to protect against uncertainty in the level of
future exchange rates. The Funds' dealings in forward currency exchange
contracts will be limited to hedging involving either specific transactions or
portfolio positions. Transaction hedging is the purchase or sale of forward
foreign currency with respect to specific receivables or payables of the Fund
generally arising in connection with the purchase or sale of its portfolio
securities. Position hedging is the sale of forward foreign currency with
respect to portfolio security positions denominated or quoted in such foreign
currency. A Fund may not position hedge with respect to a particular currency
to an extent greater than the aggregate market value (at the time of making
such sale) of the securities held in its portfolio denominated or quoted in or
currently convertible into that particular currency.
If a Fund enters into a position hedging transaction, the Trust's
custodian or sub-custodian will, except in circumstances where segregated
accounts are not required by the 1940 Act and the rules adopted thereunder,
place cash, U.S. Government Securities or high-grade debt obligations in a
segregated account for the Fund in an amount at least equal to the value of the
Fund's total assets committed to the consummation of the forward contract. For
each forward foreign currency exchange contract that is used to hedge a
securities position denominated in a foreign currency, but for which the
hedging position no longer provides, in the opinion of the Sub-Advisor or the
Advisor, sufficient protection to consider the contract to be a hedge, the Fund
maintains with its custodian a segregated account of cash, U.S. Government
Securities or high-grade debt obligations in an amount at least equal to the
portion of the contract that is no longer sufficiently covered by such hedge.
If the value of the securities placed in the segregated account declines,
additional cash or securities will be placed in the account so that the value
of the account will equal the amount of the Fund's unhedged exposure (in the
case of securities denominated in a foreign
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currency) or commitment with respect to the contract. Hedging transactions may
be made from any foreign currency into U.S. dollars or into other appropriate
currencies.
At or before the maturity of a forward contract, a Fund may either
sell a portfolio security and make delivery of the currency, or retain the
security and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on the
same maturity date, the amount of the currency that it is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund, at the time of execution of the offsetting transaction,
will incur a gain or a loss to the extent that movement has occurred in forward
contract prices. Should forward prices decline during the period between the
Fund's entering into a forward contract for the sale of currency and the date
it enters into an offsetting contract for the purchase of the currency, the
Fund will realize a gain to the extent the price of the currency it has agreed
to sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the Fund will suffer a loss to the extent the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
The cost to a Fund of engaging in currency transactions varies with
factors such as the currency involved, the length of the contract period and
the prevailing market conditions. Because transactions in currency exchange
are usually conducted on a principal basis, no fees or commissions are
involved. The use of forward currency contracts does not eliminate
fluctuations in the underlying prices of the securities, but it does establish
a rate of exchange that can be achieved in the future. In addition, forward
currency contracts may limit the risk of loss due to a decline in the value of
the hedged currency increase.
If a devaluation of a currency is generally anticipated, a Fund may
not be able to contract to sell the currency at a price above the devaluation
level it anticipates.
The Funds, in addition, may combine forward currency exchange
contracts with investments in securities denominated in other currencies in an
attempt to create a combined investment position, the overall performance of
which will be similar to that of a security denominated in a Fund's underlying
currency. For instance, a Fund could purchase a U.S. dollar-denominated
security and at the same time enter into a forward currency exchange contract
to exchange U.S. dollars for its underlying currency at a future date. By
matching the amount of U.S. dollars to be exchanged with the anticipated value
of the U.S. dollar-denominated security, the Fund may be able to "lock in" the
foreign currency value of the security and adopt a synthetic investment
position whereby the Fund's overall investment return from the combined
position is similar to the return from purchasing a foreign
currency-denominated instrument.
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There is a risk in adopting a synthetic investment position. It is
impossible to forecast with absolute precision what the market value of a
particular security will be at any given time. If the value of a security
denominated in the U.S. dollar or other foreign currency is not exactly matched
with a Fund's obligation under a forward currency exchange contract on the date
of maturity, the Fund may be exposed to some risk of loss from fluctuations in
that currency. Although each Fund's Sub-Advisor will attempt to hold such
mismatching to a minimum, there can be no assurance that the Fund's Sub-Advisor
will be able to do so.
Although the foreign currency market is not believed to be necessarily
more volatile than the market in other commodities, there is less protection
against defaults in the forward trading to currencies than there is in trading
such currencies on an exchange because such forward contracts are not
guaranteed by an exchange or clearing house. The CFTC has indicated that it
may assert jurisdiction over forward contracts in foreign currencies and
attempt to prohibit certain entities from engaging in such transactions. In
the event that such prohibition included the Fund, it would cease trading such
contracts. Cessation of trading might adversely affect the performance of a
Fund.
In addition to the uses of foreign currency exchange transactions
described above, all Funds except the Global Money and the U.S. Government
Funds may use foreign currency exchange transactions for certain other
purposes. See "Strategic Transactions."
OPTIONS ON FOREIGN CURRENCIES. The Funds may purchase and write put
and call options on foreign currencies for the purpose of hedging against
declines in the U.S. dollar value of foreign currency-denominated portfolio
securities and against increases in the U.S. dollar cost of such securities to
be acquired. Such hedging includes cross hedging and proxy hedging where the
options to buy or sell currencies involve other currencies besides the U.S.
dollar. As one example, a decline in the U.S. dollar value of a foreign
currency in which securities are denominated will reduce the U.S. dollar value
of the securities, even if their value in the foreign currency remains
constant. To protect against diminutions in the value of securities held by a
Fund in a particular foreign currency, the Fund may purchase put options on the
foreign currency. If the value of the currency does decline, the Fund will
have the right to sell the currency for a fixed amount in U.S. dollars and will
thereby offset, in whole or in part, the adverse effect on its portfolio that
otherwise would have resulted. When an increase in the U.S. dollar value of a
currency in which securities to be acquired are denominated is projected,
thereby increasing the cost of the securities, the Fund conversely may purchase
call options on the currency. The purchase of such options could offset, at
least partially, the effects of the adverse movements in exchange rates. As in
the case of other types of options, however, the benefit to the Fund deriving
from purchases of foreign currency options will be reduced by the amount of the
premium and related
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transaction costs. In addition, if currency exchange rates do not move in the
direction, or to the extent anticipated, the Fund could sustain losses on
transactions in foreign currency options that would require it to forego a
portion or all of the benefits of advantageous changes in the rates.
The Fund may also write covered call options on foreign currencies for
the types of hedging purposes described above. As one example, when a Fund
anticipates a decline in the U.S. dollar value of foreign currency-denominated
securities due to adverse fluctuations in exchange rates, it could, instead of
purchasing a put option, write a covered call option on the relevant currency.
If the expected decline occurs, the option will most likely not be exercised,
and the diminution in value of portfolio securities will be offset by the
amount of the premium received. As in the case of other types of options,
however, the writing of a foreign currency option will constitute only a
partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and
the Fund would be required to purchase or sell the underlying currency at a
loss that may not be offset by the amount of the premium. Through the writing
of options on foreign currencies, the Fund may also be required to forego all
or a portion of the benefits that might otherwise have been obtained from
favorable movements in exchange rates.
A call option written on a foreign currency by a Fund is "covered" if
the Fund owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire the foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by Boston Safe, or by a designated sub-custodian) upon conversion or
exchange of other foreign currency held by the Fund. A call option also is
covered if the Fund has a call on the same foreign currency and in the same
principal amount as the call written when the exercise price of the call held
(1) is equal to or less than the exercise price of the call written or (2) is
greater than the exercise price of the call written if the difference is
maintained by the Fund in cash, U.S. Government Securities and other high-grade
liquid debt securities in a segregated account with Boston Safe or with a
designated sub-custodian.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on those
exchanges. As a result, many of the protections provided to traders on
organized exchanges will be available with respect to those transactions. In
particular, all foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the OCC, thereby reducing the
risk of counterparty default. Further, a liquid secondary market in options
traded on a national securities exchange may exist, potentially permitting the
Fund to liquidate open positions at a profit prior to their exercise or
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expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options are
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exercise and settlement of exchange-traded
foreign currency options must be made exclusively through the OCC, which has
established banking relationships in applicable foreign countries for this
purpose. As a result, the OCC may, if it determines that foreign governmental
restrictions or taxes would prevent the orderly settlement of foreign currency
option exercises, or would result in undue burdens on the OCC or its clearing
member, impose special procedures on exercise and settlement, such as technical
changes in the mechanics of delivery of currency, the fixing of dollar
settlement prices or prohibitions on exercise. For a discussion of the risks
involved in OTC Options in foreign currency, see "Over the Counter Options"
above.
In addition to the uses of options on foreign currencies described
above, all Funds except the Global Money and U.S. Government Funds may use
options on foreign currencies for certain other purposes. See "Strategic
Transactions."
STRATEGY AVAILABLE TO SHORT TERM HIGH QUALITY BOND, SHORT TERM GLOBAL
GOVERNMENT, U.S. GOVERNMENT AND CORPORATE INCOME FUNDS
DOLLAR ROLL TRANSACTIONS. In order to seek a high level of current
income, the Funds may enter into dollar rolls or "covered rolls" in which the
Fund sells securities (usually Mortgage-Backed Securities) and simultaneously
contracts to repurchase, typically in 30 or 60 days, substantially similar, but
not identical, securities on a specified future date. During the roll period,
the Fund forgoes principal and interest paid on such securities. The Fund is
compensated by the difference between the current sales price and the forward
price for the future purchase (often referred to as the "drop") as well as by
the interest earned on the cash proceeds of the initial sale. A "covered roll"
is a specific type of dollar roll for which there is an offsetting cash
position or cash equivalent securities position that matures on or before the
forward settlement date of the dollar roll transaction. As used herein the
term "dollar roll" refers to dollar rolls that are not "covered rolls." At the
end of the roll commitment period, the Fund may or may not take delivery of the
securities the Fund has contracted to purchase.
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STRATEGY AVAILABLE TO SHORT TERM GLOBAL GOVERNMENT, GROWTH AND EMERGING GROWTH
FUNDS
LOWER-RATED SECURITIES. The Short Term Global Government Fund may
invest up to 10% and the Growth and Emerging Growth Funds up to 35% of its net
assets in non-investment grade securities (rated Ba and lower by Moody's or BB
and lower by Standard & Poor's) or unrated securities. Such securities carry a
high degree of risk (including the possibility of default or bankruptcy of the
issuer of such securities), generally involve greater volatility of price and
risk of principal and income, and may be less liquid, than securities in the
higher rating categories and are considered speculative. See the Appendix to
this SAI for a more complete description of the ratings assigned by ratings
organizations and their respective characteristics.
The recent economic downturn disrupted the high yield market and
impaired the ability of issuers to repay principal and interest. Also, an
increase in interest rates could further adversely affect the value of such
obligations held by the Fund. Prices and yields of high yield securities will
fluctuate over time and may affect the Fund's net asset value. In addition,
investments in high yield zero coupon or pay-in-kind bonds, rather than
income-bearing high yield securities, may be more speculative and may be
subject to greater fluctuations in value due to changes in interest rates.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of
the Trustees to accurately value high yield securities in the Fund's portfolio
and to dispose of those securities. Adverse publicity and investor perceptions
may decrease the value and liquidity of high yield securities. These
securities may also involve special registration responsibilities, liabilities
and costs.
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently-issued credit ratings may not fully reflect
the actual risks posed by a particular high yield security. For these reasons,
it is the policy of each of these Fund's Sub-Advisors not to rely exclusively
on ratings issued by established credit rating agencies, but to supplement such
ratings with its own independent and ongoing review of credit quality. The
achievement of the Fund's investment objectives by investment in such
securities may be more dependent on its Sub-Advisor's credit analysis than is
the case for higher quality bonds. Should the rating of a portfolio security
be downgraded, the Fund's Sub-Advisor will determine whether it is in the best
interest of the Fund to retain the security.
Prices for below investment grade securities may be affected by
legislative and regulatory developments. For example, new federal rules
require savings and loan institutions to gradually
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reduce their holdings of this type of security. Also, Congress from time to
time has considered legislation which would restrict or eliminate the corporate
tax deduction for interest payments on these securities and would regulate
corporate restructurings. Such legislation may significantly depress the
prices of outstanding securities of this type.
STRATEGY AVAILABLE TO GROWTH, EMERGING GROWTH AND INTERNATIONAL GROWTH FUNDS
SECURITIES IN DEVELOPING COUNTRIES. Although most of the investments
of the Growth Fund, Emerging Growth Fund and International Growth Fund are made
in securities of companies in (or governments of) developed countries, up to 5%
of the total assets of the Growth Fund and Emerging Growth Fund and up to 30%
of the total assets of the International Growth Fund may be invested in
securities of companies in (or governments of) developing or emerging countries
(sometimes referred to as "emerging markets") as well. A developing or
emerging country is generally considered to be a country that is in the initial
stages of its industrialization cycle. Investing in the equity and
fixed-income markets of developing or emerging countries involves exposure to
economic structures that are generally less diverse and mature, and to
political systems that can be expected to have less stability than those of
developed countries. Historical experience indicates that the markets of
developing or emerging countries have been more volatile than the markets of
the more mature economies of developed countries; however, such markets often
have provided higher rates of return to investors.
INVESTMENT RESTRICTIONS
The investment restrictions numbered 1 through 15 below have been
adopted by the Trust with respect to the Funds as fundamental policies. A
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Trust, as defined in the 1940 Act. A
majority is defined in the 1940 Act as the lesser of (a) 67% or more of the
shares present at a special meeting of shareholders, if the holders of more
than 50% of the outstanding shares of the Trust are present or represented by
proxy, or (b) more than 50% of the outstanding shares. A fundamental policy
affecting a particular Fund may not be changed without the vote of a majority
of the outstanding shares of the affected Fund. Investment restrictions 16
through 23 may be changed by vote of a majority of the Trust's Board of
Trustees at any time.
The investment policies adopted by the Trust prohibit a Fund from:
1. Purchasing the securities of any issuer (other than U.S. Government
Securities) if as a result more than 5% of the value of the Fund's
total assets would be invested in the securities of the issuer (the
"5% Limitation"), except that up to 25% of the value of the Fund's
total assets may be
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<PAGE> 85
invested without regard to the 5% Limitation; provided that this
restriction shall not apply to the Short Term Global Government Fund;
and provided further that the entire investment portfolio of the
Global Money Fund is subject to the 5% Limitation. However, the
Global Money Fund will be able to invest more than 5% of its total
assets in the securities of a single issuer for a period of up to
three Business Days after the purchase thereof; provided that the Fund
may not hold more than one such investment at any time.
2. Purchasing more than 10% of the securities of any class of any one
issuer; provided that this limitation shall not apply to investments
in U.S. Government Securities; provided further that this restriction
shall not apply to the Short Term Global Government and Growth Funds;
and provided further that the Growth Fund shall not own more than 10%
of the outstanding voting securities of a single issuer.
3. Purchasing securities on margin, except that the Fund may obtain any
short-term credits necessary for the clearance of purchases and sales
of securities. For purposes of this restriction, the deposit or
payment of initial or variation margin in connection with futures
contracts or related options will not be deemed to be a purchase of
securities on margin.
4. Making short sales of securities or maintaining a short position;
provided that this restriction shall not apply to the Short Term
Global Government, Growth and International Growth Funds.
5. Borrowing money, except that (a) the Fund may (i) enter into Reverse
Repurchase Agreements or (ii) borrow from banks for temporary (not
leveraging) purposes, including the meeting of redemption requests
that might otherwise require the untimely disposition of securities or
pending settlement of securities transactions or for emergency or
extraordinary purposes in an aggregate amount not exceeding 30% of the
value of the Fund's total assets (including the amount borrowed)
valued at market less liabilities (not including the amount borrowed)
at the time the borrowing is made, (b) all of the Funds except the
Global Money Fund may enter into (i) futures contracts, and (ii)
dollar roll transactions. Whenever borrowings pursuant to (a) above
(except that with respect to the Short Term High Quality Bond, Short
Term Global Government, U.S. Government, Corporate Income, Growth and
Income and Emerging Growth Funds, pursuant to (a)(ii) above) exceed 5%
of the value of a Fund's total assets, (w) continuous asset coverage
of at least 300% is required; (x) in the event such asset coverage
falls below 300% due to market fluctuations or otherwise, the Fund
must within 3 days reduce the amount of its borrowings so that asset
coverage will again be at least 300%, even if disadvantageous from an
investment standpoint; (y) borrowing pursuant to (a) over 5% must be
repaid before making
B-36
<PAGE> 86
additional investments; and (z) any interest paid on such borrowings
will reduce income. The Short Term High Quality Bond, Short Term
Global Government, U.S. Government, Corporate Income, Growth and
Income and Emerging Growth Funds may not borrow money or enter into
Reverse Repurchase Agreements or Dollar Roll Transactions in the
aggregate in excess of 33-1/3% of the Fund's total assets (after
giving effect to any such transaction).
6. Pledging, hypothecating, mortgaging or otherwise encumbering more than
30% of the value of the Fund's total assets. For purposes of this
restriction, (a) the deposit of assets in escrow in connection with
the writing of covered put or call options and the purchase of
securities on a when-issued or delayed-delivery basis and (b)
collateral arrangements with respect to (i) the purchase and sale of
options on securities, options on indexes and options on foreign
currencies, and (ii) initial or variation margin for futures contracts
will not be deemed to be pledges of a Fund's assets.
7. Underwriting the securities of other issuers, except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933, as
amended, by virtue of disposing of portfolio securities.
8. Purchasing or selling real estate or interests in real estate, except
that the Fund may purchase and sell securities that are secured,
directly or indirectly, by real estate and may purchase securities
issued by companies that invest or deal in real estate.
9. Investing in commodities, except that all of the Funds except the
Global Money Fund may invest in futures contracts and options on
futures contracts. The entry into forward foreign currency exchange
contracts is not and shall not be deemed to involve investing in
commodities.
10. Investing in oil, gas or other mineral exploration or development
programs.
11. Making loans to others, except through the purchase of qualified debt
obligations, loans of portfolio securities (except in the case of the
U.S. Government Fund) and the entry into repurchase agreements.
12. Purchasing any securities that would cause more than 25% of the value
of the Fund's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business
activities in the same industry, except in the case of the Global
Money Fund, which under normal market conditions shall have at least
25% of its total assets invested in bank obligations; provided that
this limitation shall not apply to the purchase of (a) U.S.
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<PAGE> 87
Government Securities, or (b) with respect to the Short Term Global
Government Fund, Bank Obligations.
13. Purchasing, writing or selling puts, calls, straddles, spreads or
combinations thereof; provided that this restriction shall not apply
to any of the Funds except the Global Money Fund; and provided further
that (a) all of the Funds except the Global Money and Short Term
Global Government Funds may purchase, write and sell covered put and
call options on securities, (b) all of the Funds except the Global
Money Fund may purchase, write and sell futures contracts and options
on futures contracts, (c) all of the Funds except the Global Money
Fund may purchase and write put and call options on stock indexes, and
(d) the International Growth Fund may purchase put and call options
and write covered call options on foreign currency contracts.
14. With respect to the Growth Fund, investing more than 35% of the Fund's
assets in non-investment grade debt securities.
15. With respect to the Short Term High Quality Bond Fund, having a
dollar-weighted average portfolio maturity in excess of five years.
16. With respect to the Growth and Emerging Growth Funds, investing more
than 25% of the Fund's assets in foreign securities.
17. Purchasing securities that are not readily marketable if more than 10%
of the total assets of the Global Money Fund, or more than 15% of the
total assets of the Short Term High Quality Bond, Short Term Global
Government, U.S. Government, Corporate Income, Growth and Income,
Growth, Emerging Growth and International Growth Funds, would be
invested in such securities, including, but not limited to: (1)
repurchase agreements with maturities greater than seven calendar
days; (2) time deposits maturing in more than seven calendar days; (3)
to the extent a liquid secondary market does not exist for the
instruments, futures contracts and options thereon; (4) certain
over-the-counter options, as described in this SAI; (5) certain
variable rate demand notes having a demand period of more than seven
days; and (6) certain Rule 144A restricted securities that are deemed
to be illiquid.
18. Purchasing any security if as a result the Fund would then have more
than 5% of its total assets invested in securities of companies
(including predecessors) that have been in continuous operation for
less than three years.
19. Making investments for the purpose of exercising control or
management.
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<PAGE> 88
20. Purchasing or retaining securities of any company if, to the knowledge
of the Trust, any of the Trust's officers or Trustees or any officer
or director of Sierra Advisors or a Sub-Advisor individually owns more
than 0.5% of the outstanding securities of such company and together
they own beneficially more than 5% of the securities.
21. Investing in warrants, (other than warrants acquired by the Fund as
part of a unit or attached to securities at the time of purchase) if,
as a result, the investments (valued at the lower of cost or market)
would exceed 5% of the value of Fund's net assets or if, as a result,
more than 2% of the Fund's net assets would be invested in warrants
not listed on a recognized United States or foreign stock exchange, to
the extent permitted by applicable state securities laws.
22. Purchasing or selling interests in real estate limited partnerships.
23. Investing in mineral leases.
The percentage limitations contained in the restrictions listed above
apply at the time of purchases of securities.
PORTFOLIO TURNOVER
The Global Money Fund, a money market fund, attempts to increase
yields by trading to take advantage of short-term market variations, which
results in high portfolio turnover. Because purchases and sales of money
market instruments are usually effected as principal transactions, this policy
does not result in high brokerage commissions to the Fund. The Growth and
Income, Growth, Emerging Growth and International Growth Funds (together, the
"Equity Funds") and the Short Term High Quality Bond, the Short Term Global
Government, the U.S. Government and the Corporate Income Funds (collectively,
the "Bond Funds") do not intend to seek profits through short-term trading.
Nevertheless, the Funds will not consider portfolio turnover rate a limiting
factor in making investment decisions.
Under certain market conditions, the Equity Funds and the Bond Funds
may experience increased portfolio turnover as a result of such Fund's options
activities. For instance, the exercise of a substantial number of options
written by the Fund (due to appreciation of the underlying security in the case
of call options or depreciation of the underlying security in the case of put
options) could result in a turnover rate in excess of 100%. A portfolio
turnover rate of 100% would occur if all of the Fund's securities that are
included in the computation of turnover were replaced once during a period of
one year. The portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the year by the monthly average
value of portfolio securities. Securities with remaining maturities of one
year or less at the date of acquisition are excluded from the calculation.
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<PAGE> 89
Certain other practices that may be employed by the Funds could result
in high portfolio turnover. For example, portfolio securities may be sold in
anticipation of a rise in interest rates (market decline) or purchased in
anticipation of a decline in interest rates (market rise) and later sold. In
addition, a security may be sold and another of comparable quality purchased at
approximately the same time to take advantage of what a Fund's Sub-Advisor
believes to be a temporary disparity in the normal yield relationship between
the two securities. These yield disparities may occur for reasons not directly
related to the investment quality of particular issues or the general movement
of interest rates, such as changes in the overall demand for, or supply of,
various types of securities.
PORTFOLIO TRANSACTIONS
Most of the purchases and sales of securities for a Fund, whether
transacted on a securities exchange or over-the-counter, will be effected in
the primary trading market for the securities. Decisions to buy and sell
securities for a Fund are made by its Sub-Advisor, which also is responsible
for placing these transactions, subject to the overall review of the Trust's
Trustees. Although investment decisions for each Fund are made independently
from those of the other accounts managed by its Sub-Advisor, investments of the
type the Fund may also be made by those other accounts. When a Fund
and one or more other accounts managed by its Sub-Advisor are prepared to
invest in, or desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the
Sub-Advisor to be equitable to each. In some cases, this procedure may
adversely affect the price paid or received by a Fund or the size of the
position obtained or disposed of by the Fund. In other cases, however, it is
believed that coordination and the ability to participate in volume
transactions will be to the benefit of the Fund.
Transactions on U.S. exchanges involve the payment of negotiated
brokerage commissions. With respect to exchanges on which commissions are
negotiated, the cost of transactions may vary among different brokers. There
is generally no stated commission in the case of securities traded in the
over-the-counter markets, but the prices of those securities include
undisclosed commissions or concessions, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
U.S. Government Securities may be purchased directly from the U.S. Treasury or
from the issuing agency or instrumentality.
In selecting brokers or dealers to execute portfolio transactions on
behalf of a Fund, the Fund's Sub-Advisor seeks the best overall terms
available. In assessing the best overall terms available for any transaction,
each Sub-Advisor will consider the factors the Sub-Advisor deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the
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<PAGE> 90
broker or dealer and the reasonableness of the commission, if any, for the
specific transaction and on a continuing basis. In addition, each advisory
agreement between the Trust and Sierra Advisors and each sub-advisory agreement
between Sierra Advisors and a Sub-Advisor authorizes the Advisor or
Sub-Advisor, in selecting brokers or dealers to execute a particular
transaction and in evaluating the best overall terms available, to consider the
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934, as amended) provided to the Trust, the
other Funds and/or other accounts over which the Sub-Advisors or its
affiliates exercise investment discretion. The fees under the advisory
agreements between the Trust and the Advisor are not reduced by reason of the
receipt by the Advisor or Sub-Advisors of brokerage and research services. The
Trust's Trustees will periodically review the commissions paid by the Funds to
determine if the commissions paid over representative periods of time were
reasonable in relation to the benefits received by the Trust.
To the extent consistent with applicable provisions of the 1940 Act
and the rules and exemptions adopted by the Commission thereunder, the Trust's
Board of Trustees has determined that portfolio transactions for a Fund may be
executed through GW Securities or any other affiliated broker, including J.P.
Securities or J.P. Limited (which are affiliates of J.P. Management, the
Sub-Advisor of the Global Money and Growth and Income Funds), if, in the
judgment of the Fund's Sub-Advisor, the use of GW Securities or an affiliated
broker is likely to result in price and execution at least as favorable as
those of other qualified broker-dealers, and if, in the transaction, GW
Securities or such other affiliated broker charges the Fund a rate consistent
with those charged for comparable transactions in comparable accounts of the
broker's most favored unaffiliated clients. Over-the-counter purchases and
sales are transacted directly with principal market makers except in those
cases in which better prices and executions may be obtained elsewhere. Under
rules adopted by the SEC, an affiliated broker may not execute transactions for
a Fund on the floor of any national securities exchange, but may effect
transactions by transmitting orders for execution, providing for clearance and
settlement, and arranging for the performance of those functions by members of
the exchange not associated with the affiliated broker. GW Securities or an
affiliated broker will be required to pay fees charged by those persons
performing the floor brokerage elements out of the brokerage compensation it
receives from the Fund. The Trust has been advised that on most transactions,
the floor brokerage may constitute 20% or more of the total commissions paid.
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<PAGE> 91
For the fiscal years ended December 31, 1993, 1994 and 1995, the Funds
paid the following brokerage commissions*:
<TABLE>
<CAPTION>
1995
-------------------------------------------------------------------
Amount Paid for Aggregate
Brokerage Brokerage and Transaction
Fund Commissions Research Amount
---- ----------- -------- ------
<S> <C> <C> <C>
Global Money Fund $ 0 $0 $ 0
Short Term High Quality Bond Fund $ 2,332 $0 $ 164,272
Short Term Global Government Fund $ 0 $0 $ 0
U.S. Government Fund $ 2,430 $0 $ 75,222,018
Corporate Income Fund $ 0 $0 $ 0
Growth and Income Fund $108,464 $0 $ 61,223,495
Growth Fund $283,404 $0 $1,281,740,556
Emerging Growth Fund $114,232 $0 $ 372,208,173
International Growth Fund $164,195 $0 $ 535,107,481
Total for Trust $675,057
Amount Paid to $ 0
Affiliated
Broker-Dealers
</TABLE>
<TABLE>
<CAPTION>
1994
-------------------------------------------------------------------
Amount Paid for Aggregate
Brokerage Brokerage and Transaction
Fund Commissions Research Amount
---- ----------- -------- ------
<S> <C> <C> <C>
Global Money Fund $ 0 $0 $ 0
Short Term High Quality Bond Fund $ 0 $0 $ 0
Short Term Global Government Fund $ 0 $0 $ 0
U.S. Government Fund $ 0 $0 $ 0
Corporate Income Fund $ 0 $0 $ 0
Growth and Income Fund $ 38,101 $0 $ 29,470,747
Growth Fund $183,469 $0 $791,695,782
Emerging Growth Fund $ 58,799 $0 $120,185,937
International Growth Fund $195,231 $0 $ 50,945,896
Total for Trust $475,600
Amount Paid to $ 126
Affiliated
Broker-Dealers
</TABLE>
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<PAGE> 92
<TABLE>
<CAPTION>
1993
-------------------------------------------------------------------
Amount Paid for Aggregate
Brokerage Brokerage and Transaction
Fund Commissions Research Amount
---- ----------- -------- ------
<S> <C> <C> <C>
Global Money Fund $0 $0 $0
Short Term High Quality Bond Fund -- -- --
Short Term Global Government Fund $0 $0 $0
U.S. Government Fund $0 $0 $0
Corporate Income Fund $0 $0 $0
Growth and Income Fund -- -- --
Growth Fund $29,084 $0 $95,867,241
Emerging Growth Fund -- -- --
International Growth Fund $30,480 $0 $6,917,014
Total for Trust $59,564
Amount Paid to
Affiliated $0
Broker-Dealers
- ------
</TABLE>
* The Global Money Fund, the Short Term High Quality Bond Fund, the
Short Term Global Government Fund, the U.S. Government Fund, the
Corporate Income Fund, the Growth and Income Fund, the Growth Fund,
the Emerging Growth Fund and the International Growth Fund commenced
operations on May 10, 1993, January 12, 1994, May 12, 1993, May 6,
1993, May 7, 1993, January 12, 1994, May 7, 1993, January 12, 1994 and
May 7, 1993, respectively.
The Trust is required to identify any securities of its "regular
brokers or dealers" (as such term is defined in the 1940 Act) which the Trust
has acquired during its most recent fiscal year. As of December 31, 1995, the
Growth and Income Fund held common stock of Dean Witter, Discover & Company
valued at $404,200.
PURCHASE AND PRICING OF SHARES
Shares in the Funds are purchased and redeemed and net asset value is
calculated in the manner described in the Prospectus.
REDEMPTIONS
The right of redemption of shares of a Fund may be suspended
or the date of payment postponed (1) for any periods during which the
NYSE is closed (other than for customary weekend and holiday
closings), (2) when trading in the markets the Fund normally utilizes
is restricted, or an emergency, as defined by the rules and
regulations of the SEC, exists making disposal of the Fund's
investments or determination of its net asset value not reasonably
practicable or (3) for such other periods as the SEC by order may
permit for protection of the Fund's shareholders.
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<PAGE> 93
DISTRIBUTIONS IN KIND. If the Board of Trustees determines that it
would be detrimental to the best interests of the shareholders of a Fund to
make a redemption payment wholly in cash, the Trust may pay any portion of a
redemption by distribution in kind of portfolio securities in lieu of cash.
Securities issued in a distribution in kind will be readily marketable,
although shareholders receiving distributions in kind may incur brokerage
commissions when subsequently redeeming shares of those securities.
NET ASSET VALUE
The Trust will not calculate the net asset value of the Funds on
certain holidays. On those days, securities held by a Fund may nevertheless be
actively traded, and the value of the Fund's shares could be significantly
affected.
The assets of each Fund are valued according to generally accepted
accounting principles and applicable law. Generally, a Fund's investments are
valued at market value or, in the absence of a market value with respect to any
portfolio securities, at fair value as determined by or under the direction of
the Trust's Board of Trustees:
o A security that is primarily traded on a U.S. or foreign
exchange (including securities traded through the National
Association of Securities Dealers, Inc. Automated Quotation
System ("NASDAQ")) 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.
o Portfolio securities that are primarily traded on foreign
exchanges are generally valued at the preceding 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 by consideration
of other factors by or under the direction of the Trust's
Board of Trustees or its delegates.
o Over-the-counter securities that are not reported on the
NASDAQ 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.
o An option is generally valued at the last sale price or, in
the absence of a last sale price, the last offer price.
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<PAGE> 94
o 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.
o Short-term investments that mature in 60 days or less are
valued at amortized cost when the Board of Trustees determines
that this constitutes fair value; assets of the Global Money
Fund are also valued at amortized cost.
o The value of a futures contract equals the unrealized gain or
loss on the contract, which is determined by marking the
contract to the current settlement price for a like contract
acquired on the day on which the futures contract is being
valued. A settlement price may not be used if the market
makes a limited move with respect to the security or index
underlying the futures contract. In such event, the futures
contract will be valued at a fair market price to be
determined by or under the direction of the Trust's Board of
Trustees.
In carrying out the Board's valuation policies, First Data Investor
Services Group, Inc. ("FDISG"), formerly known as The Shareholder Services
Group, Inc., a wholly-owned subsidiary of First Data Corporation, as
sub-administrator, may consult with one or more independent pricing services
("Pricing Service") retained by the Trust. Debt securities of U.S. issuers
(other than U.S. Government Securities and short-term investments) are valued
by FDISG, as sub-administrator, after consultation with the Pricing Service.
The procedures of the Pricing Service are reviewed periodically by the officers
of the Trust under the general supervision and responsibility of the Board of
Trustees.
VALUATION OF THE GLOBAL MONEY FUND. The valuation of the portfolio
securities of the Global Money Fund is based upon its amortized costs, which
does not take into account unrealized capital gains or losses. Amortized cost
valuation involves initially valuing an instrument at its cost 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. While this method provides certainty in valuation, it may
result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund would receive if it sold the
instrument.
The use by the Global Money Fund of the amortized cost method of
valuing its respective portfolio securities is permitted by a rule adopted by
the SEC. Under this rule, the Global Money Fund must maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of thirteen months or less and invest
only in securities determined by the Board of Trustees of the
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<PAGE> 95
Trust to present minimal credit risks and meet certain rating criteria
described under "Investment Objectives and Policies of the Funds -- Money
Market Quality and Maturity Requirements" above. Pursuant to the rule, the
Board of Trustees also has established procedures designed to stabilize, to the
extent reasonably possible, the Fund's price per share as computed for the
purpose of sales and redemptions at $1.00. Such procedures include review of
the Fund's portfolio holdings by the Board of Trustees, at such intervals as it
may deem appropriate, to determine whether the Fund's net asset values
calculated by using available market quotations or market equivalents deviates
from $1.00 per share based on amortized cost.
The rule also provides that the extent of any deviation between the
Fund's net asset values based upon available market quotations or market
equivalents and the $1.00 per share net asset values based on amortized cost
must be examined by the Board of Trustees. In the event the Board of Trustees
determines that a deviation exists which may result in material dilution or
other unfair results to investors or existing shareholders, pursuant to the
rule the Board of Trustees must cause the Trust to take such corrective action
as the Board deems necessary and appropriate including: selling portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity; withholding dividends or paying distributions from
capital or capital gains; redeeming shares in kind; or establishing a net asset
value per share by using available market quotations.
PERFORMANCE
From time to time, the Trust may quote the performance of a Fund in
terms of yield, effective yield, actual distributions, total return or capital
appreciation in reports or other communications to shareholders or in
advertising material. Fund performance will be advertised only if accompanied
by the comparable performance for the corresponding separate account.
THE FUNDS OF THE TRUST MAY NOT BE PURCHASED DIRECTLY BUT ARE CURRENTLY
AVAILABLE ONLY THROUGH PURCHASE OF SIERRA ADVANTAGE, A TAX-DEFERRED VARIABLE
ANNUITY ISSUED BY AGL. ANNUITY CONTRACT OWNER VALUES WILL DEPEND NOT ONLY ON
THE PERFORMANCE OF THE FUNDS, BUT ALSO ON THE MORTALITY AND EXPENSE RISK
CHARGES, THE ADMINISTRATIVE CHARGES, AND ANY APPLICABLE SALES CHARGES UNDER THE
SIERRA ADVANTAGE CONTRACT. THE TOTAL RETURNS OF THE FUNDS REFLECT THE
AGREEMENT OF SIERRA ADVISORS TO VOLUNTARILY WAIVE FEES AND BEAR CERTAIN
EXPENSES. TOTAL RETURNS WOULD HAVE BEEN LOWER IF THESE FEES AND EXPENSES HAD
NOT BEEN WAIVED.
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<PAGE> 96
GLOBAL MONEY FUND YIELD INFORMATION
The "yield" of the Global Money Fund refers to the income generated by
an investment in the Fund over a 7-day period (which period will be stated in
the advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the investment.
The "effective yield" is calculated similarly but, when annualized, the income
earned by an investment in a Fund is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment.
The yield for the Global Money Fund is computed by: (1) determining
the net change, exclusive of capital changes, in the value of a hypothetical
pre-existing account in the Fund having a balance of one share at the beginning
of a seven calendar day period for which yield is to be quoted, (2) subtracting
a hypothetical charge reflecting deductions from shareholder accounts, (3)
dividing the net change by the value of the account at the beginning of the
period to obtain the base period return, and (4) annualizing the results (i.e.,
multiplying the base period return by 365/7). The net change in the value of
the account reflects the value of additional shares purchased with dividends
declared on the original share and any such additional shares and income
received or accrued but not declared as a dividend, but does not include
realized gains and losses or unrealized appreciation or depreciation. In
addition, the Global Money Fund may calculate a compounded effective annualized
yield by adding 1 to the base period return (calculated as described above),
raising the sum to a power equal to 365/7 and subtracting 1.
Based upon the foregoing calculation, for the 7-day period ended
December 31, 1995, the yield for the Global Money Fund was 5.28%, and the
effective yield for the Global Money Fund for the same period was 5.42%.
The Global Money Fund yield may be compared with the yields of other
investments. It should not, however, be compared to the return on fixed rate
investments which guarantee rates of interest for specified periods, such as
the interest guarantees in an annuity contract or bank deposits.
BOND FUND YIELD INFORMATION
From time to time, the Bond Funds may advertise the 30-day "yield."
Yield refers to the income generated by an investment in such Fund over the
30-day period identified in the advertisement, and is computed by dividing the
net investment income per share earned by the Fund during the period by the net
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<PAGE> 97
asset value per share on the last day of the previous period. This income is
"annualized" by assuming that the amount of income is generated each month over
a one-year period and is compounded semiannually. The annualized income is then
shown as a percentage of the net asset value.
The yield formula prescribed by the SEC can be expressed as follows:
YIELD = 2[((a-b) + 1)6 - 1]
---
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursement).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
For the purpose of determining the interest earned (variable "a" in
the formula) on debt obligations that were purchased by one of the Funds at a
discount or premium, the formula generally calls for amortization of the
discount or premium; the amortization schedule will be adjusted monthly to
reflect changes in the market values of the debt obligations.
Based on the foregoing calculation, for the 30-day period ended
December 31, 1995, the yields for the Short Term High Quality Bond, the Short
Term Global Government, the U.S. Government and the Corporate Income Funds were
5.74%, 5.50%, 6.20% and 6.21%, respectively.
THE BOND FUNDS AND THE EQUITY FUNDS TOTAL RETURN INFORMATION
From time to time, a Bond Fund or an Equity Fund may advertise its
"average annual total return" or "aggregate total return" over various periods
of time. Such average annual total return figures show the average percentage
change in value of an investment in the Fund from the beginning date of the
measuring period to the end of the measuring period. These figures reflect
changes in the price of the Fund's shares and assume that any income dividends
and/or capital gains distributions made by the Fund during the period were
reinvested in shares of the Fund. Figures will be given for recent one-, five-
and ten-year periods (if applicable), and may be given for other periods as
well (such
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<PAGE> 98
as from commencement of the Fund's operations, or on a year-by-year basis).
When considering "average" total return figures for periods longer
than one year, it is important to note that the relevant Fund's annual total
return for any one year in the period might have been greater or less than the
average for the entire period. A Bond Fund or an Equity Fund may also use
"aggregate" total return figures for various periods representing the
cumulative change in value of an investment in the Fund for a specific period
(again reflecting changes in the Fund's share prices and assuming reinvestment
of dividends and distributions). Aggregate total returns may be shown by means
of schedules, charts or graphs and may indicate subtotals of the various
components of total return (i.e., change in value of initial investment, income
dividends and capital gains distributions).
Average annual total return is computed according to a formula
prescribed by the SEC. The formula can be expressed as follows:
P(1 + T)n = ERV, where P = a hypothetical initial payment of $1,000; T =
average annual total return; n = number of years; and ERV = ending redeemable
value of a hypothetical $1,000 payment made at the beginning of the designated
time period as of the end of such period or the life of the fund. The formula
for calculating aggregate total return can be expressed as (ERV/P)-1.
Based on the foregoing, the average annual total returns for the
fiscal year ended December 31, 1995 and from inception through December 31,
1995 and the aggregate total returns for the Funds from inception through
December 31, 1995, were as follows*:
<TABLE>
<CAPTION>
Average Annual
Total Return Average Aggregate
for Fiscal Annual Total Total Return
Year Ended Return Since Since
Fund 12/31/95 Inception Inception*
---- -------- --------- ----------
<S> <C> <C> <C>
Global Money Fund 5.46% 4.05% 12.47%
Short Term High Quality Bond Fund 9.30% 3.76% 7.10%
Short Term Global Government Fund 8.09% 2.24% 6.87%
U.S. Government Fund 16.89% 5.31% 13.33%
Corporate Income Fund 25.09% 7.59% 15.59%
Growth and Income Fund 32.41% 14.33% 39.49%
Growth Fund 37.34% 18.80% 69.56%
Emerging Growth Fund 30.99% 17.75% 53.19%
International Growth Fund 6.61% 8.08% 27.71%
- ---------------
</TABLE>
* The Global Money Fund, the Short Term High Quality Bond Fund, the
Short Term Global Government Fund, the U.S. Government Fund, the
Corporate Income Fund, the Growth and Income Fund, the Growth Fund,
the Emerging Growth Fund and the International Growth Fund commenced
operations on May 10, 1993, January 12, 1994, May 12, 1993, May 6,
1993, May 7, 1993, January 12, 1994, May 7, 1993, January 12, 1994 and
May 7, 1993, respectively.
B-49
<PAGE> 99
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 performance of any or all of the Funds may be compared in
advertisements and sales literature to the performance of other variable
annuity issuers in general and to the performance of particular types of
variable annuities investing in mutual funds, or series of mutual funds, with
investment objectives similar to each of the Funds. Lipper Analytical
Services, Inc. ("Lipper") and the Variable Annuity Research and Data Service
("VARDS(R)") are independent services which monitor and rank the performance of
variable annuity issuers in each of the major categories of investment
objectives on an industry-wide basis. Lipper's rankings include variable life
issuers as well as variable annuity issuers. VARDS(R) rankings compare only
variable annuity issuers. The performance analyses prepared by Lipper and
VARDS(R) rank such issuers on the basis of total return, assuming reinvestment
of dividends and distributions, but do not take sales charges, redemption fees
or certain expense deductions at the separate account level into consideration.
In addition, VARDS(R) prepares risk adjusted rankings, which consider the
effects of market risk on total return performance.
In addition, each Fund's performance may be compared in advertisements
and sales literature to the following benchmarks: (1) the Standard & Poor's 500
Index, which represents an unmanaged weighted index of 500 industrial,
transportation, utility and financial companies that represent approximately
80% of the market capitalization of the United States equity markets, widely
regarded by investors as representative of the stock market; (2) the Consumer
Price Index, published by the U.S. Bureau of Labor Statistics, a statistical
measure of change, over time, in the prices of goods and services in major
expenditure groups and generally considered to be a measure of inflation; (3)
the Lehman Brothers Mutual Fund Short World Multi-Market Index, which includes
all debt instruments of the United States and 12 Lehman Major Countries
denominated in dollars with maturities of one to five years; (4) the Lehman
Brothers Mutual Fund U.S. Mortgage Index, which includes all agency
mortgage-backed securities; (5) the Lehman Brothers Mutual Fund Debt BBB-Rated
Index, which represents all investment-grade corporate debt securities; (6) the
Morgan Stanley Capital International EAFE (Europe, Australia, Far East) Index,
which includes 1050 companies representing the stock markets of Europe,
Australia, New Zealand and the Far East; and (7) the U.S. Government 90 Day
Treasury Bill rate. 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 performance information may also
include evaluations of the Funds published by nationally recognized
B-50
<PAGE> 100
ranking services and by financial publications that are nationally recognized,
such as Business Week, Forbes, Institutional Investor, Money and The Wall
Street Journal.
TAXES
The following discussion of federal income tax consequences is based
on the Code and the regulations issued thereunder as in effect on the date of
this SAI. New legislation, as well as administrative changes or court
decisions, may significantly change the conclusions expressed herein and may
have a retroactive effect with respect to the transactions contemplated herein.
Each of the Funds intends to qualify as a "regulated investment
company" ("RIC") under Subchapter M of the Code. A Fund that is a RIC and
distributes to its shareholders at least 90% of its taxable net investment
income (including, for this purpose, its net realized short-term capital gains)
and 90% of its tax-exempt interest income (reduced by certain expenses), will
not be liable for federal income taxes to the extent its taxable net investment
income and its net realized long-term and short-term capital gains, if any, are
distributed to its shareholders.
A number of technical rules are prescribed for computing net
investment income and net capital gains. For example, the Fund is generally
treated as receiving dividends on the ex-dividend date. Also, certain foreign
currency losses and capital losses arising after October 31 of a given year may
be treated as if they arise on the first day of the next taxable year.
In order to qualify as a RIC under the Code, in addition to satisfying
the distribution requirement described above, each Fund must (a) derive at
least 90% of its gross income each taxable year from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities, or foreign currencies, and certain other
related income, including, generally, certain gains from options, futures, and
forward contracts; (b) derive less than 30% of its gross income each taxable
year from the sale or other disposition of the following items if held for less
than three months: (i) stock or securities, (ii) options, futures or forward
contracts (other than options futures, or forward contracts on foreign
currencies), and (iii) foreign currencies (or options, futures, or forward
contracts on foreign currencies) that are not directly related to the company's
business of investing in stock or securities; and (c) diversify its holdings so
that, at the end of each fiscal quarter of the Fund's taxable year, (i) at
least 50% of the market value of the Fund's assets is represented by cash and
cash items, U.S. Government Securities, securities of other RICs, and other
securities, with such other securities limited,
B-51
<PAGE> 101
in respect of any one issuer, to an amount that does not exceed 10% of the
voting securities of such issuer or 5% of the value of the Fund's total assets;
and (ii) not more than 25% of the value of its assets is invested in the
securities (other than U.S. Government Securities and securities of other
RICs) of any one issuer or two or more issuers which the Fund controls and
which are engaged in the same, similar or related trades or businesses.
If a Fund fails to qualify as a RIC for any year, all of its income
will be subject to tax at corporate rates, and its distributions (including
capital gain distributions) will be taxable as ordinary income dividends to its
shareholders to the extent of the Fund's current and accumulated earnings and
profits.
In addition to qualifying under subchapter M by meeting the
requirements described above, each Fund intends to qualify as diversified under
Subchapter L so that non-qualified variable annuity contracts funded by the
Trust will not fail to qualify as annuities for tax purposes. In general, for
a Fund to meet the investment diversification requirements of Subchapter L of
the Code, Treasury regulations require that no more than 55% of the total value
of the assets of the Fund be represented by any one investment, no more than
70% by any two investments, no more than 80% by three investments and no more
than 90% by four investments. Generally, for purposes of the regulations, all
securities of the same issuer are treated as one investment. In the context of
U.S. Government Securities (including any security that is issued, guaranteed
or insured by the United States or an instrumentality of the United States),
each U.S. Government agency or instrumentality is treated as a separate issuer.
Compliance with the Subchapter L regulations is tested on the last day of each
calendar year quarter.
Notwithstanding the distribution requirement described above, which
only requires a Fund to distribute at least 90% of its annual investment
company taxable income and does not require any minimum distribution of net
capital gain, a regulated investment company is generally subject to a
nondeductible 4% excise tax to the extent it fails to distribute by the end of
any calendar year at least 98% of its ordinary income for that year and 98% of
its capital gain net income for the one-year period ending on October 31 of
that year, plus certain other amounts.
The excise tax is inapplicable to any RIC all of the shareholders of
which are either tax-exempt pension trusts or separate accounts of life
insurance companies funding variable contracts. Although each Fund believes
that it is not subject to the excise tax, each Fund intends to make the
distributions required to avoid the imposition of the tax, provided such
payments and distributions are determined to be in the best interest of such
Fund's shareholders.
B-52
<PAGE> 102
Dividends declared by a Fund in October, November, or December of any
year and payable to shareholders of record on a date in such month will be
deemed to have been paid by the Fund and received by the shareholders on
December 31 of that year if paid by the Fund at any time during the following
January.
B-53
<PAGE> 103
APPENDIX
DESCRIPTION OF S&P, MOODY'S, DUFF AND FITCH RATINGS
DESCRIPTION OF S&P CORPORATE BOND RATINGS
AAA-Debt rated AAA has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated debt only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB-Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB, B, CCC, CC or C-Debt rated BB, B, CCC, CC or C is regarded as
having predominantly speculative characteristics with respect to capacity to
pay interest and repay principal. BB indicates the least degree of speculation
and C the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB Debt rated 'BB' has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions
that could lead to inadequate capacity to meet timely interest and
principal payments. The 'BB' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied
'BBB-' rating.
B Debt rate 'B' has greater vulnerability to default but presently has
the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions would likely
impair capacity or willingness to pay interest and repay principal.
The 'B' rating category also is used for debt subordinated to senior
debt that is assigned an actual or implied 'BB' or 'BB-' rating.
B-54
<PAGE> 104
CCC Debt rated 'CCC' has a current identifiable vulnerability to default,
and is dependent on favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The 'CCC' rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied 'B'
or 'B-' rating.
CC The rating 'CC' is typically applied to debt subordinated to senior
debt which is assigned an actual or implied 'CCC' rating.
C The rating 'C' is typically applied to debt subordinated to senior
debt which is assigned an actual or implied 'CCC-' debt rating. The
'C' rating may be used to cover a situation where a bankruptcy
petition has been filed, but debt service payments are continued.
C1-Debt rated C1 is reserved for income bonds on which no interest is
being paid.
D-Debt is rated D when the issue is in payment default, or the obligor
has filed for bankruptcy. The D rating is used when interest or principal
payments are not made on the date due, even if the applicable grace period has
not expired, unless S&P believes that such payments will be made during such
grace period.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
Aaa-Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
B-55
<PAGE> 105
elements present which make the long-term risk appear somewhat larger than the
Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa-Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba-Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa-Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca-Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C-Bonds which are rated C are the lowest class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the security ranks in the lower end of its generic rating
category.
B-56
<PAGE> 106
DESCRIPTION OF DUFF CORPORATE BOND RATINGS
AAA-Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
AA-High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A-Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB-Below average protection factors but still considered sufficient
for prudent investment. Considerable variability in risk during economic
cycles.
BB+ Below investment grade but deemed likely to meet
BB obligations when due. Present or prospective financial
BB- protection factors fluctuate according to industry conditions or
company fortunes. Overall quality may move up or down frequently
within this category.
B+ Below investment grade and possessing risk that obligations
B will not be met when due. Financial protection factors
B- will fluctuate widely according to economic cycles, industry
conditions and/or company fortunes. Potential exists for
frequent changes in the rating within this category or into a higher
or lower rating grade.
CCC Well below investment grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with unfavorable
company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP Preferred stock with dividend arrearages.
DESCRIPTION OF FITCH CORPORATE BOND RATINGS
AAA-Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA-Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay
B-57
<PAGE> 107
principal is very strong, although not quite as strong as bonds rated AAA.
Because bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issuers
is generally rated F-1+.
A-Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and to repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and to repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt
service requirements.
B Bonds are considered highly speculative. While bonds in this class
are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable
business and economic activity throughout the life of the issue.
CCC Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D
Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the
obligor. 'DDD' represents the highest potential for recovery on these
bonds, and 'D' represents the lowest potential for recovery.
B-58
<PAGE> 108
PLUS (+) MINUS (-)
Plus and minus signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA, DDD, DD, or D
categories.
DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Debt determined to possess extremely strong
safety characteristics is denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high
as for issues designated 'A-1'.
A-3 Debt carrying this designation has an adequate capacity for timely
payment. It is, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B Debt rated 'B' is regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D This rating indicates that the obligation is in payment default.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
PRIME-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
- --Leading market positions in well-established industries.
- --High rates of return on funds employed.
- --Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- --Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- --Well-established access to a range of financial markets and assured sources
of alternate liquidity.
PRIME-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
B-59
<PAGE> 109
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
PRIME-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt
protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
NOT PRIME Issuers rated Not Prime do not fall within any of the Prime rating
categories.
DESCRIPTION OF DUFF'S COMMERCIAL PAPER RATINGS
Duff 1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is
just below risk-free U.S. Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection
factors. Risk factors are minor.
Duff 1- High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors.
Risk factors are very small.
GOOD GRADE
Duff 2 Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to
capital markets is good. Risk factors are small.
SATISFACTORY GRADE
Duff 3 Satisfactory liquidity and other protection factors qualify
issue as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is
expected.
NON-INVESTMENT GRADE
Duff 4 Speculative investment characteristics. Liquidity is not
sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high
degree of variation.
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<PAGE> 110
DEFAULT
Duff 5 Issuer failed to meet scheduled principal and/or interest
payments.
DESCRIPTION OF FITCH'S COMMERCIAL PAPER RATINGS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated 'F-1+'.
F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as for issues assigned 'F-1+'
and 'F-1' ratings.
F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate, however, near-term adverse changes
could cause these securities to be rated below investment
grade.
F-S Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse changes
in financial and economic conditions.
D Default. Issues assigned this rating are in actual or
imminent payment default.
LOC The symbol LOC indicates that the rating is based on a letter
of credit issued by a commercial bank.
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<PAGE> 111
FINANCIAL STATEMENTS
Following are the Audited Financial Statements for the fiscal
year ended December 31, 1995, and the Report of Price Waterhouse LLP,
Independent Accountants, dated February 15, 1996 relating to the financial
statements and financial highlights of each of the fund series constituting The
Sierra Variable Trust.
FS-1
<PAGE> 112
STATEMENT OF ASSETS AND LIABILITIES
THE SIERRA VARIABLE TRUST
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL HIGH
MONEY QUALITY BOND
FUND FUND
---- ----
<S> <C> <C>
ASSETS:
Investments, at value (Note 2)
See accompanying schedules $20,357,101 $12,808,229
Cash and/or foreign currency 2,261 8,803
Premium receivable for call options written -- --
Dividends and/or interest receivable 18,901 105,632
Receivable for investment securities sold -- --
Receivable for Fund shares sold 8,483 3,008
Net unrealized appreciation of forward foreign currency contracts (Note 2)
See accompanying schedules -- --
Unamortized organization costs (Note 6) 14,444 --
Variation Margin (Note 2) -- --
Other Assets -- --
----------- -----------
Total Assets 20,401,190 12,925,672
----------- -----------
INVESTMENTS, AT COST (NOTE 2) 20,357,101 12,611,750
CASH AND/OR FOREIGN CURRENCY AT COST (NOTE 2) 2,261 8,803
LIABILITIES:
Net unrealized depreciation of forward foreign currency contracts (Note 2)
See accompanying schedules -- --
Payable for investment securities purchased -- 533,942
Investment advisory fee payable (Note 3) 3,643 2,275
Administration fee payable (Note 3) 1,881 1,869
Sub-Transfer agent fees payable (Note 3) 152 92
Custodian fees payable (Note 3) 4,653 5,266
Accrued Trustees' fees and expenses (Note 3) 763 461
Reverse repurchase agreements (Notes 2 and 4) -- --
Payable for dollar roll transactions (Notes 2 and 4) -- --
Deferred income for dollar roll transactions -- --
Options written, at value (Premium received of $118,194 for the Short
Term Global Government Fund) (Note 2) See accompanying schedule -- --
Accrued expenses and other payables 17,224 17,071
----------- -----------
Total Liabilities 28,316 560,976
----------- -----------
NET ASSETS $20,372,874 $12,364,696
=========== ===========
NET ASSETS consist of:
Undistributed net investment income $8,764 $26,628
Accumulated net realized gain/(loss) on investments sold, futures contracts,
forward foreign currency contracts, foreign currency transactions
and written options 3,278 (162,128)
Net unrealized appreciation/(depreciation) of
investments, futures contracts, forward foreign
currency contracts, foreign currency, written
options and other assets and liabilities -- 196,479
Paid-in capital 20,360,832 12,303,717
----------- -----------
Total Net Assets $20,372,874 $12,364,696
=========== ===========
NET ASSET VALUE, offering price and redemption
price per share of beneficial interest
outstanding $1.00 $2.49
===== =====
Number of Fund shares outstanding 20,369,543 4,957,332
========== =========
</TABLE>
See Notes to Financial Statements.
FS-2
<PAGE> 113
<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
---- ---- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C> <C>
$23,410,534 $59,412,039 $61,682,058 $45,848,646 $ 99,433,107 $46,118,228 $44,828,008
225 42,201 10 1,400 75,104 67,698 1,096,851
7,473 -- -- -- -- -- --
785,367 517,515 1,095,680 62,297 20,175 5,894 149,700
360,107 -- -- 548,444 677,501 306,702 --
1,143 43,907 23,339 29,884 35,439 11,665 11,853
-- -- -- -- -- -- 30,053
14,479 14,378 14,394 -- 14,394 -- 14,394
-- 13,281 -- -- -- -- --
-- 341 -- -- -- -- --
- ----------- ----------- ----------- ---------- ------------ ----------- -----------
24,579,328 60,043,662 62,815,481 46,490,671 100,255,720 46,510,187 46,130,859
- ----------- ----------- ----------- ---------- ------------ ----------- -----------
22,742,927 57,107,881 57,563,292 41,969,519 85,759,726 38,057,556 43,329,626
225 42,201 24 1,400 75,096 67,628 1,102,024
236,902 -- -- -- 129,099 10,371 --
384,316 -- 1,029,940 52,888 284,251 362,249 109,487
15,065 26,398 32,889 30,745 74,366 32,925 36,058
3,616 7,919 9,108 6,918 14,971 6,748 6,832
177 389 447 340 735 331 336
7,176 2,217 2,044 10,267 17,126 14,338 13,788
891 1,952 2,244 1,705 3,689 1,663 1,683
-- 7,630,000 -- -- -- -- --
-- -- 1,025,469 -- -- -- --
-- -- 676 -- -- -- --
85,679 -- -- -- -- -- --
40,912 71,293 36,414 25,966 32,570 23,162 53,817
- ----------- ----------- ----------- ---------- ------------ ----------- -----------
774,734 7,740,168 2,139,231 128,829 556,807 451,787 222,001
- ----------- ----------- ----------- ---------- ------------ ----------- -----------
$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
(309,022) (2,083,272) (2,099,005) 4,004,714 13,024,922 1,556,967 (569,940)
468,227 2,257,415 4,118,752 3,879,127 13,564,025 8,050,424 1,522,244
23,322,194 52,108,968 58,626,990 38,041,238 73,096,985 36,444,313 44,254,550
- ----------- ----------- ----------- ---------- ------------ ----------- -----------
$23,804,594 $52,303,494 $60,676,250 $46,361,842 $ 99,698,913 $46,058,400 $45,908,858
=========== =========== =========== =========== ============ =========== ===========
$ 2.50 $ 10.00 $ 10.48 $ 12.83 $ 15.72 $ 13.74 $ 12.11
=========== =========== =========== =========== =========== =========== ===========
9,536,788 5,229,508 5,792,000 3,612,541 6,342,412 3,350,979 3,790,504
========= ========= ========= ========= ========= ========= =========
</TABLE>
See Notes to Financial Statements.
FS-3
<PAGE> 114
STATEMENTS OF OPERATIONS
THE SIERRA VARIABLE TRUST
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL HIGH
MONEY QUALITY BOND
FUND FUND
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ -- $ --
Foreign witholding tax on dividend income -- --
Interest 660,151 984,993
Foreign witholding tax on interest income -- (231)
Fee income (Note 4) -- --
------- ---------
Total Investment Income 660,151 984,762
------- ---------
EXPENSES:
Investment advisory fee (Note 3) 56,870 69,756
Administration fee (Note 3) 20,473 25,337
Trustees' fees and expenses (Note 3) 2,074 2,246
Legal and audit fees 19,282 25,637
Sub-Transfer agent fees (Note 3) 265 312
Custodian fees (Note 3) 8,270 15,035
Amortization of organization costs (Note 6) 6,137 --
Other 1,823 3,165
------- ---------
Expenses before waiver of fees 115,194 141,488
Fees waived by investment advisor and administrator (Note 3) (57,408) (19,478)
Fees reduced by credits allowed by the custodian (Note 3) (535) (2,029)
------- ---------
Total expenses before interest expense 57,251 119,981
------- ---------
Interest expense (Note 4) -- --
------- ---------
Total expenses 57,251 119,981
------- ---------
NET INVESTMENT INCOME/(LOSS) 602,900 864,781
------- ---------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (Notes 2 and 4):
Realized gain/(loss) from:
Security transactions 3,309 (143,365)
Forward foreign currency contracts and foreign currency transactions -- (2,189)
Futures contracts -- (105,120)
Written options -- (3,792)
Net change in unrealized appreciation/ (depreciation) of:
Securities -- 637,703
Forward foreign currency contracts -- --
Foreign currency, written options,
futures contracts and other assets and liabilities -- (7,467)
------- ---------
Net realized and unrealized gain on investments 3,309 375,770
------- ---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $606,209 $1,240,551
======== ==========
</TABLE>
See Notes to Financial Statements.
FS-4
<PAGE> 115
<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
---- ---- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ 702,717 $ 586,973 $ 102,416 $ 986,299
-- -- -- (5,330) (35,391) (5,258) (125,723)
2,048,131 3,947,453 4,498,682 98,899 670,896 161,398 170,144
(14,765) -- -- -- -- -- (766)
-- 34,512 10,731 -- -- -- --
- ---------- ---------- ---------- ---------- ----------- ---------- ----------
2,033,366 3,981,965 4,509,413 796,286 1,222,478 258,556 1,029,954
- ---------- ---------- ---------- ---------- ----------- ---------- ----------
204,272 282,956 367,022 268,781 718,734 270,758 411,331
49,025 84,887 101,657 60,476 143,997 54,833 77,936
4,407 7,174 8,603 5,731 13,081 5,278 7,098
59,093 74,285 58,217 39,551 69,879 35,960 58,486
632 1,210 1,137 722 1,633 652 252
19,352 14,272 6,864 13,250 38,534 19,088 54,555
6,137 6,137 6,137 -- 6,137 -- 6,137
851 11,176 8,460 2,257 1,647 1,836 25,037
- ---------- ---------- ---------- ---------- ----------- ---------- ----------
343,769 482,097 558,097 390,768 993,642 388,405 640,832
(2,945) (2,943) -- (34,257) -- (19,826) (4,326)
(360) (6,014) (1,064) (338) (4,371) (2,302) (286)
- ---------- ---------- ---------- ---------- ----------- ---------- ----------
340,464 473,140 557,033 356,173 989,271 366,277 636,220
------- ------- ------- ------- ------- ------- -------
-- 357,918 153 -- -- -- --
------- ------- --- ------ -------- ------- -------
340,464 831,058 557,186 356,173 989,271 366,277 636,220
- ---------- ---------- ---------- ---------- ----------- ---------- ----------
1,692,902 3,150,907 3,952,227 440,113 233,207 (107,721) 393,734
- ---------- ---------- ---------- ---------- ----------- ---------- ----------
(231,442) (857,025) (644,234) 4,042,481 13,728,015 2,249,015 (339,859)
(1,223,402) -- (1) 13 (564,734) (33,725) 216,714
-- (198,015) -- -- -- -- --
463,958 -- -- -- -- -- --
1,402,148 5,144,001 9,369,684 4,545,904 11,470,436 6,838,691 2,447,304
(183,961) -- -- -- (237,367) (20,842) 68,877
46,563 10,570 (41) -- 19,411 50 (10,813)
- ---------- ---------- ---------- ---------- ----------- ---------- ----------
273,864 4,099,531 8,725,408 8,588,398 24,415,761 9,033,189 2,382,223
- ---------- ---------- ---------- ---------- ----------- ---------- ----------
$1,966,766 $7,250,438 $12,677,635 $9,028,511 $24,648,968 $8,925,468 $2,775,957
========== ========== =========== ========== =========== ========== ==========
</TABLE>
See Notes to Financial Statements.
FS-5
<PAGE> 116
STATEMENTS OF CHANGES IN NET ASSETS
THE SIERRA VARIABLE TRUST
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<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>
See Notes to Financial Statements.
FS-6
<PAGE> 117
<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
---- ---- ---- ---- ---- ---- ----
<C> <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.
FS-7
<PAGE> 118
STATEMENTS OF CHANGES IN NET ASSETS
THE SIERRA VARIABLE TRUST
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL HIGH
MONEY QUALITY BOND
FUND FUND*
---- -----
<S> <C> <C>
Net investment income $151,503 $480,662
Net realized gain/(loss) on investments sold, forward foreign currency
contracts, foreign currency transactions, futures contracts and written options
on foreign currency during the year (31) (237,512)
Net unrealized appreciation/(depreciation) of investments, forward foreign
currency contracts, foreign currency, written options, futures contracts
and other assets and liabilities during the year -- (433,757)
-------- ---------
Net increase/(decrease) in net assets resulting from operations 151,472 (190,607)
Distributions to shareholders from:
Net investment income (151,450) (336,501)
Net realized gains on investments (53) --
Capital (Note 2) -- --
Net increase in net assets from Fund share transactions 4,670,786 16,074,485
--------- ----------
Net increase in net assets 4,670,755 15,547,377
NET ASSETS:
Beginning of year 1,488,146 --
-------- ---------
End of year $6,158,901 $15,547,377
========== ===========
Undistributed net investment income at end of year $5,473 $45,834
====== =======
</TABLE>
- --------
* The Short Term High Quality Bond, Growth and Income and Emerging Growth Funds
commenced operations on January 12, 1994.
See Notes to Financial Statements.
FS-8
<PAGE> 119
<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
---- ---- ---- ----- ---- ----- ----
<C> <C> <C> <C> <C> <C> <C>
$1,607,524 $2,256,407 $3,445,916 $174,969 $342,933 $107,564 $258,244
(1,325,425) (1,120,435) (2,139,354) 239,323 (425,990) (543,629) 99,064
(827,486) (2,559,445) (4,872,950) (666,777) 1,309,778 1,232,525 (1,203,068)
(545,387) (1,423,473) (3,566,388) (252,485) 1,226,721 796,460 (845,760)
(588,849) (2,180,922) (2,058,319) -- (43,480) -- (76,169)
(7,909) (52,604) (248,803) -- -- -- (44,054)
(469,048) -- -- -- -- -- --
12,267,700 22,169,753 31,847,386 25,157,869 38,783,923 19,088,269 36,856,687
---------- ---------- ---------- ---------- ---------- ---------- ----------
10,656,507 18,512,754 25,973,876 24,905,384 39,967,164 19,884,729 35,890,704
19,147,383 25,069,074 28,731,575 -- 22,795,407 -- 10,638,227
---------- ---------- ---------- ----------- ---------- ---------- ----------
$29,803,890 $43,581,828 $54,705,451 $24,905,384 $62,762,571 $19,884,729 $46,528,931
=========== =========== =========== =========== =========== =========== ===========
$ 9,731 $ 43,240 $ 521,326 $ 174,965 $ 274,870 $ 106,321 $ 38,824
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
FS-9
<PAGE> 120
STATEMENTS OF CHANGES IN NET ASSETS -- CAPITAL STOCK ACTIVITY
THE SIERRA VARIABLE TRUST
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL HIGH
MONEY QUALITY BOND
FUND FUND
---- ----
AMOUNT
<S> <C> <C>
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>
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL HIGH
MONEY QUALITY BOND
FUND FUND*
---- -----
AMOUNT
<S> <C> <C>
Sold $9,003,620 $16,073,183
Issued as reinvestment of dividends 151,502 336,502
Redeemed (4,484,336) (335,200)
---------- --------
Net increase $4,670,786 $16,074,485
========== ===========
SHARES
Sold 9,003,620 6,511,483
Issued as reinvestment of dividends 151,502 138,835
Redeemed (4,484,336) (136,509)
---------- --------
Net increase 4,670,786 6,513,809
========= =========
</TABLE>
- --------
* The Short Term High Quality Bond, Growth and Income and Emerging Growth Funds
commenced operations on January 12, 1994.
See Notes to Financial Statements.
FS-10
<PAGE> 121
<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
---- ---- ---- ---- ---- ---- ----
<C> <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>
<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
---- ---- ---- ----- ---- ----- ----
<C> <C> <C> <C> <C> <C> <C>
$14,193,117 $24,164,110 $34,463,820 $25,611,964 $40,659,039 $19,271,024 $36,962,697
1,065,805 2,233,525 2,307,122 -- 43,480 -- 120,222
(2,991,222) (4,227,882) (4,923,556) (454,095) (1,918,596) (182,755) (226,232)
---------- ---------- ---------- -------- ---------- -------- --------
$12,267,700 $22,169,753 $31,847,386 $25,157,869 $38,783,923 $19,088,269 $36,856,687
=========== =========== =========== =========== =========== =========== ===========
5,745,553 2,487,621 3,545,507 2,579,666 3,591,581 1,906,318 3,123,107
447,570 239,649 248,589 -- 4,121 -- 10,240
(1,218,957) (451,960) (536,740) (45,449) (167,854) (17,684) (19,152)
----------- --------- --------- -------- --------- -------- --------
4,974,166 2,275,310 3,257,356 2,534,217 3,427,848 1,888,634 3,114,195
========= ========= ========= ========= ========= ========= =========
</TABLE>
See Notes to Financial Statements.
FS-11
<PAGE> 122
STATEMENT OF CASH FLOWS
U.S. GOVERNMENT FUND
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
Cash flows from operating activities:
Investment income received $3,220,125
Dividend income received 421,316
Fee income received 71,242
Payment of operating expenses (461,812)
Proceeds from sales of long-term securities and purchased options 144,825,719
Net proceeds from futures transactions (198,015)
Purchases of long-term securities and purchased options (156,728,017)
Net proceeds from short-term investments 210,844
Variation margin for futures transactions 26,945
Interest paid (357,918)
--------
Cash used for operating activities $(8,969,571)
Cash flows from financing activities:
Proceeds from shares sold 6,798,497
Payments on shares redeemed (5,423,563)
Cash provided from reverse repurchase agreements 7,630,000
---------
Cash provided by financing activities 9,004,934
---------
Increase in cash 35,363
Cash at beginning of year 6,838
-----
Cash at end of year $42,201
=======
RECONCILIATION OF NET INCREASE IN NET ASSETS FROM OPERATIONS TO CASH USED FOR
OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $7,250,438
Increase in investments* $(16,188,243)
Increase in interest and dividends receivable (96,199)
Decrease in deferred fee income from dollar roll transactions 36,730
Decrease in variation margin for futures transactions 16,375
Decrease in other assets 9,150
Increase in accrued expenses 2,178
-----
Total adjustments (16,220,009)
-----------
CASH USED FOR OPERATING ACTIVITIES $(8,969,571)
===========
</TABLE>
- --------
Non-cash activities include reinvestment of dividends of $3,097,100.
* Includes unrealized appreciation of $2,304,158.
See Notes to Financial Statements.
FS-12
<PAGE> 123
FINANCIAL HIGHLIGHTS
GLOBAL MONEY FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/95 12/31/94 12/31/93*
-------- -------- ---------
<S> <C> <C> <C>
Net asset value, beginning of year $1.00 $1.00 $1.00
----- ----- -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.053 0.037 0.016
----- ----- -----
Total from investment operations 0.053 0.037 0.016
LESS DISTRIBUTIONS:
Dividends from net investment income (0.053) (0.037) (0.016)
------ ------ ------
Total distributions (0.053) (0.037) (0.016)
------ ------ ------
Net asset value, end of year $1.00 $1.00 $1.00
===== ===== =====
TOTAL RETURN+ 5.46% 3.69% 1.59%
==== ==== ====
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's) $20,373 $6,159 $1,488
Ratio of operating expenses to average net assets 0.50% 0.49% 0.39%**
Ratio of net investment income to average net assets 5.30% 3.84% 2.54%**
Ratio of operating expenses to average net assets without fees reduced by credits
allowed by the custodian 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 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 $0.048 $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.
FS-13
<PAGE> 124
FINANCIAL HIGHLIGHTS
SHORT TERM HIGH QUALITY BOND FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
12/31/95 12/31/94*
-------- ---------
<S> <C> <C>
Net asset value, beginning of year $2.39 $2.50
----- -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.12 0.08
Net realized and unrealized gain/(loss) on investments 0.10 (0.12)
---- -----
Total from investment operations 0.22 (0.04)
LESS DISTRIBUTIONS:
Dividends from net investment income (0.12) (0.07)
----- -----
Total distributions (0.12) (0.07)
----- -----
Net asset value, end of year $2.49 $2.39
===== =====
TOTAL RETURN+ 9.30% (1.62)%
==== =====
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's) $12,365 $15,547
Ratio of operating expenses to average net assets 0.85% 0.77%**
Ratio of net investment income to average net assets 6.14% 5.63%**
Portfolio turnover rate 188% 80%
Ratio of operating expenses to average net assets without fees reduced by
credits allowed by the custodian 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 1.01%(a) 1.10%**
Net investment income per share without fee waivers and/or fees reduced
by credits allowed by the custodian $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.
FS-14
<PAGE> 125
FINANCIAL HIGHLIGHTS
SHORT TERM GLOBAL GOVERNMENT FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/95 12/31/94 12/31/93*
-------- -------- ---------
<S> <C> <C> <C>
Net asset value, beginning of year $2.35 $2.49 $2.50
----- ----- -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.07 0.05 0.01
Net realized and unrealized gain/(loss) on investments 0.12 (0.10) (0.01)
---- ----- -----
Total from investment operations 0.19 (0.05) 0.00
LESS DISTRIBUTIONS:
Dividends from net investment income (0.04) (0.05) (0.01)
Distributions from capital (Note 2) -- (0.04) --
----- ----- -----
Total distributions (0.04) (0.09) (0.01)
----- ----- -----
Net asset value, end of year $2.50 $2.35 $2.49
===== ===== =====
Total return+ 8.09% (2.03)% 0.12%
==== ===== ====
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's) $23,805 $29,804 $19,147
Ratio of operating expenses to average net assets 1.25% 0.92% 0.52%**
Ratio of net investment income to average net assets 6.22% 5.84% 4.06%**
Portfolio turnover rate 195% 286% 164%
Ratio of operating expenses to average net assets without fees reduced by
credits allowed by the custodian 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 1.26%(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 $0.07 $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.
FS-15
<PAGE> 126
FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/95 12/31/94 12/31/93*
-------- -------- ---------
<S> <C> <C> <C>
Net asset value, beginning of year $9.13 $10.04 $10.00
----- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.64 0.50 0.19
Net realized and unrealized gain/(loss) on investments 0.87## (0.90)## 0.04##
---- ----- ----
Total from investment operations 1.51 (0.40) 0.23
LESS DISTRIBUTIONS:
Dividends from net investment income (0.64) (0.50) (0.19)
Distributions from net realized gains -- (0.01) --
---- ----- ----
Total distributions (0.64) (0.51) (0.19)
----- ----- -----
Net asset value, end of year $10.00 $9.13 $10.04
====== ===== ======
TOTAL RETURN+ 16.89% (4.04)% 2.27%
===== ===== ====
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's) $52,303 $43,582 $25,069
Ratio of operating expenses to average net assets 1.00% 0.85% 0.44%**
Ratio of net investment income to average net assets 6.68% 5.75% 5.37%**
Portfolio turnover rate 273% 74% 131%
Ratio of operating expenses to average net assets without fees reduced by credits
allowed by the custodian 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 1.03%(a) 1.02% 1.47%**
Ratio of operating expenses to average net assets including interest expense 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 $0.63 $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.
FS-16
<PAGE> 127
FINANCIAL HIGHLIGHTS
CORPORATE INCOME FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/95 12/31/94 12/31/93*
-------- -------- ---------
<S> <C> <C> <C>
Net asset value, beginning of year $9.06 $10.34 $10.00
----- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.70 0.47 0.23
Net realized and unrealized gain/(loss) on investments 1.50 (1.30) 0.33##
---- ----- ----
Total from investment operations 2.20 (0.83) 0.56
LESS DISTRIBUTIONS:
Dividends from net investment income (0.78) (0.40) (0.22)
Distributions from net realized gains -- (0.05) --
---- ----- ----
Total distributions (0.78) (0.45) (0.22)
----- ----- -----
Net asset value, end of year $10.48 $9.06 $10.34
====== ===== ======
TOTAL RETURN+ 25.09% (8.13)% 5.62%
===== ===== ====
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's) $60,676 $54,705 $28,732
Ratio of operating expenses to average net assets 0.99% 0.93% 0.54%**
Ratio of net investment income to average net assets 7.00% 7.28% 6.37%**
Portfolio turnover rate 42% 23% 26%
Ratio of operating expenses to average net assets without fees reduced by
credits allowed by the custodian 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 0.99%(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 $0.70 $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 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.
FS-17
<PAGE> 128
FINANCIAL HIGHLIGHTS
GROWTH AND INCOME FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
12/31/95 12/31/94*
-------- ---------
<S> <C> <C>
Net asset value, beginning of year $9.83 $10.00
----- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.12 0.07
Net realized and unrealized gain/(loss) on investments 3.05 (0.24)
---- -----
Total from investment operations 3.17 (0.17)
LESS DISTRIBUTIONS:
Dividends from net investment income (0.07) --
Distributions from net realized gains (0.10) --
----- -----
Total distributions (0.17) --
----- -----
Net asset value, end of year $12.83 $9.83
====== =====
TOTAL RETURN+ 32.41% (1.70)%
===== =====
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's) $46,362 $24,905
Ratio of operating expenses to average net assets 1.06% 1.20%**
Ratio of net investment income to average net assets 1.31% 1.63%**
Portfolio turnover rate 70% 44%
Ratio of operating expenses to average net assets without fees reduced by
credits allowed by the custodian 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 1.16%(a) 1.55%**
Net investment income per share without fee waivers and/or fees reduced
by credits allowed by the custodian $0.11 $0.05
</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.
FS-18
<PAGE> 129
FINANCIAL HIGHLIGHTS
GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/95++ 12/31/94 12/31/93*
---------- -------- ---------
<S> <C> <C> <C>
Net asset value, beginning of year $11.48 $11.19 $10.00
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.04 0.04 0.02
Net realized and unrealized gain on investments 4.24 0.26 1.17
---- ---- ----
Total from investment operations 4.28 0.30 1.19
LESS DISTRIBUTIONS:
Dividends from net investment income (0.04) (0.01) --
Distributions from net realized gains (0.00)# -- --
----- ---- ----
Total distributions (0.04) (0.01) --
----- ----- -----
Net asset value, end of year $15.72 $11.48 $11.19
====== ====== ======
TOTAL RETURN+ 37.34% 2.69% 11.90%
===== ==== =====
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's) $99,699 $62,763 $22,795
Ratio of operating expenses to average net assets 1.24% 1.26% 0.78%**
Ratio of net investment income to average net assets 0.29% 0.74% 0.70%**
Portfolio turnover rate 187% 257% 86%
Ratio of operating expenses to average net assets without fees reduced by credits
allowed by the custodian 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 1.24%(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 $0.04 $0.04 $(0.01)
</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 year 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.
FS-19
<PAGE> 130
FINANCIAL HIGHLIGHTS
EMERGING GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
12/31/95 12/31/94*
-------- ---------
<S> <C> <C>
Net asset value, beginning of year $10.53 $10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income/(loss) (0.01) 0.06
Net realized and unrealized gain on investments 3.26 0.47
---- ----
Total from investment operations 3.25 0.53
LESS DISTRIBUTIONS:
Dividends from net investment income (0.04) --
Distributions from net realized gains (0.00)# --
----- ----
Total distributions (0.04) --
----- ----
Net asset value, end of year $13.74 $10.53
====== ======
TOTAL RETURN+ 30.99% 5.30%
===== ====
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's) $46,058 $19,885
Ratio of operating expenses to average net assets 1.20% 1.23%**
Ratio of net investment income/(loss) to average net assets (0.35)% 1.03%**
Portfolio turnover rate 135% 192%
Ratio of operating expenses to average net assets without fees reduced by credits
allowed by the custodian 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 1.28%(a) 1.38%**
Net investment income/(loss) per share without fee waivers and/or fees reduced by
credits allowed by the custodian $(0.01) $0.05
</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.
FS-20
<PAGE> 131
FINANCIAL HIGHLIGHTS
INTERNATIONAL GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/95 12/31/94 12/31/93*
-------- -------- ---------
<S> <C> <C> <C>
Net asset value, beginning of year $11.47 $11.31 $10.00
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.18 0.01 0.02
Net realized and unrealized gain on investments 0.58 0.19## 1.29
---- ---- ----
Total from investment operations 0.76 0.20 1.31
LESS DISTRIBUTIONS:
Dividends from net investment income (0.00)# (0.03) --
Distributions from net realized gains (0.12) (0.01) --
----- ----- ----
Total distributions (0.12) (0.04) --
----- ----- ----
Net asset value, end of year $12.11 $11.47 $11.31
====== ====== ======
TOTAL RETURN+ 6.61% 1.88% 13.10%
====== ====== ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's) $45,909 $46,529 $10,638
Ratio of operating expenses to average net assets 1.47% 1.34% 0.83%**
Ratio of net investment income to average net assets 0.91% 0.83% 0.61%**
Portfolio turnover rate 72% 51% 24%
Ratio of operating expenses to average net assets without fees reduced by
credits allowed by the custodian 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 1.48%(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 $0.17 $0.01 $(0.06)
</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.
# 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.
FS-21
<PAGE> 132
PORTFOLIO OF INVESTMENTS
GLOBAL MONEY FUND
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------- ----------
<S> <C> <C>
U.S. GOVERNMENT AGENCY DISCOUNT NOTES -- 45.0%
$2,930,000 Federal Home Loan Bank (FHLB),
5.480% due 01/22/1996++ $ 2,920,634
2,070,000 Federal Home Loan Mortgage Corporation (FHLMC),
5.750% due 01/02/1996++ 2,069,669
Federal National Mortgage Association (FNMA):
2,000,000 5.460% due 01/23/1996++ 1,993,327
2,190,000 5.500% due 01/31/1996++ 2,179,962
---------
Total U.S. Government Agency Discount Notes
(Cost $9,163,592) 9,163,592
---------
COMMERCIAL PAPER -- (DOMESTIC) -- 18.5%
900,000 AT&T Corporation,
5.500% due 04/15/1996++ 885,563
1,000,000 Bank of New York,
5.810% due 01/18/1996++ 997,247
500,000 Bankers Trust Company of New York,
5.670% due 03/14/1996++ 494,251
400,000 Campbell Soup Company,
5.900% due 02/01/1996++ 397,968
1,000,000 General Electric Capital Corporation,
5.790% due 01/30/1996++ 995,336
-------
Total Commercial Paper -- (Domestic)
(Cost $3,770,365) 3,770,365
---------
CERTIFICATES OF DEPOSIT -- (YANKEE) -- 14.7%
1,000,000 Bank of Montreal, Chicago,
6.060% due 01/05/1996 1,000,000
1,000,000 Societe Generale, New York,
5.650% due 02/08/1996 1,000,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------- -----------
<S> <C> <C>
$1,000,000 Sumitomo Bank, Ltd.,
6.120% due 01/19/1996 $ 1,000,020
-----------
Total Certificates of Deposit -- (Yankee)
(Cost $3,000,020) 3,000,020
-----------
MEDIUM-TERM NOTES -- 14.7%
Federal National Mortgage Association (FNMA):
1,500,000 5.600% due 11/01/1996 1,497,963
1,500,000 5.300% due 12/26/1996 1,496,872
-----------
Total Medium-Term Notes
(Cost $2,994,835) 2,994,835
-----------
COMMERCIAL PAPER -- (FOREIGN) -- 4.9% (COST $999,663)
1,000,000 Bayerische Vereinsbank,
6.060% due 01/03/1996++ 999,663
U.S. TREASURY BILLS -- 2.1%
100,000 5.390% due 02/01/1996++ 99,536
333,000 5.290% due 03/21/1996++ 329,090
------------
Total U.S. Treasury Bills (Cost $428,626) 428,626
------------
TOTAL INVESTMENTS (COST $20,357,101*) 99.9% 20,357,101
OTHER ASSETS AND LIABILITIES (NET) 0.1 15,773
----- -----------
NET ASSETS 100.0% $20,372,874
===== ===========
</TABLE>
- --------
* Aggregate cost for federal tax purposes.
++ Rate represents annualized yield at date of purchase (unaudited).
See Notes to Financial Statements.
FS-22
<PAGE> 133
PORTFOLIO OF INVESTMENTS
SHORT TERM HIGH QUALITY BOND FUND
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------- --------
<S> <C> <C>
MORTGAGE-BACKED SECURITIES -- 27.7%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) -- 18.5%
$ 93,770 #121425, Seasoned,
11.000% due 04/15/2015 $ 106,271
141,350 #140834, Seasoned,
11.000% due 12/15/2015 160,194
71,912 #144538, Seasoned,
11.000% due 12/15/2015 81,499
159,826 #151670, Seasoned,
11.000% due 12/15/2015 181,134
343,462 #780060,
8.000% due 02/15/2025 358,077
338,586 #780081, Seasoned,
10.000% due 02/15/2025 374,709
99,586 #780121, Seasoned,
10.000% due 04/15/2025 109,513
85,587 #780141, Seasoned,
10.000% due 12/15/2020 94,199
279,672 #405486,
8.000% due 09/15/2010 291,893
500,000 Generic, 30 Year, TBA, Seasoned,
9.000% due 08/15/2025 533,125
---------
Total GNMAs (Cost $2,254,941) 2,290,614
---------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 5.1%
5 Year Balloon, GOLD:
391,940 #G50135,
5.500% due 03/01/1999 389,142
208,747 #G50157,
5.000% due 05/01/1999 205,234
42,526 #G50163,
5.000% due 05/01/1999 41,810
---------
Total FHLMCs (Cost $631,176) 636,186
---------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 2.2%
(Cost $274,703)
287,293 7 Year Balloon, #281187,
5.000% due 04/01/2001 274,390
---------
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES (ARM) -- 1.9%
Federal National Mortgage Association:
111,754 #124571,
7.710% due 11/01/2022+ 113,657
112,922 #152205,
7.338% due 01/01/2019+ 115,356
---------
Total ARMs (Cost $228,320) 229,013
---------
Total Mortgage-Backed Securities
(Cost $3,389,140) 3,430,203
---------
ASSET-BACKED SECURITIES -- 23.5%
129,026 Conti Mortgage Home Equity Loan Trust, 1995-1, Class A1,
8.750% due 04/15/2007 129,409
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------- ----------
<S> <C> <C>
$250,000 Green Tree Financial Corporation,
1995-1-B2
9.200% due 06/15/2025 $ 276,718
Green Tree Home Improvement:
400,000 1995-CA2,
6.350% due 07/15/2020 404,250
165,000 1995-DB2,
7.450% due 09/15/2025 168,660
129,831 Green Tree NIM, 1994-B, Class A,
7.850% due 07/15/2004 132,387
117,247 Green Tree Security Mortgage Trust, 1994-A
6.900% due 02/15/2004 117,137
10,000 Household Affinity Credit Card, 1993,
4.950% due 03/15/1999 9,931
Merrill Lynch Mortgage Investment Trust:
105,453 1991-B-A,
9.200% due 04/15/2011 108,222
112,506 1991-I-A,
7.650% due 01/15/2012 114,475
381,467 1992-B-A4,
7.850% due 04/15/2012 390,287
387,818 Mid-State Trust, Series 4, Class A,
8.330% due 04/01/2030 421,158
217,705 Sec Pac Manufacturing Housing, 95-1, Class A1,
6.500% due 04/10/2020 220,154
10,000 Standard Credit Card Trust, 94-1A,
4.650% due 03/07/1999 9,912
400,000 UCFC Loan Trust, 1995-B1,
6.600% due 07/10/2009 403,000
---------
Total Asset-Backed Securities
(Cost $2,845,838) 2,905,700
---------
CORPORATE NOTES -- 18.8%
275,000 Bayerische Landesbank, MTN,
(Inverse Floater),
5.820% due 12/29/1997+ 279,813
250,000 Capital One Bank Corporation, MTN,
8.625% due 01/15/1997 256,975
200,000 General Motors Acceptance
Corporation, MTN,
7.850% due 11/17/1997 207,978
Lyondell Petrochemical Company:
175,000 10.000% due 06/01/1999 195,904
100,000 9.125% due 03/15/2002 114,318
150,000 9.750% due 09/04/2003** 170,535
Taubman Realty Corporation, MTN:
300,000 7.400% due 06/10/2002 299,835
100,000 7.500% due 06/15/2002 100,450
The Money Store, Inc.:
200,000 9.160% due 09/09/1997** 207,900
80,000 9.160% due 09/09/1997** 83,160
300,000 7.630% due 04/15/1998** 306,015
100,000 Time Warner, Inc.,
7.450% due 02/01/1998 102,785
---------
Total Corporate Notes (Cost $2,267,793) 2,325,668
---------
</TABLE>
See Notes to Financial Statements.
FS-23
<PAGE> 134
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
SHORT TERM HIGH QUALITY BOND FUND
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------- ----------
<S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -- 13.0%
$ 31,941 Countrywide Funding Corporation,
1994-1-A3,
6.250% due 03/25/2024 $ 31,222
Federal Home Loan Mortgage Corporation
(FHLMC), REMIC, P/O:
245,437 #1719-C,
Zero coupon due 04/15/1999 216,445
162,445 # 167-A,
Zero coupon due 05/01/1999 143,155
352,375 Federal National Mortgage Association
(FNMA), REMIC, #1992-121-C,
7.000% due 07/25/1999 353,256
384,053 Fund America Investors Corporation,
1991-1-H,
7.950% due 02/20/2020 389,334
176,781 General Electric Capital Mortgage
Association, 1994-27-A1,
6.500% due 07/25/2024 177,333
142,449 Prudential Home Mortgage, Series 1992-47,
7.500% due 01/25/2023 142,271
142,533 Ryland Acceptance Corporation,
8.950% due 08/20/2019 146,942
---------
Total Collateralized Mortgage Obligations
(Cost $1,586,748) 1,599,958
---------
U.S. TREASURY OBLIGATIONS -- 7.9%
U.S. TREASURY NOTES -- 4.1%
100,000 5.375% due 05/31/1998 100,328
400,000 5.875% due 08/15/1998 406,312
---------
Total U.S. Treasury Notes (Cost $500,460) 506,640
U.S. TREASURY STRIPS -- 3.8%
400,000 Zero coupon due 02/15/1999 339,928
200,000 Zero coupon due 02/15/2004 127,522
---------
Total U.S. Treasury Strips (Cost $461,970) 467,450
---------
Total U.S. Treasury Obligations
(Cost $962,430) 974,090
---------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 5.4%
Federal National Mortgage Association:
175,000 (Inverse Floater),
9.452% due 12/29/1997+ 188,125
500,000 Principal Strip, Non-income producing
until 08/21/1996,
Zero coupon due 08/21/2001 483,125
---------
Total U.S. Government Agency Obligations
(Cost $661,760) 671,250
---------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------- ---------
<S> <C> <C>
COMMERCIAL PAPER -- 7.2%
$485,000 Ford Motor Credit Corporation,
6.090% due 01/02/1996++ $ 485,000
400,000 General Electric Capital Corporation,
5.850% due 01/02/1996++ 400,000
----------
Total Commercial Paper (Cost $885,000) 885,000
----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION STRIKE
CONTRACTS DATE PRICE
- --------- ---------- ------
<S> <C> <C> <C> <C>
CALL OPTIONS PURCHASED ON U.S. TREASURY BOND
FUTURES -- 0.1%
3 U.S. Treasury Bond Call 02/07/1996 $120.000 7,641
6 U.S. Treasury Bond Call 02/07/1996 $122.000 8,719
----------
Total Call Options Purchased on U.S.
Treasury Bond Futures (Cost $13,041) 16,360
TOTAL INVESTMENTS (COST $12,611,750*) 103.6% 12,808,229
OTHER ASSETS AND LIABILITIES (NET) (3.6) (443,533)
----- ----------
NET ASSETS 100.0% $12,364,696
===== ==========
</TABLE>
- -------
* Aggregate cost for federal tax purposes is $12,615,068.
** 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.
+ Variable rate security. The interest rate shown reflects the rate currently in
effect.
++ Rate represents annualized yield at date of purchase (unaudited).
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
P/O -- Principal Only
REMIC -- Real Estate Mortgage Investment Conduit
STRIP -- Separate trading of registered interest and principal of securities
TBA -- To Be Announced
See Notes to Financial Statements.
FS-24
<PAGE> 135
PORTFOLIO OF INVESTMENTS
SHORT TERM GLOBAL GOVERNMENT FUND
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------- --------
<S> <C> <C>
FOREIGN BONDS AND NOTES -- 66.6%
NETHERLANDS GUILDER BONDS -- 8.7%
Government of Netherlands:
NLG 2,300,000 6.250% due 07/15/1998 $ 1,501,371
850,000 7.500% due 06/15/1999 577,102
-----------
Total Netherlands Guilder Bonds
(Cost $2,028,738) 2,078,473
-----------
DANISH KRONER BONDS -- 8.6%
Kingdom of Denmark:
DKK 3,800,000 5.250% due 08/10/1996 686,162
2,000,000 9.000% due 11/15/1996 373,024
5,000,000 9.000% due 11/15/1998 981,452
-----------
Total Danish Kroner Bonds
(Cost $1,890,171) 2,040,638
-----------
EUROPEAN CURRENCY UNIT BONDS -- 7.9%
XEU 500,000 Government of France,
7.500% due 03/16/1997 657,086
300,000 Kingdom of Belgium,
9.125% due 03/18/1996 386,501
650,000 Kingdom of Norway,
9.000% due 07/01/1996 847,561
-----------
Total European Currency Unit
Bonds (Cost $1,939,398) 1,891,148
-----------
ITALIAN LIRA BONDS -- 7.8%
Italian Treasury Bonds:
ITL 1,300,000,000 8.500% due 08/01/1997 801,639
1,750,000,000 8.500% due 01/01/1999 1,060,482
-----------
Total Italian Lira Bonds
(Cost $1,802,937) 1,862,121
-----------
GERMAN DEUTSCHE MARK BONDS -- 7.4%
Federal Republic of Germany:
DEM 1,500,000 6.625% due 01/20/1998 1,101,987
900,000 6.000% due 02/20/1998 653,975
-----------
Total German Deutsche Mark
Bonds (Cost $1,546,892) 1,755,962
-----------
AUSTRALIAN DOLLAR BOND AND NOTE -- 5.6%
AUD 1,170,000 Commonwealth of Australia,
12.500% due 01/15/1998 953,076
500,000 New South Wales Treasury Note,
7.500% due 02/01/1998 372,108
-----------
Total Australian Dollar Bond
and Note
(Cost $1,302,399) 1,325,184
-----------
CANADIAN DOLLAR BONDS -- 5.1%
Government of Canada:
CAD 1,020,000 6.250% due 02/01/1998 751,076
590,000 9.500% due 10/01/1998 468,284
-----------
Total Canadian Dollar Bonds
(Cost $1,171,772) 1,219,360
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------- --------
<S> <C> <C>
SWEDISH KRONA BOND -- 4.8% (Cost $969,105)
SEK 7,000,000 Kingdom of Sweden,
11.000% due 01/21/1999 $ 1,136,333
-----------
SPANISH PESETA BONDS -- 4.3%
Government of Spain:
ESP 85,000,000 11.450% due 08/30/1998 735,989
35,000,000 10.250% due 11/30/1998 295,841
-----------
Total Spanish Peseta Bonds
(Cost $997,983) 1,031,830
-----------
GREAT BRITAIN POUND STERLING NOTE -- 4.1% (Cost $957,552)
GBP 600,000 United Kingdom Treasury Note,
8.750% due 09/01/1997 967,907
-----------
FRENCH FRANC BOND -- 2.3% (Cost $549,142)
FRF 2,600,000 Government of France,
8.500% due 03/12/1997 552,177
-----------
Total Foreign Bonds and Notes
(Cost $15,156,089) 15,861,133
-----------
U.S. TREASURY NOTE -- 10.7% (Cost $2,525,197)
$ 2,475,000 6.375% due 01/15/1999** 2,551,377
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 8.8%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) -- 5.5%
1,177,120 Pass-through certificates,
10.000% due 12/15/2017 -- 06/15/2020 1,298,152
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 1.9%
442,293 #141461,
7.672% due 11/01/2021+ 452,452
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 1.4%
317,991 #1223,
7.250% due 07/15/2020 320,275
-----------
Total U.S. Government Agency
Obligations
(Cost $2,043,697) 2,070,879
-----------
COMMERCIAL PAPER -- 7.7%
1,000,000 Ford Motor Credit Corporation,
6.000% due 01/02/1996++ 1,000,000
837,000 General Electric Capital Corporation,
5.850% due 01/02/1996++ 837,000
-----------
Total Commercial Paper
(Cost $1,837,000) 1,837,000
-----------
INDEXED NOTE -- 4.2% (Cost $1,000,000)
1,000,000 Bayerische Landesbank, Giro
Zentrale, (Coupon rate is directly
linked to the Czech Koruna),
10.200% due 01/16/1996 997,900
-----------
</TABLE>
See Notes to Financial Statements.
FS-25
<PAGE> 136
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
SHORT TERM GLOBAL GOVERNMENT FUND
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL EXPIRATION SRIKE VALUE
AMOUNT DATE PRICE (NOTE 2)
------ ---- ----- --------
<S> <C> <C> <C> <C>
OPTIONS ON FOREIGN CURRENCY PURCHASED -- 0.4%
PUT OPTIONS PURCHASED -- 0.4%
AUD 1,862,715 Australian
Dollar Put 01/08/1996 $ 0.688 $ 2
CAD 630,500 Canadian
Dollar Put 01/09/1996 1.341 8,070
ITL 1,275,000,000 Italian Lira Put 01/22/1996 1,627.750 714
DEM 3,008,250 German
Deutsche Mark Put 02/01/1996 1.433 27,538
FRF 7,500,000 French Franc Put 02/08/1996 5.000 7,500
DEM 1,400,000 German
Deutsche Mark Put 02/16/1996 1.495 3,397
SEK 7,000,000 Swedish
Krona Put 02/26/1996 6.712 15,190
DEM 2,122,500 German
Deutsche Mark Put 04/19/1996 1.489 16,163
FRF 7,000,000 French Franc Put 05/30/1996 5.108 13,671
----------
Total Put Options Purchased on
Foreign Currency
(Cost $180,944) 92,245
----------
TOTAL INVESTMENTS (Cost $22,742,927*) 98.4% 23,410,534
----------
OPTIONS WRITTEN -- (0.4)%
CALL OPTIONS WRITTEN ON FOREIGN CURRENCY -- (0.4)%
AUD 637,715 Australian
Dollar Call 01/08/1996 0.715 (17,201)
ITL 1,275,000,000 Italian Lira Call 01/22/1996 1,578.500 (3,009)
XEU 900,000 European Currency
Unit Call 01/25/1996 1.302 (6,559)
AUD 1,200,000 Australian
Dollar Call 01/31/1996 0.745 (6,024)
DEM 2,025,000 German
Deutsche Mark Call 02/08/1996 1.350 (1,215)
SEK 7,000,000 Swedish Krona Call 02/26/1996 6.407 (3,710)
FRF 7,000,000 French Franc Call 05/30/1996 4.770 (21,343)
GBP 650,000 Great Britain Pound
Sterling Call 04/26/1996 1.533 (26,618)
----------
Total Call Options Written
on Foreign Currency
(Premiums received
$118,194) (85,679)
----------
OTHER ASSETS AND LIABILITIES (NET) 2.0 479,739
----- ----------
NET ASSETS 100.0% $23,804,594
===== ==========
</TABLE>
- --------
* Aggregate cost for federal tax purposes.
** This security is pledged as collateral for options.
+ Variable rate security. The interest rate shown reflects the rate
currently in effect.
++ Rate represents annualized yield at date of purchase (unaudited).
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO BUY
<TABLE>
<CAPTION>
CONTRACTS TO RECEIVE
--------------------
NET UNREALIZED
APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- -------- -------- ----------- --------------
<C> <C> <C> <C> <C>
01/03/1996 AUD 31,025 23,057 23,433 $ (376)
01/03/1996 AUD 1,547 1,150 1,168 (18)
01/17/1996 DEM 226,300 157,970 158,086 (116)
01/17/1996 DEM 1,731,401 1,208,617 1,213,400 (4,783)
01/17/1996 DEM 1,731,401 1,208,617 1,264,165 (55,548)
01/29/1996 DEM 3,632,640 2,537,621 2,549,723 (12,102)
01/29/1996 DEM 2,232,640 1,559,635 1,630,616 (70,981)
01/29/1996 DEM 2,096,100 1,464,254 1,500,000 (35,746)
02/20/1996 XEU 209,140 267,688 271,631 (3,943)
02/22/1996 BEF 24,000,000 817,906 786,189 31,717
02/28/1996 NLG 396,484 247,964 239,930 8,034
---------
$(143,862)
---------
</TABLE>
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
<TABLE>
<CAPTION>
CONTRACTS TO DELIVER
-------------------- NET UNREALIZED
APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- -------- -------- ----------- --------------
<C> <C> <C> <C> <C>
01/02/1996 DEM 3 2 2 $ 0
01/05/1996 FRF 5,905,136 1,204,963 1,190,984 (13,979)
01/17/1996 DEM 1,957,700 1,366,587 1,301,403 (65,184)
01/17/1996 DEM 1,731,401 1,208,617 1,212,466 3,849
01/26/1996 DKK 9,000,000 1,621,897 1,668,521 46,624
01/29/1996 DEM 3,632,640 2,537,622 2,439,815 (97,807)
01/29/1996 DEM 3,886,960 2,715,279 2,770,070 54,791
01/29/1996 DEM 1,205,290 841,969 862,616 20,647
01/29/1996 DEM 1,438,645 1,004,981 1,000,000 (4,981)
01/29/1996 ESP 122,480,781 1,006,354 999,028 (7,326)
02/06/1996 SEK 1,032,988 155,033 155,108 75
02/20/1996 XEU 873,397 1,117,902 1,138,211 20,309
02/21/1996 DKK 2,515,258 453,580 463,300 9,720
02/22/1996 BEF 41,148,400 1,402,314 1,367,056 (35,258)
02/28/1996 NLG 966,484 604,446 588,512 (15,934)
03/13/1996 CHF 210,652 184,129 175,543 (8,586)
---------
$ (93,040)
---------
Net Unrealized Depreciation of Forward
Foreign Currency Contracts $(236,902)
=========
</TABLE>
GLOSSARY OF TERMS
AUD -- Australian Dollar
BEF -- Belgian Franc
CAD -- Canadian Dollar
CHF -- Swiss Franc
DEM -- German Deutsche Mark
DKK -- Danish Kroner
ESP -- Spanish Peseta
FRF -- French Franc
GBP -- Great Britain Pound Sterling
ITL -- Italian Lira
NLG -- Netherlands Guilder
SEK -- Swedish Krona
XEU -- European Currency Unit
See Notes to Financial Statements.
FS-26
<PAGE> 137
PORTFOLIO OF INVESTMENTS
U.S. GOVERNMENT FUND
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
------ --------
<S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 96.4%
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)
DEBENTURES -- 35.0%
REMIC, Pass-through certificates:
$1,758,055 Trust 89-30, Class 30-Z
P/O, due 01/25/2021** $ 1,583,884
922,953 Trust 89-90, Class 90-E
P/O, due 01/25/2024 728,265
5,106,849 Trust 92-83, Class 83-X,
7.000% due 02/25/2022 4,960,027
3,992,141 Trust 92-55, Class 55-DZ,
8.000% due 04/25/2022** 4,224,165
1,500,000 Trust 94-57, Class 57-C
8.700% due 12/25/2019** 1,599,840
1,495,026 Trust 90-100, Class 100-J,
9.000% due 10/25/2019** 1,524,449
3,458,787 Trust 93-159, Class 159-PA
9.500% due 06/25/2019** 3,686,825
----------
Total FNMA Debentures
(Cost $16,914,744) 18,307,455
----------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 18.4%
1,401,808 5.500% due 12/01/2008** 1,365,011
1,464,823 6.500% due 09/01/2025 1,448,798
2,933,654 7.500% due 09/01/2025** 3,007,905
1,694,566 8.500% due 12/01/2024 -- 05/01/2025** 1,769,243
1,458,341 8.750% due 08/01/2008** 1,527,816
476,167 9.000% due 09/01/2020 506,113
----------
Total FHLMCs (Cost $9,330,022) 9,624,886
----------
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES (ARM) -- 10.6%
288,881 Federal Home Loan Mortgage Corporation,
7.144% due 04/01/2009 298,630
Federal National Mortgage Association:
1,629,122 6.729% due 04/01/2019** 1,636,258
1,246,064 7.541% due 01/01/2025** 1,283,645
1,423,884 7.558% due 01/01/2020** 1,446,581
880,763 7.625% due 05/01/2019 904,156
----------
Total ARMs (Cost $5,499,076) 5,569,270
----------
FEDERAL HOME LOAN BANK (FHLB) -- 8.7%
1,500,000 5.020% due 11/23/1998** 1,483,365
3,000,000 8.250% due 09/25/1996** 3,060,480
----------
Total FHLBs (Cost $4,555,313) 4,543,845
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 8.1%
1,312,821 7.250% due 01/01/2025** 1,348,714
911,200 8.000% due 09/01/2017** 952,769
524,697 8.500% due 02/01/2023 553,189
1,254,024 10.000% due 07/01/2020 1,378,248
----------
Total FNMAs (Cost $4,113,882) 4,232,920
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------- --------
<S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION II (GNMA II) -- 7.7%
$2,660,052 6.500% due 04/20/2025 -- 05/20/2025** $ 2,711,604
396,688 7.250% due 07/20/2018 404,190
881,880 7.500% due 03/20/2025** 898,141
----------
Total GNMA IIs (Cost $3,968,849) 4,013,935
----------
FEDERAL FARM CREDIT BANK (FFCB) -- 2.2%
(Cost $1,149,265)
1,150,000 5.660% due 01/02/1996 1,149,265
----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) -- 2.1%
975,281 7.000% due 02/15/2024 -- 09/15/2025 986,857
110,161 9.000% due 08/15/2021 117,269
----------
Total GNMAs (Cost $1,076,634) 1,104,126
----------
RESIDENTIAL FUNDING MORTGAGE SECURITY -- 2.0%
(Cost $963,750)
1,000,000 Trust 92-539, Class S39-A8,
7.500% due 11/25/2007** 1,021,560
----------
SMALL BUSINESS ADMINISTRATION (SBA) -- 1.6%
500,000 6.950% due 09/01/2015 513,203
300,000 8.500% due 01/01/2015 329,531
----------
Total SBAs (Cost $816,182) 842,734
----------
Total U.S. Government Agency Obligations
(Cost $48,387,717) 50,409,996
----------
U.S. TREASURY OBLIGATIONS -- 17.0%
U.S. TREASURY NOTES -- 15.4%
190,000 7.500% due 01/31/1997 194,482
240,000 6.625% due 03/31/1997 243,974
1,360,000 7.250% due 02/15/1998** 1,414,182
2,695,000 6.125% due 05/15/1998** 2,748,900
100,000 7.750% due 01/31/2000 108,625
2,900,000 6.875% due 03/31/2000+ 3,063,589
250,000 6.375% due 08/15/2002 262,148
----------
Total U.S. Treasury Notes
(Cost $7,875,634) 8,035,900
----------
U.S TREASURY BONDS -- 1.6%
245,000 7.125% due 02/15/2023 280,143
100,000 7.500% due 11/15/2024 120,204
400,000 6.875% due 08/15/2025 451,124
----------
Total U.S. Treasury Bonds
(Cost $779,581) 851,471
----------
Total U.S. Treasury Obligations
(Cost $8,655,215) 8,887,371
----------
</TABLE>
See Notes to Financial Statements.
FS-27
<PAGE> 138
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION STRIKE VALUE
CONTRACTS DATE PRICE (NOTE 2)
- --------- ---------- ------ --------
<S> <C> <C> <C> <C>
CALL OPTION PURCHASED ON U.S. TREASURY BOND
FUTURES -- 0.2% (Cost $64,949)
41 U.S. Treasury Bond Call 02/17/1996 $112.00 $ 114,672
TOTAL INVESTMENTS (Cost $57,107,881*) 113.6% 59,412,039
OTHER ASSETS AND LIABILITIES (Net) (13.6) (7,108,545)
----- ----------
NET ASSETS 100.0% $52,303,494
===== ==========
</TABLE>
- --------
* Aggregate cost for federal tax purposes is $57,044,078.
** A portion of this security is pledged as collateral for futures contracts.
+ A portion or all of the securities are pledged as collateral for reverse
repurchase agreements (Note 4).
<TABLE>
<CAPTION>
NUMBER OF UNREALIZED
CONTRACTS APPRECIATION
- --------- ------------
<S> <C> <C>
FUTURES CONTRACTS -- LONG POSITION
9 Municipal Bond Index Future, March 1996 $ 16,551
58 U.S. Treasury Note, Two Year, March 1996 25,919
128 U.S. Treasury Note, Five Year, March 1996 91,392
-------
Net Unrealized Appreciation of Futures
Contracts -- Long Position $ 133,862
=======
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF UNREALIZED
CONTRACTS DEPRECIATION
- --------- ------------
<S> <C> <C>
FUTURES CONTRACTS -- SHORT POSITION
6 U.S. Treasury Note, Ten Year,
March 1996 $ (15,599)
64 U.S. Treasury Bond, Thirty Year,
March 1996 (165,006)
--------
Net Unrealized Depreciation of Futures
Contracts -- Short Position $ (180,605)
========
</TABLE>
GLOSSARY OF TERMS
P/O -- Principal Only
REMIC -- Real Estate Mortgage Investment
Conduit
See Notes to Financial Statements.
FS-28
<PAGE> 139
PORTFOLIO OF INVESTMENTS
CORPORATE INCOME FUND
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------- ---------
<S> <C> <C>
CORPORATE BONDS AND NOTES -- 84.9%
FINANCIAL SERVICES -- 19.3%
$1,000,000 Abbey National Plc, Global Note,
6.690% due 10/17/2005 $ 1,037,500
500,000 American General Corporation, Sinking Fund Deb.,
7.500% due 07/15/2025 538,125
400,000 Banc One Corporation, Sub. Note,
10.000% due 08/15/2010 530,000
1,000,000 Barclays North American Capital
Corporation, Capital Note,
9.750% due 05/15/2021** 1,196,250
82,000 Barnett Banks, Florida, Inc., Sub. Note,
10.875% due 03/15/2003 104,037
50,000 Chase Manhattan Corporation,
Sub. Notes,
8.000% due 06/15/1999 53,437
230,000 Citicorp, Sub. Note,
8.625% due 12/01/2002 262,487
First Chicago Corporation, Sub. Note:
600,000 11.250% due 02/20/2001 741,000
100,000 9.250% due 11/15/2001 116,250
40,000 First Interstate Bancorp, MTN,
9.375% due 11/15/1998 43,950
1,000,000 First Tennessee National Corporation,
Sub. Capital Note,
10.375% due 06/01/1999 1,133,750
1,040,000 Fleet/Norstar Financial Group Inc.,
Sub Note,
9.900% due 06/15/2001 1,219,400
400,000 Ford Holdings, Inc., Deb.,
9.375% due 03/01/2020 519,500
500,000 General Motors Acceptance Corporation, MTN,
7.550% due 01/14/1997 510,625
1,570,000 Mellon Bank, NA, Sub. Note,
6.500% due 08/01/2005 1,591,588
NCNB Corporation, Sub. Note:
1,100,000 9.375% due 09/15/2009 1,384,625
60,000 10.200% due 07/15/2015 81,150
516,000 Security Pacific Corporation, Sub. Note,
11.500% due 11/15/2000 632,100
----------
11,695,774
----------
MATERIALS AND PROCESSING -- 18.4%
520,000 AMAX Inc., Note,
9.875% due 06/13/2001 596,050
1,200,000 Boise Cascade Corporation, Deb.,
9.450% due 11/01/2009 1,501,500
Georgia-Pacific Corporation, Deb.:
1,000,000 9.500% due 05/15/2022 1,165,000
300,000 8.125% due 06/15/2023 314,250
700,000 International Paper Company, Deb.,
6.875% due 11/01/2023 704,375
1,400,000 Mead Corporation, Deb.,
7.125% due 08/01/2025 1,447,250
1,800,000 Praxair, Inc., Deb.,
8.700% due 07/15/2022 2,173,500
2,550,000 Tyco Laboratories, Inc., Deb.,
9.500% due 05/01/2022 3,251,250
----------
11,153,175
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------- --------
<S> <C> <C>
AUTOS AND TRANSPORTATION -- 13.5%
$1,000,000 Conrail Inc., Deb.,
9.750% due 06/15/2020 $ 1,366,250
Ford Motor Company, Deb.:
250,000 8.875% due 01/15/2022 312,500
600,000 8.875% due 11/15/2022 708,000
1,000,000 General Motors Corporation, Deb.,
9.400% due 07/15/2021 1,301,250
525,000 Laidlaw Inc., Deb.,
8.250% due 05/15/2023 595,219
2,000,000 Southwest Airlines Company,
Pass-through certificates, 94-A,
Class A-4,
9.150% due 07/01/2016 2,410,000
1,300,000 United AirLines Inc., Pass-through
certificate,
9.560% due 10/19/2018 1,512,875
----------
8,206,094
----------
ENERGY -- 10.5%
1,200,000 ANR Pipeline Company, Deb.,
9.625% due 11/01/2021 1,575,000
1,300,000 Occidental Petroleum Corporation,
Sr. Deb.,
11.125% due 08/01/2010 1,826,500
500,000 Panhandle Eastern Pipe Line Company, Deb.,
8.625% due 04/15/2025 580,000
500,000 Petro-Canada, Deb.,
9.250% due 10/15/2021 641,250
1,000,000 Phillips Petroleum Company, Deb.,
9.180% due 09/15/2021 1,176,250
500,000 Trans-Canada Pipeline Corporation, Deb.,
8.500% due 03/20/2023 585,000
---------
6,384,000
---------
CONSUMER DISCRETIONARY -- 9.5%
1,750,000 Carnival Corporation, Deb.,
7.200% due 10/01/2023 1,771,875
Dayton-Hudson Corporation, Deb.:
500,000 9.875% due 07/01/2020 655,625
500,000 8.500% due 12/01/2022 542,500
400,000 7.875% due 06/15/2023 422,000
May Department Stores Company, Deb.:
1,000,000 8.375% due 10/01/2022 1,113,750
600,000 8.375% due 08/01/2024 673,500
200,000 Ogden Corporation, Deb.,
9.250% due 03/01/2022 248,000
300,000 Time Warner, Inc., Deb.,
9.150% due 02/01/2023 343,875
---------
5,771,125
---------
</TABLE>
See Notes to Financial Statements.
FS-29
<PAGE> 140
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
CORPORATE INCOME FUND
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------- ---------
<S> <C> <C>
CORPORATE BONDS AND NOTES -- (Continued)
PRODUCER DURABLES -- 6.9%
$1,000,000 Boeing Company, Deb.,
8.750% due 08/15/2021 $ 1,257,500
1,500,000 Caterpillar Inc., Sinking Fund Deb.,
9.750% due 06/01/2019 1,719,375
1,000,000 Northrop Grumman Corporation, Deb.,
9.375% due 10/15/2024 1,207,500
---------
4,184,375
---------
UTILITIES -- 4.6%
200,000 Duke Power Company, First and
Refundable Mortgage,
6.875% due 08/01/2023 203,500
700,000 Florida Power & Light Company, First Mortgage,
7.050% due 12/01/2026 714,875
100,000 Philadelphia Electric Company, First and
Refundable Mortgage,
8.250% due 09/01/2022 105,375
Texas Utilities Electric Company:
150,000 First and Collateral Mortgage,
8.500% due 08/01/2024 169,500
1,500,000 First Mortgage,
7.875% due 04/01/2024 1,593,750
---------
2,787,000
----------
TELECOMMUNICATIONS -- 2.2%
Tele-Communications, Inc.:
1,035,000 Sr. Deb.,
9.250% due 01/15/2023 1,130,737
200,000 Sr. Note,
9.250% due 04/15/2002 225,000
1,355,737
----------
Total Corporate Bonds and Notes
(Cost $47,575,857) 51,537,280
----------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 5.5%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) -- 4.1%
1,375,246 #386671,
9.000% due 02/15/2025 1,458,190
1,000,000 Commitment to Purchase, GOLD,
7.500% due 07/01/2025 1,027,813
----------
Total GNMAs (Cost $2,440,175) 2,486,003
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------- --------
<S> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 1.4%
(Cost $803,218)
$ 780,771 #C00385,
9.000% due 01/01/2025 $ 822,738
----------
Total U.S. Government Agency
Obligations (Cost $3,243,393) 3,308,741
----------
U.S. TREASURY NOTES -- 4.5%
1,500,000 7.500% due 02/15/2005 1,701,225
1,000,000 5.875% due 11/15/2005 1,022,840
----------
Total U.S. Treasury Notes
(Cost $2,632,070) 2,724,065
----------
COMMERCIAL PAPER -- 3.3%
1,000,000 General Electric Capital Corporation,
5.760% due 01/22/1996++ 996,640
1,000,000 Prudential Funding Corporation,
5.870% due 01/04/1996++ 999,511
----------
Total Commercial Paper (Cost $1,996,151) 1,996,151
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
INVESTMENT COMPANY SECURITY -- 3.5% (Cost $2,115,821)
2,115,821 Lehman Provident Tempfund 2,115,821
----------
TOTAL INVESTMENTS (COST $57,563,292*) 101.7% 61,682,05
OTHER ASSETS AND LIABILITIES (NET) (1.7) (1,005,808)
----- ----------
NET ASSETS 100.0% $60,676,250
===== ==========
</TABLE>
- -------
* Aggregate cost for federal tax purposes.
** A portion or all of this security is pledged as collateral for dollar roll
transactions.
++ Rate represents annualized yield at date of purchase (unaudited).
GLOSSARY OF TERMS
GOLD -- Payments are on accelerated 45-day
payment cycle instead of 75-day cycle
MTN -- Medium Term Note
See Notes to Financial Statements.
FS-30
<PAGE> 141
PORTFOLIO OF INVESTMENTS
GROWTH AND INCOME FUND
DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
<S> <C> <C>
COMMON STOCKS -- 93.9%
CONSUMER DISCRETIONARY -- 13.1%
20,300 Bausch & Lomb Inc. $ 804,387
28,300 Circus Circus Enterprises Inc.+ 788,862
12,100 Colgate-Palmolive Company 850,025
16,200 Cracker Barrel Old Country Store 279,450
23,200 Fruit of the Loom, Inc., Class A+ 565,500
11,400 General Instrument Corporation+ 266,475
41,500 Limited Inc. 721,063
11,500 Melville Corporation 353,625
5,800 Procter & Gamble Company 481,400
10,800 Service Corporation International 475,200
11,300 Time Warner, Inc. 427,987
2,500 TJX Companies, Inc. 47,188
----------
6,061,162
----------
FINANCIAL SERVICES -- 13.0%
14,500 AMBAC Inc. 679,687
14,900 BankAmerica Corporation 964,775
8,600 Dean Witter, Discover & Company 404,200
9,100 First Colony Corporation 230,913
11,200 First Union Corporation 623,000
11,200 Firstar Corporation 443,800
11,000 Fleet Financial Group Inc. (New) 448,250
12,900 NationsBank Corporation 898,163
21,300 Providian Corporation 867,975
24,100 SCEcorp 427,775
1,300 Standard Federal Bancorporation 51,188
----------
6,039,726
----------
TELECOMMUNICATIONS -- 12.0%
16,300 AT&T Corporation 1,055,425
12,300 GTE Corporation 541,200
12,500 Harris Corporation 682,813
12,800 MCI Communications Corporation 334,400
11,900 Motorola, Inc. 678,300
55,800 Tele-Communications Inc., TCI Group, Class A+ 1,109,025
6,400 Telefonos de Mexico, Class L, ADR 204,000
17,600 U. S. West Inc. 629,200
17,600 U. S. West Media Group+ 338,800
----------
5,573,163
----------
ENERGY -- 10.2%
9,200 Anadarko Petroleum Corporation 497,950
7,897 Cooper Cameron Corporation+ 280,343
16,200 Diamond Shamrock Inc. 419,175
13,400 Oryx Energy Company+ 179,225
14,600 Repsol SA, ADR 479,975
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ ------
<S> <C> <C>
5,100 Royal Dutch Petroleum Company, ADR $ 719,738
21,200 Sun Company Inc. 580,350
17,400 Tesoro Petroleum Corporation+ 150,075
12,200 Texaco Inc. 957,700
29,100 Wheelabrator Technologies Inc. 487,425
----------
4,751,956
----------
MATERIALS & PROCESSING -- 9.1%
11,500 Aluminum Company of America 608,062
10,900 du Pont (E.I.) de Nemours & Company 761,637
5,200 Freeport McMoran Copper & Gold Inc., Class A 145,600
600 Freeport McMoran Copper & Gold Inc., Class B 16,875
4,100 Grainger (W.W.) Inc. 271,625
4,900 Reynolds Metals Company 277,462
13,600 Tyco International Ltd. 484,500
19,000 Union Carbide Corporation 712,500
13,800 USG Corporation+ 414,000
22,300 Wellman Inc. 507,325
----------
4,199,586
----------
CONSUMER STAPLES -- 8.3%
17,770 Archer-Daniels-Midland Company 319,860
14,700 Nabisco Holdings Corporation, Class A 479,588
18,000 PepsiCo Inc. 1,005,750
9,500 Philip Morris Companies Inc. 859,750
23,900 Price/Costco Inc.+ 364,475
36,000 Wal-Mart Stores Inc. 805,500
----------
3,834,923
----------
HEALTH CARE -- 8.0%
10,100 ALZA Corporation+ 249,975
17,600 Columbia/HCA Healthcare Corporation 893,200
11,800 Eli Lilly & Company 663,750
5,100 Forest Labs Inc.+ 230,775
8,500 Gensia, Inc.+ 44,625
9,500 Health Care & Retirement Corporation+ 332,500
34,800 Humana Inc.+ 952,650
3,400 Warner Lambert Company 330,225
----------
3,697,700
----------
AUTOS & TRANSPORTATION -- 7.5%
19,400 Consolidated Freightways Inc. 514,100
28,800 Cooper Tire & Rubber Company 709,200
20,100 General Motors Corporation 1,062,788
17,700 Union Pacific Corporation 1,168,200
----------
3,454,288
----------
</TABLE>
See Notes to Financial Statements.
FS-31
<PAGE> 142
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
GROWTH AND INCOME FUND
DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
PRODUCER DURABLES -- 5.8%
9,000 AlliedSignal Inc. $ 427,500
23,100 Coltec Industries, Inc.+ 268,538
25,296 Cooper Industries Inc. 929,628
10,800 General Electric Company 777,600
2,500 ITT Industries, Inc. 60,000
16,800 Rohr Inc.+ 241,500
----------
2,704,766
----------
TECHNOLOGY -- 4.1%
4,500 Bay Networks Inc.+ 185,062
2,800 Hewlett-Packard Company 234,500
5,700 International Business Machines Corporation 522,975
24,700 International Game Technology 268,612
9,200 MagneTek Inc.+ 74,750
42,800 Novell Inc.+ 609,900
----------
1,895,799
----------
UTILITIES -- 2.3%
14,900 Entergy Corporation 435,825
6,100 Illinova Corporation 183,000
13,300 Western Resources Inc. 443,887
----------
1,062,712
----------
OTHER -- 0.5%
2,500 ITT Corporation (New)+ 132,500
2,500 ITT Hartford Group, Inc.+ 120,938
253,438
----------
Total Common Stocks (Cost $39,756,589) 43,529,219
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ---------
<S> <C> <C>
U.S. GOVERNMENT AGENCY DISCOUNT NOTES -- 1.9%
$215,000 Federal Home Loan Mortgage Corporation (FHLMC),
5.500% due 01/18/1996++ 214,442
645,000 Federal National Mortgage Association (FNMA),
5.650% due 01/19/1996++ 643,178
----------
Total U.S. Government Agency Discount
Notes (Cost $857,620) 857,620
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- --------- ------
<S> <C> <C>
U.S. TREASURY BILLS -- 1.4%
$130,000 5.400% due 01/18/1996+ $ 129,668
202,000 5.090% due 03/07/1996++ 200,114
177,000 5.110% due 03/28/1996++ 174,814
43,000 5.050% due 10/17/1996++ 41,250
105,000 4.900% due 11/14/1996++ 100,366
----------
Total U.S. Treasury Bills (Cost $646,127) 646,212
----------
CONVERTIBLE BONDS AND NOTES -- 0.9%
19,000 Conner Peripherals Inc., Conv. Sub. Deb.,
6.500% due 03/01/2002 19,475
125,000 Rohr Inc., Conv. Sub. Note,
7.750% due 05/15/2004 190,000
262,000 WMX Technologies, Conv. Sub. Note,
2.000% due 01/24/2005 225,320
----------
Total Convertible Bonds and Notes
(Cost $371,421) 434,795
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
CONVERTIBLE PREFERRED STOCK -- 0.8% (Cost $337,762)
6,400 Owens-Corning Fiberglass** 380,800
----------
TOTAL INVESTMENTS (Cost $41,969,519*) 98.9% 45,848,646
OTHER ASSETS AND LIABILITIES (Net) 1.1 513,196
----- ----------
NET ASSETS 100.0% $46,361,842
===== ==========
</TABLE>
- -------
* Aggregate cost for federal tax purposes is $42,000,362.
** 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.
+ Non-income producing security.
++ Rate represents annualized yield at date of purchase (unaudited).
GLOSSARY OF TERMS
ADR -- American Depositary Receipt
See Notes to Financial Statements.
FS-32
<PAGE> 143
PORTFOLIO OF INVESTMENTS
GROWTH FUND
DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
<S> <C> <C>
COMMON STOCKS -- 88.9%
TECHNOLOGY -- 24.2%
18,600 Altera Corporation+ $ 925,350
88,200 Analog Devices Inc.+ 3,120,075
27,000 Boca Research Inc.+ 715,500
6,900 Brooks Automation Inc.+ 91,425
46,625 Cisco Systems, Inc.+ 3,479,391
24,362 Computer Association International, Inc. 1,385,588
22,800 Comverse Technology Inc.+ 456,000
52,250 Digital Equipment Corporation+ 3,350,531
38,725 Fulcrum Technologies Inc. 1,258,562
8,400 Informix Corporation+ 252,000
10,175 Intuit, Inc.+ 793,650
8,225 ITI Technologies Inc.+ 244,694
21,275 Itron Inc.+ 718,031
24,925 Macromedia Inc.+ 1,302,331
4,550 McAfee Associates, Inc.+ 199,631
3,750 MetaTools+ 97,500
9,475 National Instruments Corporation+ 191,869
18,325 Network Appliance Inc. 735,291
5,600 Novellus Systems Inc.+ 302,400
34,500 Peoplesoft Inc.+ 1,483,500
18,500 Pittway Corporation, Class A 1,253,375
14,275 Seagate Technology, Inc.+ 678,063
23,900 Sun Microsystems Inc.+ 1,090,438
---------
24,125,195
----------
FINANCIAL SERVICES -- 17.2%
21,400 Alco Standard Corporation 976,375
19,950 Bank of New York Company, Inc. 972,563
46,500 Chase Manhattan Corporation 2,819,062
12,750 Citicorp 857,437
17,925 Federal National Mortgage Association 2,224,941
35,425 First Data Corporation 2,369,047
20,850 First Interstate Bancorp 2,846,025
9,150 General Motors Corporation, Class E 475,800
18,675 Glendale Federal Bank+ 326,813
29,799 Grupo Financiero Inbursa, Series B 81,498
13,200 Keane Inc.+ 292,050
8,475 Merrill Lynch & Company, Inc. 432,225
8,175 North American Mortgage Company 173,719
7,300 Olsten Corporation 288,350
36,725 UNUM Corporation 2,019,875
---------
17,155,780
----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ -------
<S> <C> <C>
HEALTH CARE -- 16.2%
69,225 Amgen Inc.+ $ 4,110,234
13,100 ARV Assisted Living, Inc.+ 153,925
16,225 BioChem Pharmaceuticals Inc.+ 651,028
7,850 Coherent, Inc.+ 317,925
27,650 Corvita Corporation+ 286,869
21,450 CUC International, Inc. 731,981
17,225 Daig Corporation 396,175
28,100 Eli Lilly & Company 1,580,625
27,400 Healthsource Inc.+ 986,400
4,390 Nellcor Inc.+ 257,913
4,850 Oxford Health Plans, Inc.+ 358,294
26,275 PacifiCare Health System Inc., Class B+ 2,285,925
27,950 Pfizer, Inc. 1,760,850
23,675 Warner-Lambert Company 2,299,434
----------
16,177,578
----------
TELECOMMUNICATIONS -- 12.7%
7,886 Arch Communications Group Inc.+ 189,264
22,250 Ascend Communications Inc.+ 1,805,031
12,825 CommNet Cellular Inc.+ 370,322
43,275 Heartland Wireless Communications Inc.+ 1,287,431
23,700 Millicom International Cellular SA+ 722,850
35,457 Nokia AB, Series A 1,369,311
20,250 Nokia AB, Series A, ADR 787,219
20 NTT Data Communications Systems Corporation 672,155
80,225 Paging Network Inc.+ 1,955,484
22,800 Picturetel Corporation+ 983,250
10,600 Premisys Communications, Inc.+ 593,600
7,500 Stratacom Inc.+ 551,250
5,000 Tollgrade Communications, Inc.+ 75,000
14,625 US Robotics Corporation+ 1,283,344
----------
12,645,511
----------
CONSUMER DISCRETIONARY -- 10.0%
9,300 Baby Superstore, Inc.+ 530,100
11,225 Coleman Company+ 394,278
67,400 Crown Cork & Seal Inc.+ 2,813,950
3,425 DavCo Restaurants Inc.+ 29,541
14,650 FelCor Suite Hotels Inc. 406,538
4,350 Grupo Casa Autrey SA, ADR 58,181
2,125 Hart Brewing, Inc.+ 32,406
42,100 Hospitality Franchise Systems Inc.+ 3,441,675
2,225 Industrie Natuzzi SPA, ADR 100,959
</TABLE>
See Notes to Financial Statements.
FS-33
<PAGE> 144
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
GROWTH FUND
DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
CONSUMER DISCRETIONARY -- (CONTINUED)
7,750 La Quinta Inns, Inc. $ 212,156
58,600 Renters Choice Inc.+ 805,750
39,600 Singer Company 1,103,850
----------
9,929,384
----------
PRODUCER DURABLES -- 3.9%
4,900 Cognex Corporation+ 170,275
13,154 Freeport McMoran, Inc. 486,698
1,955 Metra AB, Series A, Ord. 80,443
20,634 Metra AB, Series B, Ord. 853,781
6,100 PRI Automation Inc.+ 214,262
34,025 UCAR International Inc.+ 1,148,344
6,950 Xerox Corporation 952,150
----------
3,905,953
----------
MATERIALS & PROCESSING -- 1.4%
16,225 American Standard Companies, Inc.+ 454,300
30,575 Arcadian Corporation 592,391
38,713 Arnoldo Mundadori Editore SPA 335,871
1,375 James River Corporation 33,172
----------
1,415,734
----------
CONSUMER STAPLES -- 0.6%
8,956 Cultor OY, Series 1 370,576
6,095 Cultor OY, Series 2 252,195
----------
622,771
----------
OTHER -- 2.7%
85,558 Kinnevik Investment, Series B 2,673,486
----------
Total Common Stocks (Cost $76,014,537) 88,651,392
----------
PREFERRED STOCK -- FOREIGN -- 3.7% (Cost $2,665,337)
24,463 SAP, AG, Non-Voting, Pfd. 3,701,863
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ---------
<S> <C> <C>
U.S. GOVERNMENT AGENCY DISCOUNT NOTE -- 3.0%
(Cost $2,980,507)
$3,000,000 Federal National Mortgage Association,
5.440% due 02/13/1996++ 2,980,507
----------
COMMERCIAL PAPER -- 4.1% (Cost $4,099,345)
4,100,000 Ford Motor Credit Company,
5.750% due 01/02/1996++ 4,099,345
----------
TOTAL INVESTMENTS (Cost $85,759,726*) 99.7% 99,433,107
OTHER ASSETS AND LIABILITIES (Net) 0.3 265,806
----- ----------
NET ASSETS 100.0% $99,698,913
===== ==========
</TABLE>
- --------
* Aggregate cost for federal tax purposes is $86,105,732.
+ Non-income producing security.
++ Rate represents annualized yield at date of purchase (unaudited).
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO BUY
<TABLE>
<CAPTION>
CONTRACTS TO RECEIVE
-------------------- NET UNREALIZED
APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- -------- -------- ----------- --------------
<C> <C> <C> <C> <C>
01/04/1996 ITL 14,328,548 9,031 9,054 $ (23)
01/11/1996 FIM 1,200,000 276,010 278,209 (2,199)
01/11/1996 SEK 9,200,000 1,384,092 1,285,195 98,897
01/25/1996 FIM 453,000 104,269 104,869 (600)
01/25/1996 SEK 2,200,000 330,505 330,420 85
01/31/1996 ITL 106,829,214 67,042 66,613 429
01/31/1996 ITL 93,121,447 58,439 58,527 (88)
02/12/1996 FIM 5,700,000 1,312,927 1,310,539 2,388
03/28/1996 DEM 650,000 455,326 453,436 1,890
03/28/1996 FIM 1,709,000 394,283 410,255 (15,972)
03/28/1996 GBP 237,000 367,267 375,099 (7,832)
----------
$ 76,975
----------
</TABLE>
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
<TABLE>
<CAPTION>
CONTRACTS TO DELIVER
-------------------- NET UNREALIZED
APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- -------- -------- ----------- --------------
<C> <C> <C> <C> <C>
01/11/1996 FIM 5,242,000 1,205,705 1,219,637 $ 13,932
01/11/1996 SEK 11,417,000 1,717,628 1,544,926 (172,702)
01/25/1996 FIM 453,000 104,269 105,349 1,080
01/25/1996 SEK 5,500,000 826,262 742,641 (83,621)
02/08/1996 DEM 832,000 581,489 595,860 14,371
02/08/1996 FIM 2,757,000 634,945 652,745 17,800
02/08/1996 JPY 4,000,000 38,977 39,765 788
02/12/1996 DEM 443,000 309,673 317,301 7,628
02/12/1996 FIM 9,484,000 2,184,527 2,241,286 56,759
03/14/1996 JPY 31,650,000 309,900 319,794 9,894
03/28/1996 DEM 1,818,000 1,273,511 1,234,845 (38,666)
03/28/1996 DEM 525,000 367,762 372,340 4,578
03/28/1996 FIM 1,709,000 394,283 394,233 (50)
03/28/1996 GBP 237,000 367,267 372,090 4,823
03/28/1996 SEK 3,569,000 533,666 497,977 (35,689)
06/13/1996 DEM 1,130,000 794,593 787,594 (6,999)
----------
$(206,074)
----------
Net Unrealized Depreciation of Forward
Foreign Currency Contracts $(129,099)
==========
</TABLE>
GLOSSARY OF TERMS
ADR -- American Depositary Receipt
DEM -- German Deutsche Mark
FIM -- Finnish Markka
GBP -- Great Britian Pound Sterling
ITL -- Italian Lira
JPY -- Japanese Yen
SEK -- Swedish Krona
See Notes to Financial Statements.
FS-34
<PAGE> 145
PORTFOLIO OF INVESTMENTS
EMERGING GROWTH FUND
DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
<S> <C> <C>
COMMON STOCKS -- 96.6%
CONSUMER DISCRETIONARY -- 22.7%
31,000 Central Park Corporation $ 891,250
29,575 Family Golf Centers Inc.+ 539,743
662 Fotolabo SA 264,111
18,450 Hospitality Franchise Systems Inc.+ 1,508,288
206,348 J. D. Wetherspoon, Plc, Ord. 2,057,343
23,550 Katz Media Group Inc.+ 415,069
16,975 Learning Tree International, Inc.+ 265,234
11,950 Lone Star Steakhouse & Saloon+ 458,580
430 Moebel Walther 14,093
15,350 Nuco2 Inc.+ 199,550
26,050 Papa John's International Inc.+ 1,072,934
53,450 Petco Animal Supplies Inc.+ 1,563,412
19,650 Quality Dining Inc.+ 476,513
28,750 Renters Choice Inc.+ 395,313
7,200 Viking Office Products Inc.+ 334,800
----------
10,456,233
----------
HEALTH CARE -- 17.6%
42,825 ARV Assisted Living Inc.+ 503,194
5,950 CUC International Inc.+ 203,044
38,175 Depotech Corporation 734,869
10,650 Envoy Corporation+ 184,377
13,100 Exogen Inc.+ 252,175
11,400 Gulf South Medical Supply Inc.+ 344,850
4,100 Kensey Nash Corporation+ 51,250
22,600 Medaphis Corporation+ 836,200
10,950 MedPartners/Mullikin Inc.+ 361,350
19,425 Omnicare Inc. 869,269
33,775 Quidel Corporation 240,647
47,550 R.P. Scherer Corporation+ 2,335,894
62,905 TheraTech Inc.+ 1,132,290
1,300 Total Renal Care Holdings, Inc.+ 38,350
----------
8,087,759
----------
FINANCIAL SERVICES -- 15.3%
9,650 Credit Acceptance Corporation+ 200,238
6,825 Data Broadcasting Corporation+ 84,459
368,172 Fidelity Federal Bank, Series A+ 850,477
8,150 First Commonwealth Inc.+ 211,900
15,100 First Data Corporation 1,009,813
20,350 Imperial Thrift & Loan Association+ 249,288
64,755 Insignia Financial Group Inc., Class A+ 2,493,067
7,625 Meadowbrook Insurance Group, Inc.+ 255,438
7,925 PennCorp Financial Group Inc. 232,797
7,700 Primark Corporation 231,000
5,075 Progressive Corporation of Ohio 248,041
13,350 Protective Life Corporation 417,187
51,750 World Acceptance Corporation+ 582,188
----------
7,065,893
----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
<S> <C> <C>
TELECOMMUNICATIONS -- 12.8%
42,675 Arch Communications Group, Inc.+ $ 1,024,200
41,850 CommNet Cellular Inc.+ 1,208,419
9,125 Heartland Wireless Communications Inc.+ 271,469
5,625 Millicom International Cellular SA+ 171,563
23,900 Mobilemedia Corporation+ 531,775
91,050 Paging Network Inc.+ 2,219,344
34,550 PriCellular Corporation, Class A+ 449,150
----------
5,875,920
----------
AUTOS & TRANSPORTATION -- 7.9%
57,500 APS Holding Corporation, Class A+ 1,293,750
19,375 AutoZone Inc.+ 559,453
8,675 Midwest Express Holdings Inc.+ 240,731
25,500 O'Reilly Automotive Inc.+ 739,500
11,975 Wisconsin Central Transportation
Corporation 787,356
----------
3,620,790
----------
TECHNOLOGY -- 6.1%
29,304 Ashbourne, Plc Ord. 59,617
13,650 Banctec Inc.+ 252,525
37,125 Bell & Howell Holdings Company+ 1,039,500
44,650 Black Box Corporation+ 731,144
4,025 Cambrex Corporation 166,534
8,550 IDX Systems Corporation+ 297,113
1,150 Pittway Corporation, Class A 77,913
24,025 Techforce Corporation+ 210,219
----------
2,834,565
----------
PRODUCER DURABLES -- 4.4%
52,770 Catalytica Inc.+ 230,869
34,750 Exide Corporation 1,594,155
11,700 Southern Energy Homes Inc.+ 204,750
----------
2,029,774
----------
MATERIALS & PROCESSING -- 3.9%
5,400 Intertape Polymer Group, Inc. 169,425
27,300 Minerals Technologies Inc. 996,450
21,900 Sealed Air Corporation+ 615,938
----------
1,781,813
----------
UTILITIES -- 3.5%
83,625 Trigen Energy Corporation 1,630,688
----------
CONSUMER STAPLES -- 2.0%
15,500 General Nutrition Companies Inc.+ 356,500
30,350 JP Foodservice Inc.+ 591,825
----------
948,325
----------
OTHER -- 0.4%
5,950 Global Directmail Corporation+ 163,625
----------
Total Common Stocks (Cost $36,483,607) 44,495,385
----------
</TABLE>
See Notes to Financial Statements.
FS-35
<PAGE> 146
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
EMERGING GROWTH FUND
DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
<S> <C> <C>
PREFERRED STOCK-FOREIGN -- 0.2% (Cost $125,071)
2,701 Moebel Walther, Pfd. $ 88,526
----------
WARRANT -- 0.5% (Cost $149,086)
7,950 Littelfuse Inc., Series A, expires 12/27/2001 234,525
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ---------
<S> <C> <C>
COMMERCIAL PAPER -- 2.8% (Cost $1,299,792)
$1,300,000 Ford Motor Credit Company,
5.750% due 01/02/1996++ 1,299,792
-----------
TOTAL INVESTMENTS (Cost $38,057,556*) 100.1% 46,118,228
OTHER ASSETS AND LIABILITIES (Net) (0.1) (59,828)
------ ----------
NET ASSETS 100.0% $46,058,400
====== ==========
</TABLE>
- ---------
* Aggregate cost for federal tax purposes is $38,107,659.
+ Non-income producing security.
++ Rate represents annualized yield at date of purchase (unaudited).
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO BUY
<TABLE>
<CAPTION>
CONTRACTS TO RECEIVE
-------------------- NET UNREALIZED
APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- -------- -------- ----------- ---------------
<C> <C> <C> <C> <C>
01/24/1996 SEK 4,636,050 696,536 626,327 $ 70,209
01/24/1996 FIM 690,575 158,946 162,126 (3,180)
01/25/1996 FIM 908,000 208,997 211,557 (2,560)
02/08/1996 DEM 186,000 129,996 134,278 (4,282)
02/08/1996 FIM 3,156,000 726,836 729,912 (3,076)
03/14/1996 DEM 190,000 133,008 136,481 (3,473)
-------
$ 53,638
-------
</TABLE>
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
<TABLE>
<CAPTION>
CONTRACTS TO DELIVER
-------------------- NET UNREALIZED
APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- -------- -------- ----------- --------------
<C> <C> <C> <C> <C>
01/02/1996 DEM 229 159 158 $ (1)
01/04/1996 DKK 258,407 46,537 46,428 (109)
01/04/1996 GBP 11,979 18,603 18,667 64
01/05/1996 GBP 3,194 4,960 4,940 (20)
01/11/1996 GBP 40,000 62,103 63,156 1,053
01/24/1996 FIM 690,575 158,946 159,541 595
01/24/1996 GBP 95,450 148,139 152,548 4,409
01/24/1996 SEK 4,636,050 696,536 608,445 (88,091)
01/25/1996 FIM 908,000 208,998 211,163 2,165
02/08/1996 DEM 186,000 129,996 133,211 3,215
02/08/1996 FIM 3,156,000 726,836 747,194 20,358
02/08/1996 GBP 11,000 17,066 17,518 452
02/22/1996 GBP 300,000 465,256 463,785 (1,471)
03/14/1996 DEM 250,000 175,009 170,532 (4,477)
03/28/1996 GBP 75,000 116,224 114,566 (1,658)
06/13/1996 DEM 80,000 56,254 55,761 (493)
----------
$(64,009)
----------
Net Unrealized Depreciation of Forward
Foreign Currency Contracts $(10,371)
===========
</TABLE>
GLOSSARY OF TERMS
DEM -- German Deutsche Mark
DKK -- Danish Krona
FIM -- Finnish Markka
GBP -- Great Britian Pound Sterling
SEK -- Swedish Krona
See Notes to Financial Statements.
FS-36
<PAGE> 147
PORTFOLIO OF INVESTMENTS
INTERNATIONAL GROWTH FUND
DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
<S> <C> <C>
COMMON STOCKS -- 89.1%
JAPAN -- 20.8%
15,000 Aichi Corporation $ 133,075
20,000 Chugai Pharmaceutical 191,574
25,000 Chuo Trust and Banking 242,131
22,000 Cosmo Oil 120,174
40,000 Daido Steel Company 201,453
15,000 Daiei Inc 181,598
12,000 Dai-Ichi Kangyo Bank 235,932
10,000 Daito Trust Construction 120,097
35,000 Daiwa Bank 283,052
25,000 Daiwa Securities 382,567
70 East Japan Railway Company 340,339
1,000 Familymart 45,133
10,500 Fuji Denki Reiki 140,339
25,000 Fukui Bank 133,172
20,000 Gakken Company Ltd.+ 131,719
40,000 Hitachi Ltd. 402,906
15,000 Hokkai Can Company 102,712
40,000 Hokkaido Takushoku Bank 118,547
8,000 Honda Motor Company 165,036
37,000 ISH Ikawajima-Harima Heavy Industry 155,884
10 Japan Tobacco Inc. 86,683
40,000 Kanematsu Corporation 156,126
18,000 Kitz Corporation 73,395
25,000 Komatsu Forklift Company, Ltd. 165,860
40,000 Kurabo Industries 153,027
50,000 Marubeni Corporation 270,702
10,000 Matsushita Electrical Industrial Company 162,712
15,000 Mitsubishi Motor Corporation 122,179
20,000 Mitsui Mining & Smelt Company 80,194
50,000 Mitsui Toatsu Chemicals Inc. 200,969
20,000 Mizuno Sportina Corporation 173,366
500 Nihon Matai 3,070
13,000 Niigata Chuo Bank 43,438
25,000 Nippon Credit Bank 114,286
30,000 Nippon Zeon Company Ltd. 161,259
24,000 North Pacific Bank 122,964
30,000 Osaka Gas Company 103,729
15,000 Ricoh 164,165
30,000 Sakura Bank 380,630
10,000 San-in Godo Bank 83,002
9,900 Shin Nippon Air Technologies 149,579
25,000 Snow Brand Milk Products Company Ltd. 159,806
5,000 Sony Corporation 299,758
27,000 Sumitomo Forestry Company 413,172
110,000 Sumitomo Metal Industries+ 333,462
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
<S> <C> <C>
12,000 Takashimaya Company, Ltd. $ 191,767
10,100 Tohoku Electric & Power Company 243,574
20,000 Tokio Marine & Fire Insurance Company 261,501
30,000 Tokyo Electric Company 147,603
19,000 Toyota Motor Company 403,002
50,000 Ube Industries Ltd. 188,862
18,000 Zexel Corporation 122,383
----------
9,563,665
----------
FRANCE -- 10.5%
1,650 Air Liquide 273,036
3,250 Alcatel Alsthom Cie Generale D'Electric 279,973
3,900 AXA Company 262,599
1,048 Bouygues 105,484
290 Carrefour 175,799
1,970 Christian Dior SA 212,234
3,600 Credit Commercial de France 183,563
1,900 Credit Local de France 151,969
1,757 Danone 289,667
2,726 Eaux (Cie Generale Des) 271,933
2,817 Lafarge Coppee SA 181,343
7,120 La Gardere Groupe 130,749
650 Peugeot SA+ 85,676
1,250 Promodes 293,563
3,700 Renault Ord. 106,447
2,640 Sanofi 169,087
4,600 Seita 166,599
3,005 Societe Generale Ord. 370,950
2,336 Societe National Elf Aquitaine 171,971
4,530 Synthelabo+ 283,576
1,280 Television Francaise 137,115
5,900 TOTAL "B" Shares Ord. 397,868
7,600 Usinor Sacilor 100,408
----------
4,801,609
----------
UNITED KINGDOM -- 10.0%
73,700 Allied Colloids Ord. 154,516
10,100 Amersham International Plc. 140,070
29,000 Argyll Group Ord. 153,126
13,000 Barclays Ord. 149,197
34,500 B.A.T. Industries Plc Ord. 304,058
30,000 British Telecommunications Ord. 164,929
50,000 BTR Ord. 255,469
45,200 General Electric Company Plc Ord. 249,194
28,200 Glaxo Wellcome Holdings Plc Ord. 400,720
35,000 Guardian Royal Exchange 150,020
39,300 Guinness Ord. 289,296
28,000 Kingfisher Ord. 235,683
</TABLE>
See Notes to Financial Statements.
FS-37
<PAGE> 148
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
INTERNATIONAL GROWTH FUND
DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
UNITED KINGDOM -- (CONTINUED)
37,315 Lloyds Bank $ 191,816
19,500 Pearson Ord. 188,969
18,000 Reuters Holdings Ord. 164,929
55,000 Rolls Royce 161,434
13,000 RTZ Corporation Ord. 188,969
20,900 Shell Transport & Trading Ord. 276,540
31,000 Standard Chartered Bank 263,823
80,000 Tarmac Plc Ord. 127,967
51,000 Vodafone Group Ord. 182,563
15,833 Welsh Water Ord. 190,566
----------
4,583,854
----------
GERMANY -- 7.0%
100 Allianz AG 194,979
320 Ava Allgemeine Handels Der Verbr AG 108,229
1,020 Bayer AG 269,226
300 Bilfinger & Berger Bau, AG 113,598
7,400 Deutsche Bank AG 350,752
3,340 Deutsche Pfandbrief & Hypothekenbank AG 129,734
700 Hoechst AG 189,888
840 Lufthansa AG+ 115,690
600 M.A.N. AG 162,343
229 Munchener Ruckversicherungs 498,243
820 Siemens AG 448,884
760 Thyssen AG+ 138,114
11,700 Veba AG 496,883
----------
3,216,563
----------
UNITED STATES -- 6.0%
15,904 Asia Cement, GDS+ 262,411
7,000 Chilectra SA 338,602
12,200 China Steel Corporation, GDS+ 211,975
8,400 Compania Cervecerias, ADR 195,300
8,000 Grupo Casa Autrey, ADR 107,000
6,500 Hansol Paper Company, GDS+ 121,875
7,000 Korea Electric Power Corporation, ADR 187,250
31,475 Mavesa SA, ADR 114,097
2,600 Pick Szeged GDS+ +++ 91,000
18,960 President Enterprises Corporation GDS+ 189,600
5,600 Repsol SA, ADR 184,100
6,500 Sociedad Quimica Minera de Chile SA, ADR 305,500
10,000 Telefonos de Mexico SA, ADR 318,750
76,000 Venepal, GDS +++ 121,600
----------
2,749,060
----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
<S> <C> <C>
NETHERLANDS -- 4.6%
8,158 ABN Amro Holdings $ 371,627
3,100 DSM NV 255,000
10,000 Elsevier NV 133,358
4,300 Koninklijke, KNP 110,401
4,000 Koninklijke, PTT+ 145,323
5,700 Royal Dutch Petroleum 796,373
2,200 Unilever NV CVA 309,154
----------
2,121,236
----------
SWITZERLAND -- 4.3%
340 Ciba Geigy AG 299,306
1,600 Credit Suisse Holdings 164,094
180 Fischer (George) AG, Bearer 234,172
100 Holderbank Financier Glaris AG 76,756
180 Nestle SA 199,202
40 Roche Holdings AG 316,565
280 Sandoz AG 256,444
630 Schweizerischer Bankverein 257,355
550 Zurich Versicherungs 164,571
----------
1,968,465
----------
HONG KONG -- 3.4%
42,000 Cheung Kong Holdings 255,829
68,000 Citic Pacific Ltd. 232,603
15,000 Henderson Land Development Company 90,398
45,500 Hong Kong Electric Holdings 149,166
52,000 Hong Kong Telecommunications 92,803
8,000 HSBC Holdings Ord. 121,048
1,200 M.C. Packaging Hong Kong Ord. 427
28,000 New World Development Company 122,030
22,000 Television Broadcasts Ltd. 78,383
721,680 World Houseware Holdings 108,264
464,000 Yizheng Chemical Fibre Company Ltd. 104,411
766,000 Yue Yeun Industrial Holdings 203,078
----------
1,558,440
----------
BELGIUM -- 3.1%
4,200 Delhaize 174,108
825 Electrabel Company NPV 196,228
1,560 Fortis AG 189,500
520 Generale de Banque NPV 184,200
1,480 Group Bruxelles Lambert SA, NPV 205,430
740 Petrofina SA, NPV 226,551
170 Solvay Et Cie, Class A, NPV 91,845
328 Tractabel Investment NPV 135,413
----------
1,403,275
----------
</TABLE>
See Notes to Financial Statements.
FS-38
<PAGE> 149
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
INTERNATIONAL GROWTH FUND
DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
<S> <C> <C>
SINGAPORE -- 3.0%
134,000 D.B.S. Land Ord. $ 254,832
38,000 Development Bank of Singapore (F) 472,817
41,250 Natsteel Ltd. Ord. 84,570
35,000 Sembawang Corporation Ltd. 194,238
18,000 Singapore International Airlines
Ltd. (F) 167,975
11,000 Singapore Press Holdings 194,415
----------
1,368,847
----------
AUSTRALIA -- 1.9%
12,830 Broken Hill Property Ord. 181,182
38,700 CSR Ord. 125,985
18,800 National Australia Bank Ltd. Ord. 169,075
39,800 Southcorp Holdings Ltd. 92,590
20,800 The News Corporation Ord. 111,000
45,400 TNT Ltd.Ord.+ 60,063
20,725 Western Mining Corporation, Ltd. 133,089
----------
872,984
----------
SPAIN -- 1.7%
1,600 Banco Intercontinental Espanol SA 155,647
900 Banco Popular Espanol 165,978
66,000 Fuerzas Electric de Cataluna,
Series A 470,651
----------
792,276
----------
NORWAY -- 1.7%
5,800 Hafslund Nycomed, Class B 147,095
3,400 Kvaerner Industrier, Class B 113,896
8,500 Norsk Hydro A.S. 357,270
3,500 Orkla, Class B 167,021
----------
785,282
----------
THAILAND -- 1.6%
9,300 Advanced Information Service
Public (F) 163,184
11,000 Bangkok Bank Public Company
Ltd. (F) 133,624
6,400 International Cosmetics Public
Company Ltd. 58,436
4,200 Land and House Public Company Ltd. (F) 69,027
2,200 Siam Cement Public Company
Ltd. (F) 121,921
15,000 Siam Commercial Bank Ord. (F) 197,697
----------
743,889
----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
<S> <C> <C>
INDONESIA -- 1.5%
64,650 Indorama Synthetics (F) $ 226,904
125,500 International Nickel of Indonesia 241,505
88,000 P.T. Fastfood Indonesia Ord. (F) 80,822
11,000 Unilever Indonesia (F) 132,298
----------
681,529
----------
MALAYSIA -- 1.3%
12,000 Matsushita Electric Company 102,532
40,000 Nestle Malay Berhad 292,948
79,000 Sime Darby Berhad 209,967
----------
605,447
----------
MEXICO -- 1.2%
44,875 Cementos Mexicanos SA, Class B 162,865
80,000 Fomento Economico Mexicana
SA, Series B+ 180,428
37,000 Grupo Carso SA de CV, Series A1+ 199,507
----------
542,800
----------
SWEDEN -- 1.1%
4,500 Astra AB, Series B 178,225
3,500 Incentive AB, Series B 152,850
9,000 Stadshypotek AB 180,257
----------
511,332
----------
PORTUGAL -- 1.1%
10,000 Cel-Cat Ptes Fabrices+ 153,959
7,000 Corporacao Industrial Do Norte 160,486
11,300 Unicer 189,102
----------
503,547
----------
GREECE -- 1.1%
5,000 Ergo Bank 199,253
9,000 Hellenic Bottling Company SA 294,291
----------
493,544
----------
PHILLIPINES -- 0.9%
16,500 Manila Electric Company, Class B 134,617
12,500 Philippine National Bank+ 138,200
42,900 San Miguel Corporation, Class B 146,380
----------
419,197
----------
ARGENTINA -- 0.8%
10,600 Quilmes Industrial SA, Ord. 165,360
80,460 Sociedad Comercial Del Plata Arpio+ 213,187
----------
378,547
----------
</TABLE>
See Notes to Financial Statements.
FS-39
<PAGE> 150
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
INTERNATIONAL GROWTH FUND
DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ -------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
CHILE -- 0.4%
2,300 Compania de Telefonos de Chile $ 190,613
----------
AUSTRIA -- 0.1%
1,060 Julius Meinl Investors AG+ 33,235
----------
Total Common Stocks
(Cost $39,408,079) 40,889,236
----------
PREFERRED STOCKS -- 0.9%
800 Jungheinrich, Pfd. 113,808
1,500 Legrand, Pfd.+ 149,969
1,630 Volkswagen AG, Non-Voting Pfd.+ 142,085
----------
Total Preferred Stocks
(Cost $399,123) 405,862
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ---------
<S> <C> <C>
CORPORATE BONDS AND NOTES -- 0.9%
JPY 17,000,000 Izumiya, Convertible,
0.800% due 08/31/1999 192,639
JPY 10,000,000 NEC Corporation, Convertible,
1.900% due 03/30/2001 127,070
JPY 10,000,000 Yamanouchi Pharmaceutical,
Convertible,
1.250% due 03/31/2014 109,201
----------
Total Corporate Bonds and Notes
(Cost $418,424) 428,910
----------
COMMERCIAL PAPER -- 6.8%
$ 1,604,000 Ford Motor Credit Corporation,
6.000% due 01/02/1996++ 1,604,000
1,500,000 General Electric Capital Corporation,
6.500% due 01/02/1996++ 1,500,000
----------
Total Commercial Paper
(Cost $3,104,000) 3,104,000
----------
TOTAL INVESTMENTS (Cost $43,329,626*) 97.7% 44,828,008
OTHER ASSETS AND LIABILITIES (Net) 2.3 1,080,850
----- ----------
NET ASSETS 100.0% $45,908,858
===== ==========
</TABLE>
- -------
* Aggregate cost for federal tax purposes is $43,374,403.
+ Non-income producing security.
++ Rate represents annualized yield at date of purchase (unaudited).
+++ A portion 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.
AS OF DECEMBER 31, 1995 SECTOR DIVERSIFICATION WAS AS FOLLOWS
(UNAUDITED):
<TABLE>
<CAPTION>
% OF VALUE
SECTOR DIVERSIFICATION NET ASSETS (NOTE 2)
---------------------- ---------- --------
<S> <C> <C>
COMMON STOCKS:
Financial Services 21.3% $ 9,717,429
Material & Processing 15.9 7,310,069
Consumer Discretionary 11.2 5,141,958
Consumer Staples 6.9 3,177,962
Energy 5.6 2,564,306
Utilities 5.3 2,456,113
Autos & Transportation 5.3 2,420,106
Producer Durables 4.1 1,866,587
Health Care 3.4 1,575,599
Telecommunications 3.3 1,514,518
Technology 1.8 846,041
Other 5.0 2,298,548
--- ---------
TOTAL COMMON STOCKS 89.1 40,889,236
PREFERRED STOCKS 0.9 405,862
CORPORATE BONDS AND NOTES 0.9 428,910
COMMERCIAL PAPER 6.8 3,104,000
--- ---------
TOTAL INVESTMENTS 97.7 44,828,008
OTHER ASSETS AND LIABILITIES (Net) 2.3 1,080,850
--- ---------
NET ASSETS 100.0% $45,908,858
===== ===========
</TABLE>
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
<TABLE>
<CAPTION>
CONTRACTS TO DELIVER
-------------------- NET UNREALIZED
APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- -------- ------ ---------- ------------
<C> <C> <C> <C> <C>
03/18/1996 FRF 16,379,909 3,346,598 3,267,877 $(78,721)
03/18/1996 JPY 628,499,207 6,157,419 6,266,193 108,774
--------
Net Unrealized Appreciation of Forward
Foreign Currency Contracts $ 30,053
========
</TABLE>
GLOSSARY OF TERMS
ADR -- American Depositary Receipt
ADS -- American Depositary Share
(F) -- Foreign or Alien Shares
FRF -- French Franc
GDS -- Global Depositary Share
JPY -- Japanese Yen
See Notes to Financial Statements.
FS-40
<PAGE> 151
NOTES TO FINANCIAL STATEMENTS
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 and is 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 the
Fund in the event the Fund is delayed or prevented
FS-41
<PAGE> 152
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
THE SIERRA VARIABLE TRUST
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, a Fund would assume the role of seller/borrower in the
transaction. The Fund may use reverse repurchase agreements to borrow short term
funds. The value of the reverse repurchase agreements that the Fund has
committed to sell are reflected in the Funds' Statements of Assets and
Liabilities. The Fund 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 a Fund 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. A Fund may use
option contracts to manage its 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 Option Purchased on U.S. Treasury Bond Futures," "Options
Written," "Options on Foreign Currency Purchased" and "Call Options Written
on Foreign Currency." These amounts reflect each contract's exposure to the
underlying instrument at December 31, 1995. Writing puts and buying calls tend
to increase the Fund's exposure to the underlying instrument. Buying puts and
writing calls tends to either decrease the Fund's exposure to the underlying
instrument, or to hedge other Fund investments.
Upon the purchase of a put option or a call option by the Fund, the premium paid
is recorded as an investment, the value of which is marked-to-market daily. When
a purchased option expires, the Fund will realize a loss in the amount of the
cost of the option. When the Fund enters into a closing sale transaction, the
Fund 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 Fund exercises a put option, it 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 Fund exercises a call option,
the cost of the security which the Fund purchases upon exercise will be
increased by the premium originally paid.
When a Fund writes a call option or a put option, an amount equal to the premium
received by the Fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, unexercised, the Fund
realizes a gain equal to the amount of the premium received. When the Fund
enters into a closing purchase transaction, the Fund realizes 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 call option is exercised, the Fund realizes 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 put option is exercised, the amount of the
premium originally received will reduce the cost of the security that the Fund
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 Fund 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 Fund 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 Fund
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.
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.
FS-42
<PAGE> 153
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
THE SIERRA VARIABLE TRUST
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 an option or
futures contract may not correlate perfectly with the movement in the prices of
the assets being hedged. The lack of correlation could render the Fund's hedging
strategy unsuccessful and could result in a loss to the Fund. 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. A Fund may
use futures contracts to manage its 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 December 31, 1995. 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
currency contracts are agreements to exchange one currency for another at a
future date and at a specified price. A Fund may use forward foreign currency
contracts to facilitate transactions in foreign securities and to manage the
Fund's foreign currency exposure. The U.S. dollar market value, contract value
and the foreign currencies a Fund has committed to buy or sell are shown in the
Portfolio of Investments under the caption "Schedule
FS-43
<PAGE> 154
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
THE SIERRA VARIABLE TRUST
of Forward Foreign Currency Contracts." These amounts represent the aggregate
exposure to each foreign currency a Fund has acquired or hedged through currency
contracts at December 31, 1995. Forward foreign currency contracts that have
been offset with different counterparties 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 Fund's 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 a independent pricing service. The change in
a contract's market value is recorded by the Fund as an unrealized gain or loss.
When the contract is closed or delivery is taken, the Fund records 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
Fund could be exposed to risks if the counterparties to the contracts are unable
to meet the terms of their contracts. Because there is a risk of loss to the
Fund if the counterparties do not complete the transaction, the Fund's
Sub-advisor will enter into forward foreign currency contracts only with parties
approved by the Board of Trustees.
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 is reflected in the Funds' Statements of Assets and Liabilities. A
dollar roll transaction involves a sale by the Fund of securities that it holds
with an agreement by the Fund 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 Fund is paid a fee for entering into a dollar roll transaction, which
is accrued as income over the life of the dollar roll contract. During the
period between the sale and repurchase, the Fund 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
Fund, and the fee income from these investments, together with any additional
fee income received on the dollar roll transaction, will generate income for the
Fund 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 Fund 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 non-Money 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; (5) for the Money and Growth and Income Funds certain
variable rate demand notes having a demand period of more than seven days; and
(6) securities, the disposition of which is 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
FS-44
<PAGE> 155
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
THE SIERRA VARIABLE TRUST
course of business within seven days at approximately the value at which the
Fund has valued the investments. These factors 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.
CASH FLOW INFORMATION:
Cash, as used in the Statement of Cash Flows, is the amount reported in the
Statements of Assets and Liabilities and represents cash on hand at the Fund's
custodian bank account and does not include any short-term investments as of
December 31, 1995. Information on financial transactions which have been settled
through the receipt or disbursement of cash is presented in the Statement of
Cash Flows. Accounting practices that do not affect reporting activities on a
cash basis include unrealized gain or loss on investment securities, accretion
of income recognized on investment securities and amortization of deferred
organization costs.
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 Fund is 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 Fund, timing differences and differing
characterization of distributions made by each Fund as a whole.
For the year ended December 31, 1995, permanent differences resulting from book
and tax accounting for organizational costs were reclassified to paid-in capital
at year end. Certain reclassification adjustments were also made between
undistributed net investment income and realized gains due to different book and
tax accounting for currency gains and losses, net operating losses and paydowns
of certain debt instruments. Per share information in the Financial Highlights
reflects the effect of these reclassifications.
<TABLE>
<CAPTION>
INCREASE/(DECREASE) INCREASE/(DECREASE)
UNDISTRIBUTED NET ACCUMULATED
DECREASE INVESTMENT NET REALIZED
PAID-IN CAPITAL INCOME GAIN/(LOSS)
--------------- ------ -----------
<S> <C> <C> <C>
Global Money Fund $(3,291) $ 3,291 $ --
Short Term High Quality
Bond Fund -- (231,523) 231,523
Short Term Global
Government Fund (3,291) (1,003,992) 1,007,283
U.S. Government Fund (3,291) (76,664) 79,955
Corporate Income Fund (3,291) (10,410) 13,701
Growth and Income Fund -- 13 (13)
Growth Fund (3,291) (264,034) 267,325
Emerging Growth Fund -- 114,417 (114,417)
International Growth Fund (3,291) 272,549 (269,258)
</TABLE>
FS-45
<PAGE> 156
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
THE SIERRA VARIABLE TRUST
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 Funds 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 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 and Growth and
Income Funds 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 determined by the such Fund's Sub-advisor to be
of comparable quality at the time of purchase to rated instruments that may be
purchased by such Fund. 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, Growth and Income and
International Growth Funds. 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."
FS-46
<PAGE> 157
NOTES TO FINANCIAL STATEMENTS -- (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
ASSETS UP TO EXCEEDING
NAME OF FUND $500 MILLION $500 MILLION
------------ ------------ ------------
<S> <C> <C>
Global Money Fund
Sierra Advisors .35% .25%
Sub-advisor .15% .15%
--- ---
Total fees paid to Sierra Advisors* .50% .40%
=== ===
</TABLE>
<TABLE>
<CAPTION>
FEES ON FEES ON
FEES ON ASSETS BETWEEN ASSETS
ASSETS UP TO $200 AND 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**" ARE BETWEEN WHEN "COMBINED
WHEN "COMBINED ASSETS**" $650 MILLION ASSETS**" EXCEED
DO NOT EXCEED $650 MILLION AND $1 BILLION $1 BILLION
-------------------------- -------------- ----------
FEES ON FEES ON FEES ON
FEES ON ASSETS FEES ON ASSETS FEES ON ASSETS
ASSETS UP TO EXCEEDING ASSETS UP TO EXCEEDING ASSETS UP TO 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
ASSETS UP TO 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>
FS-47
<PAGE> 158
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
THE SIERRA VARIABLE TRUST
<TABLE>
<CAPTION>
FEES ON FEES ON FEES ON FEES ON
FEES ON ASSETS BETWEEN ASSETS BETWEEN ASSETS BETWEEN ASSETS
ASSETS UP TO $100 AND $200 AND $400 AND EXCEEDING
$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
ASSETS UP TO EXCEEDING
$25 MILLION $25 MILLION
----------- -----------
Growth Fund
<S> <C> <C>
Sierra Advisors .40% .375%
Sub-advisor .55% .500%
--- ----
Total fees paid to Sierra Advisors* .95% .875%
=== ====
</TABLE>
<TABLE>
<CAPTION>
FEES ON FEES ON
FEES ON ASSETS BETWEEN ASSETS
ASSETS UP TO $25 AND 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 FEES ON
FEES ON ASSETS BETWEEN ASSETS
ASSETS UP TO $50 AND EXCEEDING
$50 MILLION $125 MILLION $125 MILLION
----------- ------------ ------------
<S> <C> <C> <C>
International Growth Fund
Sierra Advisors .35% .35% .25%
Sub-advisor .60% .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.
** As of December 8, 1994, BlackRock Financial Management L.P. ("Former
BlackRock") replaced the previous sub-advisor to the U.S. Government Fund
pursuant to an initial sub-advisory agreement ("Initial BlackRock Sub-Advisory
Agreement"). Under a temporary waiver agreement and pending shareholder approval
of the Initial BlackRock Sub-Advisory Agreement, from December 8, 1994 to
February 28, 1995 Former BlackRock was paid a monthly fee as follows: (i) .20%
of the U.S. Government Fund's average daily net assets equal to or less than $75
million; and (ii) .125% of the U.S. Government Fund's average daily net assets
greater than $75 million. On February 24, 1995, at a special meeting of
shareholders, the shareholders of the U.S. Government Fund approved (1) the
Initial BlackRock Sub-Advisory Agreement with Former BlackRock, and (2) a new
Investment Sub-Advisory Agreement (the "Current Sub-Advisory Agreement") for
Former BlackRock after it became BlackRock under its current ownership and
organizational form, which has the same material terms and conditions as the
Initial BlackRock Sub-Advisory Agreement. On February 28, 1995, Former BlackRock
was acquired by an indirectly, wholly-owned subsidiary of PNC and reorganized,
creating BlackRock, and the Current Sub-Advisory Agreement became effective upon
execution by the parties thereto. As a result of the new agreement, 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").
FS-48
<PAGE> 159
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
THE SIERRA VARIABLE TRUST
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.
Fees voluntarily waived by Sierra Advisors for the year ended December 31, 1995
are as follows:
NAME OF FUND FEES WAIVED
------------ -----------
Global Money Fund $50,091
Short Term High Quality Bond Fund 19,478
Short Term Global Government Fund 2,945
U.S. Government Fund 2,943
Growth and Income Fund 34,257
Emerging Growth Fund 19,826
International Growth Fund 4,326
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"), formerly The
Shareholder Services Group, Inc., a wholly-owned subsidiary of First Data
Corporation, serves as sub-administrator to each Fund and as sub-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.
Fees voluntarily waived by Sierra Administration for the year ended December 31,
1995 for the Global Money Fund are $7,317.
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 year
ended December 31, 1995 as follows:
CREDITS
ALLOWED BY
NAME OF FUND CUSTODIAN
------------ ---------
Global Money Fund $ 535
Short Term High Quality Bond Fund 2,029
Short Term Global Government Fund 360
U.S. Government Fund 6,014
Corporate Income Fund 1,064
Growth and Income Fund 338
Growth Fund 4,371
Emerging Growth Fund 2,302
International Growth Fund 286
FS-49
<PAGE> 160
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
THE SIERRA VARIABLE TRUST
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.
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. 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.
4. 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 year ended December 31, 1995
were as follows:
NAME OF FUND PURCHASES SALES
------------ --------- -----
Short Term High Quality Bond Fund $ 6,868,166 $ 5,163,433
Short Term Global Government Fund 36,094,261 36,126,965
Corporate Income Fund 12,618,018 13,938,171
Growth and Income Fund 34,402,387 22,661,813
Growth Fund 160,775,099 127,720,969
Emerging Growth Fund 58,709,954 37,760,281
International Growth Fund 28,791,702 31,090,290
The aggregate cost of purchases and proceeds from sales of U.S. Government
Securities, excluding short-term investments, for the year ended December 31,
1995 were as follows:
NAME OF FUND PURCHASES SALES
------------ --------- -----
Short Term High Quality Bond Fund $ 18,183,031 $ 18,595,110
Short Term Global Government Fund 11,395,166 7,328,356
U.S. Government Fund 156,654,339 144,515,968
Corporate Income Fund 9,740,996 13,207,229
At December 31, 1995, 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:
TAX BASIS TAX BASIS
UNREALIZED UNREALIZED
NAME OF FUND APPRECIATION DEPRECIATION
------------ ------------ ------------
Short Term High Quality Bond Fund $ 199,873 $ 6,712
Short Term Global Government Fund 815,260 147,653
U.S. Government Fund 2,414,900 46,939
Corporate Income Fund 4,301,299 182,533
Growth and Income Fund 5,059,344 1,211,060
Growth Fund 15,087,010 1,759,635
Emerging Growth Fund 8,616,215 605,646
International Growth Fund 4,231,826 2,778,221
FS-50
<PAGE> 161
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
THE SIERRA VARIABLE TRUST
Option activity for the Short-Term High Quality Bond Fund for the year ended
December 31, 1995 was as follows:
NUMBER OF
WRITTEN OPTIONS: PREMIUM CONTRACTS
- ---------------- ------- ---------
Options outstanding at December 31, 1994 $ 0 0
Options written 9,702 1,366,467
Options closed (9,702) (1,366,467)
------ ----------
Options outstanding at December 31, 1995 $ 0 0
====== ======
Option activity for the Short Term Global Government Fund for the year ended
December 31, 1995 was as follows:
PRINCIPAL
OPTIONS ON FOREIGN CURRENCY: PREMIUM AMOUNT
- ---------------------------- ------- ------
Options outstanding at December 31, 1994 $ 59,198 2,835,890,291
Options written 980,229 30,217,078,460
Options closed (807,656) (26,948,896,977)
Options exercised (68,160) (976,598,939)
Options expired (45,417) (3,833,060,120)
-------- ---------------
Options outstanding at December 31, 1995 $ 118,194 1,294,412,715
========= =============
Information regarding dollar roll transactions by the U.S. Government and
Corporate Income Funds is as follows:
U.S. GOVERNMENT CORPORATE
DOLLAR ROLL TRANSACTIONS: FUND INCOME FUND
- ------------------------ ------------- -----------
Maximum amount outstanding during the year $8,221,500 $2,037,500
Average amount outstanding during the year* $ 591,776 $ 573,736
Average monthly shares outstanding during the year 4,853,288 5,768,701
Average debt per share outstanding during the year $ 0.12 $ 0.10
- ------------
* The average amount outstanding during the year was calculated by adding the
borrowings at the end of each day and dividing the sum by the number of days in
the year ended December 31, 1995.
Fee income earned for the year ended December 31, 1995 by the U.S. Government
and Corporate Income Funds for dollar roll transactions aggregated $34,512 and
$10,731, respectively.
Information regarding reverse repurchase agreement transactions by the U.S.
Government and Corporate Income Funds is as follows:
Reverse Repurchase Agreements for the U.S. Government Fund:
<TABLE>
<CAPTION>
FACE MARKET
VALUE VALUE
----- -----
<S> <C> <C>
$2,968,000 Reverse Repurchase Agreement with Aubrey G. Lanston &
Company Inc., 5.900% dated 12/19/1995, to be repurchased
at $2,974,810 on 01/02/1996, collateralized by $2,800,000
U.S. Treasury Note, 6.875% due 03/31/2000 $ 2,968,000
4,662,000 Reverse Repurchase Agreement with Salomon Brothers Inc.,
5.870% dated 11/22/1995, to be repurchased at $4,709,890
on 01/24/1996, collateralized by $153,561 and $4,556,329
Federal National Mortgage Association Trust 92-55, Class
55-DZ and Trust 92-83, Class 83-X, 8.000%-7.000% due
04/25/2022 and 02/25/2022, respectively 4,662,000
---------
$ 7,630,000
===========
</TABLE>
FS-51
<PAGE> 162
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
THE SIERRA VARIABLE TRUST
U.S. GOVERNMENT CORPORATE
REVERSE REPURCHASE AGREEMENTS FUND INCOME FUND
- ----------------------------- ---- -----------
Maximum amount outstanding during the year $15,340,000 $1,000,000
Average amount outstanding during the year* $ 7,026,557 $ 2,740
Average monthly shares outstanding during the year 4,853,288 5,768,701
Average debt per share outstanding during the year $1.45 $0.00
- -----------
* The average amount outstanding during the year was calculated by adding the
borrowings at the end of each day and dividing the sum by the number of days in
the year ended December 31, 1995.
Interest rates ranged from 5.500% to 6.250% during the year. Interest paid for
the year ended December 31, 1995, on borrowings by the U.S. Government Fund and
the Corporate Income Fund under reverse repurchase agreements aggregated
$357,918 and $153, respectively.
5. SHARES OF BENEFICIAL INTEREST
Each Fund of the Trust may issue an unlimited number of shares of beneficial
interest without par value.
6. 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. To the extent that proceeds of the redemptions are
less than such pro-rata portion of any unamortized organizational expenses,
Sierra Advisors has agreed to reimburse the Fund promptly.
7. CAPITAL LOSS CARRYFORWARDS
At December 31, 1995, the following Funds had available for federal income tax
purposes unused capital losses as follows:
NAME OF FUND EXPIRING IN 2002 EXPIRING IN 2003
------------ ---------------- ----------------
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
8. 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 of investing in foreign securities generally and are not
subject to the same reserve requirements and other regulations as U.S. banks.
FS-52
<PAGE> 163
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES AND SHAREHOLDER
OF THE SIERRA VARIABLE TRUST
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations, of
changes in net assets and of cash flows, and the financial highlights present
fairly, in all material respects, the financial position of each of the nine
funds constituting The Sierra Variable Trust (the "Trust"), at December 31,
1995, the results of each of their operations, the changes in each of their net
assets, the cash flows for the U.S. Government Fund and the financial highlights
of each of the funds for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments at December 31, 1995 by
correspondence with the custodian and brokers, and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
/S/ PRICE WATERHOUSE LLP
- -------------------------
PRICE WATERHOUSE LLP
BOSTON, MASSACHUSETTS
FEBRUARY 15, 1996
FS-53
<PAGE> 164
THE SIERRA VARIABLE TRUST
PART C
------
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
(a) Financial Statements (included in Part A)
(i) Audited Financial Highlights for the Global Money Fund, Short
Term High Quality Bond Fund, Short Term Global Government Fund,
U.S. Government Fund, Corporate Income Fund, Growth and Income
Fund, Growth Fund, Emerging Growth Fund and International Growth
Fund for the fiscal year ended December 31, 1995.
Financial Statements (included in Part B)
(i) Audited Financial Statements for the Global Money Fund, Short
Term High Quality Bond Fund, Short Term Global Government Fund,
U.S. Government Fund, Corporate Income Fund, Growth and Income
Fund, Growth Fund, Emerging Growth Fund and International Growth
Fund for the fiscal year ended December 31, 1995, including the
following:
Statement of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Statement of Changes in Net Assets - Capital Stock
Activity
Statement of Cash Flows
Financial Highlights
Global Money Fund Portfolio of Investments
Short Term High Quality Bond Fund Portfolio of
Investments
Short Term Global Government Fund Portfolio of
Investments
U.S. Government Fund Portfolio of Investments
Corporate Income Fund Portfolio of Investments
Growth and Income Fund Portfolio of Investments
Growth Fund Portfolio of Investments
Emerging Growth Fund Portfolio of Investments
International Growth Fund Portfolio of Investments
Notes to Financial Statements
Report of Independent Accountants
Meeting of Shareholders
(b) Exhibits: (* Filed herewith)
--------
1(a) Agreement and Declaration of Trust, dated January 27,
1993. Filed as Exhibit No. 1 to the Registration
Statement on Form N-1A, File No. 33-57732, on
February 2, 1993.
C-1
<PAGE> 165
1(b)-1 Amendment No. 1 to the Trust's Agreement and
Declaration of Trust, dated April 27, 1993. Filed as
Exhibit No. 1(b)-1 to Amendment No. 2 to the
Registration Statement on Form N-1A, File No.
33-57732, on October 13, 1993.
1(b)-2 Amendment No. 2 to the Trust's Agreement and
Declaration of Trust, dated September 22, 1993.
Filed as Exhibit No. 1(b)-2 to Amendment No. 2 to the
Registration Statement on Form N-1A, File No.
33-57732, on October 13, 1993.
1(c)-1 Establishment and Designation of Series of Shares of
Beneficial Interest, dated April 27, 1993, with
respect to the Global Money, Short Term Global
Government, U.S. Government, Corporate Income Growth
and International Growth Funds. Filed as Exhibit No.
1(c)-1 to Amendment No. 2 to the Registration
Statement on Form N-1A, File No. 33-57732, on
October 13, 1993.
1(c)-2 Establishment and Designation of Series of Shares of
Beneficial Interest, dated February 3, 1995, with
respect to the Short Term High Quality Bond, Growth
and Income and Emerging Growth Funds. Filed as
Exhibit No. 1(c)-2 to Amendment No. 2 to the
Registration Statement on Form N-1A, File No.
33-57732, on February 10, 1995.
2 By-Laws of the Trust. Filed as Exhibit No. 2 to the
Registration Statement on Form N-1A, File No. 33-
57732, on February 2, 1993.
3 Not Applicable.
4 Not Applicable.
5(a)-1 Management Agreement, dated as of April 8, 1993,
between the Trust and Sierra Investment Advisors
Corporation ("Sierra Advisors") with respect to the
Global Money Fund. Filed as Exhibit No. 5(a)-1 to
Amendment No. 2 to the Registration Statement on Form
N-1A, File No. 33-57732, on October 13, 1993.
5(a)-2 Management Agreement, dated as of April 8, 1993,
between the Trust and Sierra Advisors with respect to
the International Growth Fund. Filed as Exhibit No.
5(a)-2 to Amendment No. 2 to the Registration
Statement on Form N-1A, File No. 33-57732, on
October 13, 1993.
5(a)-3 Management Agreement, dated as of April 8, 1993,
between the Trust and Sierra Advisors with respect to
the U.S. Government Fund. Filed as Exhibit No.
5(a)-3 to Amendment No. 2 to the Registration
C-2
<PAGE> 166
Statement on Form N-1A, File No. 33-57732, on October
13, 1993.
5(a)-4 Management Agreement, dated as of April 8, 1993,
between the Trust and Sierra Advisors with respect to
the Corporate Income Fund. Filed as Exhibit No.
5(a)-4 to Amendment No. 2 to the Registration
Statement on Form N-1A, File No. 33-57732, on October
13, 1993.
5(a)-5 Management Agreement, dated as of April 8, 1993,
between the Trust and Sierra Advisors with respect to
the Short Term Global Government Fund. Filed as
Exhibit No. 5(a)-5 to Amendment No. 2 to the
Registration Statement on Form N-1A, File No.
33-57732, on October 13, 1993.
5(a)-6 Management Agreement, dated as of April 8, 1993,
between the Trust and Sierra Advisors with respect to
the Growth Fund. Filed as Exhibit No. 5(a)-6 to
Amendment No. 2 to the Registration Statement on Form
N-1A, File No. 33-57732, on October 13, 1993.
5(a)-7 Form of Management Agreement between the Trust and
Sierra Advisors with respect to the Short Term High
Quality Bond, Growth and Income and Emerging Growth
Funds. Filed as Exhibit No. 5(a)-7 to Amendment No.
2 to the Registration Statement on Form N-1A, File
No. 33-57732, on October 13, 1993.
5(b)-1 Sub-Adviser Agreement, dated as of April 8, 1993,
between Sierra Advisors and J.P. Morgan Investment
Management Inc. ("J.P. Morgan") with respect to the
Global Money Fund. Filed as Exhibit No. 5(b)-1 to
Amendment No. 2 to the Registration Statement on Form
N-1A, File No. 33-57732, on October 13, 1993.
5(b)-2 Sub-Adviser Agreement, dated as of April 8, 1996,
between Sierra Advisors and Warburg, Pincus
Counsellors, Inc. ("Warburg") with respect to the
International Growth Fund.(*)
(Replaces Sub-Adviser Agreement, dated as of April 8,
1993, between Sierra Advisors and J.P. Morgan with
respect to the International Growth Fund. Filed as
Exhibit No. 5(b)-2 to Amendment No. 2 to the
Registration Statement on Form N-1A, File No.
33-57732, on October 13, 1993).
5(b)-3 Sub-Adviser Agreement, dated as of April 8, 1993
between Sierra Advisors and Van Kampen Merritt
Management Inc. with respect to the U.S. Government
Fund. Filed as Exhibit No. 5(b)-3 to Amendment No. 2
to the Registration Statement on Form N-1A, File No.
33-57732, on October 13, 1993.
C-3
<PAGE> 167
5(b)-4 Sub-Adviser Agreement, dated as of April 8, 1993,
between Sierra Advisors and TCW Funds Management,
Inc. with respect to the Corporate Income Fund.
Filed as Exhibit No. 5(b)-4 to Amendment No. 2 to the
Registration Statement on Form N-1A, File No.
33-57732, on October 13, 1993.
5(b)-5 Sub-Adviser Agreement, dated as of April 8, 1993,
between Sierra Advisors and Scudder, Stevens & Clark,
Inc. ("Scudder") with respect to the Short Term
Global Government Fund. Filed as Exhibit No. 5(b)-5
to Amendment No. 2 to the Registration Statement on
Form N-1A, File No. 33-57732, on October 13, 1993.
5(b)-6 Sub-Adviser Agreement, dated as of April 8, 1993,
between Sierra Advisors and Janus Capital Corporation
("Janus") with respect to the Growth Fund. Filed as
Exhibit No. 5(b)-6 to Amendment No. 2 to the
Registration Statement on Form N-1A, File No.
33-57732, on October 13, 1993.
5(b)-6A Withdrawn.
5(b)-6B Amended and Restated Sub-Adviser Agreement between
Sierra Advisors and Janus with respect to the Growth
Fund. Filed as Exhibit No. 5(b)-6B to Amendment No.
2 to the Registration Statement on Form N-1A, File
No. 33-57732, on October 13, 1993.
5(b)-7 Form of Sub-Adviser Agreement between Sierra Advisors
and J.P. Morgan with respect to the Growth and Income
Fund. Filed as Exhibit No. 5(b)-7 to Amendment No. 2
to the Registration Statement on Form N-1A, File No.
33-57732, on October 13, 1993.
5(b)-8 Form of Sub-Adviser Agreement between Sierra Advisors
and Scudder with respect to the Short Term High
Quality Bond Fund. Filed as Exhibit No. 5(b)-8 to
Amendment No. 2 to the Registration Statement on Form
N-1A, File No. 33-57732, on October 13, 1993.
5(b)-9 Form of Sub-Adviser Agreement between Sierra Advisors
and Janus with respect to the Emerging Growth Fund.
Filed as Exhibit No. 5(b)-9 to Amendment No. 2 to the
Registration Statement on Form N-1A, File No. 33-
57732, on October 13, 1993.
6(a) Distribution Agreement, dated April 19, 1993, between
the Trust and Sierra Investment Services Corporation
("Sierra Services"). Filed as Exhibit No. 6(a) to
Amendment No. 2 to the Registration Statement on Form
N-1A, File No. 33-57732, on October 13, 1993.
C-4
<PAGE> 168
6(b) Participation Agreement among the Trust, Sierra
Advisors, Sierra Services, American General Life
Insurance Company ("American General") and American
General Securities Incorporated ("American General
Securities"), dated as of May 3, 1993.
7 Not Applicable.
8 Form of Custody Agreement between the Trust and
Boston Safe Deposit & Trust Company filed as Exhibit
No. 8 to Amendment No. 1 to the Registration
Statement on Form N-1A, File No. 33-57732, on March
29, 1993.
9(a) Administration Agreement, dated April 19, 1993,
between the Trust and Sierra Fund Administration
Corporation ("Sierra Administration"). Filed as
Exhibit No. 9(a) to Amendment No. 2 to the
Registration Statement on Form N-1A, File No.
33-57732, on October 13, 1993.
9(b) Sub-Administration Agreement, dated April 19, 1993,
between Sierra Administration and The Boston Company
Advisors, Inc. Filed as Exhibit No. 9(b) to
Amendment No. 2 to the Registration Statement on Form
N-1A, File No. 33-57732, on October 13, 1993.
10 Consent and Opinion of Counsel filed as Exhibit No.
10 to Amendment No. 1 to the Registration Statement
on Form N-1A, File No. 33-57732, on March 29, 1993.
11(a)-1 Powers of Attorney with respect to Registration
Statements and Amendments thereto signed by the
following persons in their capacities as Trustees
and, where applicable, officers of the Trust: David
E. Anderson, Arthur H. Bernstein, F. Brian Cerini,
Edmond R. Davis, Alfred E. Osborne, Jr., and Keith B.
Pipes. Filed as Exhibit No. 11 to Amendment No. 1 to
the Registration on Form N-1A, File No. 33-57332, on
March 29, 1993.
11(a)-2 Power of Attorney with respect to Registration
Statements and Amendments thereto signed by the
following person in his capacity as Trustee: John W.
English. Filed as Exhibit No. 11(a)-2 to Amendment
No. 4 to the Registration on Form N-1A, File No.
33-57332, on April 10, 1995.
11(b) Amended and Restated Agreement Concerning Allocation
of Fidelity Bond Premiums and Recovery, dated
February 14, 1996, among the Trust, the Sierra Trust
Funds and the Sierra Prime Income Fund(*).
C-5
<PAGE> 169
11(c) Amended and Restated Agreement Concerning Allocation
of Joint Liability (Errors and Omissions) Insurance
Policy Premiums, dated February 14, 1996, among the
Trust, the Sierra Trust Funds and the Sierra Prime
Income Fund.(*)
11(d) Indemnification Agreement, dated as of May 3, 1993,
among Sierra Advisors, Sierra Services, American
General, and American General Securities. Filed as
Exhibit No. 11(d) to Amendment No. 2 to the
Registration Statement on Form N-1A, File No.
33-57732, on October 13, 1993.
11(e) Consent of Independent Accountants(*).
12 Not Applicable.
13 Not Applicable.
14 Not Applicable.
15 Not Applicable.
16(a) Certain Performance Data relating to the Funds.
Filed as Exhibit No. 16(a) to Amendment No. 3 to the
Registration Statement on Form N-1A, File No.
33-57332, on April 22, 1994.
Ex-27 Financial Data Schedules(*).
Item 25. Persons Controlled by or Under Common Control with Registrant
- -------- -------------------------------------------------------------
The Trust is a business trust organized under the laws of the
Commonwealth of Massachusetts. Separate Account D of American General Life
Insurance Company is the sole shareholder of, and may be deemed to control, the
Trust. American General Life Insurance Company is a subsidiary of American
General Corporation.
The list of American General Corporation's active subsidiaries is
hereby incorporated by reference to Item 26 of the Form N-4 registration
statement of American General Life Insurance Company and its Separate Account
D, File No. 33-57730 and File No. 811-2441.
C-6
<PAGE> 170
Item 26. Number of Holders of Securities
- -------- -------------------------------
<TABLE>
<CAPTION>
(2)
(1) No. of Record Holders at
Title of Class April 19, 1996
--------------
<S> <C>
Shares of the Global Money Fund, without par value 1
Shares of the Short Term High Quality Bond Fund, 1
without par value
Shares of the Short Term Global Government Fund, 1
without par value
Shares of the U.S. Government Fund, without par value 1
Shares of the Corporate Income Fund, without par value 1
Shares of the Growth and Income Fund, without par 1
value
Shares of the Growth Fund, without par value 1
Shares of the Emerging Growth Fund, without par value 1
Shares of the International Growth Fund, without par 1
value
</TABLE>
Item 27. Indemnification
- -------- ---------------
Article VIII of the Registrant's Agreement and Declaration of Trust
provides in relevant part:
The Trust shall indemnify each of its Trustees and officers (including
persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any interest
as a shareholder, creditor or otherwise) (hereinafter referred to as a
"Covered Person") against all liabilities and expenses, including but
not limited to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and counsel fees
C-7
<PAGE> 171
reasonably incurred by any Covered Person in connection with the
defense or disposition of any action, suit or other proceeding,
whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been
involved as a party or otherwise or with which such Covered Person may
be or may have been threatened, while in office or thereafter, by
reason of being or having been such a Covered Person except with
respect to any matter as to which such Covered Person shall have been
finally adjudicated in any such action, suit or other proceeding to be
liable to the Trust or its Shareholders by reason of wilful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office.
Expenses, including counsel fees so incurred by any such Covered
Person (but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), shall be paid from time to time
by the Trust in advance of the final disposition of any such action,
suit or proceeding upon receipt of an undertaking by or on behalf of
such Covered Person to repay amounts so paid to the Trust if it is
ultimately determined that indemnification of such expenses is not
authorized under this Article; provided, however, that either (a) such
-------- -------
Covered Person shall have provided appropriate security for such
undertaking, (b) the Trust shall be insured against losses arising
from any such advance payments or (c) either a majority of the
disinterested Trustees acting on the matter (provided that a majority
of the disinterested Trustees then in office act on the matter), or
independent legal counsel in a written opinion, shall have determined,
based upon a review of readily available facts (as opposed to a full
trial type inquiry) that there is reason to believe that such Covered
Person will be found entitled to indemnification under this Article.
As to any matter disposed of (whether by a compromise payment,
pursuant to a consent decree or otherwise) without an adjudication by
a court, or by any other body before which the proceeding was brought,
that such Covered Person is liable to the Trust or its Shareholders by
reason of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in
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the conduct of his or her office, indemnification shall be provided if
(a) approved, after notice that it involves such indemnification, by
at least a majority of the disinterested Trustees acting on the matter
(provided that a majority of the disinterested Trustees then in office
act on the matter) upon a determination, based upon a review of
readily available facts (as opposed to a full trial type inquiry) that
such Covered Person is not liable to the Trust or its Shareholders by
reasons of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office,
or (b) there has been obtained an opinion in writing of independent
legal counsel, based upon a review of readily available facts (as
opposed to a full trial type inquiry) to the effect that such
indemnification would not protect such Person against any liability to
the Trust to which he or she would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office. Any approval
pursuant to this Section shall not prevent the recovery from any
Covered Person of any amount paid to such Covered Person in accordance
with this Section as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction to have
been liable to the Trust or its Shareholders by reason of wilful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office.
Section 9 of the Sub-Adviser Agreements that are filed as Exhibits
5(b)-2 and 5(b)-7 to this Registration Statement are hereby incorporated by
reference in response to this item. They provide that, in the absence of
willful misfeasance, bad faith or gross negligence on the part of J.P. Morgan,
or reckless disregard of its obligations and duties thereunder ("Disqualifying
Conduct"), J.P. Morgan shall not be subject to any liability to the Trust or
the Fund, or to any shareholder of the Fund, for any act or omission in the
course of, or connected with, rendering services hereunder. This Section
further provides that Sierra Advisors shall indemnify and hold harmless J.P.
Morgan from and against all claims, losses, liabilities or damages (including
reasonable attorneys' fees and other related expenses) (collectively,
"Losses"), howsoever arising under this
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Agreement or the performance by J.P. Morgan of its duties thereunder; provided,
however, that nothing contained therein shall require that J.P. Morgan be
indemnified for Losses resulting from Disqualifying Conduct.
Section 11 of the Sub-Adviser Agreements that are filed as Exhibits
5(b)-6 and 5(b)-9 to this Registration Statement are hereby incorporated by
reference in response to this item. They provide that Sierra Advisors will
indemnify and hold harmless Janus from and against any and all claims, losses,
liabilities or damages (including reasonable attorneys' fees and other related
expenses), howsoever arising from or in connection with these Sub-Adviser
Agreements or the performance by Janus of its duties thereunder; provided,
however, that nothing contained therein shall require that Janus be indemnified
for Disqualifying Conduct.
Section 12 of the Participation Agreement that is filed as Exhibit
6(b) to this Registration Statement is hereby incorporated by reference in
response to this item. Section 12.1 thereof provides that American General
will indemnify the Trust and Sierra Services and their directors, trustees,
officers and controlling persons from losses and costs due to misstatements or
omissions of material facts for which American General is responsible in its
registration statement relating to annuities funded through the Trust or
otherwise or due to American General's failure to meet its obligations under
the Participation Agreement. Section 12.2 thereof provides that Sierra
Services will indemnify the Trust, American General, American General
Securities and their directors, trustees, officers and controlling persons from
losses and costs due to any misstatements or omissions of material facts for
which Sierra Services or its affiliates are responsible in American General
registration statements relating to annuities funded through the Trust or
otherwise or as a result of any failure by the Trust or Sierra Services to meet
its obligations under the Participation Agreement.
The Agreement filed as Exhibit 11(d) to this Registration Statement is
hereby incorporated by reference in response to this item. Pursuant to that
Agreement, Sierra Advisors and Sierra Services agree to indemnify American
General and American General Securities with respect to liabilities arising out
of the negligence or bad faith of Sierra Services, Sierra Advisors or any sub-
advisor to the Trust in performing their obligations to the Trust, including
the obligations of Sierra Advisors and the sub-advisors to operate the
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Trust in compliance with Sub-Chapter M and Section 817(h) of the Internal
Revenue Code of 1986, as amended. Sierra Advisors and Sierra Services also
agree to indemnify American General and American General Securities for 50% of
any other liabilities or costs that they may incur as a result of any failure
of the Trust to comply with Sub-Chapter M or Section 817(h) that does not
result from such negligence or bad faith.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "1933 Act"), may be permitted to Trustees,
officers and controlling persons of Registrant pursuant to the foregoing
provisions, or otherwise, Registrant has been advised that, in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a Trustee, officer or
controlling person of Registrant in the successful defense of any action, suit
or proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will by governed by the final adjudication of such issue.
Item 28(a). Business and Other Connections of Investment Advisor
- ---------- -------------------------------------------------------
--Sierra Investment Advisors Corporation, formerly Great
Western Financial Advisors Corporation
As of October 9, 1992, the name of Great Western Financial Advisors
Corporation was changed to Sierra Investment Advisors Corporation ("Sierra
Advisors"). Sierra Advisors is an investment advisor registered under the
Investment Advisers Act of 1940, as amended (the "Advisers Act").
The list required by this Item 28 of officers and directors of Sierra
Advisors, together with information as to any other business, profession,
vocation or employment of substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to Schedules
A and D of Form
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ADV filed by Sierra Advisors pursuant to the Advisers Act (SEC File No.
801-32921).
Item 28(b). Business and Other Connections of Investment Sub-Advisor --
- ---------- --------------------------------------------------------
J.P. Morgan Investment Management Inc.
J.P. Morgan Investment Management Inc. ("J.P. Morgan") is a wholly
owned subsidiary of J.P. Morgan & Co. Incorporated, a bank holding company.
J.P. Morgan is an investment advisor registered under the Advisers Act and
manages employee benefit funds of corporations, labor unions and state and
local governments and the accounts of other institutional investors.
The list required by this Item 28 of officers and directors of J.P.
Morgan, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to Schedules
A and D of Form ADV filed by J.P. Morgan pursuant to the Advisers Act (SEC File
No. 801-21011).
Item 28(c). Business and Other Connections of Investment Sub-Advisor --
- ---------- --------------------------------------------------------
TCW Funds Management, Inc.
TCW Funds Management, Inc. ("TCW") is an investment advisor registered
under the Advisers Act, and acts as investment advisor for registered
investment companies and foreign investment companies. TCW, and its
affiliates, including Trust Company of the West, provide a variety of trust,
investment management and investment advisory services.
The list required by this Item 28 of officers and directors of TCW,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by TCW pursuant to the Advisers Act (SEC File No. 801-29075).
Item 28(d). Business and Other Connections of Investment Sub-Advisor --
- ---------- --------------------------------------------------------
Scudder, Stevens & Clark, Inc.
Scudder, Stevens & Clark, Inc. ("Scudder") is an investment advisor
registered under the Advisers Act, and acts as investment advisor for
registered investment companies and foreign investment companies. Scudder, and
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its affiliates, provide a variety of trust, investment management and
investment advisory services.
The list required by this Item 28 of officers and directors of
Scudder, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to Schedules
A and D of Form ADV, filed by Scudder pursuant to the Advisers Act (SEC File
No. 801-252).
Item 28(e). Business and Other Connections of Investment Sub-Advisor --
- ----------- ---------------------------------------------------------
Janus Capital Corporation
Janus Capital Corporation ("Janus") is an investment advisor
registered under the Advisers Act, and acts as investment advisor for
registered investment companies. Janus provides a variety of investment
management and investment advisory services.
The list required by this Item 28 of officers and directors of Janus,
together with any information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV, filed by Janus pursuant to the Advisers Act (SEC File No. 801-
13991).
Item 28(f). Business and Other Connections of Investment Sub-Advisor --
- ----------- ---------------------------------------------------------
BlackRock Financial Management, Inc.
BlackRock Financial Management, Inc. ("BlackRock") is an investment
advisor registered under the Advisers Act, and acts as investment advisor for
registered investment companies and foreign investment companies. BlackRock,
and its affiliates, provide a variety of trust, investment management and
investment advisory services.
The list required by this Item 28 of officers and directors of
BlackRock, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to Schedules
A and D of Form ADV, filed by BlackRock, pursuant to the Advisers Act (SEC File
No. 801-32183).
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Item 28(g). Business and Other Connections of Investment Sub-Advisor --
- ----------- ---------------------------------------------------------
Warburg, Pincus Counsellors, Inc.
Warburg, Pincus Counsellors, Inc. ("Warburg") is an investment advisor
registered under the Advisers Act, and acts as investment advisor for
investment companies, employee benefit plans, endowment funds, foundations and
other institutions and individuals.
The list required by this Item 28 of officers and directors of
Warburg, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to Schedules
A and D of Form ADV, filed by Warburg, pursuant to the Advisers Act (SEC File
No. 801-07321).
Item 29. Principal Underwriter
- -------- ---------------------
(a) Sierra Investment Services Corporation ("Sierra Services"),
the Distributer of the Trust, currently acts as distributor for the Sierra
Trust Funds.
(b) The information required by this Item 29 with respect to each
director and officer of Sierra Services is incorporated by reference to
Schedule A of Form BD filed by Sierra Services pursuant to the Securities
Exchange Act of 1934 (SEC File No. 8-45144).
(c) Not Applicable.
Item 30. Location of Accounts and Records
- -------- --------------------------------
(1) The Sierra Variable Trust
9301 Corbin Avenue
Northridge, California 91324
(declaration and agreement of trust and by-laws)
(2) Sierra Investment Advisors Corporation
9301 Corbin Avenue
Northridge, California 91324
(with respect to their services as investment advisor)
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(3) Sierra Investment Services Corporation
9301 Corbin Avenue
Northridge, California 91324
(with respect to their services as distributor)
(4) Sierra Fund Administration Corporation
9301 Corbin Avenue
Northridge, California 91324
(with respect to their services as administrator,
shareholder servicing agent and transfer agent)
(5) First Data Investor Services Group, Inc.
One Exchange Place
53 State Street
Boston, MA 02109-2873
(with respect to their services as investment
sub-administrator)
(6) Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
(with respect to their services as custodian)
(7) J.P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
(with respect to their services as investment
sub-advisor)
(8) TCW Funds Management, Inc.
865 S. Figueroa Street, Suite 1800
Los Angeles, California 90017
(with respect to their services as investment
sub-advisor)
(9) Scudder, Stevens & Clark, Inc.
175 Federal Street
Boston, Massachusetts 02110
(with respect to their services as investment
sub-advisor)
(10) Janus Capital Corporation
100 Fillmore Street, Suite 300
Denver, Colorado (80206)
(with respect to their services as investment
sub-advisor)
(11) BlackRock Financial Management, Inc.
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345 Park Avenue
New York, New York 10154
(with respect to their services as investment
sub-advisor)
(12) Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(with respect to their services as investment
sub-advisor)
(13) Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
(with respect to their services as counsel)
Item 31. Management Services
- ------- -------------------
Not applicable.
Item 32. Undertakings
- ------- -----------
(a) Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
Shareholders, upon request and without charge.
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**********
NOTICE
**********
A copy of the Agreement and Declaration of Trust of The Sierra
Variable Trust (the "Trust") is on file with the Secretary of State of the
Commonwealth of Massachusetts and notice is hereby given that this Registration
Statement has been executed on behalf of the Trust by an officer of the Trust
as an officer and by its Trustees as trustees and not individually and the
obligations of or arising out of this Registration Statement are not binding
upon any of the Trustees, officers or shareholders individually but are binding
only upon the assets and property of the Trust.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended ("1933
Act"), and the Investment Company Act of 1940, as amended, the Registrant
certifies that this Post-Effective Amendment No. 5 meets all of the
requirements for effectiveness pursuant to Rule 485(b) under the 1933 Act and
has duly caused this Post-Effective Amendment No. 5 to the Registrant's
Registration statement File No. 33-57732 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Northridge and State of
California on the 26th day of April, 1996.
THE SIERRA VARIABLE TRUST
By: /s/ F. Brian Cerini
------------------------------
F. Brian Cerini
President
Pursuant to the requirements of the 1933 Act, as amended, this
Post-Effective Amendment No. 5 Registration Statement has been signed below by
the following persons in the capacities and on the date(s) indicated.
<TABLE>
<CAPTION>
Signature Title(s) Date
--------- -------- ----
<S> <C> <C>
/s/ F. Brian Cerini President and Trustee April 26, 1996
--------------------------------
F. Brian Cerini
(Principal Executive Officer)
/s/ Keith B. Pipes Executive Vice President, Treasurer April 26, 1996
--------------------------------
Keith B. Pipes and Secretary
(Principal Financial and
Accounting Officer)
* Trustee April 26, 1996
--------------------------------
David E. Anderson
* Trustee April 26, 1996
--------------------------------
Arthur H. Bernstein
* Trustee April 26, 1996
---------------------------------
Edmond R. Davis
* Trustee April 26, 1996
---------------------------------
John W. English
</TABLE>
*By: /s/ F. Brian Cerini
---------------------------
F. Brian Cerini
Attorney-In-Fact
<PAGE> 182
EXHIBIT INDEX
(*Filed herewith)
<TABLE>
<CAPTION>
EDGAR
Exhibit No. Description
- ----------- -----------
<S> <C>
1(a) Agreement and Declaration of Trust, dated January 27, 1993. Filed as Exhibit No. 1 to the Registration Statement
on Form N-1A, File No. 33-57732, on February 2, 1993.
1(b)-1 Amendment No. 1 to the Trust's Agreement and Declaration of Trust, dated April 27, 1993. Filed as Exhibit No.
1(b)-1 to Amendment No. 2 to the Registration Statement on Form N-1A, File No. 33-57732, on October 13, 1993.
1(b)-2 Amendment No. 2 to the Trust's Agreement and Declaration of Trust, dated September 22, 1993. Filed as Exhibit No.
1(b)-2 to Amendment No. 2 to the Registration Statement on Form N-1A, File No. 33-57732, on October 13, 1993.
1(c)-1 Establishment and Designation of Series of Shares of Beneficial Interest, dated April 27, 1993, with respect to
the Global Money, Short Term Global Government, U.S. Government, Corporate Income, Growth and International Growth
Funds. Filed as Exhibit No. 1(c)-1 to Amendment No. 2 to the Registration Statement on Form N-1A, File No. 33-
57732, on October 13, 1993.
1(c)-2 Establishment and Designation of Series of Shares of Beneficial Interest, dated February 3, 1995, with respect to
the Short Term High Quality Bond, Growth and Income and Emerging Growth Funds. Filed as Exhibit No. 1(c)-2 to
Amendment No. 2 to the Registration Statement on Form N-1A, File No. 33-57732, on February 10, 1995.
2 By-Laws of the Trust. Filed as Exhibit No. 2 to the Registration Statement on Form N-1A, File No. 33-57732, on
February 2, 1993.
3 Not Applicable.
4 Not Applicable.
5(a)-1 Management Agreement, dated as of April 8, 1993, between the Trust and Sierra Investment Advisors Corporation
("Sierra Advisors") with respect to the Global Money Fund. Filed as Exhibit No.
</TABLE>
[/R]
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<TABLE>
<S> <C>
5(a)-1 to Amendment No. 2 to the Registration Statement on Form N-1A, File No. 33-57732, on October 13, 1993.
5(a)-2 Management Agreement, dated as of April 8, 1993, between the Trust and Sierra Advisors with respect to the
International Growth Fund. Filed as Exhibit No. 5(a)-2 to Amendment No. 2 to the Registration Statement on Form
N-1A, File No. 33-57732, on October 13, 1993.
5(a)-3 Management Agreement, dated as of April 8, 1993, between the Trust and Sierra Advisors with respect to the U.S.
Government Fund. Filed as Exhibit No. 5(a)-3 to Amendment No. 2 to the Registration Statement on Form N-1A, File
No. 33-57732, on October 13, 1993.
5(a)-4 Management Agreement, dated as of April 8, 1993, between the Trust and Sierra Advisors with respect to the
Corporate Income Fund. Filed as Exhibit No. 5(a)-4 to Amendment No. 2 to the Registration Statement on Form N-1A,
File No. 33-57732, on October 13, 1993.
5(a)-5 Management Agreement, dated as of April 8, 1993, between the Trust and Sierra Advisors with respect to the Short
Term Global Government Fund. Filed as Exhibit No. 5(a)-5 to Amendment No. 2 to the Registration Statement on Form
N-1A, File No. 33-57732, on October 13, 1993.
5(a)-6 Management Agreement, dated as of April 8, 1993, between the Trust and Sierra Advisors with respect to the Growth
Fund. Filed as Exhibit No. 5(a)-6 to Amendment No. 2 to the Registration Statement on Form N-1A, File No. 33-
57732, on October 13, 1993.
5(a)-7 Form of Management Agreement between the Trust and Sierra Advisors with respect to the Short Term High Quality
Bond, Growth and Income and Emerging Growth Funds. Filed as Exhibit No. 5(a)-7 to Amendment No. 2 to the
Registration Statement on Form N-1A, File No. 33-57732, on October 13, 1993.
5(b)-1 Sub-Adviser Agreement, dated as of April 8, 1993, between Sierra Advisors and J.P. Morgan Investment Management
Inc. ("J.P. Morgan") with respect to the Global Money Fund. Filed as
</TABLE>
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<TABLE>
<S> <C>
Exhibit No. 5(b)-1 to Amendment No. 2 to the Registration Statement on Form N-1A, File No. 33-57732, on October
13, 1993.
EX-99.B5(b)-2 Sub-Adviser Agreement, dated as of April 8, 1996, between Sierra Advisors and Warburg, Pincus Counsellors, Inc.
("Warburg") with respect to the International Growth Fund. (*)
(Replaces Sub-Adviser Agreement, dated as of April 8, 1993, between Sierra Advisors and J.P. Morgan with respect
to the International Growth Fund. Filed as Exhibit No. 5(b)-2 to Amendment No. 2 to the Registration Statement on
Form N-1A, File No. 33-57732, on October 13, 1993.)
5(b)-3 Sub-Adviser Agreement, dated as of April 8, 1993 between Sierra Advisors and Van Kampen Merritt Management Inc.
with respect to the U.S. Government Fund. Filed as Exhibit No. 5(b)-3 to Amendment No. 2 to the Registration
Statement on Form N-1A, File No. 33-57732, on October 13, 1993.
5(b)-4 Sub-Adviser Agreement, dated as of April 8, 1993, between Sierra Advisors and TCW Funds Management, Inc. with
respect to the Corporate Income Fund. Filed as Exhibit No. 5(b)-4 to Amendment No. 2 to the Registration
Statement on Form N-1A, File No. 33-57732, on October 13, 1993.
5(b)-5 Sub-Adviser Agreement, dated as of April 8, 1993, between Sierra Advisors and Scudder, Stevens & Clark, Inc.
("Scudder") with respect to the Short Term Global Government Fund. Filed as Exhibit No. 5(b)-5 to Amendment No. 2
to the Registration Statement on Form N-1A, File No. 33-57732, on October 13, 1993.
5(b)-6 Sub-Adviser Agreement, dated as of April 8, 1993, between Sierra Advisors and Janus Capital Corporation ("Janus")
with respect to the Growth Fund. Filed as Exhibit No. 5(b)-6 to Amendment No. 2 to the Registration Statement on
Form N-1A, File No. 33-57732, on October 13, 1993.
5(b)-6A Withdrawn
5(b)-6B Amended restated Sub-Adviser Agreement between Sierra Advisors and Janus with respect to the Growth Fund. Filed
as Exhibit 5(b)-6B to
</TABLE>
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<TABLE>
<S> <C>
Amendment No. 2 to the Registration Statement on Form N-1A, File No. 33-57732, on October 13, 1993.
5(b)-7 Form of Sub-Adviser Agreement between Sierra Advisors and J.P. Morgan with respect to the Growth and Income Fund.
Filed as Exhibit No. 5(b)-7 to Amendment No. 2 to the Registration Statement on Form N-1A, File No. 33-57732, on
October 13, 1993.
5(b)-8 Form of Sub-Adviser Agreement between Sierra Advisors and Scudder with respect to the Short Term High Quality Bond
Fund. Filed as Exhibit No. 5(b)-8 to Amendment No. 2 to the Registration Statement on Form N-1A, File No. 33-
57732, on October 13, 1993.
5(b)-9 Form of Sub-Adviser Agreement between Sierra Advisors and Janus with respect to the Emerging Growth Fund. Filed
as Exhibit No. 5(b)-9 to Amendment No. 2 to the Registration Statement on Form N-1A, File No. 33-57732, on October
13, 1993.
6(a) Distribution Agreement, dated April 19, 1993, between the Trust and Sierra Investment Services Corporation
("Sierra Services"). Filed as Exhibit No. 6(a) to Amendment No. 2 to the Registration Statement on Form N-1A,
File No. 33-57732, on October 13, 1993.
6(b) Participation Agreement among the Trust, Sierra Advisors, Sierra Services, American General Life Insurance Company
("American General") and American General Securities Incorporated ("American General Securities"), dated as of May
3, 1993.
7 Not Applicable.
8 Form of Custody Agreement between the Trust and Boston Safe Deposit & Trust Company filed as Exhibit No. 8 to
Amendment No. 1 to the Registration Statement on Form N-1A, File No. 33-57732, on March 29, 1993.
9(a) Administration Agreement, dated April 19, 1993, between the Trust and Sierra Fund Administration Corporation
("Sierra Administration"). Filed as Exhibit No. 9(a) to Amendment No. 2 to the
</TABLE>
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<PAGE> 186
<TABLE>
<S> <C>
Registration Statement on Form N-1A, File No. 33-57732, on October 13, 1993.
9(b) Sub-Administration Agreement, dated April 19, 1993, between Sierra Administration and The Boston Company Advisors,
Inc. Filed as Exhibit No. 9(b) to Amendment No. 2 to the Registration Statement on Form N-1A, File No. 33-57732,
on October 13, 1993.
10 Consent and Opinion of Counsel filed as Exhibit No. 10 to Amendment No. 1 to the Registration Statement on Form N-
1A, File No. 33-57732, on March 29, 1993.
11(a)-1 Powers of Attorney with respect to Registration Statements and Amendments thereto signed by the following persons
in their capacities as Trustees and, where applicable, officers of the Trust: David E. Anderson, Arthur H.
Bernstein, F. Brian Cerini, Edmond R. Davis, Alfred E. Osborne, Jr., and Keith B. Pipes. Filed as Exhibit No. 11
to Amendment No. 1 to the Registration on Form N-1A, File No. 33-57332, on March 29, 1993.
11(a)-2 Power of Attorney with respect to Registration Statements and Amendments thereto signed by the following person
in his capacity as Trustee: John W. English. Filed as Exhibit No. 11(a)-2 to the Registration Statement on Form
N-1A, File No. 33-57732, on April 10, 1995.
EX-99.B11(b) Amended and Restated Agreement Concerning Allocation of Fidelity Bond Premiums and Recovery, dated February 14,
1996, among the Trust, the Sierra Trust Funds and the Sierra Prime Income Fund.(*)
EX-99.B11(c) Amended and Restated Agreement Concerning Allocation of Joint Liability (Errors and Omissions) Insurance Policy
Premiums, dated February 14, 1996, among the Trust, the Sierra Trust Funds and the Sierra Prime Income Fund.(*)
11(d) Indemnification Agreement, dated as of May 3, 1993, among Sierra Advisors, Sierra Services, American General, and
American General Securities. Filed as Exhibit No. 11(d) to Amendment No. 2 to the Registration Statement on Form
N-1A, File No. 33-57732, on October 13, 1993.
</TABLE>
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<PAGE> 187
<TABLE>
<S> <C>
EX-99.B11(e) Consent of Independent Accountants(*).
12 Not Applicable.
13 Not Applicable.
14 Not Applicable.
15 Not Applicable.
16(a) Certain Performance Data relating to the Funds. Filed as Exhibit No. 16(a) to Amendment No. 3 to the Registration
Statement on Form N-1A. File No. 33-57332, on April 22, 1994.
EX-27 Financial Data Schedules(*).
</TABLE>
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<PAGE> 1
EX-99.B5(b)-2
SUB-ADVISER AGREEMENT
---------------------
Sub-Adviser Agreement executed as of April 8, 1996 between SIERRA
INVESTMENT ADVISORS CORPORATION, a California corporation (the "Manager"), and
WARBURG, PINCUS COUNSELLORS, INC., a Delaware corporation (the "Sub-Adviser").
Witnesseth:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY SUB-ADVISER TO THE TRUST.
(a) Subject always to the control of the Trustees of The
Sierra Variable Trust, a Massachusetts business trust (the "Trust")
and to the overall supervision of the Manager, the Sub-Adviser, at its
expense as provided herein, will render the following services to the
International Growth Fund series (the "Fund") of the Trust. The
Sub-Adviser will furnish continuously an investment program for the
portfolio represented by shares of the Fund and will make investment
decisions on behalf of the Fund with respect to all of the assets of
the Fund, including cash and cash equivalents and will place all
orders for the purchase and sale of portfolio securities of the Fund
and for the investment, reinvestment and management of cash or cash
equivalents of the Fund. The Sub-Adviser is hereby appointed and
shall serve as attorney-in-fact and agent of the Fund for the limited
purposes of executing account documentation, agreements, contracts and
other documents as the Sub-Adviser may be requested by brokers,
dealers, counterparties and other persons in connection with the
Sub-Adviser's management of the assets of the Fund.
(i) In the performance of its duties, the
Sub-Adviser will comply with the provisions of the Agreement
and Declaration of Trust, the By-laws of the Trust and the
stated investment objectives, policies and restrictions of the
Fund as set forth in its registration statement on Form N-1A,
File No. 33-57732, and will use its best efforts to safeguard
and promote the welfare of the Fund, and to comply with other
policies which the Trustees or the Manager, as the case may
be, may from time to time determine. Copies of the Trust's
Registration Statement, including exhibits, Agreement and
Declaration of Trust and By-laws, in each case as amended to
date, have been or will be provided to the Sub-Adviser, and
the Manager agrees promptly to provide the Sub-Adviser with
all amendments or
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supplements to the Registration Statement, Agreement and
Declaration of Trust and By-laws.
(ii) The Sub-Adviser shall make its officers and
employees available to the Manager at reasonable times to
review investment policies of the Fund and to consult with the
Manager regarding the investment affairs of the Fund.
(iii) The Trust and the Manager each agrees, on an
ongoing basis, to notify the Sub-Adviser expressly in writing
of each change in the fundamental and nonfundamental
investment policies of the Fund. The Manager desires to
engage and hereby appoints the Sub-Adviser to act as
investment sub-adviser to the Fund to which appointment the
Trust agrees. The Sub-Adviser accepts the appointment and
agrees to furnish the services described herein for the
compensation set forth herein.
(b) The Sub-Adviser, at its expense, will furnish all
necessary office space and equipment, bookkeeping and clerical
services (excluding shareholder accounting and transfer agency
services) required for it to perform its duties hereunder and will pay
all salaries, fees and expenses of any officer of the Trust who is an
employee of, or otherwise affiliated with, the Sub-Adviser and is not
an employee of, or otherwise affiliated with, the Manager; PROVIDED
THAT no person who is an employee of, or otherwise affiliated with,
the Sub-Adviser shall serve as a Trustee of the Trust.
(c) The Manager agrees to provide the Sub-Adviser with
such assistance as may be reasonably requested by the Sub-Adviser in
connection with its activities pertaining to the Fund under this
Agreement, including, without limitation, information concerning the
Fund, its funds available, or to become available, for investment and
generally as to the conditions of the Fund's affairs.
(d) In fulfilling its obligations hereunder, the
Sub-Adviser shall be entitled to rely on and act in accordance with,
and the Manager agrees to hold the Sub-Adviser harmless for any act or
omission taken in good faith in reliance on, information and
instructions, which may be standing instructions, provided to the
Sub-Adviser by the Manager, the Trust's administrator, or other agent
of the Manager designated by the Manager. Such information and
instructions shall be conveyed to the Sub-Adviser in a timely manner
so as to permit the Sub-Adviser to take such
2
<PAGE> 3
action as may be required in an orderly fashion. The Manager agrees
to provide or cause to be provided to the Sub-Adviser on an ongoing
basis, such information as is reasonably requested by the Sub-Adviser
for performance by the Sub-Adviser of its obligations under this
Agreement, and the Sub-Adviser shall not be in breach of any term of
this Agreement or be deemed to have acted negligently if the Manager
fails to provide or cause to be provided such information and the
Sub-Adviser relies on the information most recently furnished to the
Sub-Adviser. The Manager will promptly provide the Sub-Adviser with
any procedures applicable to the Sub-Adviser adopted from time to time
by the Board of Trustees of the Trust and agrees to promptly provide
the Sub-Adviser copies of all amendments thereto.
(e) In the selection of brokers, dealers, futures
commissions merchants or any other sources of portfolio investments
for the Fund (hereafter, "brokers or dealers") and the placing of
orders for the purchase and sale of portfolio investments for the
Fund, the Sub-Adviser shall use its best efforts to obtain the most
favorable price and execution available, except to the extent it may
be permitted to pay higher brokerage commissions for brokerage and
research services as described below. In using its best efforts to
obtain the most favorable price and execution available, the
Sub-Adviser, bearing in mind the Fund's best interests at all times,
shall consider all factors it deems relevant, including by way of
illustration, price, the size of the transaction, the nature of the
market for the security, the amount of the commission, the timing of
the transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker or dealer
involved and the quality of service rendered by the broker or dealer
in other transactions. Subject to such policies as the Trustees of
the Trust may determine that are communicated in writing to the
Sub-Adviser as provided in Section 1(a)(iii) hereof, the Sub-Adviser
shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of its
having caused the Trust to pay, on behalf of the Fund, a broker or
dealer that provides brokerage and research services to the
Sub-Adviser an amount of commission for effecting a portfolio
investment transaction in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction, if
the Sub-Adviser determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage
and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or the Sub-Adviser's
overall
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<PAGE> 4
responsibilities over time with respect to the Trust and to other
clients of the Sub-Adviser as to which the Sub-Adviser exercises
investment discretion. As provided in the Management Contract
referred to in Section 3 below, the Trust agrees that any entity or
person associated with the Manager or Sub-Adviser that is a member of
a national securities exchange is authorized to effect any transaction
on such exchange for the account of the Fund that is permitted by
Section 11(a) of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), or Rule 11a2-2(T) thereunder, and the Trust has consented
to the retention of compensation for such transactions in accordance
with Section 11(a) or Rule 11a2-2(T)(2)(iv) under the 1934 Act.
(f) In selecting brokers or dealers to execute a
particular transaction, and in evaluating the best price and execution
available, the Sub-Adviser is authorized to consider the brokerage and
research services (within the meaning of Section 28(e) of the 1934
Act) provided to the Sub-Adviser or any affiliated person of the
Sub-Adviser. Subject to the requirements of Section 17(e) of the
Investment Company Act of 1940, as amended (the "1940 Act"), the
Sub-Adviser is specifically authorized to select an affiliated person
of the Sub-Adviser to execute brokerage, but in no event principal,
transactions for the Fund. On occasions when the Sub-Adviser deems
the purchase or sale of a security to be in the best interest of the
Fund as well as other clients, the Sub-Adviser, to the extent
permitted by applicable laws and regulations, may, but shall be under
no obligation to, aggregate the securities to be purchased or sold in
order to obtain the most favorable execution and/or lower brokerage
commissions, if any, and efficient execution. In such event,
allocation of securities so sold or purchased, as well as the expenses
incurred in the transaction, will be made by the Sub-Adviser in the
manner the Sub-Adviser considers to be the most equitable and
consistent with its fiduciary obligation over time to the Fund and to
such other clients. Furthermore, the Trust and the Manager recognize
that the Sub-Adviser may give advice, and take action, with respect to
its other clients that may differ from the advice given, or the time
or nature of action taken, with respect to the Fund.
(g) The Sub-Adviser shall not be obligated to pay any
expenses of or for the Fund not expressly assumed by the Sub-Adviser
pursuant to this Section 1 other than as provided in Section 3.
(h) The Sub-Adviser shall maintain all books and records with
respect to the Fund's portfolio transactions
4
<PAGE> 5
required by subparagraphs (b)(5) - (b)(11) and paragraph (f) of Rule
31a-1 under the 1940 Act, and shall render to the Board of Trustees of
the Trust such periodic and special reports as the Board may
reasonably request.
2. OTHER AGREEMENTS, ETC.
The Trust understands that the Sub-Adviser now acts, will continue to
act and may act in the future as investment adviser to fiduciary and other
managed accounts and as investment adviser to one or more other investment
companies or series of investment companies, and the Trust has no objection to
the Sub-Adviser so acting, PROVIDED THAT whenever the Fund and one or more
other accounts or investment companies advised by the Sub-Adviser have
available funds for investment, investments suitable and appropriate for each
will be allocated in accordance with procedures believed to be equitable to
each entity over time. Similarly, opportunities to sell securities will be
allocated in an equitable manner over time. The Trust recognizes that in some
cases this procedure may adversely affect the size of the position that may be
acquired or disposed of for the Fund. In addition, the Trust understands that
the persons employed by the Sub-Adviser to assist the performance of the
Sub-Adviser's duties hereunder will not devote their full time to such service
and nothing contained herein shall be deemed to limit or restrict the right of
the Sub- Adviser or any affiliate of the Sub-Adviser to engage in and devote
time and attention to other businesses or to render services of whatever kind
or nature.
3. COMPENSATION TO BE PAID BY THE MANAGER TO THE SUB-ADVISER.
The Manager will pay to the Sub-Adviser as compensation for the
Sub-Adviser's services rendered and for the expenses borne by the Sub-Adviser
pursuant to Section 1, a fee, computed and paid monthly at the annual rate of
0.50% of the Fund's average daily net assets. Such average daily net asset
value of the Fund shall be determined by taking an average of all of the
determinations of such net asset value during such month at the close of
business on each business day during such month while this contract is in
effect. For the purposes of determining fees payable to the Sub-Adviser, the
value of the net assets of the Fund shall be computed at the times and in the
manner specified in the Prospectus or Statement of Additional Information
relating to the Fund as from time to time in effect. Such fee shall be payable
for each month within 10 business days after the end of such month.
Notwithstanding the foregoing, in the event that any reduction in the
fees paid to the Manager under the Management Contract shall be required as a
result of any statutory or
5
<PAGE> 6
regulatory limitation on investment company expenses, there shall be a
proportionate reduction in the fee payable to the Sub-Adviser hereunder;
PROVIDED THAT the Sub-Adviser will never be required to pay more than the
amount of fees it receives.
If the Sub-Adviser shall serve for less than the whole of a month, the
foregoing compensation shall be prorated.
4. ASSIGNMENT TERMINATES THIS AGREEMENT; AMENDMENTS OF THIS CONTRACT.
This Agreement shall automatically terminate, without the payment of
any penalty, in the event of its assignment or in the event that the Management
Contract shall have terminated for any reason; and this Agreement shall not be
amended unless such amendment be approved at a meeting by the affirmative vote
of a majority of the outstanding shares of the Fund, and by the vote, cast in
person at a meeting called for the purpose of voting on such approval, of a
majority of the Trustees of the Trust who are not interested persons of the
Trust or of the Manager or of the Sub-Adviser.
5. INDEMNIFICATIONS.
(a) The Manager shall indemnify the Sub-Adviser and its
controlling persons, officers, directors, employees, agents, legal
representatives and persons controlled by it (collectively,
"Sub-Adviser Related Persons") to the fullest extent permitted by law
against any and all loss, damage, judgements, fines, amounts paid in
settlement and reasonable expenses, including attorneys' fees
(collectively "Losses"), incurred by the Sub-Adviser or Sub-Adviser
Related Persons arising from or in connection with this Agreement or
the performance by the Sub-Adviser or Sub-Adviser Related Persons of
its or their duties hereunder, including, without limitation, such
Losses arising under any applicable law or that may be based upon any
untrue statement of a material fact contained in the Trust's
registration statement, or any amendment thereof or any supplement
thereto, or the omission to state therein a material fact known or
which should have been known and was required to be stated therein or
necessary to make the statements therein not misleading, unless such
statement or omission was made in reliance upon written information
furnished to the Manager by the Sub-Adviser or a Sub-Adviser Related
Person; except to the extent any such Losses result from willful
misfeasance, bad faith, gross negligence or reckless disregard on the
part of the Sub-Adviser or a Sub-Adviser Related Person in the
performance of any of its duties under, or in connection with, this
Agreement.
6
<PAGE> 7
(b) The Sub-Adviser shall indemnify the Manager and its
controlling persons, officers, directors, employees, agents, legal
representatives and persons controlled by it (collectively, "Manager
Related Persons") to the fullest extent permitted by law against any
and all Losses incurred by the Manager or Manager Related Persons
arising from or in connection with this Agreement or the performance
by the Manager or Manager Related Persons of its or their duties
hereunder so long as such Losses arise out of the Sub-Adviser's
failure to perform its responsibilities to the Manager, the Fund or
the Trust hereunder, including, without limitation, such Losses
arising under any applicable law or that may be based upon any untrue
statement of a material fact contained in the Trust's registration
statement, or any amendment thereof or any supplement thereto, or the
omission to state therein a material fact known or which should have
been known and was required to be stated therein or necessary to make
the statements therein not misleading, to the extent that such
statement or omission was based on information provided by the
Sub-Adviser or a Sub-Adviser Related Person unless such statement or
omission was made in reliance upon written information furnished to
the Sub-Adviser or Sub-Adviser Related Person by the Manager or a
Manager Related Person; and except to the extent any such Losses
result from willful misfeasance, bad faith, gross negligence or
reckless disregard on the part of the Manager or a Manager Related
Person in the performance of any of its duties under, or in connection
with, this Agreement.
(c) The indemnifications provided in this Section 5 shall
survive the termination of this Agreement.
6. EFFECTIVE PERIOD AND TERMINATION OF THIS AGREEMENT.
This Agreement shall become effective upon its execution, and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4) until terminated as follows:
(a) The Trust may at any time terminate this Agreement by
not more than sixty (60) days' written notice delivered or mailed by
registered mail, postage prepaid, to the Manager and the Sub-Adviser,
or
(b) If (i) the Trustees of the Trust or the shareholders
by the affirmative vote of a majority of the outstanding shares of the
Fund, and (ii) a majority of the Trustees of the Trust who are not
interested persons of the Trust or of the Manager or of the
Sub-Adviser, by vote cast in person at a meeting called for the
purpose of voting on
7
<PAGE> 8
such approval, do not specifically approve at least annually the
continuance of this Agreement, then this Agreement shall automatically
terminate as at the close of business on the second anniversary of its
execution, or upon the expiration of one year from the effective date
of the last such continuance, whichever is later; provided, however,
that if the continuance of this Agreement is submitted to the
shareholders of the Fund for their approval and such shareholders fail
to approve such continuance of this Agreement as provided herein, the
Sub-Adviser may continue to serve hereunder in a manner consistent
with the 1940 Act and the Rules and Regulations thereunder, or
(c) The Manager may at any time terminate this Agreement
by not less than sixty (60) days' written notice delivered or mailed
by registered mail, postage prepaid, to the Sub-Adviser, and the
Sub-Adviser may at any time terminate this Agreement by not less than
ninety (90) days' written notice delivered or mailed by registered
mail, postage prepaid, to the Manager.
Action by the Trust under (a) above may be taken either (i) by vote of
a majority of its Trustees, or (ii) by the affirmative vote of a majority of
the outstanding shares of the Fund.
Termination of this Agreement pursuant to this Section 6 shall be
without the payment of any penalty.
7. CERTAIN INFORMATION.
The Sub-Adviser shall promptly notify the Manager in writing of the
occurrence of any of the following events: (a) the Sub-Adviser shall fail to
be registered as an investment adviser under the Investment Advisers Act of
1940, as amended from time to time, or under the laws of any jurisdiction in
which the Sub-Adviser is required to be registered as an investment adviser in
order to perform its obligations under this Agreement, (b) the Sub-Adviser
shall have been served or otherwise have notice of any action, suit,
proceeding, inquiry or investigation, at law or in equity, before or by any
court, public board or body, involving the affairs of the Trust and (c) there
shall be any change in the control of the Sub-Adviser.
8. CERTAIN DEFINITIONS.
(a) For the purposes of this Agreement, the "affirmative
vote of a majority of the outstanding shares" of the Fund means the
affirmative vote, at a duly called and held meeting of shareholders,
(a) of the holders of 67% or more of the shares of the Fund present
(in person or by
8
<PAGE> 9
proxy) and entitled to vote at such meeting, if the holders of more
than 50% of the outstanding shares of or the Fund entitled to vote at
such meeting are present in person or by proxy, or (b) of the holders
of more than 50% of the outstanding shares of the Fund entitled to
vote at such meeting, whichever is less.
(b) For the purposes of this Agreement, the terms
"affiliated person", "control", "interested person" and "assignment"
shall have their respective meanings defined in the 1940 Act and the
Rules and Regulations thereunder, subject, however, to such exemptions
as may be granted by the Securities and Exchange Commission under the
1940 Act; the term "specifically approve at least annually" shall be
construed in a manner consistent with the 1940 Act and the Rules and
Regulations thereunder; and the term "brokerage and research services"
shall have the meaning given in the 1934 Act and the Rules and
Regulations thereunder.
9. NONLIABILITY OF SUB-ADVISER.
The Sub-Adviser shall exercise its best judgment in rendering its
services under this agreement. Except as may otherwise be provided by federal
or state securities laws and in Section 5 hereof, in the absence of willful
misfeasance, bad faith or gross negligence on the part of the Sub-Adviser, or
reckless disregard of its obligations and duties hereunder, the Sub-Adviser
shall not be subject to any liability to the Trust or the Fund, or to any
shareholder of the Fund, for any act or omission in the course of, or connected
with, rendering services hereunder.
10. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
Trust as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property of the Fund.
11. USE OF NAMES.
(a) It is understood that the name "Warburg, Pincus
Counsellors, Inc." or any derivative thereof or logo associated with
that name is the valuable property of the Sub-Adviser and its
affiliates and that the Trust and/or the Fund have the right to use
such name (or derivative or logo) in offering materials of the Trust
and/or Fund only with the
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<PAGE> 10
prior written approval of the Sub-Adviser and for so long as the
Sub-Adviser is an investment sub-adviser to the Trust and/or the Fund;
PROVIDED THAT the Trust and the Fund may use such name (or derivative
or logo) without such prior written approval in offering materials of
the Trust to the extent that (i) such materials simply list the
Sub-Adviser as the Sub-Adviser to the Fund as part of a listing of
the investment sub-advisers to the series or portfolios of the Trust
with a brief description of the Sub-Adviser's experience and duties
hereunder; (ii) such materials include such name (or derivative or
logo) and any related information that has been previously approved by
the Sub-Adviser or that is required to be disclosed by applicable law
or regulation, such as information disclosed in the Trust's
registration statement; or (iii) such materials are intended for
broker-dealer use only, for use by the Trust's Trustees, or for
internal use by the Trust and the Manager. Such prior written
approval of the Sub-Adviser shall not be unreasonably withheld and
shall be deemed to be given if no written objection is received by the
Trust, the Fund or the Manager within three business days after the
request is made by the Trust, the Fund or the Manager for such use.
Upon termination of this Agreement, the Trust and the Fund shall
forthwith cease to use such name (or derivative or logo) as soon as
reasonably practicable.
(b) It is understood that the names "The Sierra Variable
Trust," and "Sierra Investment Advisors Corporation" or any
derivatives thereof or logos associated with such names is the
valuable property of the Trust and/or the Manager and their affiliates
and that the Sub-Adviser or its affiliates have the right to use such
names (or derivatives or logos) in marketing materials of the
Sub-Adviser or its affiliates only with the prior written approval of
the Manager or the Trust, as applicable, and for so long as the
Sub-Adviser is an investment sub-adviser to the Trust and/or the Fund;
PROVIDED THAT the Sub-Adviser or its affiliates may use such names (or
derivatives or logos) without such prior written approval in marketing
materials of the Sub-Adviser or its affiliates to the extent that (i)
such materials simply list the Trust or the Fund as part of a listing
of the investment companies advised by the Sub-Adviser or its
affiliates with a brief description of the Trust or the Fund; or (ii)
such materials include such names (or derivatives or logos) and any
related information that has been previously approved by the Trust or
the Manager, as applicable, or that is required to be disclosed by
applicable law or regulation, such as information disclosed in the
Form ADV or Form BD of the Sub-Adviser or its affiliates; or (iii)
such materials are intended for
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<PAGE> 11
broker-dealer use only or for internal use by the Sub-Adviser. Such
prior written approval of the Manager or the Trust, as applicable,
shall not be unreasonably withheld and shall be deemed to be given if
no written objection is received by the Sub-Adviser within three
business days after the request is made by the Sub-Adviser for such
use. Upon termination of this Agreement, the Sub-Adviser and its
affiliates shall forthwith cease to use such names (or derivatives or
logos) as soon as reasonably practicable.
IN WITNESS WHEREOF, the Manager and the Sub-Adviser have each caused
this instrument to be signed below in duplicate on its behalf by its duly
authorized representative, all as of the day and year first above written.
SIERRA INVESTMENT ADVISORS CORPORATION
By /s/ Michael D. Goth
----------------------------------
Name: Michael D. Goth
Title: Chief Opertaing Officer
WARBURG, PINCUS COUNSELLORS, INC.
By /s/ Eugene P. Grace
-----------------------------------
Name: Eugene P. Grace
Title: Senior Vice President
Accepted and agreed to as of the
day and year first above written:
THE SIERRA VARIABLE TRUST
By /s/ Keith Pipes
--------------------------------
Name: Keith Pipes
Title: Executive Vice President
11
<PAGE> 1
EX-99.B11(b)
AMENDED AND RESTATED
AGREEMENT CONCERNING
ALLOCATION OF FIDELITY BOND
PREMIUMS AND RECOVERY
This AMENDED AND RESTATED AGREEMENT is made and entered into
as of this 14th day of February, 1996, by and among the Sierra Trust Funds (the
"Trust Funds"), an unincorporated business trust organized under the laws of
the Commonwealth of Massachusetts, The Sierra Variable Trust (the "Variable
Trust"), an unincorporated business trust organized under the laws of the
Commonwealth of Massachusetts and each Additional Trust, as defined in
paragraph 1 below, that may become a party to this Agreement by execution of
this Agreement.
WITNESSETH:
WHEREAS, each of the Trust Funds and the Variable Trust
(individually, a "Trust," and collectively, the "Trusts") is a named insured
under a certain joint insured fidelity bond (the "Bond") written by an approved
insurance company (the "Insurer") authorized to issue such an insured fidelity
bond and the Bond is in an amount intended to be in full compliance with Rule
17g-1 promulgated under the Investment Company Act of 1940, as amended; and
WHEREAS, the Trusts desire to enter into an agreement in order
to meet the requirements of Rule 17g-1(f) and to assure that premiums on the
Bond and any recovery received under the Bond are allocated in a fair and
equitable manner;
NOW, THEREFORE, in consideration of the foregoing and the
mutual agreements and covenants hereinafter set forth, the Trusts do hereby
agree as follows:
1. If Sierra Investment Advisors Corporation in the
future serves as investment manager or investment adviser to any additional
investment companies (each, an "Additional Trust"), and if the Insurer is
willing to add one or more of the Additional Trusts as a named insured or as
named insureds under the Bond, and if the amount of the Bond is increased by
an amount not less than the amount which would have been required for each such
Additional Trust to obtain a separate fidelity bond under Rule 17g-1(d), then
upon (i) the Additional Trust's giving written notice to each of the Trusts and
any Additional Trusts subject to this Agreement, (ii) the approval of the Board
of Trustees or Directors of each such Additional Trust, and (iii) the execution
of this Agreement by each such Additional Trust, each such Additional Trust
(each, an "Additional Insured") shall become subject to this Agreement effective
on the date each executes this Agreement, respectively.
2. On each anniversary date of the end of the current
term of the Bond or, if there is a replacement bond thereto, on the beginning
of the term of such replacement bond and each anniversary date of the beginning
of the term of such replacement bond (each such date, an "Anniversary Date"),
the premium payable on the Bond or replacement bond thereto (the most recent
such bond is referred to herein as the "Current Bond") by each of the Trusts
and any Additional Insureds shall be allocated in proportion to the amount of
premium that would have been payable by each of the Trusts and such Additional
Insureds had each of the Trusts and such Additional Insureds separately
obtained a fidelity bond equal to the minimum bond required under Rule 17g-1(d)
based upon their respective gross assets at the end of the most recent fiscal
quarter prior to the Anniversary Date ("Separate Bond").
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<PAGE> 2
3. In the event that the claims of loss of either (i)
any Additional Insured that does not have series funds, or (ii) any series fund
of a Trust or Additional Insured and (x) one or more other Additional Insureds
that does not have series funds, and/or (y) one or more other series funds of
one or more of the Trusts or Additional Insureds are so related that the
Insurer is entitled to assert that such claims must be aggregated, with the
result that the total amount payable on such claims is limited to the face
amount of the Current Bond, the following rules for determining, as between or
among any of the Additional Insureds or series funds that are entitled to
recover on such claims (each, a "Claimant"), the priorities for satisfaction of
the claims under the Current Bond shall apply:
A. First, all claims of each Trust and
Additional Insured that have been duly proven and established under the Current
Bond shall be satisfied in an aggregate amount equal to the minimum amount
required by Rule 17g-1(d) for a Separate Bond for such Claimant ("Separate Bond
Minimum");
B. Second, with respect to the claims of each
Claimant that is a series fund ("Series Claimant") of a Trust or an Additional
Insured having more than one series fund, such claims that have been duly
proven and established under the Current Bond shall be satisfied by dividing
the amount of the Separate Bond Minimum applicable to such Trust or Additional
Insured having more than one series fund among the Series Claimants of such
Trust or Additional Insured in proportion to the relative portion of the
premium paid by each such Series Claimant of the portion of the total premium
paid on the Current Bond by such Trust or Additional Insured; and
C. Third, if there remains an amount of
insurance proceeds payable on such claims after all such claims of the
Claimants are satisfied in the minimum amounts as provided above, such
remaining amount shall then be applied to such claims of the Trusts or
Additional Insureds that have been duly proven and established under the
Current Bond in proportion to the relative portion of the total premium paid on
the Current Bond by each such Trust or Additional Insured; and with respect to
the claims of each Series Claimant, such claims that have been duly proven and
established under the Current Bond shall be satisfied by dividing the portion
of such remaining amount of insurance proceeds applicable to such Trust or
Additional Insured having more than one series fund among the Series Claimants
of such Trust or Additional Insured in proportion to the relative portion of
the premium paid by each such Series Claimant of the portion of the total
premium paid on the Current Bond by such Trust or Additional Insured.
4. Attached hereto as Schedule 1 is a list of the
estimated gross assets of each of the Trusts and the Additional Insureds, if
any, as of February 14, 1996, together with a listing of the minimum fidelity
bond that would be required for each of the Trusts and such Additional Insureds
under Rule 17g-1(d) for an investment company having such gross assets.
5. Limitation of liability of the trustees and
shareholders. A copy of each of the Agreement and Declaration of Trust of the
Variable Trust, the Master Trust Agreement of the Trust Funds, and the
agreement and declaration of trust of each of the Additional Insureds that is
organized as a Massachusetts business trust (each, a "Massachusetts Trust") is
on file with the Secretary of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Trustees of each
of the Trusts and the Massachusetts Trusts as Trustees, and not individually,
and that the obligations of this instrument are not binding upon any of the
Trustees or shareholders of the Trusts and Massachusetts Trusts individually,
but are binding only upon the assets and property of the Trusts and/or
Massachusetts Trusts, respectively.
6. This Agreement is terminable, without penalty, with
respect to a Trust or Additional Insured, on 30 days' written notice, by the
Board of Trustees or Board of Directors of such Trust or Additional Insured;
provided that such written notice is made to each of the remaining parties to
this Agreement.
2
<PAGE> 3
IN WITNESS WHEREOF, the Trusts have caused this Agreement to
be executed by an officer thereunto duly authorized as of the date first above
written.
Sierra Trust Funds
By /s/ Keith B. Pipes
--------------------------------
Name: Keith B. Pipes
Title: Executive Vice President,
Treasurer and Secretary
The Sierra Variable Trust
By /s/ F. Brian Cerini
--------------------------------
Name: F. Brian Cerini
Title: Chairman and President
Sierra Prime Income Fund
By /s/ F. Brian Cerini
--------------------------------
Name: F. Brian Cerini
Title: Chairman and President
3
<PAGE> 4
SCHEDULE 1
INSURED BOND ANALYSIS
<TABLE>
<CAPTION>
Estimated Minimum
Gross Assets Amount of Bond
------------ --------------
<S> <C> <C>
Sierra Trust Funds
$3,500,000,000 $2,100,000
</TABLE>
<TABLE>
<CAPTION>
Estimated Minimum
Gross Assets Amount of Bond
------------ --------------
<S> <C> <C>
The Sierra Variable Trust
$ 450,000,000 $ 750,000
</TABLE>
<TABLE>
<CAPTION>
Estimated Minimum
Gross Assets Amount of Bond
------------ --------------
<S> <C> <C>
Sierra Prime Income Fund
$ 0** $ 0**
</TABLE>
* As of February 14, 1996
** Amount of Bond is based on estimated gross assets of $60,000,000 as of June
30, 1996 which would require a minimum Bond of $400,000.
4
<PAGE> 1
EX-99.B11(c)
AMENDED AND RESTATED
AGREEMENT CONCERNING
ALLOCATION OF JOINT LIABILITY
(ERRORS AND OMISSIONS)
INSURANCE POLICY PREMIUMS
This AMENDED AND RESTATED AGREEMENT is made and entered into
as of this 14th day of February, 1996, by and among the Sierra Trust Funds (the
"Trust Funds"), an unincorporated business trust organized under the laws of
the Commonwealth of Massachusetts, The Sierra Variable Trust (the "Variable
Trust"), an unincorporated business trust organized under the laws of the
Commonwealth of Massachusetts and each Additional Insured, as defined in
paragraph 1 below, that may become a party to this Agreement by execution of
this Agreement as provided in paragraph 1 below.
WITNESSETH:
WHEREAS, the Trustees, officers and certain employees of the
Trust Funds and the Variable Trust (each such Trustee, officer or employee, an
"Insured," and such Trustees, officers and employees collectively, the
"Insureds") are named insureds under a certain joint errors and omissions
liability insurance policy (the "Policy") written by an approved insurance
company (the "Insurer") authorized to issue such a policy and the Policy is in
an amount intended to be in full compliance with Rule 17d-1(d)(7) promulgated
under the Investment Company Act of 1940, as amended; and
WHEREAS, the Trust Funds and the Variable Trust (individually,
a "Trust," and collectively, the "Trusts") desire to enter into an agreement in
order to meet the requirements of Rule 17d-1(d)(7) and to assure that premiums
on the Policy are allocated in a fair and equitable manner;
NOW, THEREFORE, in consideration of the foregoing and the
mutual agreements and covenants hereinafter set forth, the Trusts do hereby
agree as follows:
1. If Sierra Investment Advisors Corporation in the
future serves as investment manager or investment adviser to any additional
investment companies (each, an "Additional Trust"), and if the Insurer is
willing to add one or more of the Additional Trusts as a named insured or as
named insureds under the Policy, and if the amount of the Policy is increased
by an amount that takes into account the gross assets and relative risks of
such Additional Trusts, then upon (i) the Additional Trust's giving written
notice to each of the Trusts and any Additional Trusts subject to this
Agreement, (ii) the approval of the Board of Trustees or Directors of each such
Additional Trust, and (iii) the execution of this Agreement by each such
Additional Trust, each such Additional Trust (each, an "Additional Insured")
shall become subject to this Agreement effective on the date each executes this
Agreement, respectively.
2. On each anniversary date of the end of the current
term of the Policy or, if there is a replacement policy thereto, on the
beginning of the term of such replacement policy and each anniversary date of
the beginning of the term of such replacement policy (each such date, an
"Anniversary Date"), the premium payable on the Policy or replacement policy
thereto (the most recent such policy is referred to herein as the "Current
Policy") by each of the Trusts and any Additional Insureds shall be allocated
in proportion to their respective gross assets at the end of the most recent
1
<PAGE> 2
fiscal quarter prior to the Anniversary Date as though each of the Trusts and
such Additional Insureds had separately obtained an insurance policy providing
coverage in such proportion.
3. In the event that the claims of loss of either (i)
any Additional Insured that does not have series funds, or (ii) any series fund
of a Trust or Additional Insured and (x) one or more other Additional Insureds
that does not have series funds, and/or (y) one or more other series funds of
one or more of the Trusts or Additional Insureds are so related that the
Insurer is entitled to assert that such claims must be aggregated, with the
result that the total amount payable on such claims is limited to the face
amount of the Current Policy, the following rules for determining, as between
or among any of the Additional Insureds or series funds that are entitled to
recover on such claims (each, a "Claimant"), the priorities for satisfaction of
the claims under the Current Policy shall apply:
A. First, all claims of each Trust and
Additional Insured that have been duly proven and established under the Current
Policy shall be satisfied in proportion to the relative portion of the total
premium paid on the Current Policy by each such Trust or Additional Insured;
and
B. Second, with respect to the claims of each
Claimant that is a series fund ("Series Claimant") of a Trust or an Additional
Insured having more than one series fund, such claims that have been duly
proven and established under the Current Policy shall be satisfied by dividing
the amount of the insurance proceeds payable to such Trust or Additional
Insured having more than one series fund, as provided in Section 3.A. above,
among the Series Claimants of such Trust or Additional Insured in proportion to
the relative portion of the premium paid by each such Series Claimant of the
portion of the total premium paid on the Current Policy by such Trust or
Additional Insured.
4. Attached hereto as Schedule 1 is a list of the
estimated gross assets of each of the Trusts and the Additional Insureds, if
any, as of February 14, 1996.
5. Limitation of liability of the Trustees and
-------------------------------------------
Shareholders. A copy of each of the Agreement and Declaration of Trust of the
- -------------
Variable Trust, the Master Trust Agreement of the Trust Funds, and the
agreement and declaration of trust of each of the Additional Insureds that is
organized as a Massachusetts business trust (each, a "Massachusetts Trust") is
on file with the Secretary of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Trustees of each
of the Trusts and the Massachusetts Trusts as Trustees, and not individually,
and that the obligations of this instrument are not binding upon any of the
Trustees or shareholders of the Trusts and Massachusetts Trusts individually,
but are binding only upon the assets and property of the Trusts and/or
Massachusetts Trusts, respectively.
6. This Agreement is terminable, without penalty, with
respect to a Trust or Additional Insured, on 30 days' written notice, by the
Board of Trustees or Board of Directors of such Trust or Additional Insured;
provided that such written notice is made to each of the remaining parties to
this Agreement.
2
<PAGE> 3
IN WITNESS WHEREOF, the Trusts and each Additional Insured, if any,
have caused this Agreement to be executed by an officer thereunto duly
authorized as of the date first above written.
Sierra Trust Funds
By /s/ Keith B. Pipes
------------------------------
Name: Keith B. Pipes
Title: Executive Vice President,
Treasurer and Secretary
The Sierra Variable Trust
By /s/ F. Brian Cerini
------------------------------
Name: F. Brian Cerini
Title: Chairman and President
Sierra Prime Income Fund
By /s/ F. Brian Cerini
------------------------------
Name: F. Brian Cerini
Title: Chairman and President
3
<PAGE> 4
SCHEDULE 1
LIABILITY INSURANCE ANALYSIS
<TABLE>
<CAPTION>
Estimated
Gross Assets
-------------
<S> <C>
Sierra Trust Funds
February 14, 1996 $ 3,500,000,000
The Sierra Variable Trust $ 450,000,000
February 14, 1996
Sierra Prime Income Fund $ 0
February 14, 1996
</TABLE>
4
<PAGE> 1
EX-99.B11(e)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 5 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 15, 1996, relating to the financial statements and financial
highlights of The Sierra Variable Trust, which appears in such Statement of
Additional Information, and to the incorporation by reference of our report
into the Prospectus which constitutes part of this Registration Statement. We
also consent to the references to us under the headings "Counsel and Auditor"
and "Financial Statements" in such Statement of Additional Information and to
the reference to us under the heading "Financial Highlights" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
- ------------------------------
Price Waterhouse LLP
Boston, Massachusetts
April 25, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> SVT GLOBAL MONEY FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 20,357,101
<INVESTMENTS-AT-VALUE> 20,357,101
<RECEIVABLES> 27,384
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 16,705
<TOTAL-ASSETS> 20,401,190
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28,316
<TOTAL-LIABILITIES> 28,316
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20,360,832
<SHARES-COMMON-STOCK> 20,369,543
<SHARES-COMMON-PRIOR> 6,158,879
<ACCUMULATED-NII-CURRENT> 8,764
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,278
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 20,372,874
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 660,151
<OTHER-INCOME> 0
<EXPENSES-NET> 57,251
<NET-INVESTMENT-INCOME> 602,900
<REALIZED-GAINS-CURRENT> 3,309
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 606,209
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (602,900)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19,730,400
<NUMBER-OF-SHARES-REDEEMED> (6,122,636)
<SHARES-REINVESTED> 602,900
<NET-CHANGE-IN-ASSETS> 14,213,973
<ACCUMULATED-NII-PRIOR> 5,473
<ACCUMULATED-GAINS-PRIOR> (31)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 56,870
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 115,194
<AVERAGE-NET-ASSETS> 11,374,044
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> SVT GROWTH FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 85,759,726
<INVESTMENTS-AT-VALUE> 99,433,107
<RECEIVABLES> 733,115
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 89,498
<TOTAL-ASSETS> 100,255,720
<PAYABLE-FOR-SECURITIES> 284,251
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 272,556
<TOTAL-LIABILITIES> 556,807
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 73,096,985
<SHARES-COMMON-STOCK> 6,342,412
<SHARES-COMMON-PRIOR> 5,465,399
<ACCUMULATED-NII-CURRENT> 12,981
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,024,922
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,564,025
<NET-ASSETS> 99,698,913
<DIVIDEND-INCOME> 551,582
<INTEREST-INCOME> 670,896
<OTHER-INCOME> 0
<EXPENSES-NET> 989,271
<NET-INVESTMENT-INCOME> 233,207
<REALIZED-GAINS-CURRENT> 13,163,281
<APPREC-INCREASE-CURRENT> 11,252,480
<NET-CHANGE-FROM-OPS> 24,648,968
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (231,062)
<DISTRIBUTIONS-OF-GAINS> (2,321)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,131,853
<NUMBER-OF-SHARES-REDEEMED> (271,654)
<SHARES-REINVESTED> 16,814
<NET-CHANGE-IN-ASSETS> 36,936,342
<ACCUMULATED-NII-PRIOR> 274,870
<ACCUMULATED-GAINS-PRIOR> (403,363)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 718,734
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 993,642
<AVERAGE-NET-ASSETS> 79,998,135
<PER-SHARE-NAV-BEGIN> 11.48
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 4.24
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> (0.00)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.72
<EXPENSE-RATIO> 1.24
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> SVT INTERNATIONAL FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 43,329,626
<INVESTMENTS-AT-VALUE> 44,828,008
<RECEIVABLES> 161,553
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,141,298
<TOTAL-ASSETS> 46,130,859
<PAYABLE-FOR-SECURITIES> 109,487
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 112,514
<TOTAL-LIABILITIES> 222,001
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 44,254,550
<SHARES-COMMON-STOCK> 3,790,504
<SHARES-COMMON-PRIOR> 4,055,147
<ACCUMULATED-NII-CURRENT> 702,004
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (569,940)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,522,244
<NET-ASSETS> 45,908,858
<DIVIDEND-INCOME> 860,576
<INTEREST-INCOME> 169,378
<OTHER-INCOME> 0
<EXPENSES-NET> 636,220
<NET-INVESTMENT-INCOME> 393,734
<REALIZED-GAINS-CURRENT> (123,145)
<APPREC-INCREASE-CURRENT> 2,505,368
<NET-CHANGE-FROM-OPS> 2,775,957
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,103)
<DISTRIBUTIONS-OF-GAINS> (440,869)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 430,784
<NUMBER-OF-SHARES-REDEEMED> (734,961)
<SHARES-REINVESTED> 39,534
<NET-CHANGE-IN-ASSETS> (620,073)
<ACCUMULATED-NII-PRIOR> 38,824
<ACCUMULATED-GAINS-PRIOR> 263,332
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 411,331
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 640,832
<AVERAGE-NET-ASSETS> 43,298,049
<PER-SHARE-NAV-BEGIN> 11.47
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> 0.58
<PER-SHARE-DIVIDEND> (0.00)
<PER-SHARE-DISTRIBUTIONS> (0.12)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.11
<EXPENSE-RATIO> 1.47
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> SVT U.S. GOVERNMENT FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 57,107,881
<INVESTMENTS-AT-VALUE> 59,412,039
<RECEIVABLES> 574,703
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 56,920
<TOTAL-ASSETS> 60,043,662
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,740,168
<TOTAL-LIABILITIES> 7,740,168
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 52,108,968
<SHARES-COMMON-STOCK> 5,229,508
<SHARES-COMMON-PRIOR> 4,772,794
<ACCUMULATED-NII-CURRENT> 20,383
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,083,272)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,257,415
<NET-ASSETS> 52,303,494
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,947,453
<OTHER-INCOME> 34,512
<EXPENSES-NET> 831,058
<NET-INVESTMENT-INCOME> 3,150,907
<REALIZED-GAINS-CURRENT> (1,055,040)
<APPREC-INCREASE-CURRENT> 5,154,571
<NET-CHANGE-FROM-OPS> 7,250,438
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,097,100)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 699,076
<NUMBER-OF-SHARES-REDEEMED> (559,408)
<SHARES-REINVESTED> 317,046
<NET-CHANGE-IN-ASSETS> 8,721,666
<ACCUMULATED-NII-PRIOR> 43,240
<ACCUMULATED-GAINS-PRIOR> (1,108,187)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 282,956
<INTEREST-EXPENSE> 357,918
<GROSS-EXPENSE> 840,015
<AVERAGE-NET-ASSETS> 47,159,322
<PER-SHARE-NAV-BEGIN> 9.13
<PER-SHARE-NII> 0.64
<PER-SHARE-GAIN-APPREC> 0.87
<PER-SHARE-DIVIDEND> (0.64)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 591,776
<AVG-DEBT-PER-SHARE> 0.12
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> SVT CORPORATE INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 57,563,292
<INVESTMENTS-AT-VALUE> 61,682,058
<RECEIVABLES> 1,119,019
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 14,404
<TOTAL-ASSETS> 62,815,481
<PAYABLE-FOR-SECURITIES> 1,029,940
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,109,291
<TOTAL-LIABILITIES> 2,139,231
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 58,626,990
<SHARES-COMMON-STOCK> 5,792,000
<SHARES-COMMON-PRIOR> 6,036,768
<ACCUMULATED-NII-CURRENT> 29,513
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,099,055)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,118,752
<NET-ASSETS> 60,676,250
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,498,682
<OTHER-INCOME> 10,731
<EXPENSES-NET> 557,186
<NET-INVESTMENT-INCOME> 3,952,227
<REALIZED-GAINS-CURRENT> (644,235)
<APPREC-INCREASE-CURRENT> 9,369,643
<NET-CHANGE-FROM-OPS> 12,677,635
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,433,630)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 489,186
<NUMBER-OF-SHARES-REDEEMED> (1,183,596)
<SHARES-REINVESTED> 449,642
<NET-CHANGE-IN-ASSETS> 5,970,799
<ACCUMULATED-NII-PRIOR> 521,326
<ACCUMULATED-GAINS-PRIOR> (1,468,471)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 367,022
<INTEREST-EXPENSE> 153
<GROSS-EXPENSE> 558,250
<AVERAGE-NET-ASSETS> 56,464,989
<PER-SHARE-NAV-BEGIN> 9.06
<PER-SHARE-NII> 0.70
<PER-SHARE-GAIN-APPREC> 1.50
<PER-SHARE-DIVIDEND> (0.78)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.48
<EXPENSE-RATIO> 0.99
<AVG-DEBT-OUTSTANDING> 573,736
<AVG-DEBT-PER-SHARE> 0.10
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> SVT SHORT TERM GLOBAL GOVERNMENT FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 22,742,927
<INVESTMENTS-AT-VALUE> 23,410,534
<RECEIVABLES> 1,154,090
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 14,704
<TOTAL-ASSETS> 24,579,328
<PAYABLE-FOR-SECURITIES> 384,316
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 390,418
<TOTAL-LIABILITIES> 774,734
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,322,194
<SHARES-COMMON-STOCK> 9,536,788
<SHARES-COMMON-PRIOR> 12,668,587
<ACCUMULATED-NII-CURRENT> 323,195
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (309,022)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 468,227
<NET-ASSETS> 23,804,594
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,033,366
<OTHER-INCOME> 0
<EXPENSES-NET> 340,464
<NET-INVESTMENT-INCOME> 1,692,902
<REALIZED-GAINS-CURRENT> (990,886)
<APPREC-INCREASE-CURRENT> 1,264,750
<NET-CHANGE-FROM-OPS> 1,966,766
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (375,446)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,661,187
<NUMBER-OF-SHARES-REDEEMED> (4,943,164)
<SHARES-REINVESTED> 150,178
<NET-CHANGE-IN-ASSETS> (5,999,296)
<ACCUMULATED-NII-PRIOR> 9,731
<ACCUMULATED-GAINS-PRIOR> (325,419)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 204,272
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 343,769
<AVERAGE-NET-ASSETS> 27,236,285
<PER-SHARE-NAV-BEGIN> 2.35
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> 0.12
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 2.50
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> SVT EMERGING GROWTH FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 38,057,556
<INVESTMENTS-AT-VALUE> 46,118,228
<RECEIVABLES> 324,261
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 67,698
<TOTAL-ASSETS> 46,510,187
<PAYABLE-FOR-SECURITIES> 362,249
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 89,538
<TOTAL-LIABILITIES> 451,787
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 36,444,313
<SHARES-COMMON-STOCK> 3,350,979
<SHARES-COMMON-PRIOR> 1,888,634
<ACCUMULATED-NII-CURRENT> 6,696
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,556,967
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,050,424
<NET-ASSETS> 46,058,400
<DIVIDEND-INCOME> 97,158
<INTEREST-INCOME> 161,398
<OTHER-INCOME> 0
<EXPENSES-NET> 366,277
<NET-INVESTMENT-INCOME> (107,721)
<REALIZED-GAINS-CURRENT> 2,215,290
<APPREC-INCREASE-CURRENT> 6,817,899
<NET-CHANGE-FROM-OPS> 8,925,463
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (106,321)
<DISTRIBUTIONS-OF-GAINS> (1,520)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,510,732
<NUMBER-OF-SHARES-REDEEMED> (57,838)
<SHARES-REINVESTED> 9,451
<NET-CHANGE-IN-ASSETS> 26,173,671
<ACCUMULATED-NII-PRIOR> 106,321
<ACCUMULATED-GAINS-PRIOR> (542,386)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 270,758
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 388,405
<AVERAGE-NET-ASSETS> 30,462,543
<PER-SHARE-NAV-BEGIN> 10.53
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> 3.26
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> (0.00)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.74
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> SVT GROWTH AND INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 41,969,519
<INVESTMENTS-AT-VALUE> 45,848,646
<RECEIVABLES> 640,625
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,400
<TOTAL-ASSETS> 46,490,671
<PAYABLE-FOR-SECURITIES> 52,888
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 75,941
<TOTAL-LIABILITIES> 128,829
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,041,238
<SHARES-COMMON-STOCK> 3,612,541
<SHARES-COMMON-PRIOR> 2,534,217
<ACCUMULATED-NII-CURRENT> 436,763
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,004,714
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,879,127
<NET-ASSETS> 46,361,842
<DIVIDEND-INCOME> 697,387
<INTEREST-INCOME> 98,899
<OTHER-INCOME> 0
<EXPENSES-NET> 356,173
<NET-INVESTMENT-INCOME> 440,113
<REALIZED-GAINS-CURRENT> 4,042,494
<APPREC-INCREASE-CURRENT> 4,545,904
<NET-CHANGE-FROM-OPS> 9,028,511
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (178,328)
<DISTRIBUTIONS-OF-GAINS> (277,094)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,230,772
<NUMBER-OF-SHARES-REDEEMED> (129,119)
<SHARES-REINVESTED> 39,671
<NET-CHANGE-IN-ASSETS> 21,456,458
<ACCUMULATED-NII-PRIOR> 174,965
<ACCUMULATED-GAINS-PRIOR> 239,327
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 268,781
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 390,768
<AVERAGE-NET-ASSETS> 33,597,656
<PER-SHARE-NAV-BEGIN> 9.83
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 3.05
<PER-SHARE-DIVIDEND> (0.07)
<PER-SHARE-DISTRIBUTIONS> (0.10)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.83
<EXPENSE-RATIO> 1.06
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> SVT SHORT TERM HIGH QUALITY
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 12,611,750
<INVESTMENTS-AT-VALUE> 12,808,229
<RECEIVABLES> 108,640
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 8,803
<TOTAL-ASSETS> 12,925,672
<PAYABLE-FOR-SECURITIES> 533,942
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27,034
<TOTAL-LIABILITIES> 560,976
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,303,717
<SHARES-COMMON-STOCK> 4,957,332
<SHARES-COMMON-PRIOR> 6,513,809
<ACCUMULATED-NII-CURRENT> 26,628
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (162,128)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 196,479
<NET-ASSETS> 12,364,696
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 984,762
<OTHER-INCOME> 0
<EXPENSES-NET> 119,981
<NET-INVESTMENT-INCOME> 864,781
<REALIZED-GAINS-CURRENT> (254,466)
<APPREC-INCREASE-CURRENT> 630,236
<NET-CHANGE-FROM-OPS> 1,240,551
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (652,464)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,815,328
<NUMBER-OF-SHARES-REDEEMED> (3,648,620)
<SHARES-REINVESTED> 276,815
<NET-CHANGE-IN-ASSETS> (3,182,681)
<ACCUMULATED-NII-PRIOR> 45,834
<ACCUMULATED-GAINS-PRIOR> (139,185)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 69,756
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 141,488
<AVERAGE-NET-ASSETS> 14,076,294
<PER-SHARE-NAV-BEGIN> 2.39
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 0.10
<PER-SHARE-DIVIDEND> (0.12)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 2.49
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
