THE SIERRA VARIABLE TRUST
ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1995
SIERRA
ADVANTAGE
A TAX-DEFERRED VARIABLE ANNUITY
<PAGE>
CONTENTS
1
MESSAGE FROM THE PRESIDENT
2
1995 YEAR IN REVIEW / 1996 OUTLOOK
4
INDIVIDUAL FUND REVIEWS
22
STATEMENTS OF ASSETS & LIABILITIES
24
STATEMENTS OF OPERATIONS
26
STATEMENTS OF CHANGES IN NET ASSETS
30
STATEMENTS OF CHANGES IN NET ASSETS - CAPITAL STOCK ACTIVITY
32
STATEMENT OF CASH FLOWS
33
FINANCIAL HIGHLIGHTS
42
PORTFOLIO OF INVESTMENTS
61
NOTES TO FINANCIAL STATEMENTS
73
REPORT OF INDEPENDENT ACCOUNTANTS
74
MEETING OF SHAREHOLDERS
<PAGE>
MESSAGE FROM THE PRESIDENT
DEAR CONTRACT OWNER:
We are pleased to provide you with The Sierra Variable Trust Annual Report for
the 12-month period ended December 31, 1995.
Over the past year, strong performances in the U.S. financial markets were very
positive reminders that staying invested through periods of market turbulence
can be a wise strategy.
In 1995, equity mutual funds averaged returns of 31.08%, while bond funds on
average returned 15.20% according to Lipper Analytical Services.* This positive
market environment was in sharp contrast to 1994, when rising interest rates and
fears of impending inflation led to sharp declines in the prices of
intermediate- and long-term bonds, as well as generally lackluster performance
in stock investments.
The past year was also a favorable one for The Sierra Variable Trust, and our
commitment to professional portfolio management has continued to successfully
serve Sierra Advantage Contract Owners. Today, the Sierra Advantage Tax-Deferred
Variable Annuity is one of the largest and fastest-growing proprietary variable
annuities in the nation, with $407 million in assets under management as of
December 31, 1995.
As the markets propelled to new highs, a number of The Sierra Variable Trust
Funds provided Sierra Advantage Contract Owners with significant, double-digit
total returns for the 12 months ended December 31, 1995. Additionally, for this
one-year time period, The Sierra Variable Trust Corporate Income Fund and
Emerging Growth Fund achieved outstanding total return performance recognition
from Lipper Analytical Services. The Corporate Income Fund was ranked Fifth
among a total of 163 funds in the Corporate Debt BBB category, and the Emerging
Growth Fund was ranked Number One by Lipper among a total of 131 funds in the
Global Funds category for the one-year period ending December 31,1995.**
Over the past year, the Dow Jones Industrial Average's record-breaking surge
past 5,000 captured public attention, and may well have contributed to record
inflows to stock mutual funds.
* * *
The past year was also
a favorable one for The
Sierra Variable Trust
* * *
However, this surge into equity funds, coinciding with the Dow Jones Industrial
Average breaking through the 5,000 level in November, may suggest that many
investors may be attempting to "time" the market in managing their investments.
Market timing is the practice of attempting to buy investments when prices are
rising and sell when prices begin to decline. Unfortunately, many investors who
practice this strategy often run the risk of substantially underperforming the
markets, as even the top economists and market strategists can't always time the
market.
Historical data shows that investors who stay invested through both up- and
down-market cycles can substantially affect their returns. For example, missing
just the three best months in the S&P 500 from January 1, 1990, through December
31, 1995, would have reduced an investor's compound average annual return from
13.02% to 8.04%.***
Rather than focusing on the market's current strength or weakness, we believe
that investors will be better served by working with their Investment
Representative to establish specific investment goals and develop an appropriate
long-term strategy. Investing on a regular basis, diversification, and a
long-term horizon are keys to reaching your financial goals, throughout changing
market climates.
The Sierra Advantage Tax-Deferred Variable Annuity offers a number of
diversification opportunities, including the Sierra Asset Management Program,
that are designed to help manage risk and meet specific investment goals.
Working closely with your Investment Representative can help ensure that you are
properly diversified to benefit from the current market environment and achieve
your long-term financial objectives.
Thank you for selecting the Sierra Advantage Variable Annuity with investments
in The Sierra Variable Trust. We appreciate the confidence you have placed with
us, and look forward to serving your investment needs in the years to come.
Sincerely,
/s/ F. Brian Cerini
F. BRIAN CERINI
Chairman and President
The Sierra Variable Trust
* Past performance of these unmanaged indexes is no indication of their
future results or the results of The Sierra Variable Trust Funds.
** Lipper rankings exclude sales charges. Rankings represent past performance
and are no guarantee of future results.
*** Source: Ibbotson Associates. The market is represented by the Standard &
Poor's Composite of 500 stocks, a group of unmanaged stocks regarded to be
representative of the stock market in general. Results assume the
reinvestment of dividends and capital gains. Past performance is no
guarantee of future results.
1
<PAGE>
1995 YEAR IN REVIEW & 1996 OUTLOOK
[BAR GRAPH]
1995 MARKET RETURNS OF MAJOR ASSET CLASSES
Treasury Bills...................5.81%
Long-Term Bonds.................29.93%
Small Company Stocks............34.46%
Large Company Stocks............37.58%
International Stocks............11.21%
SOURCES: IBBOTSON ASSOCIATES - T-BILLS REPRESENT 90-DAY U.S. TREASURY BILLS;
BONDS ARE REPRESENTED BY LEHMAN BROTHERS LONG-TERM GOVERNMENT AND CORPORATE BOND
INDEX; SMALL COMPANY STOCKS ARE REPRESENTED BY IBBOTSON SMALL COMPANY INDEX.
LARGE COMPANY STOCKS ARE REPRESENTED BY S&P 500 COMPOSITE INDEX. INTERNATIONAL
STOCKS ARE REPRESENTED BY MSCI EAFE INDEX. INDEXES REPRESENT UNMANAGED
PERFORMANCE. T-BILLS ARE GENERALLY CONSIDERED THE SAFEST SECURITIES BECAUSE THEY
ARE SHORT TERM AND OFFER A FIXED YIELD AT MATURITY, WHICH IS GUARANTEED BY THE
U.S. GOVERNMENT. GOVERNMENT BONDS ARE RISKIER THAN T-BILLS BECAUSE OF THE LONGER
MATURITIES, YET THEY ARE GENERALLY SUBJECT TO LESS CREDIT RISK, BECAUSE THE
INTEREST PAYMENTS AND RETURN OF PRINCIPAL ARE ALSO BACKED BY THE U.S.
GOVERNMENT, IF HELD TO MATURITY. AN INVESTOR WOULD TYPICALLY PURCHASE STOCKS FOR
LONG-TERM GROWTH OF CAPITAL. HOWEVER, STOCKS ARE OFTEN SUBJECT TO SIGNIFICANT
PRICE FLUCTUATIONS AND THEREFORE AN INVESTOR MAY HAVE A GAIN OR LOSS IN
PRINCIPAL WHEN THE SHARES ARE SOLD. THIS CHART IS NOT INTENDED TO REPRESENT THE
PERFORMANCE OF ANY SIERRA VARIABLE TRUST FUND.
By almost any measure, the performance of U.S. investment markets in 1995 far
exceeded investor expectations. The meteoric rise - 37.58% through 12/31/95 - of
the S&P 500 (Standard & Poor's Composite Index of 500 Stocks), was even more
impressive coming after a disappointing 1994. The U.S. bond market recovered
spectacularly as well. Long-term bonds returned 29.93% for the 12 months ended
December 31, as yields on the 30-year Treasury bond fell to slightly under 6%,
the lowest level in two years.
MARKET HIGHLIGHTS
Over the past year, moderate economic growth and low inflation were positive
factors for both stocks and bonds. With inflation remaining in check, the
Federal Reserve reversed course in mid-1995 and began lowering short-term
interest rates. From July through December, the Federal Reserve cut short-term
rates on two separate occasions. This led to rallies in both the stock and bond
markets, as long-term interest rates also fell.
Strength in the bond markets, resulting primarily from falling interest rates,
also reflected investor expectations that Congress and the Clinton
administrations would reach an agreement on a balanced budget and tax relief in
1996.
In the U.S. stock market, 1995 attention focused on the record-breaking surge of
the Dow Jones Industrial Average through 4,000 early last year and 5,000 just
before Thanksgiving. It took 88 years for the Dow to cross 1,000 but its sprint
from 4,000 to 5,000 took just nine months. In early 1996, the Dow has continued
to reach new highs.
Continued strength in corporate earnings contributed to the stock market's
climb. Pre-tax corporate profits for non-financial U.S. companies were expected
to approach $500 billion in 1995, nearly double that of 1992. Profits were also
exceptionally strong in certain market segments. For example, small-cap stocks
as a group performed well in the first half of the year but were outpaced by the
broader market in the fourth quarter, with small company stocks returning 34.46%
for the full year.
FACTORS FOR 1996
Looking ahead to factors that may affect the U.S. markets in 1996, it is
expected that the economic growth rate will be slightly below 3%, with inflation
at roughly the same level. As a result, interest rates should remain generally
stable, adjusting up or down in response to growth and inflation outlooks.
Moderate growth and low inflation should be positive indicators for stocks and
stock mutual funds. However, market returns may be constrained by slower growth
in corporate earnings. Many estimates put the current price-to-earnings ratio
(share prices divided by corporate earnings) for stocks in the S&P 500 at about
17. This compares favorably with historical levels, and may indicate that in
general, the stock market is reasonably priced.
In the coming year, however, if earnings "surprises" are on the negative side,
it may result in temporary periods of market fluctuation or weakness. On the
other hand, weak earnings don't always cause market reactions if such weakness
is expected to be temporary.
2
<PAGE>
The U.S. corporate sector has excelled at restructuring, writing off
unproductive assets, downsizing, and merging or spinning off to increase
efficiencies. Although there is a chance that stock prices could be negatively
impacted by over-valuation in certain areas, we remain optimistic over the long
term for strong earnings growth among individual companies.
For example, we see long-term opportunity for many global companies, regardless
of economic cycles domestically. As firms sell into global markets, they start
to protect their businesses from the cyclical conditions of any one market,
accelerate the demand for their products, and thus improve profitability.
POSITIVE LONG-TERM OUTLOOK
Although a more cautious approach to investing may be necessary over the next
year, we see many trends underway that will over time, strongly support a
positive outlook for not only U.S. companies, but companies around the world as
well.
Over the long term, efforts to balance the federal budget and cut the government
deficit, if successful, should also be positive for the U.S. economy and the
markets. As the borrowing needs of the U.S. government decline, so might
long-term interest rates. Low inflation and stable or declining interest rates
should have a very positive impact on the bond market.
Additionally, the fact that Baby Boomers are reaching their peak earning and
saving years is a longer-term, structural change that could positively impact
financial markets.
About one-third of the U.S. population is composed of Boomers, a generation
whose members are increasingly taking notice of the need to take personal
responsibility for retirement planning and investing. This group contributed
substantially to last year's surge in the amount of money invested in stock and
bond mutual funds (nearly $2 trillion today, compared to $77 billion in 1982).
Assuming economic fundamentals remain favorable, this source of buying power
should remain strong.
INTERNATIONAL MARKETS SHOW POTENTIAL
Although not turning in as strong a performance as the U.S. stock market, many
foreign markets posted positive returns in 1995. For the year ending December
31, 1995, international stocks represented by Morgan Stanley Capital
International's EAFE Index returned 11.21% in U.S. dollar terms.
[FOLLOWING IS A LINE CHART SHOWING THE DOW JONES AVERAGES FROM 1983 TO 1995]
[THE PLOT POINTS ARE AS FOLLOWS]
DOW JONES INDUSTRIAL AVERAGE
as of December 31, 1995
THE DOW REACHED NEW HIGHS IN 1995
DATE AVERAGE
---- -------
12/31/83 1258.64
12/31/84 1211.57
12/31/85 1546.67
12/31/86 1895.95
12/31/87 1938.83
12/31/88 2168.57
12/31/89 2753.20
12/31/90 2633.66
12/31/91 3168.80
12/31/92 3301.12
12/31/93 3754.10
12/31/94 3834.44
12/31/95 5117.12
SOURCE: BLOOMBERG BUSINESS NEWS
Since 1993, many investors have been disappointed with the relatively slow pace
of economic growth abroad and the resulting lackluster returns on foreign
investments. However, many of these markets are beginning to appear increasingly
undervalued relative to the U.S. stock market. As a result, institutional money
managers, including pension funds and insurers, are beginning to allocate a
slightly larger percentage of their portfolios to foreign markets in 1996.
Japan, representing one of the largest foreign stock markets, showed signs of
stronger economic growth and significant market recovery in the latter part of
1995. One reason for investor optimism is the recent stabilization of the value
of the yen compared to the dollar at levels that appear to allow Japanese
companies to earn a profit on exports to the U.S. In addition, extremely low
interest rates and large-scale government spending in Japan has led economists
to project a 2% increase in GDP in 1996.
Emerging market countries, in large part, recovered during the year from the
massive capital outflows experienced at the end of 1994 and early in 1995.
Emerging markets are expected to receive an increased percentage of
institutional investors' allocations in 1996.
HOW INVESTORS CAN PREPARE IN 1996 AND BEYOND
The past year provided very positive returns for many mutual fund investors.
However, inevitable market swings, such as those that occurred in 1994,
accompany all long-term investment cycles. Investors' expectations should
therefore be geared for these normal market events.
While you can't eliminate investment risk altogether, you can effectively manage
risk by maintaining a long-term investment perspective, diversifying your assets
among the appropriate combination of investment categories, and periodically
reviewing your portfolio to ensure that it remains on track to achieve your
financial objectives.
Clear objectives and portfolio diversification will help you manage risk and
protect your investments from most unforeseen economic or market changes. The
new year is an ideal time to meet with your Investment Representative to review
your portfolio and ensure that it remains appropriately structured to meet your
goals in any market environment.
* * *
3
<PAGE>
INDIVIDUAL FUND REVIEWS
TO OUR CONTRACT OWNERS:
WE ARE PLEASED TO PROVIDE YOU WITH AN OVERVIEW OF THE FUNDS IN THE SIERRA
VARIABLE TRUST FAMILY (EXCEPT THE GLOBAL MONEY FUND) FOR THE 12-MONTH PERIOD
ENDED DECEMBER 31, 1995. TO HELP YOU BETTER UNDERSTAND THE HIGH QUALITY
INVESTMENT MANAGEMENT AVAILABLE TO YOU AS A SIERRA ADVANTAGE CONTRACT OWNER, WE
HAVE ALSO INCLUDED BIOGRAPHIES HIGHLIGHTING THE INDIVIDUALS MANAGING THE FUNDS.
THE FUNDS OF THE SIERRA VARIABLE TRUST MAY NOT BE PURCHASED DIRECTLY BUT ARE
CURRENTLY AVAILABLE ONLY THROUGH PURCHASE OF SIERRA ADVANTAGE, A TAX-DEFERRED
VARIABLE ANNUITY ISSUED BY AMERICAN GENERAL LIFE INSURANCE COMPANY. ANNUITY
CONTRACT OWNER VALUES WILL DEPEND NOT ONLY ON THE PERFORMANCE OF THE FUNDS, BUT
ALSO ON THE MORTALITY AND EXPENSE RISK CHARGES AND THE ADMINISTRATIVE CHARGES
UNDER THE SIERRA ADVANTAGE VARIABLE ANNUITY CONTRACT.
4
<PAGE>
INDIVIDUAL FUND REVIEWS
SIERRA INVESTMENT ADVISORS CORPORATION
Sierra Investment Advisors Corporation ("Sierra Advisors"), a registered
investment advisor, is the investment advisor to The Sierra Variable Trust, and
has general oversight responsibility for the services provided to the Funds.
These services include formulating the Funds' investment policies, analyzing
economic trends affecting the Funds, and directing and evaluating the investment
services provided by the Sub-Advisors and the Individual Portfolio Managers of
each Fund. Sierra Advisors supervises the Portfolio Managers' day-to-day
management of the Funds in The Sierra Variable Trust family to ensure that the
policies and guidelines are met, and to determine appropriate investment
performance measures.
STEPHEN C. SCOTT
PRESIDENT & CHIEF
INVESTMENT OFFICER
Mr. Scott received his B.A. and M.B.A. from California State University, Long
Beach. He joined the firm in 1988, and is responsible for providing economic
analysis, as well as conducting investment analysis and management for the
Sierra Asset Management (SAM) Program. Prior to joining Sierra Advisors, Mr.
Scott was President & Chairman of his own firm, SDS Investment Advisors, after
nine years as Senior Pension Investment Manager with the Group Pension and
Investment Division of The Equitable Life Assurance Society of the United
States.
MICHAEL D. GOTH
CHIEF OPERATING OFFICER
Mr. Goth received his B.S. and M.S. degrees from Rensselaer Polytechnic
Institute of New York, and M.B.A. from Harvard Business School. He joined the
firm in 1991 and is responsible for the supervision of The Sierra Variable
Trust's Portfolio Managers. Previously, he served as Vice President of The
Boston Company Advisors, Inc. He also served as Executive Vice President of the
GIT Mutual Fund Group for over ten years.
UNDERSTANDING THE ENCLOSED CHARTS
In order to help you understand The Sierra Variable Trust's investment
performance, we have included the following discussions along with graphs that
compare the Funds' performance with certain market indices. Descriptions of
these indices are provided next to the individual graphs on the following pages.
Generally, an index represents the market value of an unmanaged group of
securities, regarded by investors as representative of a particular market. An
index does not reflect any asset-based charges for investment management or
other expenses. The total returns shown for the Funds are not an estimate or
guarantee of future performance and do not take into account charges at the
annuity and separate account level.
The total returns of the Funds reflect Sierra Advisors' and Sierra Fund
Administration Corporation's ("Sierra Administration") voluntary waiver of fees,
Sierra Advisors' absorption of certain expenses, and the Custodian's reduction
of fees by credits. Total returns would have been lower if these fees and
expenses had not been waived, absorbed, or fees reduced by credits.
Both the Funds' performance results and the market indices reflect total
reinvestment of income, dividends, and capital gains. The unit values of these
variable options will fluctuate with market conditions.
Yield indicates the investment income per share as a percentage of the offering
price, whereas total return includes both net investment income and changes in
the value of the shares as a percentage of the initial investment. The 30-day
SEC yield is the yield calculated pursuant to a standard formula required by the
Securities and Exchange Commission ("SEC") for performance advertisement
purposes, and does not imply any endorsement or recommendation by the SEC.
5
<PAGE>
SHORT TERM HIGH QUALITY BOND FUND
PORTFOLIO MANAGER:
SCUDDER, STEVENS & CLARK, INC.
THOMAS M. POOR
Mr. Poor, Managing Director of Scudder, is the portfolio manager for the SHORT
TERM HIGH QUALITY BOND FUND. He is a Chartered Financial Analyst and has been
with Scudder since 1970. Mr. Poor has had primary investment management
responsibility for the Fund since its inception.
PERFORMANCE REVIEW:
From the Fund's inception (January 12, 1994) through December 31, 1995, the
SHORT TERM HIGH QUALITY BOND FUND'S average annual total return advanced 3.76%.
For the 12-month period ended December 31, 1995, the Fund's total return was
9.30%. The Fund's 30-day SEC yield as of December 31, 1995, was 5.74%. For
additional information, see the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE 12-MONTH PERIOD ENDED DECEMBER 31, 1995?
The last 12 months produced an economic backdrop that was quite favorable for
bond investors. U.S. economic growth remained moderate as businesses reduced
inventories, foreign economies continued to falter, and consumer spending was
flat. Meanwhile, inflation stayed subdued and even showed signs of decreasing.
The Federal Reserve greeted this impressive inflation result by lowering
short-term interest rates by 0.25 percent on two occasions during the year.
After falling for the first half of 1995, the U.S. Dollar also staged a dramatic
comeback against the Japanese Yen. Adding to this positive economic environment
was the potential for a credible deficit reduction plan. As the Republicans
gained power in Congress, deficit reduction and a balanced budget moved to the
forefront of the political agenda. With interest rates falling as a result of
slow economic growth and modest inflation, the Fund's performance benefited
significantly during the year.
[THE FOLLOWING LINE GRAPH COMPARES A $10,000 INVESTMENT IN THE SHORT TERM HIGH
QUALITY BOND FUND TO A $10,000 INVESTMENT IN THE LEHMAN BROTHERS MUTUAL FUND
SHORT (1-5) INVESTMENT GRADE DEBT INDEX FOR THE PERIODS SHOWN.]
[PLOT POINTS ARE AS FOLLOWS]
Growth of a $10,000 investment
<TABLE>
<CAPTION>
LEHMAN BROTHERS MUTUAL
FUND SHORT (1-5)
INVESTMENT GRADE
FUND DEBT INDEX
<S> <C> <C>
Inception January 12, 1994....... 10,000 10,000
January 1994..................... 10,000 10,000
February 1994.................... 9,960 9,898
March 1994....................... 9,920 9,785
April 1994....................... 9,880 9,726
May 1994......................... 9,880 9,743
June 1994........................ 9,880 9,770
July 1994........................ 9,961 9,898
August 1994...................... 10,001 9,942
September 1994................... 9,953 9,887
October 1994..................... 9,994 9,899
November 1994.................... 9,994 9,843
December 1994.................... 9,838 9,864
January 1995..................... 9,838 10,027
February 1995.................... 9,921 10,227
March 1995....................... 9,999 10,291
April 1995....................... 10,081 10,412
May 1995......................... 10,288 10,680
June 1995........................ 10,329 10,750
July 1995........................ 10,329 10,778
August 1995...................... 10,413 10,871
September 1995................... 10,455 10,942
October 1995..................... 10,583 11,049
November 1995.................... 10,668 11,182
December 1995.................... 10,753 11,288
</TABLE>
THE ABOVE LINE GRAPH DOES NOT REFLECT ADMINISTRATIVE FEES OR OTHER EXPENSES
CHARGED BY AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT D THROUGH
WHICH SHARES OF THE FUND ARE PURCHASED.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/95 6 MONTH 1 YEAR SINCE INCEPTION
------- ------ ---------------
(January 12, 1994)
<S> <C> <C> <C>
Fund 4.10% 9.30% 3.76%
Lehman Brothers Mutual Fund Short (1-5) Investment Grade Debt Index* 5.00% 14.44% 6.52%
</TABLE>
*Index total returns were calculated from 1/31/94 to 12/31/95. The Lehman
Brothers Mutual Fund Short (1-5) Investment Grade Debt Index includes all
investment-grade corporate debt securities with maturities of one to five years,
assumes reinvestment of all dividends/distributions, and does not reflect any
asset-based charges for investment management or other expenses. Past investment
performance does not guarantee future performance. The returns for the Fund
assume reinvestment of all dividends/distributions by the shareholder.
During the period noted, the Advisor (Sierra Investment Advisors Corporation)
and Administrator (Sierra Fund Administration Corporation) waived a portion of
their management fees, and the Custodian reduced fees by credits. In the absence
of the waivers or fees reduced by credits, yield and total return would have
been lower.
6
<PAGE>
SHORT TERM HIGH QUALITY BOND FUND
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
The Fund's duration or sensitivity to interest rates began the year at a
defensive six months but was extended to 2 years in February and to
approximately 2.5 years for most of the third and fourth quarters. As interest
rates in the 2- to 3-year area dropped over 250 basis points during the year,
the value of the Fund rose considerably. Duration in the Fund remains high in
anticipation of a slowing U.S. economy and further monetary easing by the
Federal Reserve in 1996.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/ SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
During the 12-month period, we actively managed the Fund's exposure to the
differing sectors of the bond market with an emphasis on high credit quality
alternatives to U.S. Treasury securities. In terms of corporate bonds, the Fund
benefited from its holdings in Lyondell Petrochemical Company and General Motors
Acceptance Corporation, both of which received credit rating upgrades during the
year. To take advantage of improving credit quality and competitive yields, we
also added to our existing assets in the consumer finance company: The Money
Store, Inc., and a real estate investment trust, Taubman Realty Corporation. In
the mortgage sector, we purchased seasoned mortgage securities that afford
improved protection against prepayment -- the risk that consumers may pay off
their loans early, causing a reduction in yields. These portfolio changes were
made to capture attractive buying opportunities and to help increase the overall
yield in the Fund.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
Looking forward to 1996, we believe the outlook for the U.S. fixed income market
remains favorable. Our economic forecast calls for slower growth in the first
half of 1996 and potentially negative growth in the second half of the year. In
this environment, we expect further declines in inflation as consumer demand
recedes and trends such as increased productivity, aging demographics, and
deregulation continue to contain price pressures.
Given this outlook, interest rates should drop lower in 1996. Specifically, we
are looking for short-term rates to fall faster than long-term rates as the
Federal Reserve attempts to stimulate economic growth. This scenario would lead
to a steeper yield curve, a condition that would be advantageous for The Sierra
Variable Trust Short Term High Quality Bond Fund, since most of its investments
are located at the short end of the yield curve.
BROAD SECTOR DIVERSIFICATION
[PIE CHART] [ALLOCATED AS FOLLOWS]
A 8%
AA 4%
AAA 69%
BBB 19%
Allocation percentages are based on total investment value of the portfolio as
of 12/31/95.
7
<PAGE>
SHORT TERM GLOBAL GOVERNMENT FUND
PORTFOLIO MANAGER:
SCUDDER, STEVENS & CLARK, INC.
ADAM M. GRESHIN
Adam M. Greshin is the lead portfolio manager for the SHORT TERM GLOBAL
GOVERNMENT FUND. Mr. Greshin joined Scudder in 1986 as an international bond
analyst. Currently, he is Product Leader for Scudder's global and international
fixed-income investing. He was involved in the original design of the Fund and
has served as a member of the Fund's portfolio management team since 1993. Mr.
Greshin assumed responsibility for the Fund's day-to-day management and
investment strategies effective November 1995.
PERFORMANCE REVIEW:
From the Fund's inception (May 12, 1993) through December 31, 1995, the SHORT
TERM GLOBAL GOVERNMENT FUND'S average annual total return was 2.24%. For the
12-month period ended December 31, 1995, the Fund's total return was 8.09%. The
Fund's 30-day SEC yield as of December 31, 1995, was 5.50%. For additional
information, see the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE 12-MONTH PERIOD ENDED DECEMBER 31, 1995?
Investor expectations swung dramatically throughout 1995, and their effect on
interest rates and currency returns was significant. Investor sentiment at the
beginning of 1995 was undoubtedly influenced by faster-than-expected growth
rates in the industrialized economies. Many consumers assumed that these high
rates of growth would be sustained throughout 1995, causing inflation to rise.
Interest rates initially increased on fears that the central banks would tighten
monetary policy to stem higher inflation. However, weaker-than-expected GDP
results in the first half of 1995 dispelled the notion of a strengthening
economy. Rates then stabilized and even began falling by late 1995.
The U.S. Dollar also moved dramatically during 1995. After suffering declines in
value during the first part of the year, the U.S. Dollar rebounded in August,
following a concerted effort by the world's central banks to support the U.S.
currency. By the end of the year, the U.S. Dollar was 4 percent higher against
the Yen and 7 percent lower versus the Deutschemark. Although these factors
contributed to some price volatility, the Fund showed gains throughout the year.
[THE FOLLOWING LINE GRAPH COMPARES A $10,000 INVESTMENT IN THE SHORT TERM GLOBAL
GOVERNMENT FUND TO A $10,000 INVESTMENT IN THE LEHMAN BROTHERS MUTUAL FUND SHORT
WORLD MULTI-MARKET INDEX FOR THE PERIODS SHOWN.] [PLOT POINTS ARE AS FOLLOWS]
Growth of a $10,000 investment
<TABLE>
<CAPTION>
LEHMAN BROTHERS
MUTUAL FUND SHORT
WORLD MULTI-MARKET
FUND INDEX
<S> <C> <C>
Inception May 12, 1993............... 10,000 10,000
May 1993............................. 10,000 10,000
June 1993............................ 9,972 9,941
July 1993............................ 9,932 9,884
August 1993.......................... 9,932 10,089
September 1993....................... 9,892 10,197
October 1993......................... 9,932 10,170
November 1993........................ 9,932 10,078
December 1993........................ 10,012 10,139
January 1994......................... 10,052 10,247
Febrary 1994......................... 10,012 10,213
March 1994........................... 9,972 10,259
April 1994........................... 9,972 10,288
May 1994............................. 9,972 10,273
June 1994............................ 9,972 10,386
July 1994............................ 9,972 10,469
August 1994.......................... 9,931 10,483
September 1994....................... 9,972 10,572
October 1994......................... 10,013 10,729
November 1994........................ 10,053 10,555
December 1994........................ 9,809 10,571
January 1995......................... 9,767 10,772
February 1995........................ 9,767 10,964
March 1995........................... 9,809 11,301
April 1995........................... 9,893 11,440
May 1995............................. 10,059 11,643
June 1995............................ 10,059 11,745
July 1995............................ 10,143 11,872
August 1995.......................... 10,226 11,680
September 1995....................... 10,352 11,886
October 1995......................... 10,435 12,018
November 1995........................ 10,519 12,084
December 1995........................ 10,602 12,236
</TABLE>
THE ABOVE LINE GRAPH DOES NOT REFLECT ADMINISTRATIVE FEES OR OTHER EXPENSES
CHARGED BY AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT D THROUGH
WHICH SHARES OF THE FUND ARE PURCHASED.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/95 6 MONTH 1 YEAR SINCE INCEPTION
------- ------ ---------------
(May 12, 1993)
<S> <C> <C> <C>
Fund 5.39% 8.09% 2.24%
Lehman Brothers Mutual Fund Short World Multi-Market Index* 4.19% 15.76% 8.13%
</TABLE>
* Index total returns were calculated from 5/31/93 to 12/31/95. The Lehman
Brothers Mutual Fund Short World Multi-Market Index includes all debt
instruments of the United States and 12 Lehman major countries denominated in
dollars with maturities of one to five years, assumes reinvestment of all
dividends/distributions, and does not reflect any asset-based charges for
investment management or other expenses. Past investment performance does not
guarantee future performance. The returns for the Fund assume reinvestment of
all dividends/distributions by the shareholder.
During the period noted, the Advisor (Sierra Investment Advisors Corporation)
and Administrator (Sierra Fund Administration Corporation) waived a portion of
their management fees and the Advisor absorbed other expenses, and the Custodian
reduced fees by credits. In the absence of the waivers and absorption of other
expenses or fees reduced by credits, yield and total return would have been
lower.
8
<PAGE>
SHORT TERM GLOBAL GOVERNMENT FUND
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
The first quarter of 1995 was characterized by a general flight to quality
following the turmoil in the emerging markets and renewed attention to
international debt levels. Countries that were considered "safe havens,"
including Germany, the Netherlands, France, and Denmark, attracted capital
outflows from peripheral European countries, such as Italy, Spain, and Sweden.
In anticipation of further declines in the peripheral European markets, we
eliminated our holdings in these countries in the first quarter. When bond
prices improved and valuations appeared most attractive, positions in Sweden and
Italy were added back to the portfolio in the third quarter.
Another decision that limited the downside effects on the Fund was to keep only
a relatively small percentage of Latin American assets -- holdings that had
detrimental consequences in many world income funds. Instead, emphasis was
placed on the dollar-bloc countries of Canada, Australia, and New Zealand, all
of which were important components of the Fund's competitive yield and relative
price stability. By mid-year, we increased our holdings in these dollar-bloc
countries to capture the ripple effects of the U.S. market rallies and to
enhance the portfolio's yield.
During the year, the relatively high cash position was reduced in favor of the
core European countries. In Europe, inflationary concerns were minimal, and the
economic outlook appeared increasingly positive for bonds. Slower GDP growth and
low inflation in Europe suggested that another round of interest rate cuts would
occur, particularly in Europe.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/ SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
The Fund's duration (a measure of bond price sensitivity to changes in
short-term interest rates) was raised from a defensive 0.9 years to a maximum of
2.0 years by the end of 1995. Reflecting our increasingly favorable outlook on
Europe, duration was highest in the peripheral European markets of Sweden and
Italy. Our positions in these two countries provided some of the best returns
experienced in the Fund. Sweden benefited from an easing in political tensions,
while Italian investors applauded the presentation of a new market-friendly
federal budget.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
The intermediate-term outlook for bond markets continues to be positive. The
rise in bond prices last year, particularly in the U.S. and Europe, is expected
to extend into 1996 as fears of recession grip Europe and their respective
central banks use instruments of monetary policy to fine tune their economies.
Although we remain bullish, we expect to see more volatility in the market,
especially since there appears to be greater susceptibility to bad news than
good news. Of course, any price movement should be greater on the long end of
the yield curve, as compared to the short end, where the short-term securities
in this Fund are located.
Europe remains the largest weighting in the Fund. We prefer the risk
characteristics of the U.S. Dollar and will therefore hedge much of the
portfolio's foreign currency exposure into U.S. Dollars. Our fundamental
strategy continues to be a commitment to finding opportunities that offer our
shareholders the most favorable risk/return attributes for a top-quality, highly
diversified global income fund.
DIVERSIFICATION BY REGION
[PIE CHART] [ALLOCATED AS FOLLOWS]
Europe 61.51%
Americas 32.83%
Australia 5.66%
Allocation percentages are based on total investment value of the portfolio as
of 12/31/95.
9
<PAGE>
U.S. GOVERNMENT FUND
PORTFOLIO MANAGER:
BLACKROCK FINANCIAL
MANAGEMENT, INC.
KEITH ANDERSON
E.G. FISHER
Mr. Anderson is Managing Director, co-head of the Portfolio Management Group, a
member of the Management Committee and the Investment Strategy Committee at
BlackRock. He also serves as Vice President for BlackRock's family of mutual
funds. E.G. Fisher, co-manager of the Fund, is a Principal at BlackRock and a
member of its Investment Management Committee. Mr. Fisher joined BlackRock in
1990 in the Risk Management and Analytics Group where he was responsible for
risk management analysis and reverse engineering of CMOs. He received a B.A. in
Economics from Dartmouth College in 1989. Both Mr. Anderson and Mr. Fisher
assumed primary investment management responsibilities for the U.S. GOVERNMENT
FUND in December 1994.
PERFORMANCE REVIEW:
From the Fund's inception (May 6, 1993) through December 31, 1995, the U.S.
GOVERNMENT FUND'S average annual total return was 5.31%. For the 12-month period
ended December 31, 1995, the Fund's total return was 16.89%. The Fund's 30-day
SEC yield as of December 31, 1995, was 6.20%. For additional information, see
the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE 12-MONTH PERIOD ENDED DECEMBER 31, 1995?
The most significant factor affecting the performance of the Fund has been the
dramatic rally in the bond market. Except for a sharp correction in July, 1995,
yields fell steadily, driven primarily by moderate economic growth, low
inflation, and a gradual easing by the Federal Reserve. U.S. Treasuries
outperformed almost all other fixed income securities, including most
mortgage-backed bonds. The relative underperformance of mortgage securities was
a result of increased refinancing brought on by falling interest rates. With
many consumers paying off their mortgage loans early and assuming new loans with
lower rates, yields of many mortgage-backed securities dropped. The Fund seeks
protection from this prepayment risk by maintaining an allocation of seasoned
mortgage securities which have weathered several refinancing cycles and are less
susceptible to prepayment. Using this tactic, the Fund was able to maintain its
income focus while posting strong relative performance compared to other U.S.
mortgage funds.
[THE FOLLOWING LINE GRAPH COMPARES A $10,000 INVESTMENT IN THE U. S. GOVERNMENT
FUND TO A $10,000 INVESTMENT IN THE LEHMAN BROTHERS MUTUAL FUND U. S. GENERAL
GOVERNMENT INDEX AND THE LEHMAN BROTHERS MUTUAL FUND U. S. MORTGAGE INDEX,
RESPECTIVELY, FOR THE PERIODS SHOWN.] [PLOT POINTS ARE AS FOLLOWS]
Growth of a $10,000 investment
<TABLE>
<CAPTION>
LEHMAN BROTHERS
MUTUAL FUND LEHMAN BROTHERS
U.S. GENERAL MUTUAL FUND
FUND GOVERNMENT INDEX U.S. MORTGAGE INDEX
<S> <C> <C> <C>
Inception May 6, 1993................... 10,000 10,000 10,000
May 1993................................ 10,010 10,000 10,000
June 1993............................... 10,093 10,076 10,222
July 1993............................... 10,153 10,116 10,284
August 1993............................. 10,283 10,164 10,514
September 1993.......................... 10,294 10,173 10,554
October 1993............................ 10,305 10,202 10,594
November 1993........................... 10,163 10,182 10,477
December 1993........................... 10,227 10,265 10,518
January 1994............................ 10,359 10,366 10,662
February 1994........................... 10,176 10,294 10,436
March 1994.............................. 9,921 10,026 10,201
April 1994.............................. 9,829 9,952 10,121
May 1994................................ 9,808 9,992 10,108
June 1994............................... 9,792 9,970 10,084
July 1994............................... 9,928 10,169 10,270
August 1994............................. 9,928 10,202 10,272
September 1994.......................... 9,824 10,057 10,127
October 1994............................ 9,803 10,051 10,120
November 1994........................... 9,760 10,020 10,102
December 1994........................... 9,813 10,100 10,163
January 1995............................ 10,017 10,316 10,352
February 1995........................... 10,265 10,579 10,575
March 1995.............................. 10,329 10,629 10,642
April 1995.............................. 10,460 10,779 10,781
May 1995................................ 10,821 11,119 11,216
June 1995............................... 10,876 11,182 11,302
July 1995............................... 10,853 11,201 11,260
August 1995............................. 10,976 11,318 11,392
September 1995.......................... 11,031 11,418 11,501
October 1995............................ 11,211 11,519 11,676
November 1995........................... 11,403 11,650 11,858
December 1995........................... 11,471 11,796 12,027
</TABLE>
THE ABOVE LINE GRAPH DOES NOT REFLECT ADMINISTRATIVE FEES OR OTHER EXPENSES
CHARGED BY AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT D THROUGH
WHICH SHARES OF THE FUND ARE PURCHASED.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/95 6 MONTH 1 YEAR SINCE INCEPTION
------- ------ ---------------
(May 6, 1993)
<S> <C> <C> <C>
Fund 5.47% 16.89% 5.31%
Lehman Brothers Mutual Fund U.S. General Government Index* 6.42% 18.34% 7.40%
Lehman Brothers Mutual Fund U.S. Mortgage Index* 5.49% 16.80% 6.60%
</TABLE>
* Index total returns were calculated from 5/31/93 to 12/31/95. The Lehman
Brothers Mutual Fund U.S. General Government Index represents all U.S.
Government agency and Treasury securities. The Lehman Brothers Mutual Fund U.S.
Mortgage Index includes all agency mortgage-backed securities. The indices
assume reinvestment of all dividends/distributions and do not reflect any
asset-based charges for investment management or other expenses. Past investment
performance does not guarantee future performance. The returns for the Fund
assume reinvestment of all dividends/distributions by the shareholder.
During the period noted, the Advisor (Sierra Investment Advisors Corporation)
and Administrator (Sierra Fund Administration Corporation) waived a portion of
their management fees and the Advisor absorbed other expenses, and the Custodian
reduced fees by credits. In the absence of the waivers and absorption of other
expenses or fees reduced by credits, yield and total return would have been
lower.
10
<PAGE>
U.S. GOVERNMENT
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
The Fund entered 1995 with an overweighting in U.S. Treasuries. In the second
quarter, price weakness in some areas of the mortgage market presented
opportunities for the Fund to seek value in mortgage securities. Given the
potential for increasing prepayments and high levels of interest rate
volatility, the Fund emphasized cash flow stability in its selection of mortgage
securities.
The Fund's mortgage holdings performed well in the third quarter, as interest
rates stabilized and the economy showed signs of recovery. However, as interest
rates started falling again in the fourth quarter, prepayment activity
increased. The Fund responded by reducing exposure to mortgage securities
without superior prepayment protection and shifting its emphasis to seasoned
mortgages with less cash flow risk, U.S. Treasuries, and other government agency
bonds. This strategy allowed the Fund to keep its yield at competitive levels
throughout the year.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/ SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
Along with a reduction in the Fund's exposure to mortgage-backed securities, we
have concentrated on bonds of intermediate maturities. This "bullet" structure
(concentration on medium-term bonds) will allow the Fund to benefit from a
steepening yield curve, a phenomenon that historically occurs in an environment
of monetary easing, where declines in short rates outpace those of longer
maturities. With expectations that the Federal Reserve will further reduce
short-term rates, the Fund is well positioned for both higher yields and greater
price stability, relative to the two ends of the yield curve.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
We have positioned the Fund more aggressively (duration slightly greater than
our benchmark) in anticipation of a further near-term decline in interest rates.
In a period of soft economic growth, a 5.50 percent Fed Funds target appears to
be too restrictive. Any decision to lower the interest rates, however, will
hinge on the budget talks and continuing low inflation. While certain commodity
indices have recently risen, the increase has been largely confined to energy
prices as a harshly cold winter has swept across the country. Surveys of
retailers and manufacturers show that there is virtually no ability to pass
price increases on to consumers. Further supporting a Federal Reserve easing of
monetary policy has been the sharp acceleration in consumer debt. All of these
factors suggest that there is a greater downside than upside risk to the
economy, and the Fed will have to respond more aggressively in lowering interest
rates than it has over the last half of 1995. Overall, economic projections
appear very favorable for the Fund and the bond market in general.
PORTFOLIO COMPOSITION
[PIE CHART] [ALLOCATED AS FOLLOWS]
FNMA Debentures 30.82%
FHLMC 16.20%
U.S. Treasury Obligations 14.96%
ARM 9.37%
FHLB 7.65%
FNMA 7.12%
GNMA II 6.76%
FFCB 1.93%
GNMA 1.86%
Residential Funding 1.72%
SBA 1.42%
Other 0.19%
Allocation percentages are based on total investment value of the portfolio as
of 12/31/95.
11
<PAGE>
CORPORATE INCOME FUND
PORTFOLIO MANAGER:
TCW FUNDS MANAGEMENT, INC.
JAMES M. GOLDBERG
Mr. Goldberg, a Chartered Financial Analyst and Chartered Investment Counselor,
has been Managing Director of TCW Management since 1989 and Managing Director of
the Trust Company of the West, the parent corporation of TCW Management, since
1984. He has had primary portfolio management responsibility for the CORPORATE
INCOME FUND since its inception.
PORTFOLIO REVIEW:
From the Fund's inception (May 7, 1993) through December 31, 1995, the CORPORATE
INCOME FUND'S average annual total return was 7.59%. For the 12-month period
ended December 31, 1995, the Fund advanced 25.09% on a total return basis. The
Fund also received outstanding total return performance recognition from Lipper
Analytical Services. For the one-year period ending December 31, 1995, the Fund
was ranked Fifth among a total of 163 funds in the Corporate Debt Funds
BBB-Rated Category. The Corporate Income Fund's 30-day SEC yield as of December
31, 1995, was 6.21%. For additional information, see the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE 12-MONTH PERIOD ENDED DECEMBER 31, 1995?
The Fund outperformed its benchmark index for the year ended December 31, 1995.
The Fund returned 25.09 percent during the period compared to a return of 22.25
percent for the Lehman Brothers Mutual Fund Corporate Debt BBB-Rated Index. This
impressive result for 1995 was attributable to the strengthening credit profiles
of the corporate bonds held in the Fund and the portfolio's longer maturity and
duration (a measure of the Fund's sensitivity to interest rate changes) during a
period of declining interest rates.
[THE FOLLOWING LINE GRAPH COMPARES A $10,000 INVESTMENT IN THE CORPORATE INCOME
FUND TO A $10,000 INVESTMENT IN THE LEHMAN BROTHERS MUTUAL FUND CORPORATE DEBT
BBB-RATED INDEX FOR THE PERIODS SHOWN.] [PLOT POINTS ARE AS FOLLOWS]
Growth of a $10,000 investment
<TABLE>
<CAPTION>
LEHMAN BROTHERS
MUTUAL FUND
CORPORATE DEBT
FUND BBB-RATED INDEX
<S> <C> <C>
Inception May 7, 1993.............. 10,000 10,000
May 1993........................... 9,950 10,000
June 1993.......................... 10,224 10,243
July 1993.......................... 10,284 10,317
August 1993........................ 10,595 10,574
September 1993..................... 10,590 10,599
October 1993....................... 10,661 10,652
November 1993...................... 10,489 10,521
December 1993...................... 10,562 10,583
January 1994....................... 10,766 10,788
February 1994...................... 10,429 10,534
March 1994......................... 10,010 10,210
April 1994......................... 9,844 10,112
May 1994........................... 9,782 10,075
June 1994.......................... 9,735 10,050
July 1994.......................... 9,999 10,304
August 1994........................ 9,957 10,315
September 1994..................... 9,735 10,123
October 1994....................... 9,693 10,100
November 1994...................... 9,693 10,084
December 1994...................... 9,703 10,168
January 1995....................... 9,917 10,383
February 1995...................... 10,207 10,682
March 1995......................... 10,271 10,770
April 1995......................... 10,414 10,952
May 1995........................... 11,097 11,468
June 1995.......................... 11,141 11,571
July 1995.......................... 11,006 11,520
August 1995........................ 11,275 11,706
September 1995..................... 11,432 11,844
October 1995....................... 11,671 11,998
November 1995...................... 11,887 12,227
December 1995...................... 12,138 12,429
</TABLE>
THE ABOVE LINE GRAPH DOES NOT REFLECT ADMINISTRATIVE FEES OR OTHER EXPENSES
CHARGED BY AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT D THROUGH
WHICH SHARES OF THE FUND ARE PURCHASED.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/95 6 MONTH 1 YEAR SINCE INCEPTION
------- ------ ---------------
(May 7, 1993)
<S> <C> <C> <C>
Fund 8.96% 25.09% 7.59%
Lehman Brothers Mutual Fund Corporate Debt BBB-Rated Index* 7.42% 22.25% 8.78%
</TABLE>
* Index total returns were calculated from 5/31/93 to 12/31/95. The Lehman
Brothers Mutual Fund Corporate Debt BBB-Rated Index represents all
investment-grade corporate debt securities, assumes reinvestment of all
dividends/distributions, and does not reflect any asset-based charges for
investment management or other expenses. Past investment performance does not
guarantee future performance. The returns for the Fund assume reinvestment of
all dividends/distributions by the shareholder.
During the period noted, the Advisor (Sierra Investment Advisors Corporation)
and Administrator (Sierra Fund Administration Corporation) waived a portion of
their management fees and the Advisor absorbed other expenses, and the Custodian
reduced fees by credits. In the absence of the waivers and absorption of other
expenses or fees reduced by credits, yield and total return would have been
lower.
12
<PAGE>
CORPORATE INCOME FUND
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
A cornerstone of the Fund's investment strategy is diversification. By carefully
diversifying its assets, the Fund seeks to minimize the market risks associated
with investing in only one or a few concentrated sectors. Diversification also
helps to position the portfolio for a broad range of diverse market conditions.
As of December 31, 1995, the Fund had an average credit rating of A3 and held
the securities of approximately 50 different corporate issuers. Purchase
decisions have focused on companies that are experiencing improving fundamentals
and are at a positive stage within their business cycle. This philosophy,
combined with the Fund's long average maturity, provided the primary reasons for
the excellent investment performance during 1995.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/ SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
The Fund's exposure to industrial issues increased during the period, with
additions of ANR Pipeline Company, Boise Cascade Corporation, Consolidated Rail
Corp., Dayton Hudson Corporation, Enron, Occidental Petroleum Corporation, Tyco
Laboratories, Inc., and United AirLines Inc. During the period, the Fund sold
positions in Airborne Freight, Auburn Hills Trust, CBS, Inc., Fruit of the Loom,
and McDermott, Inc. In some instances, these sales were strategically motivated
and allowed the Fund to realize gains. In other instances, issues were sold
because of declining credit profiles.
The Fund also decreased its financial services holdings, selling Chemical Bank,
Chase Manhattan Corporation, Citicorp, Progressive Corporation, and Sunamerica.
We added one new financial position to the Fund: American General Corporation.
Over the year, the financial services sector benefited from significant credit
upgrades and the announcement of major merger and acquisition activities in the
banking industry.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
The U.S. economy continues to reflect modest growth and low inflation. After
experiencing a weak 1995 holiday season, further economic slowing could be on
the way. Recent apparel and automobile sales signal a downturn in consumer
spending, and housing sales are also starting to wane despite lower mortgage
interest rates.
The good news is that inflation and interest rates should remain low, thereby
supporting the price of bonds. As measured by the Consumer Price Index (CPI),
inflation continues to be under control at 3 percent or less. Given the likely
slowing of growth in 1996, there is little reason to anticipate that inflation
will pick up. Under this scenario, we believe that the Federal Reserve will be
compelled to further ease interest rates to encourage economic growth -- actions
that will mean enhanced performance for the bond market, and particularly for
The Sierra Variable Trust Corporate Income Fund. The fund has an average
maturity of 19.6 years and a duration of 7.3 years at December 31, 1995.
BROAD SECTOR DIVERSIFICATION
[PIE CHART] [ALLOCATED AS FOLLOWS]
Financial Services 18.96%
Materials & Processing 18.08%
Autos & Transportation 13.30%
Energy 10.35%
Consumer Discretionary 9.36%
Producer Durables 6.78%
U.S. Government Agency Obligations 5.36%
Utilities 4.52%
U.S. Treasury Notes 4.42%
Investment Company Security 3.43%
Commercial Paper 3.24%
Telecommunications 2.20%
Allocation percentages are based on total investment value of the portfolio as
of 12/31/95.
13
<PAGE>
GROWTH AND INCOME FUND
PORTFOLIO MANAGER:
J.P. MORGAN INVESTMENT MANAGEMENT INC.
HENRY D. CAVANNA
WILLIAM M. RIEGEL
Mr. Cavanna is a Senior Portfolio Manager in the J.P. Morgan Equity and Balanced
Accounts Group, and has been with J.P. Morgan since 1971.
Mr. Riegel is a Senior Equity Portfolio Manager in the Equity and Balanced
Accounts Group, and has been with J.P. Morgan since 1979. Mr. Cavanna and Mr.
Riegel have had primary portfolio management responsibility for the GROWTH AND
INCOME FUND since January 1994.
PERFORMANCE REVIEW:
From the Fund's inception (January 12, 1994) through December 31, 1995, the
GROWTH AND INCOME FUND advanced 14.33% on an average annual total return basis.
For the 12-month period ended December 31, 1995, the Fund's total return was
32.41%. For additional information, see the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE 12-MONTH PERIOD ENDED DECEMBER 31, 1995?
The U.S. equity markets had an exceptional year. The Dow Jones Industrial
Average (DJIA) gained 33 percent over the year, breaking new highs consistently
and surpassing the 5000 mark for the first time in history. Gains were
broad-based early in the first half of 1995, with a majority of sectors posting
double-digit gains. During the second half of the year, returns continued to be
strong, but more narrowly focused. As a result of its highly diversified
strategy, the Fund performed better in the first half, when buying was spread
across a wide range of industries. With modest exposure to technology and other
high-risk sectors, the Fund escaped some of the market's volatility in the
second half of the year.
[THE FOLLOWING LINE GRAPH COMPARES A $10,000 INVESTMENT IN THE GROWTH AND INCOME
FUND TO A $10,000 INVESTMENT IN THE STANDARD & POOR'S COMPOSITE INDEX OF 500
STOCKS FOR THE PERIODS SHOWN.] [PLOT POINTS ARE AS FOLLOWS]
Growth of a $10,000 investment
<TABLE>
<CAPTION>
STANDARD & POOR'S
COMPOSITE INDEX OF
FUND 500 STOCKS
<S> <C> <C>
Inception January 12, 1994........... 10,000 10,000
January 1994......................... 10,010 10,000
February 1994........................ 9,970 9,729
March 1994........................... 9,670 9,305
April 1994........................... 9,860 9,425
May 1994............................. 9,900 9,579
June 1994............................ 9,660 9,344
July 1994............................ 9,950 9,651
August 1994.......................... 10,250 10,046
September 1994....................... 10,040 9,801
October 1994......................... 10,140 10,020
November 1994........................ 9,670 9,656
December 1994........................ 9,830 9,799
January 1995......................... 10,040 10,053
February 1995........................ 10,440 10,444
March 1995........................... 10,820 10,752
April 1995........................... 11,030 11,068
May 1995............................. 11,440 11,510
June 1995............................ 11,646 11,777
July 1995............................ 12,072 12,167
August 1995.......................... 12,123 12,197
September 1995....................... 12,437 12,712
October 1995......................... 12,123 12,667
November 1995........................ 12,792 13,222
December 1995........................ 13,016 13,477
</TABLE>
THE ABOVE LINE GRAPH DOES NOT REFLECT ADMINISTRATIVE FEES OR OTHER EXPENSES
CHARGED BY AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT D THROUGH
WHICH SHARES OF THE FUND ARE PURCHASED.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/95 6 MONTH 1 YEAR SINCE INCEPTION
------- ------ ---------------
(January 12, 1994)
<S> <C> <C> <C>
Fund 11.76% 32.41% 14.33%
Standard & Poor's Composite Index of 500 Stocks* 14.44% 37.58% 16.84%
</TABLE>
* Index total returns were calculated from 1/31/94 to 12/31/95. The Standard &
Poor's Composite Index of 500 Stocks (S&P 500) represents an unmanaged weighted
index of 500 industrial, transportation, utility and financial companies widely
regarded by investors as representative of the stock market, assumes
reinvestment of all dividends/ distributions, and does not reflect any
asset-based charges for investment management or other expenses. Past investment
performance does not guarantee future performance. The returns for the Fund
assume reinvestment of all dividends/ distributions by the shareholder.
During the period noted, the Advisor (Sierra Investment Advisors Corporation)
and Administrator (Sierra Fund Administration Corporation) waived a portion of
their management fees, and the Custodian reduced fees by credits. In the absence
of the waivers or fees reduced by credits, yeild and total return would have
been lower.
14
<PAGE>
GROWTH AND INCOME FUND
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
Key market dynamics that propelled the stock market to new highs and affected
the Fund's performance included declining interest rates, modest inflation, low
unemployment, and solid growth in corporate profits. Throughout the year, the
Fund held firm to its highly diversified, value-oriented approach to selecting
stocks. This strategy seeks to identify companies that are undervalued relative
to their forecasted long-term earnings and dividend payouts. The benefits of
this strategy were apparent, for example, when the technology sector started
experiencing considerable market volatility in late 1995. The Sierra Variable
Trust Growth and Income Fund performed rather consistently over this period, a
result of diversification and a philosophy of selecting only the most
undervalued stocks, no matter what the sector.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/ SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
We did not make any major changes in portfolio holdings that had a crucial
impact on the Fund's performance. The Fund continues to base its portfolio
decisions on stock selection rather than sector concentration.
During the year, the Fund's transportation stocks fared best, followed by the
utilities sector. The most disappointing results were in the aerospace/defense
and consumer cyclicals industries. Stocks that had the greatest positive impact
on the Fund's performance included Bay Networks Inc., Service Corporation
International, and Eli Lilly & Company, while those that contributed most
negatively to performance were Coltec Industries, Inc., Novell Inc., and Wellman
Inc.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
With a slowdown in corporate profit growth and an increase in the number of
negative earnings surprises in late 1995, the U.S. equity market could
experience increased volatility over the coming months. By utilizing its
fundamental valuation techniques and choosing stocks with long-term value in a
wide range of industries, the Fund should minimize the adverse effects of this
volatility. As always, the Fund will remain fully invested in a diversified
collection of stocks, a move which should insulate the portfolio from large,
short-term swings in either direction.
Lingering signs of slow growth are also apparent in sluggish production and
employment figures. Our view is that corporate earnings are possibly peaking,
and that 1996 could see flat performance as cost-cutting measures become less
effective. In light of these economic conditions, we believe that the Federal
Reserve could shift from a policy of growth prevention to one of recession
prevention. If this occurs, lower rates may be on the way, along with another
potential uptick in stocks.
SECTOR DIVERSIFICATION
[PIE CHART] [ALLOCATED AS FOLLOWS]
Consumer Discretionary 13.22%
Financial Services 13.17%
Telecommunications 12.16%
Energy 10.36%
Materials & Processing 9.16%
Consumer Staples 8.36%
Health Care 8.07%
Autos & Transportation 7.53%
Producer Durables 5.90%
Technology 4.13%
U.S. Government Obligations 3.28%
Utilities 2.32%
Other 1.39%
Convertible Bonds and Notes 0.95%
Allocation percentages are based on total investment value of the portfolio as
of 12/31/95.
15
<PAGE>
GROWTH FUND
PORTFOLIO MANAGER:
JANUS CAPITAL CORPORATION
WARREN B. LAMMERT
Mr. Lammert is a graduate of Yale University and the London School of Economics.
He first joined Janus in January 1987 and has been portfolio manager for the
GROWTH FUND since its inception. He is a Chartered Financial Analyst.
PERFORMANCE REVIEW:
From the Fund's inception (May 7, 1993) through December 31, 1995, the GROWTH
FUND advanced 18.80% on an average annual total return basis, outperforming the
S&P 500* benchmark's 15.97% return for the same period. For the 12-month period
ended December 31, 1995, the Fund's total return was 37.34%. For additional
information, see the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE 12-MONTH PERIOD ENDED DECEMBER 31, 1995?
Falling interest rates and excellent corporate earnings helped fuel the stock
market's fine returns in 1995. During the fourth quarter, the yield on the
benchmark 30-year U.S. Treasury bond fell below the 6 percent level, a long
distance from the 8.15 percent high when the bond rally began in November, 1994.
Although less robust economic conditions affected a number of the Fund's
holdings, there was also plenty of good news. The Fund achieved solid results,
particularly from the financial services and pharmaceutical stocks in its
portfolio. Overall, the emphasis remains on finding stocks with solid earnings
prospects at reasonable valuations while maintaining a strict buy and sell
policy for the portfolio.
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
The Standard & Poor's 500 Index (S&P 500) surged 37.54 percent for the year and
gained 6.02 percent in the fourth quarter. Early in the year, technology issues
skyrocketed, fueled by very strong corporate earnings. However, the U.S. economy
slowed markedly in late 1995, with consumer spending the area of greatest
weakness. As U.S. exports decreased due to slowing economies abroad and negative
earnings surprises started appearing in the fourth quarter, the technology
sector took a negative turn. With a high percentage of technology holdings in
its portfolio, the Fund also experienced some price volatility during this
period. In light of this weaker environment, the positions that contributed most
positively to the Fund's performance were in less economically sensitive
sectors, such as pharmaceuticals and financial services.
[THE FOLLOWING LINE GRAPH COMPARES A $10,000 INVESTMENT IN THE GROWTH FUND TO A
$10,000 INVESTMENT IN THE STANDARD & POOR'S COMPOSITE INDEX OF 500 STOCKS FOR
THE PERIODS SHOWN.] [PLOT POINTS ARE AS FOLLOWS]
Growth of a $10,000 investment
<TABLE>
<CAPTION>
STANDARD & POOR'S
COMPOSITE
FUND INDEX OF 500 STOCKS
<S> <C> <C>
Inception May 7, 1993.................. 10,000 10,000
May 1993............................... 10,250 10,000
June 1993.............................. 10,410 10,029
July 1993.............................. 10,220 9,989
August 1993............................ 10,530 10,367
September 1993......................... 10,810 10,285
October 1993........................... 10,980 10,498
November 1993.......................... 10,900 10,398
December 1993.......................... 11,190 10,524
January 1994........................... 11,730 10,881
February 1994.......................... 11,680 10,586
March 1994............................. 11,390 10,125
April 1994............................. 11,320 10,255
May 1994............................... 10,970 10,423
June 1994.............................. 10,560 10,168
July 1994.............................. 10,910 10,502
August 1994............................ 11,541 10,931
September 1994......................... 11,571 10,665
October 1994........................... 11,831 10,903
November 1994.......................... 11,451 10,507
December 1994.......................... 11,491 10,662
January 1995........................... 11,611 10,939
February 1995.......................... 11,971 11,365
March 1995............................. 12,232 11,699
April 1995............................. 12,662 12,044
May 1995............................... 13,162 12,524
June 1995.............................. 13,934 12,815
July 1995.............................. 14,838 13,239
August 1995............................ 14,928 13,273
September 1995......................... 15,400 13,832
October 1995........................... 14,988 13,783
November 1995.......................... 15,721 14,387
December 1995.......................... 15,781 14,665
</TABLE>
THE ABOVE LINE GRAPH DOES NOT REFLECT ADMINISTRATIVE FEES OR OTHER EXPENSES
CHARGED BY AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT D THROUGH
WHICH SHARES OF THE FUND ARE PURCHASED.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/95 6 MONTH 1 YEAR SINCE INCEPTION
------- ------ ---------------
(May 7, 1993)
<S> <C> <C> <C>
Fund 13.26% 37.34% 18.80%
Standard & Poor's Composite Index of 500 Stocks* 14.44% 37.58% 15.97%
</TABLE>
* Index total returns were calculated from 5/31/93 to 12/31/95. The Standard &
Poor's Composite Index of 500 Stocks (S&P 500) represents an unmanaged weighted
index of 500 industrial, transportation, utility and financial companies widely
regarded by investors as representative of the stock market, assumes
reinvestment of all dividends/distributions, and does not reflect any
asset-based charges for investment management or other expenses. Past investment
performance does not guarantee future performance. The returns for the Fund
assume reinvestment of all dividends/ distributions by the shareholder.
During the period noted, the Advisor (Sierra Investment Advisors Corporation)
and Administrator (Sierra Fund Administration Corporation) waived a portion of
their management fees and the Advisor absorbed other expenses, and the Custodian
reduced fees by credits. In the absence of the waivers and absorption of other
expenses or fees reduced by credits, yield and total return would have been
lower.
16
<PAGE>
GROWTH FUND
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/ SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
In 1995, the Fund benefited from its positions in financial services and
pharmaceuticals, both areas that are historically more resistant to economic
downturns. The Fund purchased holdings in Federal National Mortgage Association
and Bank of New York Company, Inc. and added to its holdings in Chase Manhattan
Corporation. These financial stocks showed promise not only due to lower
interest rates, but also due to increased productivity, a streamlining of their
operations, and renewed focus on their most profitable niches. In the
pharmaceutical sector, we increased our assets in Pfizer, Inc. and added Eli
Lilly & Company and Amgen Inc. to the portfolio -- all companies that have a
pipeline of new products with enormous global applications.
Other strong issues included Hospitality Franchise Systems Inc. (HFS) and
Pittway Corporation. HFS is the franchisor for a number of popular hotel and
motel chains, including Ramada and Howard Johnson's, and recently purchased real
estate broker Century 21. HFS boosted profits in its hotel business via an
extremely successful cross-selling strategy, and management intends to apply the
same techniques to improving margins at Century 21. Pittway Corporation provides
electronic security systems and is increasing market share in another lucrative
area: data transmission.
Although we trimmed some technology stocks before the downturn in late 1995,
portfolio performance did not entirely escape the effects of the slide. For
example, Nokia AB declined when it announced that the outlook for the third
quarter was less robust than previously anticipated due to a dip in demand for
analog cellular phones.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
In 1996, a weaker economy could cause mixed reactions in the stock market. Stock
prices would be supported if interest rates remain at current favorable levels
or descend lower; however, these events could also hinder corporate earnings
momentum across a wide spectrum of industries and lead to price volatility in
many individual stocks. Although this volatility is in fact a more normal state
of affairs compared to the heady advance of 1995, the stock market may overreact
as investors become accustomed to the new environment.
On the positive side, increased market volatility could create buying
opportunities and provide a climate where extensive research and stockpicking
ability, which are the focus of The Sierra Variable Trust Growth Fund's
portfolio managers, enjoy greater rewards. In fact, by selecting companies with
attractive valuations, we believe the Fund is well positioned, no matter what
the market conditions.
SECTOR DIVERSIFICATION
[PIE CHART] [ALLOCATED AS FOLLOWS]
Technology 24.26%
Financial Services 17.25%
Health Care 16.27%
Telecommunications 12.72%
Consumer Discretionary 9.99%
Commerical Paper 4.12%
Producer Durables 3.93%
Preferred Stock 3.72%
U.S. Government Agency 3.00%
Other 2.69%
Materials & Processing 1.42%
Consumer Staples 0.63%
Allocation percentages are based on total investment value of the portfolio as
of 12/31/95.
17
<PAGE>
EMERGING GROWTH FUND
PORTFOLIO MANAGER:
JANUS CAPITAL CORPORATION
JAMES P. GOFF
Mr. Goff has a degree from Yale University, and is a Chartered Financial
Analyst. He has been with Janus since 1988, and has had primary portfolio
management responsibility for the EMERGING GROWTH FUND since its inception.
PERFORMANCE REVIEW:
From the Fund's inception (January 12, 1994) through December 31, 1995, the
EMERGING GROWTH FUND advanced 17.75% on an average annual total return basis.
For the 12-month period ended December 31, 1995, the Fund's total return was
30.99%. The Fund also received outstanding total return performance recognition
from Lipper Analytical Services. For the one-year period ending December 31,
1995, the Fund was ranked Number One among a total of 131 funds in the Global
Funds category. For additional information, see the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE 12-MONTH PERIOD ENDED DECEMBER 31, 1995?
In 1995, we experienced one of the strongest stock markets on record. Although
momentum slowed in the fourth quarter, when technology and telecommunications
finally showed some weakness, the Standard & Poor's 500 Index (S&P 500) still
gained 37.58 percent over the year.
Over this period, the performance of The Sierra Variable Trust Emerging Growth
Fund was significantly affected by key developments in four of our major
holdings: Paging Network Inc., a provider of paging services; Insignia Financial
Group Inc., the largest real estate management company in the U.S.; Hospitality
Franchise Systems Inc. (HFS), a franchisor of hotel and motel chains including
Ramada and Super 8; and APS Holding Corporation, a distributor of automobile
parts and accessories.
In late 1995, Paging Network Inc. signed a sales agreement with Sprint for the
large phone company to offer Paging Network services. This contract, along with
a similar agreement with MCI in 1994, should help increase sales substantially.
Insignia Financial Group Inc. and HFS entered into a joint venture, where HFS
will help introduce value-added services to Insignia Financial's customer base.
This joint venture could add nicely to HFS's earnings in the next several years
and increase Insignia's profitability in return. Finally, APS Holding
Corporation acquired Parts, Inc., the largest member of the Parts Plus auto
parts chains. We believe this is an excellent acquisition and should prove an
important driver of earnings in the future.
[THE FOLLOWING LINE GRAPH COMPARES A $10,000 INVESTMENT IN THE EMERGING GROWTH
FUND TO A $10,000 INVESTMENT IN THE STANDARD & POOR'S COMPOSITE INDEX OF 500
STOCKS FOR THE PERIODS SHOWN.] [PLOT POINTS ARE AS FOLLOWS]
Growth of a $10,000 investment
<TABLE>
<CAPTION>
STANDARD & POOR'S
COMPOSITE
FUND INDEX OF 500 STOCKS
<S> <C> <C>
Inception January 12, 1994............. 10,000 10,000
January 1994........................... 10,070 10,000
February 1994.......................... 10,160 9,729
March 1994............................. 9,950 9,305
April 1994............................. 9,720 9,425
May 1994............................... 9,800 9,579
June 1994.............................. 9,530 9,344
July 1994.............................. 9,880 9,651
August 1994............................ 10,350 10,046
September 1994......................... 10,520 9,801
October 1994........................... 11,010 10,020
November 1994.......................... 10,240 9,656
December 1994.......................... 10,530 9,799
January 1995........................... 10,530 10,053
February 1995.......................... 10,830 10,444
March 1995............................. 10,790 10,752
April 1995............................. 10,630 11,068
May 1995............................... 10,630 11,510
June 1995.............................. 11,454 11,777
July 1995.............................. 12,267 12,167
August 1995............................ 12,659 12,197
September 1995......................... 13,261 12,712
October 1995........................... 12,789 12,667
November 1995.......................... 13,010 13,222
December 1995.......................... 13,793 13,477
</TABLE>
THE ABOVE LINE GRAPH DOES NOT REFLECT ADMINISTRATIVE FEES OR OTHER EXPENSES
CHARGED BY AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT D THROUGH
WHICH SHARES OF THE FUND ARE PURCHASED.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/95 6 MONTH 1 YEAR SINCE INCEPTION
------- ------ ---------------
(January 12, 1994)
<S> <C> <C> <C>
Fund 20.42% 30.99% 17.75%
Standard & Poor's Composite Index of 500 Stocks* 14.44% 37.58% 16.84%
</TABLE>
* Index total returns were calculated from 1/31/94 to 12/31/95. The Standard &
Poor's Composite Index of 500 Stocks (S&P 500) represents an unmanaged weighted
index of 500 industrial, transportation, utility and financial companies widely
regarded by investors as representative of the stock market, assumes
reinvestment of all dividends/ distributions, and does not reflect any
asset-based charges for investment management or other expenses. Past investment
performance does not guarantee future performance. The returns for the Fund
assume reinvestment of all dividends/ distributions by the shareholder.
During the period noted, the Advisor (Sierra Investment Advisors Corporation)
and Administrator (Sierra Fund Administration Corporation) waived a portion of
their management fees, and the Custodian reduced fees by credits. In the absence
of the waivers or fees reduced by credits, yield and total return would have
been lower.
18
<PAGE>
EMERGING GROWTH FUND
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
Along with the overall stock market, the Fund's performance was pushed higher by
a consistent stream of good news. Economic growth was moderate, inflation
remained at low levels, and interest rates took a dramatic fall. Also of
importance in this scenario were corporate profit margins, which reached an
all-time high for companies in the S&P 500 Index. Corporate earnings exhibited
double-digit gains for the fourth year in a row, with a cumulative increase in
earnings of 127 percent from 1991-1995.
Profit growth of this magnitude is understandably hard to sustain. As we enter
1996, a number of companies are already beginning to miss their earnings
estimates. It appears unlikely that earnings growth will accelerate as it has in
the past four years. As a result, a tug of war may develop in 1996 between low
interest rates, which tend to reinforce stock prices, and weakening earnings
comparisons that could push stocks downward. The resulting volatility will
likely create a stockpicker's market, one in which growth stocks with more
predictable earnings should perform well. The Sierra Variable Trust Emerging
Growth Fund, which stresses an investment approach dependent on comprehensive
research and careful valuation, should continue to find stocks with appealing
growth potential and attractive fundamentals.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/ SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
There were no major holding or sector changes in the period that greatly
affected the Fund's performance. Many of the Fund's Top 10 holdings at year-end
1994 remain in the Top 10 at the end of 1995. As of December 31, 1995, the
largest concentrations of assets were in the health care, consumer
discretionary, telecommunications, and financial services industries.
Sector weightings, however, are not a critical consideration in selecting
acquisitions or making portfolio decisions for the Fund. We do not evaluate a
sector, determine the future strength or appreciation potential of the sector,
and then look for companies within the sector. Instead, we select securities
using a "bottom-up" approach, analyzing each company for its earnings
possibilities, the fairness of its price, the talent and experience of its
management team, and other criteria that provide insight into the potential
success of the firm rather than the success of a sector.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
Our outlook for the Fund remains positive over the intermediate and long term.
Although corporate profit growth may not be as strong in 1996 as in previous
years, we expect to continue finding individual companies that can grow their
earnings rapidly even in a weak economy. We believe that we already have many of
these companies in the portfolio and are confident about the Fund's prospects
going forward, despite the absence of a nice "market tail wind." Our stock
selection process emphasizes the intrinsic attributes of the company and tends
to uncover companies that will generate the kind of earnings growth that could
drive share prices higher regardless of market conditions.
SECTOR DIVERSIFICATION
[PIE CHART] [ALLOCATED AS FOLLOWS]
Consumer Discretionary 22.67%
Health Care 17.54%
Financial Services 15.32%
Telecommunications 12.74%
Autos & Transportation 7.85%
Technology 6.15%
Producer Durables 4.40%
Materials & Processing 3.86%
Utilities 3.54%
Commerical Paper 2.82%
Comsumer Staples 2.06%
Other 0.86%
Preferred Stocks-Foreign 0.19%
Allocation percentages are based on total investment value of the portfolio as
of 12/31/95.
19
<PAGE>
INTERNATIONAL GROWTH FUND
PORTFOLIO MANAGER:
J.P. MORGAN INVESTMENT
MANAGEMENT INC.
DOUGLAS J. DOOLEY
MARTYN C. HOLE
Mr. Dooley, Managing Director, has been with J.P. Morgan since 1979. He has
served as head of the International Research Group, and has been responsible for
the emerging equity component of the INTERNATIONAL GROWTH FUND. Mr. Hole, Vice
President, joined J.P. Morgan in 1981 from Cambridge University and is a
Chartered Financial Analyst. He is portfolio manager in the International Equity
Group in London with responsibility for Scandinavia and New Zealand. Both Mr.
Dooley and Mr. Hole have had primary portfolio management responsibility for the
INTERNATIONAL GROWTH FUND since its inception.
PERFORMANCE REVIEW:
From the Fund's inception (May 7, 1993) through December 31, 1995, the
INTERNATIONAL GROWTH FUND'S average annual total return was 8.08%. For the
12-month period ended December 31, 1995, the Fund's total return was 6.61%. For
additional information, see the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE 12-MONTH PERIOD ENDED DECEMBER 31, 1995?
In 1995, the performance of international equities was overshadowed by the
impressive returns of U.S. stocks. While the U.S. market was up more than 30
percent over the year, the EAFE Index (Europe, Australia, and the Far East)
gained only about 11 percent. Although the international markets produced
relatively moderate returns, there was a noticeable divergence in performance
among the different regions. The Japanese equity market, in particular, was
unexpectedly weak for the first half of the year. Investor sentiment in Japan
was negatively affected by the deflationary effects of the Yen, the aftermath of
the Kobe earthquake, the fear caused by a chain of terrorist activities, and the
collapse of Barings Securities. By mid-year, Japanese equities began to rebound.
The government loosened its
[THE FOLLOWING LINE GRAPH COMPARES A $10,000 INVESTMENT IN THE INTERNATIONAL
GROWTH FUND TO A $10,000 INVESTMENT IN THE MORGAN STANLEY CAPITAL INTERNATIONAL
EAFE INDEX FOR THE PERIODS SHOWN.] [PLOT POINTS ARE AS FOLLOWS]
Growth of a $10,000 investment
<TABLE>
<CAPTION>
MORGAN STANLEY
CAPITAL INTERNATIONAL
FUND EAFE INDEX
<S> <C> <C>
Inception May 7, 1993.................. 10,000 10,000
May 1993............................... 10,410 10,000
June 1993.............................. 10,120 9,844
July 1993.............................. 10,370 10,189
August 1993............................ 11,030 10,739
September 1993......................... 11,080 10,497
October 1993........................... 11,430 10,820
November 1993.......................... 10,820 9,875
December 1993.......................... 11,310 10,588
January 1994........................... 11,800 11,482
February 1994.......................... 11,890 11,450
March 1994............................. 11,470 10,957
April 1994............................. 11,840 11,421
May 1994............................... 11,890 11,356
June 1994.............................. 11,784 11,516
July 1994.............................. 12,065 11,627
August 1994............................ 12,246 11,902
September 1994......................... 11,864 11,527
October 1994........................... 12,115 11,911
November 1994.......................... 11,643 11,338
December 1994.......................... 11,523 11,410
January 1995........................... 11,021 10,972
February 1995.......................... 10,901 10,940
March 1995............................. 11,142 11,622
April 1995............................. 11,473 12,059
May 1995............................... 11,543 11,916
June 1995.............................. 11,392 11,707
July 1995.............................. 11,980 12,437
August 1995............................ 11,787 11,963
September 1995......................... 11,868 12,196
October 1995........................... 11,676 11,868
November 1995.......................... 11,777 12,198
December 1995.......................... 12,284 12,690
</TABLE>
THE ABOVE LINE GRAPH DOES NOT REFLECT ADMINISTRATIVE FEES OR OTHER EXPENSES
CHARGED BY AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT D THROUGH
WHICH SHARES OF THE FUND ARE PURCHASED.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/95 6 MONTH 1 YEAR SINCE INCEPTION
------- ------ ---------------
(May 7, 1993)
<S> <C> <C> <C>
Fund 7.84% 6.61% 8.08%
Morgan Stanley Capital International EAFE Index* 8.39% 11.21% 9.66%
</TABLE>
* Index total returns were calculated from 5/31/93 to 12/31/95. The Morgan
Stanley Capital International EAFE Index ("EAFE") includes 1,050 companies
representing the stock markets of Europe, Australia, New Zealand and the Far
East weighted by capitalization. EAFE is a broad-based index of equity markets
representing 18 countries, assumes reinvestment of all dividends/distributions,
and does not reflect any asset-based charges for investment management or other
expenses. Past investment performance does not guarantee future performance. The
returns for the Fund assume reinvestment of all dividends/distributions by the
shareholder.
During the period noted, the Advisor (Sierra Investment Advisor Corporation) and
Administrator (Sierra Fund Administration Corporation) waived a portion of their
management fees and the Advisor absorbed other expenses, and the Custodian
reduced fees by credits. In the absence of the waivers and absorption of other
expenses or fees reduced by credits, yield and total return would have been
lower.
20
<PAGE>
INTERNATIONAL GROWTH FUND
monetary policy and provided further fiscal stimulus, prompting a sharp rise in
the U.S. Dollar's value against the Yen. This trend helped the Sierra Variable
Trust International Growth Fund to regain part of its decline from earlier in
the year.
The year-end positive events appear to support the Fund's conviction that the
Japanese equity market is undervalued and that the Yen should decline relative
to the U.S. Dollar. However, with an overweighting of Japanese stocks throughout
the year, the Fund still underperformed its peer group for the period.
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
In the Pacific Basin, market results were mixed due to concerns over the pace of
economic development, the condition of real estate markets, and the impact of
regional political issues. Singapore suffered as its exports were compromised by
a strengthening currency and consumption declined as a result of rising interest
rates. The Fund's positions in Malaysia also showed disappointing performance in
light of concerns over increased inflationary pressures. In Europe, the slowdown
in economic growth led to interest rate cuts by the German Bundesbank and the
central banks of other European countries, including Switzerland, Belgium, and
the Netherlands. This favorable interest rate environment led most major
European markets to post gains in 1995.
Besides attempting to add value through our country allocation decisions by
concentrating on countries that appeared undervalued on a long-term basis (e.g.,
Japan and France), we focused our efforts on stock selection -- that is,
analyzing individual companies to find those with the best long-term values. In
addition, currency management strategies, such as our decision to partially
hedge our Yen exposure into the U.S. Dollar, were implemented to limit the
potential volatility associated with fluctuating currencies.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/ SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
During the year, we slightly reduced the Fund's holdings in Japan, although
Japan still remains our single largest position. Earlier in the year, our
Japanese holdings hindered overall performance; however, over the last six
months, the Fund has benefited from the above average exposure to the recovering
Japanese equity market. Business confidence has improved due to the fall in the
Yen and sharply lower short- and long-term rates. As a consequence, we believe
that economic growth and corporate profits in Japan are likely to continue
surprising on the upside. Elsewhere in Asia, we reduced our positions in
Malaysia, Australia, and Hong Kong as a result of worsening interest rate
outlooks and inflationary pressures.
The Fund's European positions have been increased, particularly in the U.K. Our
favorable view of the U.K. was driven by improved valuations as interest rates
declined, while institutional buying, merger and acquisition activity, share
buybacks, and dividends were on the upswing.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
Although stocks abroad generally underperformed the U.S. market in 1995, our
valuation analysis indicates that foreign stocks should be significantly more
attractive than U.S. stocks at this time. We do not believe that last year's
events in Mexico should serve as a harbinger of other financial crises to come.
In most emerging economies, growth is strong, capital inflows are steady, and
stock values are currently at very attractive levels.
While U.S. interest rates have already fallen below the historical norm, there
appears to be greater scope for further interest rate decreases internationally,
especially in Europe. In addition, we believe corporate profits in the U.S. are
close to a cyclical peak, whereas in Japan, they are showing early signs of a
strong rebound. These factors suggest that 1996 may be a solid year for the
international markets and for The Sierra Variable Trust International Growth
Fund. On a longer term basis, we continue to believe that international
investing provides investors with the potential for very attractive returns and
is a critical element of a fully diversified portfolio.
DIVERSIFICATION BY REGION
[PIE CHART] [ALLOCATED AS FOLLOWS]
Europe 48.23%
Asia 34.29%
Americas 15.54%
Australia 1.94%
Allocation percentages are based on total investment value of the portfolio as
of 12/31/95.
21
<PAGE>
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.
22
<PAGE>
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL U.S. CORPORATE GROWTH AND EMERGING INTERNATIONAL
GOVERNMENT GOVERNMENT INCOME INCOME GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND FUND FUND
---- ---- ---- ---- ---- ---- ----
<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.
23
<PAGE>
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.
24
<PAGE>
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL U.S. CORPORATE GROWTH AND EMERGING INTERNATIONAL
GOVERNMENT GOVERNMENT INCOME INCOME GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND FUND FUND
---- ---- ---- ---- ---- ---- ----
<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.
25
<PAGE>
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.
26
<PAGE>
<TABLE>
<CAPTION>
SHORT-TERM
GLOBAL U.S. CORPORATE GROWTH AND EMERGING INTERNATIONAL
GOVERNMENT GOVERNMENT INCOME INCOME GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND FUND FUND
---- ---- ---- ---- ---- ---- ----
<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.
27
<PAGE>
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.
28
<PAGE>
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL U.S. CORPORATE GROWTH AND EMERGING INTERNATIONAL
GOVERNMENT GOVERNMENT INCOME INCOME GROWTH GROWTH GROWTH
FUND FUND FUND FUND* FUND FUND* FUND
---- ---- ---- ----- ---- ----- ----
<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.
29
<PAGE>
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.
30
<PAGE>
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL U.S. CORPORATE GROWTH AND EMERGING INTERNATIONAL
GOVERNMENT GOVERNMENT INCOME INCOME GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND FUND FUND
---- ---- ---- ---- ---- ---- ----
<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.
31
<PAGE>
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.
32
<PAGE>
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.
33
<PAGE>
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.
34
<PAGE>
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.
35
<PAGE>
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.
36
<PAGE>
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.
37
<PAGE>
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.
38
<PAGE>
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.
39
<PAGE>
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.
40
<PAGE>
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.
41
<PAGE>
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.
42
<PAGE>
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.
43
<PAGE>
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.
44
<PAGE>
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.
45
<PAGE>
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.
46
<PAGE>
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.
47
<PAGE>
<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.
48
<PAGE>
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.
49
<PAGE>
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.
50
<PAGE>
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.
51
<PAGE>
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.
52
<PAGE>
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.
53
<PAGE>
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.
54
<PAGE>
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.
55
<PAGE>
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.
56
<PAGE>
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.
57
<PAGE>
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.
58
<PAGE>
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.
59
<PAGE>
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.
60
<PAGE>
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
61
<PAGE>
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.
62
<PAGE>
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
63
<PAGE>
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
64
<PAGE>
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>
65
<PAGE>
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."
66
<PAGE>
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>
67
<PAGE>
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").
68
<PAGE>
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
69
<PAGE>
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
70
<PAGE>
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>
71
<PAGE>
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.
72
<PAGE>
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.
PRICE WATERHOUSE LLP
BOSTON, MASSACHUSETTS
FEBRUARY 15, 1996
73
<PAGE>
MEETING OF SHAREHOLDERS
On February 24, 1995, a Special Meeting of Shareholders of The Sierra Variable
Trust U.S. Government Fund (the "U.S. Fund") was held. The purpose of the
meeting was to consider a proposal to approve two new investment sub-advisory
agreements (the "Proposal") with respect to the U.S. Fund, each with the same
terms and conditions, by and among the Trust, Sierra Advisors and Former
BlackRock or its successor, the first new sub-advisory agreement to be effective
as of December 8, 1994, and the second new sub-advisory agreement to be entered
into upon consummation of the acquisition of Former BlackRock by PNC Bank, N.A.
(which acquisition would, under provisions of the sub-advisory agreements
required by the 1940 Act, cause the first new sub-advisory agreement to
terminate automatically) and the reorganization of Former BlackRock resulting
from its contemplated new ownership by PNC Bank, N.A.
At the meeting 4,318,068 votes were cast in favor of the Proposal and 51,240
votes were cast against the Proposal. In addition, there were 339,232
abstentions with respect to the Proposal. Accordingly, the Proposal was approved
and the first new sub-advisory agreement was effective on December 8, 1994, and
the second new sub-advisory agreement became effective as of February 28, 1995,
when Former BlackRock was acquired by PNC Bank, N.A. and Former BlackRock became
BlackRock.
74
<PAGE>
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<PAGE>
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<PAGE>
This material is not an offer to sell nor a solicitation to buy The Sierra
Advantage Variable Annuity or shares of The Sierra Variable Trust. It is not
authorized for distribution unless preceded or accompanied by a current
prospectus that includes information regarding the risk factors, expenses,
policies, and objectives of The Sierra Advantage Variable Annuity program.
Please read it carefully before investing. Sierra Advantage may not be available
for sale in all states.
Shares of The Sierra Variable Trust are not insured by the FDIC. They are not
deposits or obligations of, nor are they guaranteed by, the depository
institution. These securities are subject to investment risk, including possible
loss of principal amount invested. NOT FDIC INSURED
Distributed by
Sierra Investment Services Corporation
Member NASD
SIERRA
ADVANTAGE
A Tax-Deferred Variable Annuity
The Sierra Variable Trust
9301 Corbin Avenue, Suite 333
P.O. Box 1160
Northridge, California 91328-1160
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