<PAGE> 1
As filed with the Securities and Exchange Commission on April 30, 1997
Securities Act File No. 33-57732
Investment Company Act File No. 811-7462
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 9 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 10 [X]
The Sierra Variable Trust
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
9301 Corbin Avenue
Northridge, CA 91324
----------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (818) 725-0200
F. Brian Cerini
The Sierra Variable Trust
9301 Corbin Avenue
Northridge, California 91324
---------------------------------------
(Name and Address of Agent for Service)
Copies to:
Richard W. Grant, Esq. W. John McGuire, Esq.
Morgan, Lewis & Bockius LLP Morgan, Lewis & Bockius LLP
2000 One Logan Square 1800 M. Street, N.W.
Philadelphia, Pennsylvania 19103 Washington, DC 20036
It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b), or
- -----
X on May 1, 1997 pursuant to paragraph (b), or
- -----
60 days after filing pursuant to paragraph (a), or
- -----
75 days after filing pursuant to paragraph (a), or
- -----
on [date] pursuant to paragraph (a) of Rule 485.
- -----
DECLARATION PURSUANT TO RULE 24f-2
Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
the Registrant has previously registered an indefinite number or amount of its
shares of beneficial interest under the Securities Act of 1933.
Registrant's Rule 24f-2 Notice with respect to the Global Money
Fund, Short Term High Quality Bond Fund, Short Term Global Government Fund, U.S.
Government Fund, Corporate Income Fund, Growth and Income Fund, Growth Fund,
Emerging Growth Fund and International Growth Fund for the fiscal year ended
December 31, 1996 was filed with the Securities and Exchange Commission on
February 24, 1997.
<PAGE> 2
THE SIERRA VARIABLE TRUST
FORM N-1A
CROSS REFERENCE SHEET
----------
PART A
The enclosed prospectus relates only to the Global Money Fund, Short Term High
Quality Bond Fund, Short Term Global Government Fund, U.S. Government Fund,
Corporate Income Fund, Growth and Income Fund, Growth Fund, Emerging Growth Fund
and International Growth Fund of The Sierra Variable Trust (the "Trust"). The
prospectus for the other series of the Trust is not being amended or otherwise
affected by the information contained in this Amendment.
The prospectus relating to the Capital Growth, Growth, Balanced, Value and
Income Portfolios of the Trust is incorporated by reference to Post-Effective
Amendment No. 8 to the Registrant's Registration Statement in Form N- 1A (File
No. 033-57732) filed with the securities and Exchange Commission on March 25,
1997 (Accession No. 0000950150-97-000398).
<TABLE>
<CAPTION>
Item No. Prospectus Heading
- -------- ------------------
<S> <C>
1. Cover Page . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . Highlights
3. Condensed Financial
Information . . . . . . . . Financial Highlights
4. General Description of
Registrant . . . . . . . . Management of the Trust; Investment
Policies; Certain Investment Guidelines;
Special Considerations; General
Information and History
5. Management of the Fund . . . Management of the Trust-Investment
Advisor, -- Sub-Advisors, -- Distributor
and -Administration; Investment
Guidelines; Special Considerations
5A. Management's Discussion of Not Applicable
Fund Performance. . . . .
6. Capital Stock and Other
Securities . . . . . . . . Dividends, Distributions and Taxes;
General Information and History --The
Trust
7. Purchase of Securities
Being Offered . . . . . . . General Information and History --
Purchase and Redemption, and -- Net
Asset Value; Management of the Trust --
Distributor
8. Redemption or Repurchase . . General Information and History --
Purchase and Redemption
9. Pending Legal Proceedings. . Not Applicable
</TABLE>
<PAGE> 3
PART B
<TABLE>
<CAPTION>
Heading in Statement of
Item No. Additional Information
- -------- ----------------------
<S> <C>
10. Cover Page . . . . . . . . . Cover Page
11. Table of Contents . . . . . Contents
12. General Information and
History . . . . . . . . . . General Information and History;
Management of the Trust; see Prospectus
-- "General Information and History"
13. Investment Objectives and
Policies . . . . . . . . . Investment Objectives and Policies of
the Funds and Portfolios
14. Management of the Fund . . . Management of the Trust
15. Control Persons and Principal
Holders of Securities . . . Management of the Trust; see Prospectus
-- "General Information and History"
16. Investment Advisory and
Other Services . . . . . . Management of the Trust; see Prospectus
-- "Management of the Trust--
Administration"
17. Brokerage Allocation and
Other Practices . . . . . . Investment Objectives and Policies of
the Funds and Portfolios
18. Capital Stock and Other
Securities . . . . . . . . Management of the Trust; see Prospectus
-- "Dividends, Distributions and Taxes"
and "General Information and History"
19. Purchase, Redemption and
Pricing of Securities
Being Offered . . . . . . . Purchase and Pricing of Shares; Net
Asset Value
20. Tax Status . . . . . . . . . Taxes; see Prospectus -- "Dividends,
Distributions and Taxes"
21. Underwriters . . . . . . . . Purchase and Pricing of Shares; see
Prospectus -- "Management of the Trust
-- Distributor"
22. Calculation of Performance
Data . . . . . . . . . . . Performance; see Prospectus --
"Performance"
23. Financial Statements . . . . Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE> 4
SUPPLEMENT DATED MAY 1, 1997
TO PROSPECTUS DATED MAY 1, 1997
OF
THE SIERRA VARIABLE TRUST
9301 CORBIN AVENUE, SUITE 333
NORTHRIDGE, CALIFORNIA 91324
The Prospectus, dated May 1, 1997 of The Sierra Variable Trust (the "Trust")
relating to the GLOBAL MONEY, SHORT TERM HIGH QUALITY BOND, SHORT TERM GLOBAL
GOVERNMENT, U.S. GOVERNMENT, CORPORATE INCOME, GROWTH AND INCOME, GROWTH,
EMERGING GROWTH and INTERNATIONAL GROWTH FUNDS of the Trust is amended and
supplemented as follows:
At the end of the section "MANAGEMENT OF THE TRUST -- INVESTMENT MANAGEMENT --
INVESTMENT ADVISOR" on page 21, add the following paragraph:
On March 6, 1997, Great Western Financial Corporation ("Great
Western"), the indirect parent of Sierra Advisors, the Funds'
investment advisor, and Washington Mutual, Inc. ("Washington
Mutual"), a financial services company, announced that they had
entered into an Agreement and Plan of Merger providing for the
merger of Great Western with and into a wholly-owned subsidiary
of Washington Mutual (the "Merger"). Subject to the satisfaction
or waiver of certain conditions, including the receipt of
necessary shareholder and regulatory approvals, it is anticipated
that the Merger would close in the third quarter of 1997.
Following the Merger, Sierra Advisors would be an indirect
subsidiary of Washington Mutual. The Merger was announced
following the announcement by H.F. Ahmanson ("Ahmanson") of an
unsolicited proposal for the merger of Great Western and
Ahmanson, which proposal was subsequently revised and is
outstanding.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
<PAGE> 5
THE SIERRA VARIABLE TRUST
9301 CORBIN AVENUE, SUITE 333
NORTHRIDGE, CALIFORNIA 91324
The Sierra Variable Trust (the "Trust") is a no-load, open-end management
investment company, commonly known as a mutual fund. The Trust serves as an
investment vehicle for variable annuity contract and variable life insurance
policies offered by life insurance companies. Currently, shares of the Trust are
offered only to American General Life Insurance Company ("AGL") and its separate
accounts for its variable annuity contracts ("Contracts"). This Prospectus
describes the following nine different investment funds offered to AGL for the
Sierra Advantage Annuity: GLOBAL MONEY, SHORT TERM HIGH QUALITY BOND, SHORT TERM
GLOBAL GOVERNMENT, U.S. GOVERNMENT, CORPORATE INCOME, GROWTH AND INCOME, GROWTH,
EMERGING GROWTH AND INTERNATIONAL GROWTH (the "Funds"). Five additional
investment funds of the Trust, the Capital Growth, Growth, Balanced, Value and
Income Portfolios, are offered to AGL for the Sierra Asset Manager Annuity and
are described in a separate prospectus.
Please read this Prospectus before allocating premiums to the Trust and keep it
on file for future reference. It contains useful information that can help you
decide if a Fund's investment goals match your own.
A Statement of Additional Information ("SAI") about the Trust and the Funds,
dated May 1, 1997, has been filed with the Securities and Exchange Commission
("SEC") and is incorporated herein by reference. The SAI is available free upon
request by calling AGL at 800-247-6584 or by writing to American General Life
Insurance Company, Attention: Annuity Administration, P.O. Box 1401, Houston,
Texas 77251-1401.
INVESTMENTS IN THE GLOBAL MONEY FUND ARE NOT GUARANTEED OR INSURED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT IT WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS DATED MAY 1, 1997
1
<PAGE> 6
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Highlights........................................................................ 3
Investment Policies............................................................... 14
Management of the Trust........................................................... 20
Board of Trustees...................................................... 20
Investment Management.................................................. 20
Distributor............................................................ 26
Administration......................................................... 26
General Information and History................................................... 26
The Trust.............................................................. 26
Purchase and Redemption................................................ 27
Purchase through the SAM Program....................................... 27
Net Asset Value........................................................ 28
Dividends, Distributions and Taxes................................................ 28
Performance....................................................................... 29
Appendix - Securities and Investment Practices.................................... A-1
Statement of Additional Information Table of Contents............................. A-16
</TABLE>
2
<PAGE> 7
HIGHLIGHTS
INTRODUCTION
Owners of the Sierra Advantage Annuity may allocate their account value among
nine different Funds, each of which has a different investment objective and
different investment policies. Sierra Advantage Annuity owners may also elect to
participate in the Sierra Asset Management Program ("SAM Program"), which
periodically reallocates account values in light of financial and investment
objectives and changing economic and market conditions, through Sierra
Investment Services Corporation, the Trust's distributor.
INVESTMENT OBJECTIVES AND POLICIES
Each Fund has a distinct investment objective and distinct policies. Except for
the Short Term Global Government Fund, each Fund is diversified.
The GLOBAL MONEY FUND seeks to maximize current income consistent with safety of
principal and maintenance of liquidity. It will pursue this objective by
investing in U.S. dollar denominated money market instruments of foreign and
U.S. issuers. It also seeks to maintain a stable net asset value of $1.00 per
share.
The SHORT TERM HIGH QUALITY BOND FUND seeks as high a level of current income as
is consistent with prudent investment management and stability of principal. It
will pursue this objective by investing primarily in high quality short-term
bonds and other debt instruments.
The SHORT TERM GLOBAL GOVERNMENT FUND seeks to provide high current income
consistent with protection of principal. It will pursue this objective by
investing primarily in short-term bonds and money market instruments issued by
foreign and U.S. governments and denominated in foreign currencies or the U.S.
dollar.
The U.S. GOVERNMENT FUND seeks to maximize total return while providing
investors with a high level of current income, consistent with reasonable safety
of principal. Under normal market conditions, it will pursue this objective by
investing primarily in intermediate- and long-term U.S. Government bonds.
The CORPORATE INCOME FUND seeks to provide a high level of current income,
consistent with the preservation of capital. Under normal market conditions, it
will pursue this objective by investing primarily in investment grade corporate
bonds of United States issuers.
The GROWTH AND INCOME FUND seeks long-term capital growth and current income
consistent with reasonable investment risk. Under normal market conditions, it
will pursue this objective by investing primarily in dividend-paying Common
Stock.
The GROWTH FUND seeks long-term capital appreciation. Under normal market
conditions, it will pursue this objective by investing primarily in Equity
Securities of U.S., multinational and foreign companies of all sizes that offer
potential for growth.
The EMERGING GROWTH FUND seeks long-term capital appreciation. Under normal
market conditions, it will pursue this objective by investing primarily in
Equity Securities of U.S. and foreign companies having market capitalization of
less than $1.4 billion.
The INTERNATIONAL GROWTH FUND is an equity fund that seeks long-term capital
appreciation. Under normal market conditions, it will pursue this objective by
investing primarily in equity securities of foreign issuers.
The investment objective of each Fund and the policies and restrictions
specifically cited as fundamental may not be changed without the approval of a
majority of the outstanding shares of that Fund. A complete list of fundamental
investment restrictions, which cannot be changed without the approval of a
majority of an affected Fund's outstanding shares, is contained in the SAI.
There is no assurance that a Fund will meet its stated objective.
3
<PAGE> 8
INVESTMENT RISKS
The value of a Fund's shares will fluctuate with the value of the underlying
securities in its portfolio, and in the case of debt securities, with the
general level of interest rates. When interest rates decline, the value of a
portfolio invested in Fixed-Income Securities can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in
Fixed-Income Securities can be expected to decline. In the case of foreign
currency denominated securities, these trends may be offset or amplified by
fluctuations in foreign currencies. Lower-Rated Securities, such as those in
which the Short Term Global Government Fund may invest up to 10% and the Growth
and Emerging Growth Funds up to 35% of total assets, are subject to greater
market fluctuations and risk of loss of income and principal than investments in
lower yielding Fixed-Income Securities. The Funds intend to employ from time to
time certain investment techniques which are designed to enhance income or total
return or hedge against market or currency risks but which themselves involve
additional risks. These techniques include Options on Securities, Futures,
Options on Futures, Options on Indexes, Options on Foreign Currencies, Foreign
Currency Exchange Transactions, Lending of Securities and When-Issued Securities
and Delayed-Delivery Transactions. Because the Short Term Global Government Fund
is non-diversified, it is permitted greater flexibility to invest its assets in
the securities of any one issuer and therefore will be exposed to increased risk
of loss if such an investment underperforms expectations. The Funds may have
higher than average portfolio turnover which may result in higher than average
brokerage commissions and transaction costs.
INVESTMENT ADVISORS
Subject to the authority of the Board of Trustees, Sierra Investment Advisors
Corporation (the "Advisor" or "Sierra Advisors") serves as each Fund's
investment advisor and has responsibility for the overall management of the
investment strategies and policies of the Funds. The Trust has secured the
services of sub-advisors for each Fund to make investment decisions and place
orders.
DISTRIBUTION
Sierra Investment Services Corporation (the "Distributor" or "Sierra Services")
distributes the Funds' shares to the separate accounts, which purchase and
redeem these shares at net asset value without sales or redemption charges.
ADMINISTRATION
Sierra Fund Administration Corporation (the "Administrator" or "Sierra
Administration") serves as Administrator to the Trust and has responsibility for
the Trust's administrative functions. Sierra Administration has engaged First
Data Investor Services Group, Inc. ("FDISG"), a wholly-owned subsidiary of First
Data Corporation, as sub-administrator. The Trust has engaged FDISG as the
Trust's transfer agent and Boston Safe Deposit & Trust Company ("Boston Safe")
as the Trust's custodian.
TAXES
The tax consequences of your investment in the Trust depend upon the specific
provisions of your Contract. For more information, see the prospectus for that
Contract, which is attached to the front of this Prospectus.
PURCHASING AND SELLING SHARES
You cannot purchase shares of the Trust directly, but only through a Contract
offered through an insurance company separate account. Please refer to the
prospectus for your Contract for information on how to make investments and
redemptions.
4
<PAGE> 9
FINANCIAL HIGHLIGHTS
The following information, insofar as it relates to each of the respective
periods ended December 31, 1996 or earlier, has been audited by Price Waterhouse
LLP, independent accountants. Their unqualified report is included in the
Trust's Annual Report to Shareholders (the "Annual Report"). The Financial
Statements, Notes to Financial Statements and Report of Independent Accountants
sections of the Annual Report are included in the SAI. Further information about
the performance of the Funds is contained in the Annual Report. The SAI and
Annual Report can be obtained at no charge by calling AGL at 800-247-6584 or
writing to them at the address shown on the first page of this Prospectus.
GLOBAL MONEY FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
12/31/96 12/31/95 12/31/94 12/31/93*
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of year....... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................... 0.049 0.053 0.037 0.016
------- ------ ------ ------
Total from investment operations......... 0.049 0.053 0.037 0.016
LESS DISTRIBUTIONS:
Dividends from net investment income..... (0.049) (0.053) (0.037) (0.016)
Distributions from net realized capital
gains.................................. (0.000) # -- -- --
------- ------ ------ ------
Total distributions...................... (0.049) (0.053) (0.037) (0.016)
------- ------ ------ ------
Net asset value, end of year............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ====== ====== ======
TOTAL RETURN(+) 4.97% 5.46% 3.69% 1.59%
======= ====== ====== ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year (in 000's)....... $23,266 $20,373 $ 6,159 $1,488
Ratio of operating expenses to average
net assets............................. 0.58% 0.50% 0.49% 0.39%**
Ratio of net investment income to average
net assets............................. 4.86% 5.30% 3.84% 2.54%**
Ratio of operating expenses to average
net assets without fees reduced by
credits allowed by the custodian....... 0.58%(a) 0.51%(a) N/A N/A
Ratio of operating expenses to average
net assets without fee waivers,
expenses absorbed and/or fees reduced
by credits allowed by the custodian.... 0.88%(a) 1.01%(a) 1.25% 6.42%**
Net investment income/(loss) per share
without fee waivers and/or expenses
absorbed and/or fees reduced by credits
allowed by the custodian............... $ 0.046 $ 0.048 $ 0.030 $ (0.022)
</TABLE>
- --------------------------------------------------------------------------------
* The Fund commenced operations on May 10, 1993.
** Annualized.
+ Total return represents aggregate total return for the periods 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.
# Amount represents less than $0.001 per share.
5
<PAGE> 10
SHORT TERM HIGH QUALITY BOND FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/96 12/31/95 12/31/94*
---------- ---------- ------------
<S> <C> <C> <C>
Net asset value, beginning of year............ $ 2.49 $ 2.39 $ 2.50
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income......................... 0.15 0.12 0.08
Net realized and unrealized gain/(loss) on
investments................................. (0.06) 0.10 (0.12)
------- ------- -------
Total from investment operations.............. 0.09 0.22 (0.04)
LESS DISTRIBUTIONS:
Dividends from net investment income.......... (0.15) (0.12) (0.07)
------- ------- -------
Total distributions........................... (0.15) (0.12) (0.07)
------- ------- -------
Net asset value, end of year.................. $ 2.43 $ 2.49 $ 2.39
======= ======= =======
TOTAL RETURN(+) 3.74% 9.30% (1.62)%
======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year (in 000's)............ $ 12,402 $ 12,365 $ 15,547
Ratio of operating expenses to average net
assets...................................... 0.98% 0.85% 0.77%**
Ratio of net investment income to average net
assets...................................... 6.08% 6.14% 5.63%**
Portfolio turnover rate....................... 125% 188% 80%
Ratio of operating expenses to average net
assets without fees reduced by credits
allowed by the custodian.................... 0.98%(a) 0.87%(a) N/A
Ratio of operating expenses to average net
assets without fee waivers and/or fees
reduced by credits allowed by the
custodian................................... 1.06%(a) 1.01%(a) 1.10%**
Net investment income per share without fee
waivers and/or fees reduced by credits
allowed by the custodian.................... $ 0.15 $ 0.11 $ 0.07
</TABLE>
- --------------------------------------------------------------------------------
* The Fund commenced operations on January 12, 1994.
** Annualized.
+ Total return represents aggregate total return for the periods indicated.
The total return would have been lower if certain fees had not been waived
by the investment advisor and administrator or if fees had not been reduced
by credits allowed by the custodian.
(a) The ratio includes custodian fees before reduction by credits allowed by the
custodian as required by amended disclosure requirements effective September
1, 1995.
6
<PAGE> 11
SHORT TERM GLOBAL GOVERNMENT FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
12/31/96(++) 12/31/95 12/31/94 12/31/93*
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of year...... $ 2.50 $ 2.35 $ 2.49 $ 2.50
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................... 0.14 0.07 0.05 0.01
Net realized and unrealized gain/(loss)
on investments........................ 0.07 0.12 (0.10) (0.01)
------- ------- ------- -------
Total from investment operations........ 0.21 0.19 (0.05) 0.00
LESS DISTRIBUTIONS:
Dividends from net investment income.... (0.15) (0.04) (0.05) (0.01)
Distributions in excess of net
investment income..................... (0.08) -- -- --
Distributions from capital***........... -- -- (0.04) --
------- ------- ------- -------
Total distributions..................... (0.23) (0.04) (0.09) (0.01)
------- ------- ------- -------
Net asset value, end of year............ $ 2.48 $ 2.50 $ 2.35 $ 2.49
======= ======= ======= =======
TOTAL RETURN(+) 8.61% 8.09% (2.03)% 0.12%
======= ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's)...... $21,910 $23,805 $29,804 $19,147
Ratio of operating expenses to average
net assets............................ 1.28% 1.25% 0.92% 0.52%**
Ratio of net investment income to
average net assets.................... 5.67% 6.22% 5.84% 4.06%**
Portfolio turnover rate................. 77% 195% 286% 164%
Ratio of operating expenses to average
net assets without fees reduced by
credits allowed by the custodian...... 1.28%(a) 1.25% (a) N/A N/A
Ratio of operating expenses to average
net assets without fee waivers,
expenses absorbed and/or fees reduced
by credits allowed by the custodian... 1.28%(a) 1.26% (a) 1.28% 1.92%**
Net investment income per share without
fee waivers and/or expenses absorbed
and/or fees reduced by credits allowed
by the custodian...................... $ 0.14 $ 0.07 $ 0.05 $ 0.01
</TABLE>
- --------------------------------------------------------------------------------
* The Fund commenced operations on May 12, 1993.
** Annualized.
*** Certain of these distributions which are reported as being from paid-in
capital for financial statement purposes may be reported to shareholders as
taxable distributions due to differing tax and accounting rules.
+ Total return represents aggregate total return for the periods 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.
(a) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
7
<PAGE> 12
U.S. GOVERNMENT FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
12/31/96 12/31/95 12/31/94 12/31/93*
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of
year............................ $ 10.00 $ 9.13 $ 10.04 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............. 0.58 0.64 0.50 0.19
Net realized and unrealized
gain/(loss) on investments...... (0.23) 0.87## (0.90)## 0.04##
------- ------- ------- -------
Total from investment
operations...................... 0.35 1.51 (0.40) 0.23
LESS DISTRIBUTIONS:
Dividends from net investment
income.......................... (0.58) (0.64) (0.50) (0.19)
Distributions from net realized
gains........................... -- -- (0.01) --
------- ------- ------- -------
Total distributions............... (0.58) (0.64) (0.51) (0.19)
------- ------- ------- -------
Net asset value, end of year...... $ 9.77 $ 10.00 $ 9.13 $ 10.04
======= ======= ======= =======
TOTAL RETURN(+) 3.69% 16.89% (4.04)% 2.27%
======= ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in
000's).......................... $ 66,563 $ 52,303 $ 43,582 $25,069
Ratio of operating expenses to
average net assets.............. 0.94% 1.00% 0.85% 0.44%**
Ratio of net investment income to
average net assets.............. 6.18% 6.68% 5.75% 5.37%**
Portfolio turnover rate........... 282% 273% 74% 131%
Ratio of operating expenses to
average net assets without fees
reduced by credits allowed by
the custodian................... 0.94%(a) 1.02%(a) N/A N/A
Ratio of operating expenses to
average net assets without fee
waivers, expenses absorbed
and/or fees reduced by credits
allowed by the custodian........ 0.94%(a) 1.03%(a) 1.02% 1.47%**
Ratio of operating expenses to
average net assets including
interest expense................ 1.08% 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................... $ 0.58 $ 0.63 $ 0.49 $ 0.15
</TABLE>
- --------------------------------------------------------------------------------
* The Fund commenced operations on May 6, 1993.
** Annualized.
+ Total return represents aggregate total return for the periods indicated.
The total return would have been lower if certain fees had not been waived
by the investment advisor and administrator and if certain expenses had
not been absorbed by the investment advisor or if fees had not been
reduced by credits allowed by the custodian.
## The amount shown may not accord with the change in the aggregate gains and
losses of portfolio securities due to timing of sales and redemptions of
Fund shares.
(a) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
8
<PAGE> 13
CORPORATE INCOME FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
12/31/96 12/31/95 12/31/94 12/31/93*
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of year....... $ 10.48 $ 9.06 $ 10.34 $ 10.00
------- ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................... 0.68 0.70 0.47 0.23
Net realized and unrealized gain/(loss)
on investments......................... (0.66) 1.50 (1.30) 0.33##
------- ------ ------ -------
Total from investment operations......... 0.02 2.20 (0.83) 0.56
LESS DISTRIBUTIONS:
Dividends from net investment income..... (0.68) (0.78) (0.40) (0.22)
Distributions from net realized gains.... -- -- (0.05) --
------- ------ ------ -------
Total distributions...................... (0.68) (0.78) (0.45) (0.22)
------- ------ ------ -------
Net asset value, end of year............. $ 9.82 $ 10.48 $ 9.06 $ 10.34
======= ====== ====== =======
TOTAL RETURN(+) 0.43% 25.09% (8.13)% 5.62%
======= ====== ====== =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year (in 000's)....... $59,883 $60,676 $54,705 $28,732
Ratio of operating expenses to average
net assets............................. 0.98% 0.99% 0.93% 0.54%**
Ratio of net investment income to average
net assets............................. 6.92% 7.00% 7.28% 6.37%**
Portfolio turnover rate.................. 30% 42% 23% 26%
Ratio of operating expenses to average
net assets without fees reduced by
credits allowed by the custodian....... 0.98% (a) 0.99% (a) N/A N/A
Ratio of operating expenses to average
net assets without fee waivers,
expenses absorbed and/or fees reduced
by credits allowed by the custodian.... 0.98% (a) 0.99% (a) 1.07% 1.50%**
Ratio of operating expenses to average
net assets including interest
expense................................ -- 0.99% -- --
Net investment income per share without
fee waivers and/or expenses absorbed
and/or fees reduced by credits allowed
by the custodian....................... $ 0.68 $ 0.70 $ 0.47 $ 0.19
</TABLE>
- --------------------------------------------------------------------------------
* The Fund commenced operations on May 7, 1993.
** Annualized.
+ Total return represents aggregate total return for the periods indicated.
The total return would have been lower if certain fees had not been waived
by the investment advisor and administrator and if certain expenses had not
been absorbed by the investment advisor or if fees had not been reduced by
credits allowed by the custodian.
## The amount shown may not accord with the change in the aggregate gains and
losses of portfolio securities due to the timing of sales and redemptions
of Fund shares.
(a) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
9
<PAGE> 14
GROWTH AND INCOME FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/96++ 12/31/95 12/31/94*
---------- -------- ---------
<S> <C> <C> <C>
Net asset value, beginning of year................. $ 12.83 $ 9.83 $ 10.00
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............................. 0.12 0.12 0.07
Net realized and unrealized gain/(loss) on
investments...................................... 2.54 3.05 (0.24)
------- ------- -------
Total from investment operations................... 2.66 3.17 (0.17)
LESS DISTRIBUTIONS:
Dividends from net investment income............... (0.12) (0.07) --
Distributions from net realized gains.............. (1.08) (0.10) --
------- ------- -------
Total distributions................................ (1.20) (0.17) --
------- ------- -------
Net asset value, end of year....................... $ 14.29 $ 12.83 $ 9.83
======= ======= =======
TOTAL RETURN(+) 21.81% 32.41% (1.70)%
======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's)................. $ 62,445 $46,362 $24,905
Ratio of operating expenses to average net
assets........................................... 1.13% 1.06% 1.20%**
Ratio of net investment income to average net
assets........................................... 0.93% 1.31% 1.63%**
Portfolio turnover rate............................ 83% 70% 44%
Ratio of operating expenses to average net assets
without fees reduced by credits allowed by the
custodian........................................ 1.13%(a) 1.06% (a) N/A
Ratio of operating expenses to average net assets
without fee waivers and/or fees reduced by
credits allowed by the custodian................. 1.13%(a) 1.16% (a) 1.55%**
Net investment income per share without fee waivers
and/or fees reduced by credits allowed by the
custodian........................................ $ 0.12 $ 0.11 $ 0.05
Average commission rate paid(b).................... $ 0.0533 N/A N/A
</TABLE>
- --------------------------------------------------------------------------------
* The Fund commenced operations on January 12, 1994.
** Annualized.
+ Total return represents aggregate total return for the periods 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.
++ 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.
(a) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund as required by amended disclosure requirements effective for
fiscal years beginning on or after September 1, 1995.
10
<PAGE> 15
GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
12/31/96++ 12/31/95++ 12/31/94 12/31/93*
---------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of year.... $ 15.72 $ 11.48 $ 11.19 $ 10.00
-------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.00# 0.04 0.04 0.02
Net realized and unrealized gain on
investments......................... 2.42 4.24 0.26 1.17
-------- ------- ------- -------
Total from investment operations...... 2.42 4.28 0.30 1.19
LESS DISTRIBUTIONS:
Dividends from net investment
income.............................. -- (0.04) (0.01) --
Distributions from net realized
gains............................... (2.13) (0.00)# -- --
-------- ------- ------- -------
Total distributions................... (2.13) (0.04) (0.01) --
-------- ------- ------- -------
Net asset value, end of year.......... $ 16.01 $ 15.72 $ 11.48 $ 11.19
======== ======= ======= =======
TOTAL RETURN(+) 16.15% 37.34% 2.69% 11.90%
======== ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's).... $116,064 $ 99,699 $62,763 $22,795
Ratio of operating expenses to average
net assets.......................... 1.22% 1.24% 1.26% 0.78%**
Ratio of net investment income to
average net assets.................. 0.01% 0.29% 0.74% 0.70%**
Portfolio turnover rate............... 169% 187% 257% 86%
Ratio of operating expenses to average
net assets without fees reduced by
credits allowed by the custodian.... 1.22%(a) 1.24%(a) N/A N/A
Ratio of operating expenses to average
net assets without fee waivers,
expenses absorbed and/or fees
reduced by credits allowed by the
custodian........................... 1.22%(a) 1.24%(a) 1.32% 1.92%**
Net investment income/(loss) per share
without fee waivers and/or expenses
absorbed and/or fees reduced by
credits allowed by the custodian.... $ 0.00# $ 0.04 $ 0.04 $ (0.01)
Average commission rate paid(b)....... $ 0.0460 N/A N/A N/A
</TABLE>
- --------------------------------------------------------------------------------
* The Fund commenced operations on May 7, 1993.
** Annualized.
+ Total return represents aggregate total return for the periods 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.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund as required by amended disclosure requirements effective for
fiscal years beginning on or after September 1, 1995.
11
<PAGE> 16
EMERGING GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/96++ 12/31/95 12/31/94*
---------- ---------- ------------
<S> <C> <C> <C>
Net asset value, beginning of year..................... $ 13.74 $ 10.53 $ 10.00
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income/(loss)........................... (0.12) (0.01) 0.06
Net realized and unrealized gain on investments........ 1.52 3.26 0.47
------- ------- -------
Total from investment operations....................... 1.40 3.25 0.53
LESS DISTRIBUTIONS:
Dividends from net investment income................... -- (0.04) --
Distributions from net realized gains.................. (0.44) (0.00)# --
------- ------- -------
Total distributions.................................... (0.44) (0.04) --
------- ------- -------
Net asset value, end of year........................... $ 14.70 $ 13.74 $ 10.53
======= ======= =======
TOTAL RETURN(+) 10.04% 30.99% 5.30%
======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's)..................... $ 55,887 $ 46,058 $ 19,885
Ratio of operating expenses to average net assets...... 1.20% 1.20% 1.23%**
Ratio of net investment income/(loss) to average net
assets............................................... (0.82)% (0.35)% 1.03%**
Portfolio turnover rate................................ 97% 135% 192%
Ratio of operating expenses to average net assets
without fees reduced by credits allowed by the
custodian............................................ 1.21%(a) 1.21%(a) N/A
Ratio of operating expenses to average net assets
without fee waivers and/or fees reduced by credits
allowed by the custodian............................. 1.21%(a) 1.28%(a) 1.38%**
Net investment income/(loss) per share without fee
waivers and/or fees reduced by credits allowed by the
custodian............................................ $ (0.12) $ (0.01) $ 0.05
Average commission rate paid(b)........................ $ 0.0319 N/A N/A
</TABLE>
- --------------------------------------------------------------------------------
* The Fund commenced operations on January 12, 1994.
** Annualized.
+ Total return represents aggregate total return for the periods 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.
++ 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.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund as required by amended disclosure requirements effective for fiscal
years beginning on or after September 1, 1995.
12
<PAGE> 17
INTERNATIONAL GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
12/31/96++ 12/31/95 12/31/94 12/31/93*
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of year......... $ 12.11 $ 11.47 $ 11.31 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income...................... 0.07 0.18 0.01 0.02
Net realized and unrealized gain on
investments.............................. 1.01 0.58 0.19 ## 1.29
------- ------- ------- -------
Total from investment operations........... 1.08 0.76 0.20 1.31
LESS DISTRIBUTIONS:
Dividends from net investment income....... (0.17) (0.00) # (0.03) --
Distributions from net realized gains...... -- (0.12) (0.01) --
------- ------- ------- -------
Total distributions........................ (0.17) (0.12) (0.04) --
------- ------- ------- -------
Net asset value, end of year............... $ 13.02 $ 12.11 $ 11.47 $ 11.31
======= ======= ======= =======
TOTAL RETURN(+) 9.04% 6.61% 1.88% 13.10%
======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year (in 000's)......... $62,355 $45,909 $46,529 $10,638
Ratio of operating expenses to average net
assets................................... 1.39% 1.47% 1.34% 0.83% **
Ratio of net investment income to average
net assets............................... 0.56% 0.91% 0.83% 0.61% **
Portfolio turnover rate.................... 98% 72% 51% 24%
Ratio of operating expenses to average net
assets without fees reduced by credits
allowed by the custodian................. 1.39%(a) 1.47% (a) N/A N/A
Ratio of operating expenses to average net
assets without fee waivers, expenses
absorbed and/or fees reduced by credits
allowed by the custodian................. 1.39%(a) 1.48% (a) 1.50% 2.85% **
Net investment income/(loss) per share
without fee waivers and/or expenses
absorbed and/or fees reduced by credits
allowed by the custodian................. $ 0.07 $ 0.17 $ 0.01 $ (0.06)
Average commission rate paid(b)............ $0.0253 N/A N/A N/A
</TABLE>
- --------------------------------------------------------------------------------
* The Fund commenced operations on May 7, 1993.
** Annualized.
+ Total return represents aggregate total return for the periods 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.
## The amount shown may not accord with the change in the aggregate gains and
losses of portfolio securities due to timing of sales and redemptions of
Fund shares.
(a) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund as required by amended disclosure requirements effective for
fiscal years beginning on or after September 1, 1995.
13
<PAGE> 18
INVESTMENT POLICIES
The nine Funds follow distinct investment policies. An investment in a single
Fund is not designed to be a complete investment program. In implementing its
policies, each Fund uses a variety of instruments, strategies and techniques
that are capitalized in the text and described in more detail in the Appendix
and in the SAI. With respect to each Fund's investment policies, use of the term
"primarily" means that under normal circumstances, at least 65% of the Fund's
assets will be invested as indicated, except for the Global Money Fund, where
all of its assets will meet the quality and maturity standards described in the
SAI. A description of the rating systems used by the following nationally
recognized statistical rating organizations ("NRSROs") is also contained in the
SAI: Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation
("S&P"), Duff & Phelps, Inc. ("Duff") and Fitch Investors Service, Inc.
("Fitch"). New instruments, strategies and techniques, however, are evolving
continually and each Fund reserves authority to invest in or implement them to
the extent consistent with its investment objectives and policies.
THE MONEY MARKET FUND
GLOBAL MONEY FUND. The Global Money Fund pursues its investment objective by
investing in the following U.S. dollar denominated high-quality, money market
instruments issued by U.S. and foreign financial institutions and nonfinancial
corporations and by the U.S. Government, its agencies or instrumentalities:
1. Bank Obligations;
2. Commercial paper (including variable rate demand notes);
3. Short-term corporate obligations;
4. U.S. Government Securities; and
5. Repurchase Agreements collateralized by the securities listed in 1
and 4 above.
The Global Money Fund follows industry-standard guidelines on the quality and
maturity of its investments designed to help maintain a stable $1.00 share
price. The Fund does not, however, guarantee a $1.00 share price, and a major
change in interest rates or a default on an investment could cause the share
price to change. Generally, securities with longer maturities are more
vulnerable to price changes, although they provide higher yields.
The Fund may invest in Foreign Investments that are U.S. dollar denominated. The
Fund may invest up to 50% of its assets in any foreign country but will normally
include issues having activities in at least three countries, including the
United States. In addition, the Fund may invest in U.S. Government Securities
without limit and normally will invest at least 25% of its assets in Bank
Obligations.
THE BOND FUNDS
SHORT TERM HIGH QUALITY BOND FUND. Under normal market conditions, the Fund
pursues its investment objective by investing primarily in high quality
short-term bonds and other debt securities. The Fund will seek to maintain a
dollar-weighted average portfolio maturity of three years or less. The Fund may
hold individual securities with remaining maturities of more than three years as
long as the dollar-weighted average portfolio maturity is three years or less.
For purposes of the weighted average maturity calculation, a mortgage
instrument's average life will be considered to be its maturity.
The Fund intends to invest substantially all of its assets in a portfolio of
debt securities that are rated investment grade by one or more NRSROs, or, if
unrated, are judged to be of comparable quality by the Fund's Sub-Advisor.
Securities which are "investment grade" are rated in one of the four highest
rating categories. The Fund will invest primarily in U.S. Government Securities,
corporate debt obligations or Mortgage-Backed Securities rated in one of the two
highest categories by an NRSRO, that is, at least Aa by Moody's, at least AA by
S&P, Duff or Fitch, or, if unrated, that are judged to be of comparable quality
by the Sub-Advisor. Investment-grade bonds are generally of medium to high
quality. A bond
14
<PAGE> 19
rated in the lower end of the category (Baa/BBB) however, may have speculative
characteristics and may be more sensitive to economic changes and changes in the
financial condition of the issuer.
The debt securities in which the Fund may invest include obligations issued or
guaranteed by domestic and foreign governments and government agencies and
instrumentalities and high-grade corporate debt obligations, such as bonds,
debentures, notes, equipment lease and trust certificates, Mortgage-Backed
Securities, collateralized mortgage obligations and Asset-Backed Securities.
The Fund may invest up to 10% of its assets in foreign debt securities,
primarily bonds of foreign governments or their political subdivisions, foreign
companies and supranational organizations, including non-U.S. dollar denominated
securities and U.S. dollar denominated debt securities issued by foreign issuers
and foreign branches of U.S. banks. As discussed in the Appendix under
"Securities and Investment Practices - Foreign Investments," investment in
foreign securities is subject to special risks, such as future adverse political
and economic developments; possible seizure, nationalization, or expropriation
of foreign investments; less stringent disclosure and accounting requirements;
the possible establishment of exchange controls or taxation at the source; or
the adoption of other foreign governmental restrictions.
The Fund may also invest in high-quality, short-term obligations (with
maturities of 12 months or less), such as commercial paper issued by domestic
and foreign corporations, Bank Obligations and Repurchase Agreements. In
addition, the Fund may engage in certain Strategic Transactions, which include
Dollar Roll Transactions, Reverse Repurchase Agreements, Interest Rate
Transactions, Options on Securities and Indexes, Futures and Options on Futures,
Options on Foreign Currencies, Foreign Exchange Transactions and Over the
Counter Options. The Fund currently intends to invest up to 10% of its total
assets in Reverse Repurchase Agreements and up to 33 1/3% of its total assets in
Dollar Roll Transactions.
Although the Fund will invest in high quality investments and maintain a
dollar-weighted average portfolio maturity of three years or less, there will be
some variation in the extent to which the values of the Fund's investments will
vary in response to changes in generally prevailing interest rates. For example,
certain Mortgage-Backed Securities, collateralized mortgage obligations and
Asset-Backed Securities may have pre-payment features that tend to make their
values increase less in response to declining interest rates and decrease more
in response to increasing interest rates than would the values of otherwise
similar conventional debt securities. The Fund may also invest in "inverse
floater" instruments that may be more volatile than other variable rate debt
instruments.
The Fund may invest in certain Illiquid Securities.
SHORT TERM GLOBAL GOVERNMENT FUND. Under normal market conditions, the Fund
pursues its investment objective by investing primarily in at least three
different countries, one of which may be the United States. The Fund seeks to
maintain a dollar-weighted average portfolio maturity not exceeding three years
but may hold individual securities with longer maturities. This policy helps
minimize the effect of interest rate changes on the Fund's share price. The
Sub-Advisor's determination of the expected average life of a portfolio mortgage
security is used as that security's maturity with regard to determining the
above calculation of average dollar-weighted portfolio maturity. The Fund's
share price and yield will fluctuate primarily due to the movement of foreign
currencies against the U.S. dollar and changes in worldwide interest rates.
The Fund is not meant to be a substitute for a money market fund, which seeks to
maintain a fixed net asset value per share. The Fund seeks to maintain greater
price stability than longer-term bond funds.
Under normal market conditions, the Fund will invest primarily in: (i)
obligations issued or guaranteed by foreign national governments, their
agencies, instrumentalities, or political subdivisions (including any security
which is majority owned by such government, agency, instrumentality, or
political subdivision); and (ii) U.S. Government Securities.
15
<PAGE> 20
The Fund may also invest in non-government foreign and domestic debt securities,
including debt securities issued or guaranteed by Supranational Organizations,
corporate debt securities, Bank Obligations, Mortgage-Backed or Asset-Backed
Securities, and Repurchase Agreements.
To protect against credit risk, the Fund invests primarily in high-grade debt
securities. At least 65% of the Fund's investments will consist of securities
rated within the three highest rating categories of S&P (AAA, AA, A) or Moody's
(Aaa, Aa or A) or, if unrated, will be considered by the Sub-Advisor to be of
equivalent quality. The Fund may invest in Lower-Rated Securities.
In addition to U.S. dollar holdings, the Fund may invest in securities
denominated in foreign currencies and in multinational currency units, such as
the European Currency Unit ("ECU"), which is a "basket" consisting of specified
amounts of the currencies of certain states of the European Community. The
specific amounts of currencies comprising the ECU may be adjusted by the Council
of Ministers of the European Community to reflect changes in the relative values
of the underlying currencies. Securities of issuers within a given country may
be denominated in the currency of another country. In addition, when the Fund's
Sub-Advisor believes that U.S. securities offer superior opportunities for
achieving the Fund's investment objective, or for temporary defensive purposes,
the Fund may invest substantially all of its assets in securities of U.S.
issuers or securities denominated in U.S. dollars.
The Fund may engage in certain Strategic Transactions, which include Reverse
Repurchase Agreements, Interest Rate Transactions, Options on Securities and
Indexes, Futures and Options on Futures, Options on Foreign Currencies, Foreign
Exchange Transactions and Over the Counter Options. The Fund may also invest up
to 33 1/3% of its total assets in Dollar Roll Transactions.
The Fund's net asset value per share fluctuates, depending on (i) current
worldwide market interest rates, (ii) the value of the currencies in which the
Fund's portfolio securities are denominated when compared to the U.S. dollar,
(iii) the success of the Sub-Advisor's currency hedging techniques, and (iv) the
creditworthiness of the issuers in which the Fund is invested. In pursuing the
Fund's investment objective, however, the Sub-Advisor actively manages the Fund
in an effort to minimize the effect of such factors on the Fund's net asset
value per share. The Sub-Advisor allocates the Fund's investments among those
markets, issuers and currencies that it believes offer the most attractive
combination of high income and principal stability. In evaluating investments
for the Fund, the Sub-Advisor analyzes relative yields and appreciation
potential of securities in particular markets; world interest rates and monetary
trends; economic, political and financial market conditions in different
countries; credit quality; and the relationship of individual foreign currencies
to the U.S. dollar. The Sub-Advisor relies on internally and externally
generated financial, economic, and credit research to evaluate alternative
investment opportunities. In addition, Sierra Advisors may, from time to time,
direct the Sub-Advisor with respect to investment strategies and specific Fund
investments including, but not limited to, the Fund's currency hedging strategy,
U.S. dollar currency exposure and certain investments which are unrated or rated
below investment grade.
The Short Term Global Government Fund is classified as a "non-diversified"
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), which means that the Fund is not limited by the 1940 Act in the
proportion of its assets that may be invested in the obligations of a single
issuer. The Fund may assume large positions in the obligations of a small number
of issuers which may subject the Fund to greater credit and other risks than a
more broadly diversified portfolio. The Fund must, however, meet certain
diversification standards to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). See "Taxes" in the SAI.
U.S. GOVERNMENT FUND. Under normal market conditions, the Fund pursues its
investment objective by investing at least 65% and up to 100% of its assets in
intermediate- and long-term U.S. Government Securities. Depending on current
market conditions, the Fund may invest in U.S. Government Securities of varying
maturities, which may range up to 40 years. Securities in the Fund's portfolio
are high quality securities that will generally yield less income than lower
quality securities; higher quality securities,
16
<PAGE> 21
however, generally have less credit and market risk and are more readily
marketable than lower quality securities. Depending on market conditions, the
Fund's portfolio will consist of various types of U.S. Government Securities in
varying proportions. The Fund may invest up to 35% of its assets in (i)
Commercial Mortgage-Backed Securities rated in one of the two highest rating
categories by an NRSRO, that is, at least Aa by Moody's, at least AA by S&P,
Duff or Fitch, or, if unrated, that are judged to be of comparable quality by
the Sub Advisor; and (ii) the types of securities in which the Corporate Income
Fund may invest except as otherwise prohibited in this Prospectus or the SAI,
including preferred stock, Convertible Securities, U.S. Government Securities
(including Government Stripped Mortgage-Backed Securities), Asset-Backed
Securities and interests in Lease Obligations Bonds. A substantial portion of
the Fund's assets at any time may consist of Mortgage-Backed Securities. For
more detailed information regarding the types of securities in which the
Corporate Income Fund may invest, see "Corporate Income Fund."
The Fund may invest up to 20% of its assets in money market instruments
consisting of short-term U.S. Government Securities and Repurchase Agreements
with respect to such U.S. Government Securities, and for temporary defensive
purposes may invest in these instruments without limitation. In addition, the
Fund may engage in Reverse Repurchase Agreements and certain Strategic
Transactions. The Fund may also invest up to 33 1/3% of its total assets in
Dollar Roll Transactions.
GUARANTEES OF THE FUND'S SECURITIES BY THE U.S. GOVERNMENT, ITS AGENCIES OR
INSTRUMENTALITIES GUARANTEE ONLY THE PAYMENT OF PRINCIPAL AND INTEREST ON THE
GUARANTEED SECURITIES, AND DO NOT GUARANTEE THE SECURITIES' YIELD OR VALUE OR
THE YIELD OR VALUE OF THE FUND'S SHARES.
CORPORATE INCOME FUND. Under normal market conditions, the Fund pursues its
investment objective by investing primarily in corporate bonds of United States
issuers that are rated investment grade by one or more NRSROs, or, if not rated,
that the Fund's Sub-Advisor believes to have credit characteristics equivalent
to such investment grade rated corporate bonds. Securities that are rated
"investment grade" are rated in one of the four highest categories. Generally,
at least 65% of the corporate bonds held by the Fund will have had remaining
maturities of 10 years or more at the date of purchase, unless the Sub-Advisor
believes that investing in corporate bonds with shorter maturities would be
appropriate in light of prevailing market conditions. Corporate bonds with
longer maturities generally tend to produce higher yields and are subject to
greater market risk than debt securities with shorter maturities. The value of
the Fund's portfolio securities can be expected to vary inversely with changes
in the prevailing interest rates.
The Fund may also invest in preferred stock and Convertible Securities, which
are rated investment grade by an NRSRO, or, if not rated, that the Sub-Advisor
believes to have credit characteristics equivalent to such investment grade
rated bonds; U.S. Government Securities (including Government Stripped
Mortgage-Backed Securities); Asset-Backed Securities; interests in Lease
Obligation Bonds for which the payment of interest and principal is
unconditionally guaranteed by companies with debt that is rated at least
investment grade by an NRSRO, provided that, no more than 20% of the Fund's
assets will be invested in such Lease Obligation Bonds. The Fund may invest in
"inverse floater" instruments that may be more volatile than other variable rate
debt instruments. The Fund also may invest in bonds issued by foreign
governments and corporations, provided that no more than 20% of the Fund's
assets will be invested in such bonds and no more than 5% will be denominated in
any one currency. For temporary defensive purposes, the Fund may also invest,
without limitation, in money market instruments, including short-term U.S.
Government Securities, commercial paper rated in the highest category by an
NRSRO, Bank Obligations and cash and cash equivalents. In addition, the Fund may
engage in Reverse Repurchase Agreements and certain Strategic Transactions. The
Fund may also invest up to 33 1/3% of its total assets in Dollar Roll
Transactions.
THE EQUITY FUNDS
GROWTH AND INCOME FUND. Under normal market conditions, the Fund pursues its
investment objective by investing primarily in dividend-paying Equity
Securities. The Fund may also invest in other Equity
17
<PAGE> 22
Securities, consisting of nondividend-paying Equity Securities, preferred stock
and Convertible Securities, such as convertible preferred stock, convertible
bonds rated in the highest three rating categories by Moody's or S&P, or, if
unrated, are determined to be of equal quality by the Fund's Sub-Advisor, and
warrants. The Fund is not subject to any limit on the size of companies in which
it may invest, but intends to be primarily invested, under normal circumstances,
in the large- and medium-sized companies included in the Standard & Poor's 500
Stock Index ("S&P 500 Index"). The Fund may also invest up to 10% of its total
assets in American Depositary Receipts.
The Fund is designed for investors who want an actively managed diversified
portfolio of selected equity securities that seeks to outperform the total
return of the S&P 500 Index. The Fund attempts to reduce risk by investing in
many different economic sectors, industries and companies. The Fund's
Sub-Advisor may under- or over-weight selected economic sectors against the S&P
500 Index's sector weightings to seek to enhance the Fund's total return or
reduce fluctuations in market value relative to the S&P 500 Index.
During ordinary market conditions, the Sub-Advisor will keep the Fund
essentially fully invested in the equity securities described above. The
Sub-Advisor may, however, invest in money market instruments including U.S.
Government Securities; Bank Obligations; and commercial paper and corporate
obligations, including variable rate demand notes, that are issued by U.S. and
foreign issuers and that are rated in the highest three rating categories by
Moody's or S&P, or, if unrated, are determined to be of equal quality by the
Sub-Advisor. Under normal circumstances, the Fund will invest in such money
market instruments to invest temporary cash balances or to maintain liquidity to
meet redemptions. The Fund may also, however, invest in these instruments,
without limitation, as a temporary defensive measure taken during, or in
anticipation of, adverse market conditions. In addition, the Fund may engage in
certain Strategic Transactions.
GROWTH FUND. Under normal market conditions, the Fund pursues its investment
objective by investing primarily in Equity Securities of U.S., multinational and
foreign companies of all sizes that offer potential for growth. Generation of
income is not an objective of the Fund, and any income received is only an
incidental consideration.
The Fund intends to invest primarily in Equity Securities believed by management
to have appreciation potential. However, no class of security represents at all
times the greatest promise for capital appreciation. Therefore, the Fund may
invest in debt securities, including Lower-Rated Securities, if in the opinion
of management, doing so would further the long-term capital appreciation
objective of the Fund.
The Fund may invest up to 25% of its assets in foreign securities, usually
foreign Equity Securities, and up to 5% of its assets in securities of companies
in (or governments of) developing or emerging countries (sometimes referred to
as "emerging markets"). A developing or emerging country is generally considered
by the international financial community, and in the opinion of management, to
be a country that is in the initial stages of its industrialization cycle. The
Fund may also, for temporary defensive purposes, in an effort to protect its
assets against major adverse market declines or when investment opportunities
with desirable risk/reward characteristics are unavailable, pursue a policy of
retaining cash or investing part or all of its assets in cash equivalents or
investment-grade debt securities. In addition, the Fund may engage in certain
Strategic Transactions.
Pursuant to an exemptive order granted by the SEC, the Growth Fund and Emerging
Growth Fund (and other funds advised by Janus Capital Corporation) may transfer
daily uninvested cash balances into one or more joint trading accounts. Assets
in the joint trading accounts are invested in money market instruments and the
proceeds are allocated to the participating funds on a pro rata basis.
EMERGING GROWTH FUND. Under normal market conditions, the Fund pursues its
investment objective by investing primarily in Equity Securities of companies
with market capitalizations of less than $1.4 billion
18
<PAGE> 23
at the time of purchase. A company's market capitalization is calculated by
multiplying the total number of shares of its Equity Securities outstanding by
the market price per share of its stock. Generation of income is not an
objective of the Fund, and any income received is only an incidental
consideration.
Small capitalization companies typically are subject to a greater degree of
change in earnings and business prospects than larger, more established
companies. In addition, securities of small capitalization companies are traded
in lower volume than those issued by larger companies and may be more volatile
and less liquid than those of larger companies. In light of these
characteristics of small capitalization companies and their securities, the Fund
may be subject to greater investment risk than that assumed when investing in
the equity securities of larger capitalization companies.
The Fund has been designed to provide investors with potentially greater
long-term rewards than those provided by an investment in a fund that seeks
capital appreciation from equity securities of larger, more established
companies. Small capitalization companies generally are not as well known to the
investing public and have less of an investor following than larger companies,
and therefore may provide opportunities for greater investment gains as a result
of relative inefficiencies in the marketplace.
In selecting investments for the Fund, the Fund's Sub-Advisor seeks small
capitalization companies that it believes are undervalued in the marketplace, or
that the Sub-Advisor believes have earnings that may be expected to grow faster
than the United States economy in general. These companies typically would
possess one or more characteristics, including high quality management, a
leading or dominant position in a major product line, a sound financial position
and a relatively high rate of return on invested capital so that future growth
can be financed from internal sources. The Fund also may invest in companies
that offer the possibility of accelerating earnings growth because of management
changes, new products or structural changes in the economy.
The Fund may invest up to 25% of its assets in securities of foreign issuers and
up to 5% of its assets in securities in developing or emerging countries.
The Fund may invest in other Equity Securities, including Convertible Securities
and warrants to purchase Equity Securities, as well as cash and cash
equivalents. In addition, the Fund may invest in Lower Rated Securities and
engage in certain Strategic Transactions. Furthermore, the Emerging Growth Fund
may transfer daily uninvested cash balances into one or more joint trading
accounts advised by the Sub-Advisor. See "Growth Fund."
INTERNATIONAL GROWTH FUND. Under normal market conditions, the Fund pursues its
investment objective by investing primarily in Equity Securities of foreign
issuers located in countries that the Fund's Sub-Advisor deems to have
attractive investment opportunities. The Fund will emphasize established
companies, although it may invest in companies of varying sizes as measured by
assets, sales and capitalization. Generation of income is not an objective of
the Fund, and any income received is only an incidental consideration.
The Fund may invest in securities of issuers located in a variety of different
foreign regions and countries which include, but are not limited to, the
following: Argentina, Australia, Austria, Belgium, Canada, Chile, Denmark,
Egypt, Finland, France, Germany, Greece, Hong Kong, Hungary, Indonesia, Ireland,
Italy, Japan, Luxembourg, Malaysia, Mexico, The Netherlands, New Zealand,
Norway, Philippines, Poland, Portugal, Singapore, The Slovak Republic, Spain,
Sweden, Switzerland, Thailand and The United Kingdom. More than 25% of the
Fund's total assets may be invested in the securities of issuers located in the
same country. The relative strength or weakness of a particular country's
currency or economy may dictate whether securities of issuers located in such
country will be purchased or sold. Criteria for determining the appropriate
distribution of investments among various countries and regions include
prospects for relative economic growth among foreign countries, expected levels
of inflation, government policies influencing business conditions, the outlook
for currency relationships, and the range of investment opportunities available
to international investors.
19
<PAGE> 24
The Fund invests in Equity Securities and may invest in other securities with
equity characteristics, consisting of trust or limited partnership interests,
preferred stock, rights and warrants. The Fund may also invest in Convertible
Securities. The Fund invests in securities listed on foreign or domestic
securities exchanges and securities traded in foreign or domestic
over-the-counter markets, and may invest in restricted or unlisted securities.
The Fund intends to stay invested in the securities described above to the
extent practical. Fund assets may be invested in short-term debt instruments to
meet anticipated day-to-day operating expenses, and for temporary defensive
purposes. In addition, when the Fund experiences large cash inflows, the Fund
may hold short-term investments pending availability of desirable equity
securities.
The short-term instruments in which the Fund may invest include foreign and
domestic: (i) short-term obligations of foreign governments, their agencies,
instrumentalities, authorities or political subdivisions; (ii) other short-term
debt securities rated in one of the three highest categories by an NRSRO, or if
unrated, of comparable quality in the opinion of the Fund's Sub-Advisor; (iii)
commercial paper, including master notes; (iv) Bank Obligations; and (v)
Repurchase Agreements. At the time the Fund invests in any commercial paper,
Bank Obligations or Repurchase Agreements, the issuer must have outstanding debt
rated in one of the three highest categories by an NRSRO, the issuer's parent
corporation, if any, must have outstanding commercial paper rated Prime-1 by
Moody's or A-1 by S&P; or, if no such ratings are available, the investment must
be of comparable quality in the opinion of the Fund's Sub-Advisor.
The Fund may invest up to 30% of its assets in the securities of companies or
governments of developing or emerging countries provided that no more than 5% of
the Fund's total assets are invested in any one such country. For temporary
defensive purposes, the Fund may invest a major portion of its assets in
securities of United States issuers. Furthermore, the Fund may invest up to 5%
of its total assets in corporate debt securities having maturities longer than
one year and which are rated BBB or better by S&P, including Euro-currency
instruments and securities.
In addition, the Fund may engage in certain Strategic Transactions, which
include Options on Securities and Indexes, Futures and Options on Futures,
Options on Foreign Currencies, Foreign Exchange Transactions and Over the
Counter Options.
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The Board of Trustees is responsible for the management of the business and
affairs of the Trust as provided in the laws of the Commonwealth of
Massachusetts and the Trust's Declaration of Trust and By-Laws. The Trustees are
experienced business persons who meet several times during the year to oversee
the Trust's activities, review contractual arrangements with companies that
provide services to the Trust, and review performance. The majority of the
Trustees are not otherwise affiliated with Sierra Advisors or any of the
Sub-Advisors.
INVESTMENT MANAGEMENT
INVESTMENT ADVISOR. Sierra Advisors, 9301 Corbin Avenue, Northridge, California
91324, is the investment advisor to the Trust. Sierra Advisors is an indirect
wholly-owned subsidiary of Great Western Financial Corporation ("Great
Western"), a publicly owned financial services company listed on the New York,
London and Pacific stock exchanges, and has general oversight responsibility for
the investment advisory services provided to the Funds. Responsibilities of
Sierra Advisors include formulating the Funds' investment policies, analyzing
economic trends affecting the Funds, and directing and evaluating the investment
services provided by the Sub-Advisors, including their adherence to the Funds'
investment objectives and policies and the Funds' investment performance. In
connection with these activities, Sierra Advisors may initiate action to change
a Sub-Advisor if it deems such action to be in the
20
<PAGE> 25
best interest of a Fund's shareholders. Sierra Advisors is registered as an
investment advisor under the Investment Advisers Act of 1940, as amended (the
"Advisers Act"). Sierra Advisors, which performs similar services for Sierra
Trust Funds and Sierra Prime Income Fund, had aggregate assets under management
of approximately $3.2 billion as of December 31, 1996. For its services, Sierra
Advisors is paid a monthly fee at annual rates equal to percentages of each
Fund's average net assets, described in "Advisory Fees."
SUB-ADVISORS. In accordance with each Fund's investment objective and policies
and under the supervision of Sierra Advisors and the Trust's Board of Trustees,
each Fund's Sub-Advisor is responsible for the day-to-day investment management
of the Fund, makes investment decisions for the Fund and places orders on behalf
of the Fund to effect the investment decisions made.
The following organizations act as Sub-Advisors to the Funds as indicated below:
BLACKROCK FINANCIAL MANAGEMENT, INC. ("BlackRock"), Sub-Advisor of the U.S.
Government Fund, 345 Park Avenue, New York, New York 10154, provides
investment advice to a wide variety of institutional and investment
company-related clients. BlackRock, a Delaware corporation, is an
indirectly, wholly-owned subsidiary of PNC Bank, N.A. PNC Bank, N.A. is an
indirectly, wholly-owned subsidiary of PNC Bank Corp. ("PNC"). PNC is a
publicly-owned multi-bank holding company incorporated under the laws of
the Commonwealth of Pennsylvania in 1983 and registered under the Bank
Holding Company Act of 1956, as amended. As of December 31, 1996, BlackRock
had aggregate assets under management or supervision of more than $43
billion.
The day-to-day management of the U.S. Government Fund's portfolio is the
responsibility of a committee composed of individuals who are officers of
BlackRock. This committee has managed the Fund since December, 1994, and is
supervised by Keith Anderson and Andrew J. Phillips. Mr. Anderson, a
Managing Director of BlackRock, has been co-head of the Portfolio
Management Group since 1988. Mr. Phillips has been a portfolio Manager of
BlackRock since 1991 and a Principal of BlackRock since 1993.
JANUS CAPITAL CORPORATION ("Janus"), Sub-Advisor of the Growth Fund and
Emerging Growth Fund, 100 Fillmore Street, Denver, Colorado 80206, provides
investment advice to mutual funds and other large institutional clients.
Janus is an indirect majority owned subsidiary of Kansas City Southern
Industries, Inc., a publicly traded holding company whose primary
subsidiaries are engaged in transportation, financial services and real
estate. As of December 31, 1996, Janus' assets under management were in
excess of $46 billion.
Warren B. Lammert, Senior Analyst and Portfolio Manager of Janus, has been
the portfolio manager for the Growth Fund since its inception. Mr. Lammert
is a graduate of Yale University and is a Chartered Financial Analyst. He
served as a securities analyst at Janus from 1987-1988, before leaving to
receive his Masters in Economic History with Distinction from the London
School of Economics. He rejoined Janus as Senior Analyst in January, 1990,
and is Portfolio Manager to a number of equity funds, including the Growth
Fund.
James P. Goff, Portfolio Manager and Senior Analyst at Janus, has been the
portfolio manager of the Emerging Growth Fund since inception. Mr. Goff
joined Janus in 1988, and also manages the Janus Enterprise Fund. He holds
a Bachelor of Arts in Economics from Yale University and is a Chartered
Financial Analyst. His duties at Janus also include the management of
separate equity accounts.
J.P. MORGAN INVESTMENT MANAGEMENT INC. ("J.P. Morgan"), Sub-Advisor of the
Global Money Fund and Growth and Income Fund, 522 Fifth Avenue, New York,
New York 10036, provides investment services to employee benefit plans of
corporations, labor unions and state and local governments and the accounts
of other institutional investors. As of December 31, 1996, J.P. Morgan had
investment management authority with respect to approximately $208 billion.
Henry D. Cavanna, Managing Director of J.P. Morgan, and William M. Riegel,
Vice President of J.P. Morgan, have been the portfolio managers for the
Growth and Income Fund since inception.
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<PAGE> 26
Mr. Cavanna is a senior portfolio manager in the Equity and Balanced
Accounts Group. Mr. Cavanna was with the Wall Street firm, Harris Upham &
Co., prior to joining J.P. Morgan in 1971. He received his B.A. degree from
Boston College and LL.B. degree from the University of Pennsylvania. Mr.
Riegel is also a senior portfolio manager in the Equity and Balanced
Accounts Group. He joined J.P. Morgan in 1979 as an investment research
analyst in energy and machinery companies after completing the firm's
commercial bank management training program. Mr. Riegel joined the Equity
group in 1984, assisting with the management of the Convertible Fund and
separately managed accounts. Mr. Riegel graduated from Williams College in
1978 and is a Chartered Financial Analyst.
SCUDDER, STEVENS & CLARK, INC. ("Scudder"), Sub-Advisor of the Short Term
High Quality Bond Fund and Short Term Global Government Fund, Two
International Place, Boston, Massachusetts 02110, provides investment
management services for institutions, individuals and mutual funds. As of
December 31, 1996, Scudder's assets under management were in excess of $115
billion. Scudder is a privately held corporation, owned and operated by
active firm employees, concentrating primarily on investment management.
Adam M. Greshin is the lead portfolio manager for the Short Term Global
Government Fund. Mr. Greshin joined Scudder in 1986 as an international
bond analyst. Currently, he is Product Leader for Scudder's global and
international fixed-income investing. He was involved in the original
design of the Fund and has served as a member of the Fund's portfolio
management team since 1991. Mr. Greshin assumed responsibility for the
Fund's day-to-day management and investment strategies effective November
1995.
Thomas M. Poor, Managing Director of Scudder, has been the portfolio
manager of the Short Term High Quality Bond Fund since inception. Mr. Poor
graduated from Amherst College in 1965 and taught mathematics before
joining Scudder in 1970. He has worked entirely in fixed income research
and institutional bond portfolio management and is currently director of
the firm's Limited Volatility Bond Product, where he is responsible for the
policy, coordination and promotion of this style. In addition, he manages
institutional portfolios, Scudder Short Term Bond Fund and Scudder Managed
GIC Trust. He became a Chartered Financial Analyst in 1975 and received
that organization's Certificate of Achievement in 1987-1992.
TCW FUNDS MANAGEMENT, INC. ("TCW"), Sub-Advisor of the Corporate Income
Fund, 865 S. Figueroa Street, Suite 1800, Los Angeles, California 90017,
along with the other wholly-owned subsidiaries of The TCW Group, Inc., is a
privately held company, and provides a variety of investment management and
investment advisory services for institutional investors, including
investment companies. As of December 31, 1996, these companies had
aggregate assets under management of over $50 billion.
James M. Goldberg, Managing Director of TCW and Chairman of its
Fixed-Income Policy Committee, has been the portfolio manager for the
Corporate Income Fund since its inception. Mr. Goldberg joined TCW in 1984
after serving as Senior Vice President and Director of Portfolio Management
at Crocker National Corporation. He received his B.S. and M.B.A. in Finance
from the University of California at Berkeley. He is a guest lecturer at
Berkeley and Stanford and is a Chartered Financial Analyst and a Chartered
Investment Counselor.
WARBURG, PINCUS COUNSELLORS, INC. ("Warburg"), Sub-Advisor of the
International Growth Fund, 466 Lexington Avenue, New York, New York
10017-3147, was incorporated in 1970 and is a wholly-owned subsidiary of
Warburg, Pincus Counsellors G.P. ("Warburg G.P."), a New York general
partnership which itself is controlled by Warburg, Pincus & Co. ("WP&Co."),
also a New York general partnership. Lionel I. Pincus, the managing partner
of WP&Co., may be deemed to control both WP&Co. and Warburg. Warburg G.P.
has no business other than being a holding company of Warburg and its
subsidiaries. Warburg is a professional investment counselling firm
22
<PAGE> 27
which provides investment services to investment endowment funds,
foundations and other institutions and individuals. As of January 31, 1997,
Warburg managed approximately $17.9 billion of assets, including
approximately $10.7 billion of investment company assets.
The following people have been primarily responsible for managing the Fund
since April 8, 1996. Richard H. King, Senior Managing Director, joined
Warburg to found the international equity department and has 28 years of
investment experience. Prior to joining Warburg, Mr. King was chief
investment officer and a director of Fiduciary Trust Company International
S.A. in London from 1984 until 1988. P. Nicholas Edwards, Managing
Director, has 12 years of investment experience. Prior to joining Warburg,
Mr. Edwards was a director and senior analyst at Jardine Fleming Investment
Advisers in Tokyo from 1991 to 1995. Harold W. Ehrlich, CFA, CIC, Managing
Director, has 13 years of investment experience. Prior to joining Warburg,
Mr. Ehrlich was a senior vice president, portfolio manager and analyst at
Templeton Investment Counsel Inc. from 1987 to 1995. Nicholas P.W. Horsley,
Senior Vice President, has 15 years of investment experience. Prior to
joining Warburg, Mr. Horsley was a director, portfolio manager and analyst
at Barclays de Zoete Wedd in New York from 1986 to 1993. Vincent J.
McBride, Senior Vice President, has 9 years of investment experience. Prior
to joining Warburg, Mr. McBride was an international equity analyst at
Smith Barney Inc. from 1993 to 1994. He was an international equity analyst
at General Electric Investments from 1992 to 1993 and a portfolio
manager/analyst at United Jersey Bank from 1989 to 1992.
ADVISORY FEES. For investment advisory services, monthly fees are paid to
Sierra Advisors by each Fund based upon a percentage of the average net assets
of such Fund. Absent fee waivers, the Advisor is paid the following effective
annual rates:
MONEY MARKET AND BOND FUNDS ADVISORY FEES
================================================================================
<TABLE>
<CAPTION>
Short Term
Global Short Term Global U.S. Corporate
Money High Quality Government Government Income
Assets Fund Bond Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First $200 million .50% .50% .75% .60% .65%
- -------------------------------------------------------------------------------------------------------
From $200 million
to $500 million .50% .45% .75% .60% .65%
- -------------------------------------------------------------------------------------------------------
More than $500 million .40% .40% .65% .50% .50%
=======================================================================================================
</TABLE>
EQUITY FUNDS ADVISORY FEES
================================================================================
<TABLE>
<CAPTION>
Growth and Emerging International
Assets Income Fund Growth Fund Growth Fund Growth Fund
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First $25 million .80% .95% .90% .95%
- ------------------------------------------------------------------------------------------------------
From $25 million to $50 million .80% .875% .85% .95%
- ------------------------------------------------------------------------------------------------------
From $50 million to $100 million .80% .875% .85% .85%
- ------------------------------------------------------------------------------------------------------
From $100 million to $125 million .75% .875% .85% .85%
- ------------------------------------------------------------------------------------------------------
From $125 million to $200 million .75% .875% .85% .75%
- ------------------------------------------------------------------------------------------------------
From $200 million to $400 million .70% .875% .85% .75%
- ------------------------------------------------------------------------------------------------------
From $400 to $500 million .65% .875% .85% .75%
- ------------------------------------------------------------------------------------------------------
More than $500 million .575% .875% .75% .75%
======================================================================================================
</TABLE>
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<PAGE> 28
Out of the investment advisory fee received by the Advisor for each Fund, the
Advisor would pay monthly to the Sub-Advisor, absent fee waivers by the
Sub-Advisor, the following percentages of average net assets for each Fund:
MONEY MARKET AND BOND FUNDS SUB-ADVISORY FEES
================================================================================
<TABLE>
<CAPTION>
Short Term
Global Short Term Global U.S. Corporate
Money High Quality Government Government Income
Assets Fund Bond Fund Fund Fund* Fund
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First $200 million .15% .15% .28% .185% .30%
- -------------------------------------------------------------------------------------------------------
From $200 million
to $500 million .15% .10% .10% .185% .30%
- -------------------------------------------------------------------------------------------------------
From $500 million
to $650 million .15% .10% .10% .185% .25%
- -------------------------------------------------------------------------------------------------------
From $650 million
to $1 billion .15% .10% .10% .15% .25%
- -------------------------------------------------------------------------------------------------------
More than $1 billion .15% .10% .10% .10% .25%
=======================================================================================================
</TABLE>
* For purposes of calculating the annual rate of compensation for the U.S.
Government Fund's Sub-Advisor, (i) the assets reflected in the table above
include the combined assets of the Trust's U.S. Government Fund and the Sierra
Trust Fund's U.S. Government Fund, and (ii) the percentages indicated at a
given asset level apply to the entire amount of assets in the Fund if the
Fund's assets exceed the asset level indicated.
EQUITY FUNDS SUB-ADVISORY FEES
================================================================================
<TABLE>
<CAPTION>
Growth and Emerging International
Assets Income Fund Growth Fund Growth Fund Growth Fund
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First $25 million .45% .55% .55% .50%
- ------------------------------------------------------------------------------------------------------
From $25 million to $50 million .45% .50% .50% .50%
- ------------------------------------------------------------------------------------------------------
From $50 million to $100 million .45% .50% .50% .50%
- ------------------------------------------------------------------------------------------------------
From $100 million to $200 million .40% .50% .50% .50%
- ------------------------------------------------------------------------------------------------------
From $200 million to $400 million .35% .50% .50% .50%
- ------------------------------------------------------------------------------------------------------
More than $400 million .30% .50% .50% .50%
======================================================================================================
</TABLE>
The management fees for the Short Term Global Government, Growth and Income,
Growth, Emerging Growth and International Growth Funds are higher than those
paid by most mutual funds, but comparable to other mutual funds with like
investment objectives and policies.
Sierra Advisors and certain Fund Sub-Advisors may voluntarily waive fees payable
to them from time to time. Any fee waivers by a Sub-Advisor may be retained by
Sierra Advisors, or it may pass part or all of such fee waivers through to the
Funds. The Advisor and the Administrator of the Funds have each voluntarily
undertaken to waive its fees and/or bear certain expenses, if necessary, from
time to time so that average annual total expenses will not exceed: for the
Global Money Fund 1.00%; Growth Fund 1.45%; Growth and Income Fund 1.30%;
Emerging Growth Fund 1.40%; International Growth Fund 1.55%; U.S. Government
Fund 1.10%; Short Term High Quality Bond Fund 1.00%; Corporate Income Fund 1.15%
and Short Term Global Government Fund 1.35%. In addition, the Advisor and
Administrator have each agreed to further limit the average annual total
expenses of the Global Money Fund so that they will not exceed 0.85%. Absent
these voluntary waivers, reimbursements and credits allowed by the custodian,
the annual management fees, other expenses and total expenses for the Global
24
<PAGE> 29
Money Fund would have been 0.50%, 0.38% and 0.88%, respectively for the year
ended December 31, 1996. Expenses for a Fund may be accrued at a rate in excess
of such limits for short periods of time so long as the limit is met on an
annual basis. Actual expenses for a Fund may vary from day to day. The Advisor
and the Administrator retain the ability to be repaid by a Fund if expenses fall
below the specified limit prior to the end of the fiscal year, but will not
recover these amounts in later years. The Advisor and the Administrator may
each, at its sole discretion, vary the level of or eliminate its voluntary fee
waivers and expense reimbursements at any time. Waivers of fees and
reimbursement of expenses have the effect of increasing yield or improving total
return for the period when such waivers and reimbursements are in effect. During
the fiscal year ended December 31, 1996, the following fees based upon the
average net assets of each Fund were paid by the Trust to Sierra Advisors:
Global Money Fund 0.20%; Short Term High Quality Bond Fund 0.42%; Short Term
Global Government Fund 0.75%; U.S. Government Fund 0.60%; Corporate Income Fund
0.65%; Growth and Income Fund 0.80%; Growth Fund 0.89%; Emerging Growth Fund
0.87% and International Growth Fund 0.94%. During the fiscal year ended December
31, 1996, the following fees based upon the average net assets of each Fund were
paid by Sierra Advisors to each Fund's respective Sub-Advisor: Global Money Fund
0.15%; Short Term High Quality Bond Fund 0.15%; Short Term Global Government
Fund 0.28%; U.S. Government Fund 0.18%; Corporate Income Fund 0.30%; Growth and
Income Fund 0.45%; Growth Fund 0.51%; Emerging Growth Fund 0.52%; and
International Growth Fund 0.52%.
TRUST EXPENSES. In addition to investment advisory and certain administrative
expenses incurred by Sierra Administration, each Fund pays all expenses not
assumed by Sierra Advisors. Such expenses include or could include
investment-related expenses, such as brokers' commissions, transfer taxes and
fees related to the purchase, sale, or loan of securities; fees and expenses for
Trustees not affiliated with Sierra Advisors or the Sub-Advisors; fees and
expenses of its independent auditors and legal counsel; costs of Trustee and
shareholder meetings; SEC fees; expenses of preparing and filing registration
statements; the cost of the printing and mailing to existing Contract owners of
proxy statements, prospectuses and statements of additional information; proxy
solicitors' fees; expenses of preparation, printing and mailing to Contract
owners of semi-annual shareholder reports; bank transaction charges and certain
custodians' fees and expenses; federal, state or local income or other taxes;
costs of maintaining the Trust's corporate existence; membership fees for the
Investment Company Institute and similar organizations; fidelity bond and
Trustees' liability insurance premiums; and any extraordinary expenses such as
indemnification payments or damages awarded in litigation or settlements made.
All these expenses will be passed on to the shareholders through a daily charge
made to the assets held in the Funds, which will be reflected in share prices.
PORTFOLIO TRANSACTIONS AND TURNOVER. All orders for the purchase or sale of
securities on behalf of a Fund are placed by its Sub-Advisor with broker-dealers
that it selects. A Fund may, at the discretion of its Sub-Advisor, utilize
broker-dealers affiliated with the Advisor or a Sub-Advisor in connection with a
purchase or sale of securities, in accordance with procedures adopted by
Trustees and in accordance with the 1940 Act which require periodic review of
these transactions.
Under certain market conditions, a Fund may experience high portfolio turnover
as a result of its investment strategies. For example, the purchase or sale of
securities by a Fund in anticipation of a rise or decline in interest rates or
to take advantage of yield disparities among different issues of U.S. Government
Securities could result in high portfolio turnover. As a result of their
investment strategies, the Short Term High Quality Bond, Short Term Global
Government, U.S. Government and Growth Funds' annual portfolio turnover rates
are expected to be as high as 200%. Higher portfolio turnover rates for the
Funds can result in corresponding increases in expenses such as brokerage
commissions and transaction costs. The Funds will not consider portfolio
turnover rate a limiting factor in making investment decisions consistent with
their respective objectives and policies.
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DISTRIBUTOR
Sierra Services is the distributor of the Trust's shares on a best efforts
basis. Sierra Services is located at 9301 Corbin Avenue, Northridge, California
91324 and is an indirect wholly-owned subsidiary of Great Western. Sierra
Services, as principal underwriter, or insurance companies whose variable
products are funded by the Trust, will bear all of the Trust's marketing
expenses. This includes the cost of reproducing prospectuses, statements of
additional information or any other Trust documents (such as semi-annual
reports) used as sales materials.
ADMINISTRATION
Subject to the authority of the Board of Trustees, Sierra Administration is
responsible for all administrative and some recordkeeping functions of the
Trust. It provides office facilities and supplies; provides clerical, executive,
accounting and administrative services; prepares reports to shareholders and
filings with regulatory authorities; prepares materials for the Board of
Trustees' meetings; and provides securities accounting and calculates net
assets. As permitted by the terms of the Administration Agreement, Sierra
Administration has delegated certain of these functions to FDISG and Boston
Safe. Pursuant to arrangements effective July 1, 1996, FDISG acts as the Trust's
transfer and dividend paying agent, and in that capacity pays dividends to
shareholders. Sierra Administration is an indirect wholly-owned subsidiary of
Great Western. Boston Safe, One Boston Place, Boston, Massachusetts 02108, acts
as custodian of the Funds' assets.
For its services, Sierra Administration is paid a monthly fee at an effective
annual rate of 0.18% of each Fund's average net assets. Sierra Administration
pays FDISG a fee based on the average daily assets of the Trust and its expenses
for its services as sub-administrator. Sierra Administration may voluntarily
waive fees payable to it and reimburse expenses from time to time. During the
fiscal year ended December 31, 1996, each Fund paid fees to Sierra
Administration equal to 0.18% of the average net assets of each Fund. In
addition, the Trust pays FDISG fees for its services as Transfer Agent and pays
the basic fees and charges of Boston Safe. FDISG is located at One Exchange
Place, 53 State Street, Boston, Massachusetts 02109-2873 and 4400 Computer
Drive, Westboro, Massachusetts 01581.
GENERAL INFORMATION AND HISTORY
THE TRUST
The Trust is an open-end management investment company that offers diversified
and non-diversified series. It was organized on January 29, 1993 under the laws
of the Commonwealth of Massachusetts as a "Massachusetts business trust." The
Trust has the power to issue separate series of shares and has authorized the
following fourteen separate series: Global Money Fund, Short Term High Quality
Bond Fund, Short Term Global Government Fund, U.S. Government Fund, Corporate
Income Fund, Growth and Income Fund, Growth Fund, Emerging Growth Fund,
International Growth Fund, Capital Growth Portfolio, Growth Portfolio, Balanced
Portfolio, Value Portfolio and Income Portfolio. The Trust offers shares of
beneficial interest, each without par value. Additional series may be
established.
Currently, the shares of the Funds are sold only to AGL and its separate
accounts to fund Contracts or to other series of the Trust, which are also sold
to AGL and its separate accounts. In the future, the Trust may offer its shares
to separate accounts funding variable annuities of insurance companies
affiliated or unaffiliated with AGL and to separate accounts which fund variable
life insurance or other variable funding arrangements. The Trust's Board of
Trustees will monitor potential conflicts between variable life insurance
policies and variable annuity contracts or among insurance company shareholders
and will determine what, if any, action should be taken to resolve any
conflicts. Until other insurance companies have made investments in the series
of the Trust, AGL directly or indirectly, will be the sole shareholder of the
Trust.
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As a Massachusetts business trust, the Trust is not required to hold annual
shareholders' meetings. On occasion, however, special meetings may be called to
elect or remove trustees, change fundamental policies, approve management
contracts, or for other purposes. Generally, shares of the Trust vote by
individual series on all matters except when the 1940 Act permits shares of the
series to be voted in the aggregate. The shareholders of the Trust are the
insurance companies whose separate accounts invest in it. The Trust expects that
its shareholders will offer their Contract owners the opportunity to instruct
them as to how shares allocable to their Contracts will be voted with respect to
certain matters, such as approval of investment advisory agreements. AGL has
advised the Trust that, whenever a shareholder vote is taken, AGL will give
Contract owners and annuitants the opportunity to instruct them how to vote the
number of shares attributable to such Contracts. AGL also stated that it will
vote any shares that it is entitled to vote directly, because of their
attributable interests in the Trust, and any shares attributable to Contracts
for which instructions are not received, in the same proportion that Contract
owners vote.
Under Massachusetts law, in certain circumstances, shareholders may be held
personally liable as partners for the obligations of a business trust such as
the Trust. The Trust's Declaration of Trust contains provisions designed to
protect shareholders from such liability to the extent of the Trust's assets. As
a result, the risk of personal liability for the insurance company shareholders
is remote.
PURCHASE AND REDEMPTION
The shares of the Funds are sold in a continuous offering to insurance companies
for their separate accounts to fund Contracts. Net purchase payments under the
Contracts are placed in one or more of the divisions of the insurance company
separate accounts and are invested in the shares of the Funds corresponding to
such divisions. Shares of the Funds are purchased and redeemed by the insurance
company at net asset value without sales or redemption charges.
For each day on which a Fund's net asset value is calculated, each separate
account transmits to the Trust any orders to purchase or redeem shares of the
Fund(s) based on the purchase payments, redemption (surrender) requests and
transfer requests from Contract owners, annuitants or beneficiaries which are
priced as of that day.
All purchase and redemption orders will be processed in accordance with
applicable regulations. The Trust may also suspend redemption, if permitted
under the 1940 Act, for any period during which the New York Stock Exchange
("NYSE") is closed or during which trading is restricted by the SEC or the SEC
declares that an emergency exists. Redemption may also be suspended during other
periods permitted by the SEC for the protection of the Trust's shareholders.
PURCHASE THROUGH THE SAM PROGRAM
Owners of the Sierra Advantage Annuity may elect to participate in the Sierra
Asset Management Program ("SAM Program"). The SAM Program is an active
investment management service offered through Sierra Services, the SAM Program
investment advisor, that allocates separate account values across a number of
investment divisions selected to meet different long-term investment objectives.
Depending on market conditions, Sierra Services from time to time changes or
reallocates the combination of separate account divisions, or the amount
invested in each, to implement the various SAM strategies. In addition, account
balances of Contract owners participating in the SAM Program will be
periodically rebalanced to maintain the chosen strategy's current asset
allocation mix, if and when Fund performance unbalances the strategy's mix.
Normally, Sierra Services will reallocate once a quarter.
From time to time, one or more of the separate account investment divisions may
experience relatively large investments or redemptions due to SAM Program
allocations or rebalancings recommended by Sierra Services. These transactions
will affect the Funds that are available through the SAM Program,
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since Funds that experience redemptions as a result of reallocations or
rebalancings in the separate account may have to sell portfolio securities and
Funds that receive additional cash will have to invest it. While it is
impossible to predict the overall impact of these transactions over time, there
could be adverse effects on portfolio management to the extent that Funds may be
required to sell securities or invest cash at times when they would not
otherwise do so. These transactions could also increase transaction costs. The
Advisor, representing the interests of the Trust, is committed to minimizing the
impact of SAM Program transactions on the Funds; Sierra Services, representing
the interests of SAM Program participants, is also committed to minimizing such
impact on the Funds to the extent it is consistent with pursuing the investment
objective of the SAM Program. The Advisor and Sierra Services will nevertheless
face conflicts in fulfilling their respective responsibilities, because they are
affiliates and employ some of the same professionals. In addition, Sierra
Services is the Trust's Distributor and has contracted with American General
Securities Incorporated, the principal underwriter of the contracts, for Sierra
Services to distribute the Contracts. Although Sierra Services is not
compensated for sales of Trust shares, it is compensated for sales of the
Contracts. Sierra Services is registered as an investment advisor under the
Advisers Act. The SAM Program is currently being offered at no additional cost
to Contract owners, although Sierra Services has reserved the right to impose a
charge for this service in the future. All of the Funds are available through
the SAM Program.
Sierra Services may restrict or terminate the participation of Sierra Advantage
Contract owners in the SAM Program at any time. In addition, AGL has reserved
the right to place restrictions on transactions permitted by the Sierra
Advantage Annuity that could result in restrictions or terminations of the SAM
Program.
NET ASSET VALUE
The net asset value (the current market value of a Fund share) of each Fund's
shares is determined at the close of regular trading on the NYSE (currently 1:00
p.m., Pacific Time), each business day the NYSE is open, except as noted. The
NYSE is currently scheduled to be closed on New Year's Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. In addition, net
asset values will not be calculated on the Friday following Thanksgiving. Net
asset value per share is calculated for purchases and redemptions of shares of
each Fund by dividing the value of total Fund assets, less liabilities
(including Trust expenses, which are accrued daily), by the total number of
shares of that Fund outstanding. The net asset value per share of each Fund is
determined each business day at the close of business. Values of assets in each
Fund's portfolio (except the Global Money Fund and certain short-term debt
securities) are determined on the basis of their market values or valuations
determined as described in the SAI. The Global Money Fund values its assets by
the amortized cost method, which approximates market value.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The tax consequences of your investment in the Trust depend upon the specific
provisions of your Contract. For more tax information regarding your Contract,
see the attached prospectus for that Contract. The following discussion is only
a brief summary of the federal income tax consequences to the Funds and their
insurance company shareholders based on current tax laws and regulations, which
may be changed by subsequent legislative, judicial, or administrative action.
Each Fund intends to qualify separately each year as a "regulated investment
company" ("RIC") as defined under Subchapter M of the Code. The requirements for
qualification may cause a Fund to restrict the extent of its short-term trading
or its transactions in options or futures contracts.
As a RIC, each Fund will not be subject to federal income tax on its net
investment income and net realized capital gains which are timely distributed to
its insurance company shareholders. Accordingly, each Fund intends to distribute
all or substantially all of its net investment income and net realized
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capital gains to its shareholders. Very generally, an insurance company which is
a shareholder of a Fund will determine its federal income tax liability with
respect to distributions from that Fund pursuant to the special rules of
Subchapter L of the Code.
Although the Trust intends that it and the Funds will be operated so that they
will have no federal income tax liability, if any such liability is nevertheless
incurred, the investment performance of the Fund or Funds incurring such
liability will be adversely affected. In addition, Funds investing in foreign
securities and currencies may be subject to foreign taxes. These taxes would
reduce the investment performance of such Funds.
Because the Trust funds certain types of variable annuities, each Fund is also
subject to the investment diversification requirements of Subchapter L of the
Code. Were any Fund to fail to comply with those requirements, owners of annuity
contracts (other than certain tax-qualified retirement Contracts) funded through
the Trust would be taxed on investment earnings under their Contracts and would
thereby lose any benefit of tax deferral. Accordingly, the Trust will carefully
monitor compliance with the diversification requirements. For additional tax
information, see "Taxes" in the SAI.
The amounts of dividends of net investment income (i.e., all income other than
long-term and short-term capital gains) and distributions of net realized long-
and short-term capital gains payable to shareholders will be determined
separately for each Fund. Dividends and distributions paid by a Fund will be
automatically reinvested (at current net asset value) in additional full and
fractional shares of that Fund. The Global Money Fund intends to distribute its
net income as dividends for each day that net asset value is determined. Such
dividends will be declared daily and paid monthly. The Short Term High Quality
Bond, Short Term Global Government, U.S. Government and Corporate Income Funds
will declare and pay quarterly dividends from net investment income, and the
Growth and Income, Growth, Emerging Growth and International Growth Funds will
declare and pay such dividends annually. All Funds will distribute any net
long-term capital gains annually. Distributions of any net short-term capital
gains earned by a Fund will be distributed no less frequently than annually at
the discretion of the Board of Trustees.
PERFORMANCE
The Trust may, from time to time, calculate the yield and effective yield of the
Global Money Fund, the yield of other Funds or total return of all Funds, and
may include such information in reports to shareholders. Performance information
should be considered in light of the Fund's investment objectives and policies,
characteristics and quality of the portfolios, and the market conditions during
the given time period, and should not be considered as a representation of what
may be achieved in the future.
Current yield for the Global Money Fund will be based on income received by a
hypothetical investment over a given 7-day period (less expenses accrued during
the period), and then annualized (i.e., assuming that the 7-day yield would be
received for 52 weeks, stated in terms of an annual percentage return on the
investment). Effective yield for the Global Money Fund is calculated in a manner
similar to that used to calculate yield, but reflects the compounding effect of
earnings on reinvested dividends. For the remaining Funds, any quotations of
yield will be based on all investment income per share earned during a given
30-day period (including dividends and interest), less expenses accrued during
the period (net investment income), and will be computed by dividing net
investment income by the maximum public offering price per share on the last day
of the period. Quotations of average annual total return for a Fund will be
expressed in terms of the average annual compounded rate of return on a
hypothetical investment in the Fund over certain periods that will include
periods of 1, 5, and 10 years (up to the life of the Fund), will reflect the
deduction of a proportional share of Trust's expenses (on an annual basis), and
will assume that all dividends and distributions are reinvested when paid.
Total returns and yields quoted for the Funds include each Fund's expenses, but
may not include charges and expenses attributable to any particular insurance
product. Since shares of the Funds may only be purchased through variable
annuity and variable life insurance contracts, you should carefully review the
prospectus of the insurance product you have chosen for information on relevant
charges and expenses.
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Excluding these charges from quotations of each Fund's performance has the
effect of increasing the performance quoted. You should bear in mind the effect
of these charges when comparing a performance to that of other mutual funds.
For a description of the methods used to determine yield and total return for
the Funds, see the SAI.
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APPENDIX
SECURITIES AND INVESTMENT PRACTICES
In attempting to achieve its investment objective or policies each Fund employs
a variety of instruments, strategies and techniques, which are described in
greater detail below. Risks and restrictions associated with these practices are
also described. Policies and limitations are considered at the time a security
or instrument is purchased or a practice initiated. Generally, securities need
not be sold if subsequent changes in market value would prevent applicable
limitations to be met.
A Fund might not buy all of these securities or use all of these techniques to
the full extent permitted unless its Sub-Advisor, subject to oversight by Sierra
Advisors, believes that doing so will help the Fund achieve its goal. Sierra
Advisors may, from time to time, direct a Sub-Advisor with respect to investment
policies and strategies. As a shareholder, you will receive fund reports every
six months detailing your Fund's holdings and describing recent investment
practices.
Except for the limitations on borrowing, the investment guidelines set forth
below may be changed at any time without shareholder consent by vote of the
Board of Trustees of the Trust. A complete list of investment restrictions,
including fundamental restrictions that cannot be changed without the approval
of a majority of an affected Fund's outstanding shares is contained in the SAI.
AMERICAN DEPOSITARY RECEIPTS, EUROPEAN DEPOSITARY RECEIPTS, CONTINENTAL
DEPOSITARY RECEIPTS AND GLOBAL DEPOSITARY RECEIPTS
All Funds except the U.S. Government Fund may invest in securities of foreign
issuers directly or in the form of American Depositary Receipts ("ADRs"),
European Depositary Receipts ("EDRs"), Continental Depositary Receipts ("CDRs")
and Global Depositary Receipts ("GDRs") or other similar securities representing
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities they represent. ADRs are
receipts typically issued by a United States bank or trust company evidencing
ownership of the underlying foreign securities. EDRs, which are sometimes
referred to as CDRs, are securities, typically issued by a non-U.S. financial
institution, that evidence ownership interests in a security or a pool of
securities issued by either a U.S. or foreign issuer. GDRs are issued globally
and evidence a similar ownership arrangement. Generally, ADRs, in registered
form, are designed for use in the United States securities markets, and EDRs, in
bearer form, are designed for use in European securities markets.
ASSET-BACKED SECURITIES
The Short Term High Quality Bond, Short Term Global Government, U.S. Government,
Corporate Income and Growth and Income Funds may purchase Asset-Backed
Securities, which represent a participation in, or are secured by and payable
from, a stream of payments generated by particular assets, most often a pool of
assets similar to one another. Assets generating such payments will consist of
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. The Short Term High Quality Bond Fund will not invest more than
25%, and the Short Term Global Government, U.S. Government, Corporate Income and
Growth and Income Funds will not invest more than 10%, of their respective total
assets in Asset-Backed Securities.
BANK OBLIGATIONS
All of the Funds may invest in Bank Obligations, which include certificates of
deposit, time deposits and bankers' acceptances of U.S. commercial banks or
savings and loan institutions with assets of at least $500 million as of the end
of their most recent fiscal year. All of the Funds, except the Global Money and
U.S. Government Funds, may invest in foreign-currency denominated Bank
Obligations, including Euro-currency instruments and securities of U.S. and
foreign banks and thrifts. The Global Money Fund may invest in U.S. dollar
denominated Bank Obligations of foreign banks and thrifts.
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BORROWING
The Funds may borrow money for temporary or emergency purposes. However, if a
Fund borrows money, its share price may be subject to greater fluctuation until
the borrowing is paid off. If the Fund makes additional investments while
borrowings are outstanding, this may be construed as a form of leverage.
A Fund may borrow money from banks solely for temporary or emergency purposes,
but not in an amount exceeding 30% of its total assets. For each of the Funds
except the Short Term High Quality Bond, Short Term Global Government, U.S.
Government, Corporate Income, Growth and Income and Emerging Growth Funds,
whenever borrowings by a Fund, including Reverse Repurchase Agreements, exceed
5% of the value of a Fund's total assets, the Fund will not purchase any
securities. The Short Term High Quality Bond, Short Term Global Government, U.S.
Government, Corporate Income, Growth and Income and Emerging Growth Funds are
prohibited from borrowing money or entering Reverse Repurchase Agreements or
Dollar Roll Transactions in the aggregate in excess of 33 1/3% of the Fund's
total assets (after giving effect to such borrowings). This investment guideline
may be changed only with shareholder consent.
Borrowing, including reverse repurchase agreements and, in certain
circumstances, dollar rolls, creates leverage which increases a Fund's
investment risk. If the income and gains on the securities purchased with the
proceeds of borrowings exceed the cost of the arrangements, the Fund's earnings
or net asset value will increase faster than would be the case otherwise.
Conversely, if the income and gains fail to exceed the costs, earnings or net
asset value will decline faster than would otherwise be the case.
CONVERTIBLE SECURITIES
A convertible security is a security that may be converted either at a stated
price or rate within a specified period of time into a specified number of
shares of Equity Securities. By investing in Convertible Securities, the Fund
seeks the opportunity, through the conversion feature, to participate in the
capital appreciation of the Equity Securities into which the securities are
convertible, while obtaining a higher fixed rate of return than generally is
payable on the underlying Equity Securities.
CURRENCY MANAGEMENT
A Fund's flexibility to participate in higher yielding debt markets outside of
the United States may allow the Fund to achieve higher yields than those
generally obtained by domestic money market funds and short-term bond
investments. When a Fund invests significantly in securities denominated in
foreign currencies, however, movements in foreign currency exchange rates versus
the U.S. dollar are likely to impact the Fund's share price stability relative
to domestic short-term income funds. Fluctuations in foreign currencies can have
a positive or negative impact on returns. Normally, to the extent that the Fund
is invested in foreign securities, a weakening in the U.S. dollar relative to
the foreign currencies underlying a Fund's investments should help increase the
net asset value of the Fund. Conversely, a strengthening in the U.S. dollar
versus the foreign currencies in which a Fund's securities are denominated will
generally lower the net asset value of the Fund. The Fund's Sub-Advisor may
attempt to minimize exchange rate risk through active portfolio management,
including hedging currency exposure through the use of futures, options and
forward currency transactions and may attempt to identify bond markets with
strong or stable currencies.
DEBT SECURITIES ISSUED OR GUARANTEED BY SUPRANATIONAL ORGANIZATIONS
Funds authorized to invest in securities of foreign issuers may invest assets in
debt securities issued or guaranteed by Supranational Organizations, such as
obligations issued or guaranteed by the Asian Development Bank, Inter-American
Development Bank, International Bank for Reconstruction and Development (World
Bank), African Development Bank, European Coal and Steel Community, European
Economic Community, European Investment Bank and the Nordic Investment Bank.
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DOLLAR ROLL TRANSACTIONS
Any Bond Fund may enter into dollar rolls or "covered rolls" in which the Fund
sells securities (usually Mortgage-Backed Securities) and simultaneously
contracts to purchase, typically in 30 or 60 days, substantially similar, but
not identical, securities on a specified future date. The proceeds of the
initial sale of securities in the Dollar Roll Transactions may be used to
purchase long-term securities which will be held during the roll period. During
the roll period, the Fund forgoes principal and interest paid on the securities
sold at the beginning of the roll period, but may earn interest on the
reinvested cash proceeds of the initial sale. The Fund is compensated either by
the difference between the current sales price and the forward price for the
future purchase (often referred to as the "drop"), or by a fee paid by the
dealer at the time of the initial sale. A "covered roll" is a specific type of
dollar roll for which there is an offsetting cash position or cash equivalent
securities position that matures on or before the forward settlement date of the
Dollar Roll Transaction. As used herein the term "dollar roll" refers to dollar
rolls that are not "covered rolls." At the end of the roll commitment period,
the Fund may or may not take delivery of the securities the Fund has contracted
to purchase. The risks of engaging in Dollar Roll Transactions include the
following: If the dealer to whom the Fund sells the security becomes insolvent,
the Fund's right to purchase or repurchase the security may be restricted; the
value of the security may change adversely over the term of the dollar roll; the
security that the Fund is required to repurchase may be worth less than the
security that the Fund originally held; and the return earned by the Fund with
the proceeds of a dollar roll may not exceed transaction costs.
The Fund will establish a segregated account with its custodian in which it will
maintain cash, U.S. Government Securities or other liquid assets equal in value
at all times to its obligations in respect of dollar rolls, and, accordingly,
the Fund will not treat such obligations as senior securities for purposes of
the 1940 Act. "Covered rolls" are not subject to these segregation requirements.
Dollar Roll Transactions may be considered borrowings and are, therefore,
subject to the borrowing limitations applicable to the Funds. See "Borrowing."
Each of the Short Term High Quality Bond, Short Term Global Government, U.S.
Government and Corporate Income Funds may invest up to 33 1/3% of its total
assets in such transactions.
EQUITY SECURITIES
The Equity, U.S. Government and Corporate Income Funds may invest in Equity
Securities or rights to acquire Equity Securities. Equity Securities represent
an equity (ownership) interest in a corporation, which generally gives a Fund
the right to vote on measures affecting the company's organization and
operations.
Equity Securities include common stock, preferred stock and securities
exchangeable for shares of common stock, such as convertible debt, convertible
preferred stock and warrants.
EXCHANGE RATE-RELATED SECURITIES
A Fund may invest in securities that are indexed to certain specific foreign
currency exchange rates. The terms of such security provide that the principal
amount or interest payments are adjusted upwards or downwards (but not below
zero) at payment to reflect fluctuations in the exchange rate between two
currencies while the obligation is outstanding, depending on the terms of the
specific security. The Fund will purchase such security with the currency in
which it is denominated and will receive interest and principal payments thereon
in the currency, but the amount of principal or interest payable by the issuer
will vary in proportion to the change (if any) in the exchange rate between the
two specified currencies between the date the instrument is issued and the date
the principal or interest payment is due. The staff of the SEC is currently
considering whether a mutual fund's purchase of this type of security would
result in the issuance of a "senior security" within the meaning of the 1940
Act. The Fund believes that such investments do not involve the creation of such
a senior security, but nevertheless undertakes, pending the resolution of this
issue by the staff, to establish a segregated account with respect to such
investments
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and to maintain in such account cash not available for investment or U.S.
Government Securities or other liquid high quality debt securities having a
value equal to the aggregate principal amount of outstanding securities of this
type.
Investments in Exchange Rate-Related Securities entail certain risks. There is
the possibility of significant changes in rates of exchange between the U.S.
dollar and any foreign currency to which an Exchange Rate-Related Security is
linked. In addition, there is no assurance that sufficient trading interest to
create a liquid secondary market will exist for a particular Exchange
Rate-Related Security due to conditions in the debt and foreign currency
markets. Illiquidity in the forward foreign exchange market and the high
volatility of the foreign exchange market may from time to time combine to make
it difficult to sell an Exchange Rate-Related Security prior to maturity without
incurring a significant price loss.
FIXED-INCOME SECURITIES
The market value of fixed-income obligations held by the Funds and,
consequently, the net asset value per share of the Funds can be expected to vary
inversely to changes in prevailing interest rates. Investors should also
recognize that, in periods of declining interest rates, the yields of the Bond
Funds will tend to be somewhat higher than prevailing market rates and, in
periods of rising interest rates, the Bond Funds' yields will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net new
money to the Bond Funds from the continuous sale of their shares will likely be
invested in instruments producing lower yields than the balance of their assets,
thereby reducing current yields. In periods of rising interest rates, the
opposite can be expected to occur. In addition, obligations purchased by certain
of the Bond Funds that are rated in the lowest of the top four ratings (Baa by
Moody's or BBB by S&P, Duff or Fitch) are considered to have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade securities.
FLOATING RATE, INVERSE FLOATING RATE AND VARIABLE RATE OBLIGATIONS
The Corporate Income and Short Term High Quality Bond Funds may purchase
floating rate, inverse floating rate and variable rate obligations, including
Mortgage-Backed Securities. Floating rate obligations have an interest rate that
changes whenever there is a change in the external interest rate, while variable
rate obligations provide for a specified periodic adjustment in the interest
rate. The interest rate on an inverse floating rate obligation (an "inverse
floater") can be expected to move in the opposite direction from the market rate
of interest to which the inverse floater is indexed. The Fund may purchase
floating rate, inverse floating rate and variable rate obligations that carry a
demand feature which would permit the Fund to tender them back to the issuer or
remarketing agent at par value prior to maturity. Frequently, floating rate,
inverse floating rate and variable rate obligations are secured by letters of
credit or other credit support arrangements provided by banks.
An inverse floater may be considered to be leveraged to the extent that its
interest rate varies by a magnitude that exceeds the magnitude of the change in
the index rate of interest. The higher degree of leverage inherent in inverse
floaters is associated with greater volatility in their market values.
Accordingly, the duration of an inverse floater may exceed its stated final
maturity.
The Global Money Fund may purchase variable rate demand notes issued by
industrial development authorities and other governmental entities, as well as
participation interests therein. Although variable rate demand notes are
frequently not rated by credit rating agencies, a Fund may purchase unrated
notes that are determined by the Fund's Sub-Advisor to be of comparable quality
at the time of purchase to rated instruments that may be purchased by the Fund.
Moreover, while there may be no active secondary market with respect to a
particular variable rate demand note purchased by a Fund, the Fund may, upon the
notice specified in the note, demand payment of the principal of and accrued
interest on the note at any time and may resell the note at any time to a third
party. The absence of such an active
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secondary market, however, could make it difficult for a Fund to dispose of a
particular variable rate demand note in the event the issuer of the note
defaulted on its payment obligations, and the Fund could, for this or other
reasons, suffer a loss to the extent of the default.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
All Funds except the Global Money and U.S. Government Funds may engage in
foreign currency exchange transactions. Funds that buy and sell securities
denominated in currencies other than the U.S. dollar, and receive interest,
dividends and sale proceeds in currencies other than the U.S. dollar, may enter
into foreign currency exchange transactions to convert to and from different
foreign currencies and to convert foreign currencies to and from the U.S.
dollar. The Fund either enters into these transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
uses forward contracts to purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by the Fund to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement, and is traded at a net
price without commission. Except in circumstances where segregated accounts are
not required by the 1940 Act and the rules adopted thereunder, each Fund
maintains with its custodian a segregated account of cash, U.S. Government
Securities or other liquid assets in an amount at least equal to its obligations
under each forward foreign currency exchange contract. Neither spot transactions
nor forward foreign currency exchange contracts eliminate fluctuations in the
prices of the Fund's portfolio securities or in foreign exchange rates, or
prevent loss if the prices of these securities should decline.
A Fund may enter into foreign currency transactions in an attempt to protect
against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. The precise matching of the forward
contract amounts and the value of the securities involved will not generally be
possible because the future value of these securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and the date it matures.
The projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain. In addition,
when the Sub-Advisor believes that the currency of a specific country may
deteriorate against another currency, it may enter into a forward contract to
sell the less attractive currency and buy the more attractive one. The amount in
question could be less than or equal to the value of the Fund's securities
denominated in the less attractive currency. The Fund may also enter into a
forward contract to sell a currency which is linked to a currency or currencies
in which some or all of the Fund's portfolio securities are or could be
denominated, and to buy U.S. dollars. These practices are referred to as "cross
hedging" and "proxy hedging."
Forward currency exchange contracts are agreements to exchange one currency for
another -- for example, to exchange a certain amount of U.S. dollars for a
certain amount of Japanese Yen -- at a future date and specified price.
Typically, the other party to a currency exchange contract will be a commercial
bank or other financial institution. Because there is a risk of loss to the Fund
if the other party does not complete the transaction, the Fund's Sub-Advisor
will enter into foreign currency exchange contracts only with parties approved
by the Fund's Board of Trustees.
A Fund may maintain "short" positions in forward currency exchange transactions
in which the Fund agrees to exchange currency that it currently does not own for
another currency -- for example, to
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exchange an amount of Japanese Yen that it does not own for a certain amount of
U.S. dollars -- at a future date and specified price in anticipation of a
decline in the value of the currency sold short relative to the currency that
the Fund has contracted to receive in the exchange.
To the extent that such actions are intended to protect the Fund from adverse
currency movements, there is a risk that currency movements involved will not be
properly anticipated. Use of this technique may also be limited by management's
need to protect the status of the Fund as a regulated investment company under
the Code. The projection of currency market movements is extremely difficult,
and the successful execution of currency strategies is highly uncertain.
FOREIGN INVESTMENTS
All of the Funds except the U.S. Government Fund may invest in securities of
foreign issuers. There are certain risks involved in investing in foreign
securities, including those resulting from fluctuations in currency exchange
rates, devaluation of currencies, future political or economic developments and
the possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions, reduced availability of public information
concerning issuers, and the fact that foreign companies are not generally
subject to uniform accounting, auditing and financial reporting standards or to
other regulatory practices and requirements comparable to those applicable to
domestic companies. Moreover, securities of many foreign companies may be less
liquid and the prices more volatile than those of securities of comparable
domestic companies. Although the Funds' Sub-Advisors do not intend to expose the
Funds to such risks, with respect to certain foreign countries, there is the
possibility of expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of funds or other assets of the Funds,
including the withholding of dividends. In addition, because many foreign stock
exchanges are open at times when U.S. Securities Markets are closed, such as
certain federal holidays, the value of a Fund's investment in foreign securities
may fluctuate without being immediately reflected in the Fund's NAV.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and the Funds hold various foreign currencies
from time to time, the value of the net assets of the Funds as measured in U.S.
dollars will be affected favorably or unfavorably by changes in exchange rates.
The cost of the Funds' currency exchange transactions will generally be the
difference between the bid and offer spot rate of the currency being purchased
or sold. In order to protect against uncertainty in the level of future foreign
currency exchange rates, the Funds are authorized to enter into certain foreign
currency exchange transactions. Investors should be aware that exchange rate
movements can be significant and can endure for long periods of time. The
Sub-Advisors of the Short Term Global Government and International Growth Funds
attempt to manage exchange rate risk through active Currency Management.
Extensive research of the economic, political and social factors that influence
global markets is conducted by the Sub-Advisors. Particular attention is given
to country-specific analysis, reviewing the strength or weakness of a country's
overall economy, the government policies influencing business conditions and the
outlook for the country's currency. When the Fund's Sub-Advisor believes that
currency in which a portfolio security or securities is denominated or exposed
may suffer a decline against the U.S. dollar, it may hedge such risk by entering
into a forward contract to sell an amount of foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in or
exposed to such foreign currency.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the NYSE. Accordingly, the Funds' foreign investments may be less
liquid and their prices may be more volatile than comparable investments in
securities of United States companies. Moreover, the settlement periods for
foreign securities, which are often longer than those for securities of United
States issuers, may affect portfolio liquidity. In buying and selling securities
on foreign exchanges, the Fund normally pays fixed commissions that are
generally higher than the negotiated commissions charged in the United States.
In addition, there is generally less
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governmental supervision and regulation of securities exchanges, brokers and
issuers in foreign countries than in the United States.
FUTURES AND OPTIONS ON FUTURES
When deemed advisable by its Sub-Advisor, all Funds except the Global Money Fund
may enter into financial futures and related options that are traded on a U.S.
exchange or board of trade. If entered into, these transactions may be made for
the purpose of hedging against the effects of changes in the value of portfolio
securities due to anticipated changes in interest rates and market conditions,
when transactions are economically appropriate to the reduction of risks
inherent in the management of the Funds and for other purposes described under
"Strategic Transactions." A Fund may not enter into futures and options
contracts for which aggregate initial margin deposits and premiums paid for
unexpired futures options entered into for purposes other than "bona fide
hedging" positioning as defined in regulations adopted by the Commodities Future
Trading Commission exceed 5% of the fair market value of the Fund's assets,
after taking into account unrealized profits and unrealized losses on futures
contracts into which it has entered. With respect to each long position in a
futures contract or option thereon, the underlying commodity value of such
contract will always be covered by cash and cash equivalents set aside plus
accrued profits held at the futures commission merchant.
A financial futures contract provides for the future sale by one party and the
purchase by the other party of a specified amount of a particular financial
instrument (debt security) at a specified price, date, time and place. An index
futures contract is an agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to the difference between the value of
the index at the close of the last trading day of the contract and the price at
which the index contract was originally written. An option on a financial or
index futures contract generally gives the purchaser the right, in return for
the premium paid, to assume a position in a futures contract at a specified
exercise price at any time prior to the expiration date of the option.
The purpose of entering into a futures contract by a Fund is to either enhance
return or to protect the Fund from fluctuations in the value of its securities
caused by anticipated changes in interest rate or market conditions without
necessarily buying or selling the securities. The use of futures contracts and
options on futures contracts involves several risks. There can be no assurance
that there will be a correlation between price movements in the underlying
securities, currencies or index, and price movements in the securities which are
the subject of the futures contract or option on futures contract. Positions in
futures contracts and options on futures contracts may be closed out only on the
exchange or board of trade on which they were entered into, and there can be no
assurance that an active market will exist for a particular contract or option
at any particular time. If a Fund has hedged against the possibility of an
increase in interest rates or bond prices adversely affecting the value of
securities held in its portfolio and rates or prices decreased instead, a Fund
will lose part or all of the benefit of the increased value of securities that
it has hedged because it will have offsetting losses in its futures positions.
In addition, in such situations, if a Fund has insufficient cash, it may have to
sell securities to meet daily variation margin requirements at a time when it
may be disadvantageous to do so. These sales of securities may, but will not
necessarily, be at increased prices that reflect the decline in interest rates
or bond prices, as the case may be. In addition, the Fund would pay commissions
and other costs in connection with such investments, which may increase the
Fund's expenses and reduce its return. While utilization of options, futures
contracts and similar instruments may be advantageous to the Fund, if the Fund's
Sub-Advisor is not successful in employing such instruments in managing the
Fund's investments, the Fund's performance will be worse than if the Fund did
not make such investments.
Losses incurred in futures contracts and options on futures contracts and the
costs of these transactions will adversely affect a Fund's performance.
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GEOGRAPHICAL AND INDUSTRY CONCENTRATION
The Global Money Fund will invest at least 25% of its assets in Bank Obligations
unless the Fund is in a temporary defensive position. As a result of this
concentration policy, which is a fundamental policy of the Fund, the Fund's
investments may be subject to greater risk than a fund that does not concentrate
in the banking industry. In particular, Bank Obligations may be subject to the
risks associated with interest rate volatility, changes in federal and state
laws and regulations governing banking and the inability of borrowers to pay
principal and interest when due. In addition, foreign banks present the risks of
investing in foreign securities generally and are not subject to reserve
requirements and other regulations comparable to those of U.S. Banks.
GOVERNMENT STRIPPED MORTGAGE-BACKED SECURITIES
All of the Funds may invest in Government Stripped Mortgage-Backed Securities
issued or guaranteed by the Government National Mortgage Association ("GNMA"),
Federal National Mortgage Association ("FNMA") and Federal Home Loan Mortgage
Corporation ("FHLMC"). These securities represent beneficial ownership interests
in either periodic principal distributions ("principal-only") or interest
distributions ("interest-only") on mortgage-backed certificates issued by GNMA,
FNMA or FHLMC, as the case may be. The certificates underlying the Government
Stripped Mortgage-Backed Securities represent all or part of the beneficial
interest in pools of mortgage loans. The Funds will invest in interest-only
Government Stripped Mortgage-Backed Securities in order to enhance yield or to
benefit from anticipated appreciation in value of the securities at times when
the appropriate Sub-Advisor believes that interest rates will remain stable or
increase. In periods of rising interest rates, the value of interest-only
Government Stripped Mortgage-Backed Securities may be expected to increase
because of the diminished expectation that the underlying mortgages will be
prepaid. In this situation the expected increase in the value of interest-only
Government Stripped Mortgage-Backed Securities may offset all or a portion of
any decline in value of the portfolio securities of the Funds. Investing in
Government Stripped Mortgage-Backed Securities involves the risks normally
associated with investing in Mortgage-Backed Securities issued by government or
government-related entities. See "Mortgage-Backed Securities" in this section.
In addition, the yields on interest-only and principal-only Government Stripped
Mortgage-Backed Securities are extremely sensitive to the prepayment experience
on the mortgage loans underlying the certificates collateralizing the
securities. If a decline in the level of prevailing interest rates results in a
rate of principal prepayments higher than anticipated, distributions of
principal will be accelerated, thereby reducing the yield to maturity on
interest-only Government Stripped Mortgage-Backed Securities and increasing the
yield to maturity on principal-only Government Stripped Mortgage-Backed
Securities. Conversely, if an increase in the level of prevailing interest rates
results in a rate of principal prepayments lower than anticipated, distributions
of principal will be deferred, thereby increasing the yield to maturity on
interest-only Government Stripped Mortgage-Backed Securities and decreasing the
yield to maturity on principal-only Government Stripped Mortgage-Backed
Securities. Sufficiently high prepayment rates could result in the Fund not
fully recovering its initial investment in an interest-only Government Stripped
Mortgage-Backed Security. Government Stripped Mortgage-Backed Securities are
currently traded in an over-the-counter market maintained by several large
investment banking firms. There can be no assurance that the Fund will be able
to effect a trade of a Government Stripped Mortgage-Backed Security at a time
when it wishes to do so. The Funds will acquire Government Stripped
Mortgage-Backed Securities only if a liquid secondary market for the Securities
exists at the time of acquisition.
ILLIQUID SECURITIES
Up to 15% (10% for the Global Money Fund) of the net assets of a Fund may be
invested in securities that are not readily marketable, including, where
applicable: (1) Repurchase Agreements with maturities greater than seven
calendar days; (2) time deposits maturing in more than seven calendar days; (3)
to the extent a liquid secondary market does not exist for the instruments,
futures contracts and
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options thereon; (4) certain over-the-counter options, as described in the SAI;
(5) certain variable rate demand notes having a demand period of more than seven
days; and (6) securities the disposition of which is restricted under federal
securities laws (excluding Rule 144A Securities, described below). The Funds
will not include for purposes of the restrictions on illiquid investments
securities sold pursuant to Rule 144A under the Securities Act of 1933, as
amended, so long as such securities meet liquidity guidelines established by the
Trust's Board of Trustees. Under Rule 144A, securities which would otherwise be
restricted may be sold by persons other than issuers or dealers to qualified
institutional buyers.
INTEREST RATE TRANSACTIONS
All of the Funds except the Global Money Fund may engage in certain Interest
Rate Transactions, such as swaps, caps, floors and collars. Interest rate swaps
involve the exchange with another party of commitments to pay or receive
interest (e.g., an exchange of floating rate payments for fixed rate payments).
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. An interest rate collar combines the elements
of purchasing a cap and selling a floor. The collar protects against an interest
rate rise above the maximum amount but gives up the benefits of an interest rate
decline below the minimum amount. The net amount of the excess, if any, of a
Fund's obligations over its entitlements with respect to each interest rate swap
will be accrued on a daily basis and an amount of cash or liquid securities
having an aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Trust's custodian. If there is a
default by the other party to the transaction, the Fund will have contractual
remedies pursuant to the agreements related to the transactions.
INVESTMENT COMPANIES
When a Fund's Sub-Advisor believes that it would be beneficial to the Fund and
appropriate under the circumstances, the Sub-Advisor may invest up to 10% of the
Fund's assets in securities of mutual funds that are not affiliated with Sierra
Advisors or any Sub-Advisor. As a shareholder in any such mutual fund, the Fund
will bear its ratable share of the mutual fund's expenses, including management
fees, and will remain subject to the Fund's advisory and administration fees
with respect to the assets so invested.
LEASE OBLIGATION BONDS
Lease Obligation Bonds are mortgages on a facility that is secured by the
facility and are paid by a lessee over a long term. The rental stream to service
the debt as well as the mortgage are held by a collateral trustee on behalf of
the public bondholders. The primary risk of such instrument is the risk of
default. Under the lease indenture, the failure to pay rent is an event of
default. The remedy to cure default is to rescind the lease and sell the asset.
If the lease obligation is not readily marketable or market quotations are not
readily available, such lease obligations will be subject to a Fund's 15% (10%
for the Global Money Fund) limit on Illiquid Securities.
LENDING OF SECURITIES
All of the Funds except the U.S. Government Fund have the ability to lend
portfolio securities to brokers and other financial organizations. By lending
its securities, a Fund can increase its income by continuing to receive interest
on the loaned securities as well as by either investing the cash collateral in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. Government Securities are used as collateral. These loans, if
and when made, may not exceed 20% of a Fund's total assets taken at value. Loans
of portfolio securities by a Fund will be collateralized by cash, letters of
credit or U.S. Government Securities that are maintained at all times in an
amount at least equal to the
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current market value of the loaned securities. Any gain or loss in the market
price of the securities loaned that might occur during the term of the loan
would be for the account of the Fund involved. Each Fund's Sub-Advisor will
monitor on an ongoing basis the creditworthiness of the institutions to which
the Fund lends securities.
LOWER-RATED SECURITIES
The Growth and Emerging Growth Funds may each invest up to 35%, and the Short
Term Global Government Fund up to 10%, of its total assets in debt securities
rated below the fourth highest rating by an NRSRO or of equivalent quality as
determined by the Sub-Advisor. Non-investment-grade debt securities are
securities rated BB or lower and are commonly referred to as "junk bonds."
Securities rated below investment grade as well as unrated securities are often
considered to be speculative and usually entail greater risk (including the
possibility of default or bankruptcy of the issuers). Such securities generally
involve greater price volatility and risk of principal and income, and may be
less liquid, than securities in higher rated categories. Both price volatility
and illiquidity may make it difficult for the Fund to value certain of these
securities at certain times and these securities may be difficult to sell under
certain market conditions. Prices for non-investment-grade debt securities may
be affected by legislative and regulatory developments. For further information,
see "Investment Objectives and Policies of the Funds -- Strategy Available to
Short Term Global Government, Growth and Emerging Growth Funds" in the SAI and
the Appendix.
MORTGAGE-BACKED SECURITIES
All of the Funds may invest in Mortgage-Backed Securities, which represent an
interest in a pool of mortgage loans. The primary government issuers or
guarantors of Mortgage-Backed Securities are GNMA, FNMA and FHLMC.
Mortgage-Backed Securities provide a monthly payment consisting of interest and
principal payments. Additional payments may be made out of unscheduled
repayments of principal resulting from the sale of the underlying residential
property, refinancing or foreclosure, net of fees or costs that may be incurred.
Prepayments of principal on Mortgage-Backed Securities may tend to increase due
to refinancing of mortgages as interest rates decline. Prompt payment of
principal and interest on GNMA mortgage pass-through certificates is backed by
the full faith and credit of the U.S. Government. FNMA-guaranteed mortgage
pass-through certificates and FHLMC participation certificates are solely the
obligations of those entities but are supported by the discretionary authority
of the U.S. Government to purchase the agencies' obligations. Collateralized
Mortgage Obligations are a type of bond secured by an underlying pool of
mortgages or mortgage pass-through certificates that are structured to direct
payments on underlying collateral to different series or classes of the
obligations. In addition, the U.S. Government Fund may invest in commercial
Mortgage-Backed Securities, which are similar to the above Mortgage-Backed
Securities, except they are issued by non-governmental entities and are created
by pooling together commercial and multifamily mortgage loans into trusts that
are structured into different classes or series based upon the prioritization of
cash flows. Commercial Mortgage-Backed Securities include Collateralized
Mortgage Obligations and real estate mortgage investment conduits ("REMICs").
While commercial Mortgage-Backed Securities are generally structured with one or
more types of credit enhancements, they typically lack a guarantee by an entity
having the credit status of a governmental agency or instrumentality.
To the extent that a Fund purchases mortgage-related or mortgage-backed
securities at a premium, prepayments may result in some loss of the Fund's
principal investment to the extent of the premium paid. The yield of the Fund
may be affected by reinvestment of prepayments at higher or lower rates than the
original investment. In addition, like other debt securities, the value of
mortgage-related securities, including government and government-related
mortgage pools, will generally fluctuate in response to market interest rates.
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NEW ISSUERS
A Fund may invest up to 5% of its assets in the securities of issuers which have
been in continuous operation for less than three years.
OPTIONS ON SECURITIES
OPTION PURCHASE. Each Fund, except the Global Money Fund, may purchase put and
call options, on portfolio securities in which it may invest, that are traded on
a U.S. or foreign securities exchange or in the over-the-counter market. A Fund
may utilize up to 10% of its assets to purchase put options on portfolio
securities and may do so at or about the same time that it purchases the
underlying security or at a later time. By buying a put, the Funds limit their
risk of loss from a decline in the market value of the security until the put
expires. Any appreciation in the value of the underlying security, however, will
be partially offset by the amount of the premium paid for the put option and any
related transaction costs. A Fund may also utilize up to 10% of its assets to
purchase call options on securities in which it is authorized to invest. Call
options may be purchased by the Fund in order to acquire the underlying
securities for the Fund at a price that avoids any additional cost that would
result from a substantial increase in the market value of a security. The Funds
may also purchase call options to increase their return to investors at a time
when the call is expected to increase in value due to anticipated appreciation
of the underlying security. Prior to their expirations, put and call options may
be sold in closing sale transactions (sales by the Fund, prior to the exercise
of options that it has purchased, of options of the same series), and profit or
loss from the sale will depend on whether the amount received is more or less
than the premium paid for the option plus the related transaction costs.
COVERED OPTION WRITING. All Funds except the Global Money Fund may write put
and call options on securities for hedging purposes. The Funds realize fees
(referred to as "premiums") for granting the rights evidenced by the options. A
put option embodies the right of its purchaser to compel the writer of the
option to purchase from the option holder an underlying security at a specified
price at any time during the option period. In contrast, a call option embodies
the right of its purchaser to compel the writer of the option to sell to the
option holder an underlying security at a specified price at any time during the
option period.
Upon the exercise of a put option written by a Fund, the Fund may suffer a loss
equal to the difference between the price at which the Fund is required to
purchase the underlying security and its market value at the time of the option
exercise, less the premium received for writing the option. Upon the exercise of
a call option written by the Fund, the Fund may suffer a loss equal to the
excess of the security's market value at the time of the option exercise over
the Fund's acquisition cost of the security, less the premium received for
writing the option.
The U.S. Government and Corporate Income Funds may also write covered options on
portfolio securities to enhance current return. Accordingly, whenever a Fund
writes a call option, it will continue to own or have the present right to
acquire the underlying security without the payment of additional consideration
for as long as it remains obligated as the writer of the option. To support its
obligation to purchase the underlying security if a put option is written, the
Fund will either (1) deposit with Boston Safe in a segregated account cash or
other liquid assets having a value at least equal to the exercise price of the
underlying securities or (2) continue to own an equivalent number of puts on the
same "series" (that is, puts on the same underlying security having the same
exercise prices and expiration dates as those written by the Fund), or an
equivalent number of puts on the same "class" (that is, puts on the same
underlying security) with exercise prices greater than those that it has written
(or, if the exercise prices of the puts it holds are less than the exercise
prices of those it has written, it will deposit the difference with Boston Safe
in a segregated account).
The principal reason for writing covered call and put options on portfolio
securities is to attempt to realize, through the receipt of premiums, a greater
return than would be realized on the securities alone.
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In return for a premium, the writer of a covered call option forfeits the right
to any appreciation in the value of the underlying security above the strike
price for the life of the option (or until a closing purchase transaction can be
effected). Nevertheless, the call writer retains the risk of a decline in the
price of the underlying security. Similarly, the principal reason for writing
covered put options is to realize income in the form of premiums. The writer of
the covered put option accepts the risk of a decline in the price of the
underlying security. The size of the premiums that the Funds may receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option-writing activities.
The Funds may engage in closing purchase transactions to realize a profit, to
prevent an underlying security from being called or put or, in the case of a
call option, to unfreeze an underlying security (thereby permitting its sale or
the writing of a new option on the security prior to the outstanding option's
expiration). To effect a closing purchase transaction, the Funds would purchase,
prior to the holder's exercise of an option that the Fund has written, an option
of the same series as that on which the Fund desires to terminate its
obligation. The obligation of the Fund under an option that it has written would
be terminated by a closing purchase transaction, but the Fund would not be
deemed to own an option as the result of the transaction. There can be no
assurance that the Fund will be able to effect closing purchase transactions at
a time when it wishes to do so. The ability of the Fund to engage in closing
transactions with respect to options depends on the existence of a liquid
secondary market. While the Fund will generally purchase or write options only
if there appears to be a liquid secondary market for the options purchased or
sold, for some options no such secondary market may exist or the market may
cease to exist. To facilitate closing purchase transactions, however, the Fund
will ordinarily write options only if a secondary market for the options exists
on a U.S. securities exchange or in the over-the-counter market.
Option writing for the Funds may be limited by position and exercise limits
established by U.S. securities exchanges and the National Association of
Securities Dealers, Inc. and by requirements of the Code for qualification as a
regulated investment company. In addition to writing covered put and call
options to generate current income, the Funds may enter into options
transactions as hedges to reduce investment risk, generally by making an
investment expected to move in the opposite direction of a portfolio position. A
hedge is designed to offset a loss on a portfolio position with a gain on the
hedge position; at the same time, however, a properly correlated hedge will
result in a gain on the portfolio position's being offset by a loss on the hedge
position. The Funds bear the risk that the prices of the securities being hedged
will not move in the same amount as the hedge. A Fund will engage in hedging
transactions only when deemed advisable by its Sub-Advisor. Successful use by
the Fund of options will depend on its Sub-Advisor's ability to correctly
predict movements in the direction of the stock underlying the option used as a
hedge. Losses incurred in hedging transactions and the costs of these
transactions will adversely affect the Fund's performance.
OPTIONS ON FOREIGN CURRENCIES
A Fund may purchase and write put and call options on foreign currencies for the
purpose of hedging against declines in the U.S. dollar value of foreign
currency-denominated portfolio securities and against increases in the U.S.
dollar cost of such securities to be acquired. Generally, transactions relating
to Options on Foreign Currencies occur in the over-the-counter market. As in the
case of other kinds of options, however, the writing of an option on a foreign
currency constitutes only a partial hedge, up to the amount of the premium
received, and the Fund could be required to purchase or sell foreign currencies
at disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates, although, in the event of rate movements adverse
to the Fund's position, it may forfeit the entire amount of the premium plus
related transaction costs. There is no specific percentage limitation on the
Fund's investments in Options on Foreign Currencies. See the SAI for further
discussion of the use, risks and costs of Options on Foreign Currencies and Over
the Counter Options.
A-12
<PAGE> 47
OPTIONS ON INDEXES
A Fund may, subject to applicable securities regulations, purchase and write put
and call options on stock and fixed income indexes listed on foreign and
domestic stock exchanges. A stock index fluctuates with changes in the market
values of the stocks included in the index. An example of a domestic stock index
is the S&P 500 Index. Examples of foreign stock indexes are the Canadian Market
Portfolio Index (Montreal Stock Exchange), The Financial Times -- Stock Exchange
100 (London Stock Exchange) and the Toronto Stock Exchange Composite 300
(Toronto Stock Exchange). Examples of fixed-income indexes include the Lehman
Government/Corporate Bond Index and the Lehman Treasury Bond Index.
Options on Indexes are generally similar to options on securities except for
delivery requirements. Instead of giving the right to take or make delivery of a
security at a specified price, an option on an index gives the holder the right
to receive a cash "exercise settlement amount" equal to (a) the amount, if any,
by which the fixed exercise price of the option exceeds (in the case of a put)
or is less than (in the case of a call) the closing value of the underlying
index on the date of exercise, multiplied by (b) a fixed "index multiplier."
Receipt of this cash amount will depend upon the closing level of the index upon
which the option is based being greater than, in the case of a call, or less
than, in the case of a put, the exercise price of the option. The amount of cash
received will be equal to such difference between the closing price of the index
and the exercise price of the option expressed in dollars or a foreign currency,
as the case may be, times a specified multiple. The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
The writer may offset its position in index options prior to expiration by
entering into a closing transaction on an exchange or the option may expire
unexercised.
The effectiveness of purchasing or writing index options as a hedging technique
will depend upon the extent to which price movements in the portion of the
securities portfolio of the Fund correlate with price movements of the stock
index selected. Because the value of an index option depends upon movements in
the level of the index rather than the price of a particular stock, whether the
Fund will realize a gain or loss from the purchase or writing of options on an
index depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in the price of a particular stock. Accordingly,
successful use of Options on Indexes by the Fund will be subject to its
Sub-Advisor's ability to predict correctly movements in the direction of the
market generally or of a particular industry. This requires different skills and
techniques than predicting changes in the price of individual stocks.
Options on securities indexes entail risks in addition to the risks of options
on securities. Because exchange trading of options on securities indexes is
relatively new, the absence of a liquid secondary market to close out an option
position is more likely to occur, although the Fund generally will only purchase
or write such an option if the Sub-Advisor believes the option can be closed
out. Because options on securities indexes require settlement in cash, the Fund
may be forced to liquidate portfolio securities to meet settlement obligations.
The Fund will engage in stock index options transactions only when determined by
its Sub-Advisor to be consistent with its efforts to control risk. There can be
no assurance that such judgment will be accurate or that the use of these
portfolio strategies will be successful.
When the Fund writes an option on an index, it will establish a segregated
account with Boston Safe or with a foreign sub-custodian in which the Fund will
deposit cash or other liquid assets in an amount equal to the market value of
the option, and will maintain the account while the option is open.
OVER THE COUNTER OPTIONS
All Funds except the Global Money Fund may write or purchase options in
privately negotiated domestic or foreign transactions ("OTC Options"), as well
as exchange-traded or "listed" options. OTC Options can be closed out only by
agreement with the other party to the transaction, and thus any OTC Options
purchased by a Fund will be considered an Illiquid Security. In addition,
certain OTC Options on foreign
A-13
<PAGE> 48
currencies are traded through financial institutions acting as market-makers in
such options and the underlying currencies.
OTC Options entail risks in addition to the risks of exchange-traded options.
Exchange-traded options are in effect guaranteed by the Options Clearing
Corporation while a Fund relies on the party from whom it purchases an OTC
Option to perform if the Fund exercises the option. With OTC Options, if the
transacting dealer fails to make or take delivery of the securities or amount of
foreign currency underlying an option it has written, in accordance with the
terms of that option, the Fund will lose the premium paid for the option as well
as any anticipated benefit of the transaction. Furthermore, OTC Options are less
liquid than exchange-traded options.
REPURCHASE AGREEMENTS
Repurchase Agreements are agreements to purchase underlying debt obligations
from financial institutions, such as banks and broker-dealers, subject to the
seller's agreement to repurchase the obligations at an established time and
price. The collateral for such Repurchase Agreements will be held by the Fund's
custodian or a duly appointed sub-custodian. The Fund will enter into Repurchase
Agreements only with banks and broker-dealers that have been determined to be
creditworthy by the Trust's Board of Trustees under criteria established with
the assistance of the Advisor. The seller under a Repurchase Agreement is
required to maintain the value of the obligations subject to the Repurchase
Agreement at not less than the repurchase price. Default by the seller would,
however, expose the Fund to possible loss because of adverse market action or
delay in connection with the disposition of the underlying obligations. In
addition, if bankruptcy proceedings are commenced with respect to the seller of
the obligations, the Fund may be delayed or limited in its ability to sell the
collateral.
REVERSE REPURCHASE AGREEMENTS
All Funds except the Global Money Fund may engage in Reverse Repurchase
Agreements. Reverse Repurchase Agreements are the same as repurchase agreements
except that, in this instance, the Funds would assume the role of
seller/borrower in the transaction. The Funds will maintain segregated accounts
with the Trust's custodian consisting of cash or other liquid assets that at all
times are in an amount equal to their obligations under Reverse Repurchase
Agreements. Reverse Repurchase Agreements involve the risk that the market value
of the securities sold by a Fund may decline below the repurchase price of the
securities and, if the proceeds from the Reverse Repurchase Agreement are
invested in securities, that the market value of the securities bought may
decline below the repurchase price of the securities sold. Each Fund's
Sub-Advisor, acting under the supervision of the Board of Trustees, reviews on
an on-going basis the creditworthiness of the partners with which it enters into
Reverse Repurchase Agreements. Under the 1940 Act, Reverse Repurchase Agreements
may be considered borrowings by the seller. Whenever borrowings by a Fund,
including Reverse Repurchase Agreements, exceed 5% of the value of a Fund's
total assets, the Fund will not purchase any securities. See "Borrowing."
STRATEGIC TRANSACTIONS
Subject to the investment limitations and restrictions for each of the Funds as
stated elsewhere in the Prospectus and SAI of the Funds, each of the Funds
except the Global Money Fund may, but is not required to, utilize various
investment strategies as described in this Appendix to hedge various market
risks, to manage the effective maturity or duration of Fixed-Income Securities,
or to seek potentially higher returns. Utilizing these investment strategies,
the Fund may purchase and sell, to the extent not otherwise limited or
restricted for such Fund, exchange-listed and over-the-counter put and call
options on securities, equity and fixed-income indexes and other financial
instruments, purchase and sell financial futures contracts and options thereon,
enter into various Interest Rate Transactions such as swaps, caps, floors or
collars, and enter into various currency transactions such as currency forward
contracts,
A-14
<PAGE> 49
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used to attempt to protect against possible
changes in the market value of securities held in or to be purchased for the
Fund's portfolio resulting from securities markets or currency exchange rate
fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the Fund's portfolio,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities. Some Strategic Transactions may
also be used to seek potentially higher returns, although no more than 5% of the
Fund's assets will be used as the initial margin or purchase price of options
for Strategic Transactions entered into for purposes other than "bona fide
hedging" positions as defined in the regulations adopted by the Commodity
Futures Trading Commission. Any or all of these investment techniques may be
used at any time, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Sub-Advisor's ability to
predict, which cannot be assured, pertinent market movements. The Fund will
comply with applicable regulatory requirements when utilizing Strategic
Transactions. Strategic Transactions involving financial futures and options
thereon will be purchased, sold or entered into only for bona fide hedging, risk
management or portfolio management purposes.
U.S. GOVERNMENT SECURITIES
U.S. Government Securities include direct obligations of the U.S. Treasury (such
as U.S. Treasury bills, notes and bonds) and obligations directly issued or
guaranteed by U.S. Government agencies or instrumentalities. Some obligations
issued or guaranteed by agencies or instrumentalities of the U.S. Government are
backed by the full faith and credit of the U.S. Government (such as GNMA Bonds),
others are backed only by the right of the issuer to borrow from the U.S.
Treasury (such as securities of Federal Home Loan Banks) and still others are
backed only by the credit of the instrumentality (such as FNMA and FHLMC Bonds).
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS
In order to secure yields or prices deemed advantageous at the time, all Funds
except the Global Money Fund may purchase or sell securities on a when-issued or
a delayed-delivery basis. The Funds will enter into a when-issued transaction
for the purpose of acquiring portfolio securities and not for the purpose of
leverage. In such transactions, delivery of the securities occurs beyond the
normal settlement periods, but no payment or delivery is made by, and no
interest accrues to, the Funds prior to the actual delivery or payment by the
other party to the transaction. Due to fluctuations in the value of securities
purchased on a when-issued or a delayed-delivery basis, the yields obtained on
such securities may be higher or lower than the yields available in the market
on the dates when the investments are actually delivered to the buyers.
Similarly, the sale of securities for delayed-delivery can involve the risk that
the prices available in the market when delivery is made may actually be higher
than those obtained in the transaction itself. The Funds will establish a
segregated account with Boston Safe consisting of cash or other liquid assets in
an amount equal to the amount of its when-issued and delayed-delivery
commitments.
A-15
<PAGE> 50
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
General Information and History.................................................. B-3
Management of the Trust.......................................................... B-3
Investment Objectives and Policies of the Funds and Portfolios................... B-15
(See the Prospectus "Highlights" and "Investment
Policies")
Purchase and Pricing of Shares................................................... B-41
(See the Prospectus "Highlights" and
"Purchase and Redemption")
Net Asset Value.................................................................. B-41
Performance...................................................................... B-43
Taxes............................................................................ B-48
(See the Prospectus "Dividends, Distributions
and Taxes")
Appendix - Description of Ratings................................................ B-50
Financial Statements............................................................. FS-1
</TABLE>
A-16
<PAGE> 51
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1997
THE SIERRA VARIABLE TRUST
9301 Corbin Avenue, Suite 333
Northridge, California 91324
o Global Money Fund o Emerging Growth Fund
o Short Term High Quality Bond o International Growth Fund
Fund
o Short Term Global Government o Capital Growth Portfolio
Fund
o U.S. Government Fund o Growth Portfolio
o Corporate Income Fund o Balanced Portfolio
o Growth and Income Fund o Value Portfolio
o Growth Fund o Income Portfolio
This Statement of Additional Information ("SAI") is not a prospectus
but supplements the information contained in the current Prospectuses of The
Sierra Variable Trust (the "Trust") dated May 1, 1997. The SAI should be read
in conjunction with the appropriate Prospectus, as amended or supplemented
from time to time. The Trust's Prospectuses may be obtained without charge by
writing to American General Life Insurance Company ("AGL"), Attention: Annuity
Administration, P.O. Box 1401, Houston, Texas 77251-1401 or by calling AGL at
800-247-6584. This Statement of Additional Information is incorporated by
reference into and, therefore, legally considered a part of, the Prospectuses
in its entirety.
B-1
<PAGE> 52
CONTENTS
For ease of reference, the same section headings are used in the
Prospectuses and in this Statement of Additional Information, except as
indicated below.
<TABLE>
<CAPTION>
Page
----
<S> <C>
General Information and History.......................................... B-3
Management of the Trust.................................................. B-3
Investment Objectives and Policies of the Funds
and Portfolios......................................................... B-15
(See the Prospectus "Highlights" and "Investment
Policies")
Purchase and Pricing of Shares........................................... B-41
(See the Prospectus "Highlights" and
"Purchase and Redemption")
Net Asset Value.......................................................... B-41
Performance.............................................................. B-43
Taxes.................................................................... B-48
(See the Prospectus "Dividends, Distributions
and Taxes")
Appendix - Description of Ratings........................................ B-50
Financial Statements..................................................... FS-1
</TABLE>
B-2
<PAGE> 53
GENERAL INFORMATION AND HISTORY
The Sierra Variable Trust (the "Trust") is an open-end management
investment company. Under the rules and regulations of the Securities and
Exchange Commission (the "SEC"), all mutual funds are required to furnish
prospective investors with certain information concerning the activities of the
investment company being considered for investment. Some of the information
required to be in this SAI is also included in the Trust's current
Prospectuses. To avoid unnecessary repetition, references are made to related
sections of the Prospectuses. In addition, the Prospectuses and this SAI omit
certain information about the Trust and its business that is contained in "Part
C" of the Trust's Registration Statement respecting the Trust and its Shares
filed with the SEC. Copies of the Registration Statement as filed, including
Part C, may be obtained from the SEC by paying the charges prescribed under its
rules and regulations.
The Trust was organized under the laws of the Commonwealth of
Massachusetts on January 29, 1993. The Trust filed a registration statement with
the SEC registering itself as an open-end management investment company offering
diversified and nondiversified series under the Investment Company Act of 1940,
as amended (the "1940 Act"), and its shares under the Securities Act of 1933, as
amended (the "Securities Act"). The Trust consists of the following 14 series:
Global Money Fund, Short Term High Quality Bond Fund, Short Term Global
Government Fund, U.S. Government Fund, Corporate Income Fund, Growth and Income
Fund, Growth Fund, Emerging Growth Fund and International Growth Fund (the
"Funds"); and Capital Growth Portfolio, Growth Portfolio, Balanced Portfolio,
Value Portfolio and Income Portfolio (the "Portfolios"). Each of the Funds and
Portfolios has its own investment objective and policies. The Funds seek to
achieve their investment objectives by investing directly in investment
securities, while the Portfolios seek to meet their investment objectives by
investing primarily in the Funds.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS OF THE TRUST
The names of the Trustees and executive officers of the Trust, together
with information as to their dates of birth and principal business occupations
during the past five years, are set forth below. Each Trustee who is an
"interested person" of the Trust, as defined in the 1940 Act, is indicated by
an asterisk.
B-3
<PAGE> 54
TRUSTEES:
*F. BRIAN CERINI (1/23/51)
President
Sierra Capital Management Corporation
9301 Corbin Avenue
Northridge, California 91324
President and CEO of Sierra Capital Management Corporation ("SCMC").
Formed Great Western Financial Securities Corporation ("GW Securities") in 1985
and served as its President and Chairman. Prior to joining GW Securities, he
served as First Vice President, Financial Services for Bateman Eichler, Hill
Richards, Inc., a regional brokerage firm where he directed the firm's off
exchange product responsibilities and marketing. Previously, he worked for
Pacific Southwest Airlines for seven years as Assistant to the President. He
holds a BA degree in Economics from the University of Southern California and
an MBA from the USC Graduate School of Business.
ARTHUR H. BERNSTEIN, ESQ. (6/8/25)
President
Bancorp Capital Group, Inc.
11661 San Vicente Blvd., #405
Los Angeles, California 90049
President of Bancorp Capital Group, Inc. and President of Bancorp
Venture Capital, Inc. since 1988. He has been a Trustee of Sierra Trust Funds
since 1989. Previously served on the Board of Directors of Great Western
Leasing Corporation, a subsidiary of Great Western Financial Corporation
("GWFC"), until the subsidiary was sold in 1987. Director of Ryder System,
Inc.; Chairman of the Board of Trustees of the California Family Studies Center
and Phillips Graduate Institute since 1984. Educated at Cornell University and
a graduate of Cornell Law School.
DAVID E. ANDERSON (11/17/26)
Retired, Former President & CEO
GTE California, Inc.
17960 Seabreeze Drive
Pacific Palisades, California 90272
Retired in 1988 from GTE California, Inc. after 40 years of service.
Held the position of President and CEO from 1979 to 1988. Director of Barclay's
Bank of California until 1988. Currently involved in the following charitable
organizations as a director on the following boards: Board Chairman, Children's
Bureau Foundation; Board member, Upward Bound House
B-4
<PAGE> 55
of Santa Monica; Past Campaign Chairman of United Way; Past Chairman, Los
Angeles Area Chamber of Commerce. Holds BSEE degree from Iowa State.
EDMOND R. DAVIS, ESQ. (9/24/28)
Partner
Brobeck, Phleger & Harrison
550 South Hope Street, 21st Floor
Los Angeles, California 90071-2604
Joined the firm as a Partner in 1987 and is responsible for estate
planning, and trusts and estate matters in the Los Angeles office. Prior to
joining the firm, had a similar position for 20 years with the law firm of
Overton, Lyman & Prince in Los Angeles. His expertise has been recognized in
Who's Who in California, The Best Lawyers of America, and Who's Who in American
Law. Member of the Board of Directors of the following non-profit, charitable
organizations: Fifield Manors, Children's Bureau of Los Angeles, Children's
Bureau Foundation, and Braille Institute of America, Inc. Educated at
Pepperdine University and is an Order of the Coif graduate of Hastings College
of the Law.
JOHN W. ENGLISH (3/27/33)
Retired, former Vice President & Chief Investment Officer
Ford Foundation
50 H New England Ave.
P.O. Box 640
Summit, New Jersey 07902-0640
Retired Vice President and Chief Investment Officer, the Ford
Foundation (a non-profit charitable organization). Chairman of the Board and
Director, The China Fund, Inc. (a closed-end mutual fund). Director, Paribas
Trust for Institutions (an open-end mutual fund). Trustee, Retail Property
Trust (a company providing management services for a shopping center).
ALFRED E. OSBORNE, JR. PH.D. (12/7/44)
Professor
The Harold Price Center for Entrepreneurial Studies at UCLA
110 Westwood Plaza, Suite C305
Los Angeles, California 90095-1481
University professor, researcher and administrator at UCLA since 1972.
Director, Times Mirror Company, ReadiCare, Inc., United States Filter
Corporation, Nordstrom, Inc., Seda Specialty Packing Corporation and Greyhound
Lines, Inc. Independent general partner, Technology Funding Venture Partners V.
Governor of the National Association of Securities Dealers, Inc.
B-5
<PAGE> 56
OFFICERS:
F. BRIAN CERINI (1/23/51), CHAIRMAN AND PRESIDENT
He is a Trustee of the Trust as well as President. Information
regarding Mr. Cerini's background is listed previously under "Management of the
Trust--Trustees."
KEITH B. PIPES (12/20/55), EXECUTIVE VICE PRESIDENT, TREASURER AND SECRETARY
As Senior Vice President, Chief Financial Officer and Secretary of
SCMC, he is responsible for its general accounting, financial planning,
compliance administration, systems development and advisory operations.
Joined Great Western Bank in 1983 as Manager of Strategic Planning for the
Bank and later served as product manager for the Bank's savings products before
joining GW Securities in 1986. Prior to joining the firm, served as Senior
Planning Analyst in the Mergers and Acquisitions Department of Mattel
Corporation. Mr. Pipes holds a B.A. degree in Economics and an MBA in Finance
from UCLA.
MICHAEL D. GOTH (8/13/45), SENIOR VICE PRESIDENT
Since January 1991, Mr. Goth has served as Chief Operating Officer and
Portfolio Manager of Sierra Investment Advisors Corporation ("Sierra
Advisors"). Prior to joining Sierra Advisors, Mr. Goth worked for 2 1/2 years
as a senior manager of Transfer Agent operations at First Data Investor
Services Group, Inc. ("First Data", formerly, The Shareholder Services Group,
Inc.) and The Boston Company. In addition, Mr. Goth has 10 years' experience
as executive vice president of the GIT mutual fund group, responsible for most
aspects of that fund group, including investments. Other experience includes 4
years as a corporate banking officer at Citibank and 1 1/2 years in investment
banking with Drexel Firestone. He holds B.S. and M.S. degrees from Rensselaer
Polytechnic Institute and an MBA in Finance from Harvard Business School.
STEPHEN C. SCOTT (1/18/45), SENIOR VICE PRESIDENT
In August 1988 joined GW Securities to form Sierra Advisors and
currently serves as the President and Chief Investment Officer. Prior to
joining Sierra Advisors, served as President and Chairman of SDS Investment
Advisors, a firm he founded in which he developed asset allocation technology.
Previously, President and Chairman of Smathers and Co., an investment advisory
firm. For nine years, served as the Senior Pension Investment Consultant for
the Group Pension Investment Division of Equitable Life Insurance responsible
for their major corporate clients. Has served as member on Board of Directors
of several corporations and private organizations. For 17 years, has served as
a Trustee on the Long Beach State University Foundation and currently chairs
the Investment Committee. He holds a B.A. degree in Economics and Finance as
well as an MBA in Finance from Long Beach State University.
B-6
<PAGE> 57
RICHARD W. GRANT (10/25/45), ASSISTANT SECRETARY
Has been a Partner in the firm of Morgan, Lewis & Bockius LLP since
1989. He received his A.B. in 1968 from Brown University and his J.D. in 1971
from the Boston University School of Law.
RICHARD H. ROSE (7/8/55), ASSISTANT TREASURER
Currently acts as Senior Vice President of First Data Investor Services
Group, Inc., a subsidiary of First Data Corp. (prior to May 6, 1994, a
subsidiary of The Boston Company Advisors, Inc. ("Boston Advisors")). He joined
Boston Advisors in 1988 as Vice President and Fund Manager in the Fund
Accounting Department. Prior to 1988, he acted as Senior Audit Manager for
Peat Marwick Main (KPMG Peat Marwick) & Co. He holds a Master's degree in
Accounting from Northeastern University, and a B.A. in Economics from Dartmouth.
CRAIG M. MILLER (10/7/59), ASSISTANT TREASURER
Joined SCMC in 1993 as Vice President and Controller. Prior to joining
SCMC, he acted as Audit Manager in the Boston office of Coopers & Lybrand,
L.L.P. Prior to joining Coopers & Lybrand, L.L.P. in 1987, he worked for two
other Certified Public Accounting firms for a total of four and one half years
providing both audit and tax services to financial institutions, small
manufacturing and service industry clients. He holds a Master's degree in
Taxation from Bentley College, where he also received his B.S. in Accountancy.
Each of the Trustees and officers of the Trust is also a trustee or
officer of Sierra Trust Funds ("STF"). Furthermore, with the exception of Mr.
Rose, each of the Trustees and officers of the Trust is also a trustee or
officer of Sierra Prime Income Fund ("SPIF") and Sierra Asset Management
Portfolios ("SAMP"). STF, SPIF and SAMP is each an investment company advised
by Sierra Advisors or Sierra Investment Services Corporation ("Sierra
Services").
The address of each trustee and officer of the Trust affiliated with
Sierra Advisors or SISC is 9301 Corbin Avenue, Suite 333, Northridge,
California 91324.
REMUNERATION. No director, officer or employee of Sierra Advisors, the
sub-advisors of the Funds (the "Sub-Advisors"), or of any affiliate of Sierra
Advisors or the Sub-Advisors will receive any compensation from the Trust for
serving as an officer or Trustee of the Trust. The Trust pays each Trustee, who
is not a director, officer or employee of Sierra Advisors or the Sub-Advisors,
or any of their affiliates, a fee of $5,000 per annum plus $1,250 per Board
meeting attended and $1,000 per Audit and Nominating Committee meeting attended
(except that the Audit Committee chairman receives $1,500 per committee meeting
attended), and reimburses them for travel and out-of-pocket expenses.
B-7
<PAGE> 58
The aggregate remuneration paid to Trustees by the Trust for attendance
at Board and committee meetings for the period ended December 31, 1996 was
$68,138 (including reimbursement for travel and out-of-pocket expenses). As of
December 31, 1996, the Trustees and officers of the Trust owned, in the
aggregate, less than 1% of the outstanding shares of any of the Funds.
The following Compensation Table shows aggregate compensation paid to
each of the Fund's Trustees by the Fund and the Fund Complex, respectively, in
the year ended December 31, 1996.
COMPENSATION TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
(1) Name of Person, (2) Aggregated (3) Pension or (4) Estimated Annual (5) Total Compensation
Position Compensation From Retirement Benefits Benefits Upon From Registrant and Fund
Registrant for the Accrued as Part of Retirement Complex* Paid to Trustees
Fiscal Year ended Fund Expenses for the Fiscal Year ended
December 31, 1996 December 31, 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C <C> <C> <C>
F. Brian Cerini** $0 $0 $0 $0
Chairman of the Board,
President and Trustee
David E. Anderson+ $14,459 $0 $0 $50,250
Trustee for service on 4 boards
Arthur H. Berstein, Esq.++ $13,959 $0 $0 $52,125
Trustee for service on 4 boards
Edmond R. Davis, Esq. $13,959 $0 $0 $50,250
Trustee for service on 4 boards
John W. English $13,959 $0 $0 $51,250
Trustee for service on 4 boards
Alfred E. Osborne, Jr. +++ $6,709 $0 $0 $28,750
Trustee for service on 4 boards
- ---------------------------------------------------------------------------------------------------------------------------
* The Fund Complex consisted of the Trust, STF, Sierra Prime Income Fund ("SPIF") and
Sierra Asset Management Portfolios ("SAMP") as of December 31, 1996.
** A Trustee who is an "interested person" as defined in the 1940 Act.
+ Mr. Anderson was paid $1,500 for Audit Committee Meetings held by the Trust.
++ Mr. Bernstein was paid $1,500 and $1,125 for Audit Committee Meetings held by
STF and SPIF, respectively.
+++ Dr. Osborne was appointed a Trustee of the Trust, STF, SPIF and SAMP on July 1, 1996.
</TABLE>
INVESTMENT ADVISORS AND SUB-ADVISORS, CUSTODIAN AND TRANSFER AGENT
Sierra Advisors serves as Investment Advisor to each of the Funds and
each Sub-Advisor serves as Investment Sub-Advisor to one or more Funds pursuant
to separate written agreements. Certain of the services provided by, and the
fees paid to, Sierra Advisors and the Sub-Advisors, are described in the
Prospectuses under "Management - Investment Advisor and - Sub-Advisors." Sierra
Advisors and the Sub-Advisors each (i) compensates its respective Directors and
pays the salaries of its respective officers and employees employed by such
companies, (ii) compensates
B-8
<PAGE> 59
its respective officers and employees that are employed by the Trust, and (iii)
maintains office facilities for the Trust.
Sierra Services serves as Investment Advisor to each of the Portfolios
pursuant to a written Advisory Agreement. Certain of the services provided by,
and fees paid to, Sierra Services, are described in the Prospectus relating to
the Portfolios under "Investment Management."
The assets of the Trust are held under bank custodianship in accordance
with the 1940 Act. Boston Safe Deposit and Trust Company ("Boston Safe") serves
as Custodian for the Funds and the Portfolios. Sierra Fund Administration
Corporation ("Sierra Administration") serves as the Trust's Administrator and
served as the Trust's Transfer Agent until July 1, 1996, when First Data, a
wholly-owned subsidiary of First Data Corporation, began serving as Transfer
Agent. First Data also serves as the Trust's sub-administrator, and prior to
July 1, 1996, provided sub-transfer agency services to the Trust. Under its
custodial agreement with the Trust, Boston Safe is authorized to appoint one
or more U.S. banking institutions as sub-custodians of assets owned by any of
the Funds. In addition, the Trust may employ foreign sub-custodians that are
approved by the Board of Trustees to hold foreign assets.
For the fiscal years ended December 31, 1994, 1995, and 1996, the Funds
paid to Sierra Advisors the following advisory fees*:
<TABLE>
<CAPTION>
1996
------------------------------------------
EXPENSES
FEES PAID FEES WAIVED REIMBURSED
--------- ----------- ----------
<S> <C> <C> <C>
Global Money Fund $ 40,314 $61,700 $0
Short Term High Quality Bond Fund $ 56,022 $10,732 $0
Short Term Global Government Fund $166,447 $0 $0
U.S. Government Fund $363,268 $0 $0
Corporate Income Fund $381,643 $0 $0
Growth and Income Fund $436,358 $0 $0
Growth Fund $961,131 $0 $0
Emerging Growth Fund $461,791 $0 $0
International Growth Fund $524,048 $0 $0
</TABLE>
B-9
<PAGE> 60
<TABLE>
<CAPTION>
1995
--------------------------------------
Expenses
Fees Paid Fees Waived Reimbursed
--------- ----------- ----------
<S> <C> <C> <C>
Global Money Fund $ 6,779 $50,091 $0
Short Term High Quality Bond Fund $ 50,278 $19,478 $0
Short Term Global Government Fund $201,327 $ 2,945 $0
U.S. Government Fund $280,013 $ 2,943 $0
Corporate Income Fund $367,022 $ 0 $0
Growth and Income Fund $234,524 $34,257 $0
Growth Fund $718,734 $ 0 $0
Emerging Growth Fund $250,932 $19,826 $0
International Growth Fund $407,005 $ 4,326 $0
</TABLE>
<TABLE>
<CAPTION>
1994
--------------------------------------
Expenses
Fees Paid Fees Waived Reimbursed
--------- ----------- ----------
<S> <C> <C> <C>
Global Money Fund $ 0 $19,714 $2,983
Short Term High Quality Bond Fund $ 19,651 $23,014 $0
Short Term Global Government Fund $142,816 $63,650 $0
U.S. Government Fund $211,737 $23,870 $0
Corporate Income Fund $284,782 $22,786 $0
Growth and Income Fund $ 55,204 $30,881 $0
Growth Fund $423,638 $ 0 $0
Emerging Growth Fund $ 85,541 $ 8,613 $0
International Growth Fund $270,165 $23,985 $0
</TABLE>
- -------------------
* The Global Money, the Short Term High Quality Bond, the Short Term Global
Government, the U.S. Government, the Corporate Income, the Growth and
Income, the Growth, the Emerging Growth and the International Growth Funds
commenced operations on May 10, 1993, January 12, 1994, May 12, 1993,
May 6, 1993, May 7, 1993, January 12, 1994, May 7, 1993, January 12, 1994
and May 7, 1993, respectively.
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<PAGE> 61
For the fiscal years ended December 31, 1994, 1995, and 1996, Sierra
Advisors paid to the Sub-Advisors the following sub-advisory fees*:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------------------------------------
FEES FEES FEES FEES FEES FEES
PAID WAIVED PAID WAIVED PAID WAIVED
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Global Money Fund $ 30,604 $0 $ 17,061 $0 $ 5,914 $0
Short Term High Quality $ 20,026 $0 $ 21,114 $0 $ 12,800 $0
Bond Fund
Short Term Global $ 62,140 $0 $ 76,262 $0 $ 77,081 $0
Government Fund
U.S. Government Fund
BlackRock** $112,008 $0 $ 88,293 $0 $ 5,754 $0
Van Kampen $ 72,782 $0
Corporate Income Fund $176,143 $0 $169,395 $0 $141,954 $0
Growth and Income Fund $245,451 $0 $151,189 $0 $ 48,423 $0
Growth Fund $551,003 $0 $412,538 $0 $243,892 $0
Emerging Growth Fund $276,789 $0 $164,136 $0 $ 57,538 $0
International Growth Fund
J.P. Morgan $ 81,007 $0 $259,788 $0 $185,779 $0
Warburg, Pincus*** $211,192 $0
</TABLE>
- ------------------
* The Global Money, Short Term High Quality Bond, Short Term Global
Government, U.S. Government, Corporate Income, Growth and Income, Growth,
Emerging Growth and International Growth Funds commenced operations on May
10, 1993, January 12, 1994, May 12, 1993, May 6, 1993, May 7, 1993, January
12, 1994, May 7, 1993, January 12, 1994 and May 7, 1993, respectively.
** On December 8, 1994 BlackRock Financial Management L.P. replaced Van Kampen
Merrit Management Inc. as the investment Sub-Advisor for the U.S.
Government Fund.
*** On April 8, 1996 Warburg, Pincus Counsellors, Inc. replaced J.P. Morgan
Investment Management Inc. as the Sub-Advisor for the International Growth
Fund.
For the fiscal years ended December 31, 1994, 1995, and 1996 the Funds
paid to Sierra Administration the following administration fees*:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------------------------------------
FEES FEES FEES FEES FEES FEES
PAID WAIVED PAID WAIVED PAID WAIVED
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Global Money Fund $ 36,725 $0 $13,156 $7,317 $0 $7,097
</TABLE>
B-11
<PAGE> 62
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Short Term High Quality
Bond Fund $ 24,031 $0 $ 25,337 $0 $ 9,777 $ 5,583
Short Term Global
Government Fund $ 39,947 $0 $ 49,025 $0 $14,152 $35,400
U.S. Government Fund $108,980 $0 $ 84,887 $0 $33,462 $37,220
Corporate Income Fund $105,686 $0 $101,657 $0 $41,687 $43,486
Growth and Income Fund $ 98,181 $0 $ 60,476 $0 $12,587 $ 6,782
Growth Fund $193,861 $0 $143,997 $0 $54,385 $28,906
Emerging Growth Fund $ 95,144 $0 $ 54,833 $0 $11,510 $ 7,321
International Growth Fund $100,408 $0 $ 77,936 $0 $32,169 $23,565
</TABLE>
- ---------------
* The Global Money, Short Term High Quality Bond, Short Term Global
Government, U.S. Government, Corporate Income, Growth and Income,
Growth, Emerging Growth and International Growth Funds commenced
operations on May 10, 1993, January 12, 1994, May 12, 1993, May 6, 1993,
May 7, 1993, January 12, 1994, May 7, 1993, January 12, 1994 and May 7,
1993, respectively.
The Portfolios had not yet commenced operations as of December 31, 1996.
COUNSEL AND AUDITOR
Morgan, Lewis & Bockius LLP serves as counsel to the Trust and also
provides legal services to GW Securities, Sierra Advisors, Sierra
Administration and Sierra Services. Paul, Hastings, Janofsky & Walker serves as
counsel to the Trustees who are not "interested persons" of the Trust.
Price Waterhouse LLP, independent accountants, located at 160 Federal
Street, Boston, Massachusetts 02110, serves as auditor of the Trust.
ORGANIZATION OF THE TRUST
The Trust is organized as an unincorporated business trust under the
laws of the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust dated January 27, 1993, as amended from time to time (the
"Declaration of Trust"). Certificates representing shares in the Trust are not
physically issued. The Trust's Custodian and the Trust's Transfer Agent
maintain a record of each shareholder's ownership of Trust shares. Shares do
not have cumulative voting rights, which means that holders of more than 50% of
the shares voting for the election of Trustees can elect all Trustees. Shares
are transferable but have no preemptive, conversion or subscription rights.
Shareholders generally vote by Fund, except with respect to the election of
Trustees and the selection of independent accountants.
Under normal circumstances, there will be no meetings of shareholders
for the purpose of electing Trustees unless and until such time as less than a
majority of the Trustees holding office have been elected by shareholders, at
which time the Trustees then in office promptly will call a
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<PAGE> 63
shareholders' meeting for the election of Trustees. Under the 1940 Act,
shareholders of record of no less than two-thirds of the outstanding shares of
the Trust may remove a Trustee through a declaration in writing or by vote cast
in person or by proxy at a meeting called for that purpose. Under the
Declaration of Trust, the Trustees are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any such
Trustee when requested in writing to do so by the shareholders of record of not
less than 10% of the Trust's outstanding shares.
The record owner of all the Trust's shares is Separate Account D of
AGL. However, Contract owners may be deemed to have beneficial ownership of
shares allocable to their Contracts. As of January 31, 1997, to the Trust's
knowledge, no Contract owner had shares allocable to Contracts equal to more
than five percent of any Fund.
Massachusetts law provides that the shareholders, under certain
circumstances, could be held personally liable for the obligations of the
Trust. However, the Declaration of Trust disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation or instrument entered into or executed by
the Trust or a Trustee. The Declaration of Trust provides for indemnification
from the Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust would be unable to meet its
obligations, a possibility that the Trust's management believes is remote. Upon
payment of any liability incurred by the Trust, the shareholder paying the
liability will be entitled to reimbursement from the general assets of the
Trust. The Trustees intend to conduct the operations of the Trust in such a way
so as to avoid, to the extent possible, ultimate liability of the shareholders
for liabilities of the Trust.
CERTAIN MATTERS RELATING TO J.P. MORGAN INVESTMENT MANAGEMENT INC. AND ITS
AFFILIATES
J.P. Morgan Investment Management Inc. ("J.P. Management"), the
Sub-Advisor to the Global Money and Growth and Income Funds, and Morgan
Guaranty Trust Company of New York ("Morgan Guaranty") are both wholly owned
subsidiaries of J.P. Morgan & Co. Incorporated ("J.P. Morgan"). Through its
Corporate Finance Division, Morgan Guaranty has relationships as a bank of
deposit, as a lender, as a financial advisor and in other capacities, with a
significant number of United States corporations. Such corporate customers of
Morgan Guaranty obtain short-term funds to finance the operation of their
business generally through two sources: (i) short-term bank borrowings from
commercial banks such as Morgan Guaranty; and (ii) the issuance of commercial
paper of the type in which certain of the Funds may invest. Normally the
decision of a corporation as to which medium of short-term financing to utilize
will be influenced primarily by interest rate differentials between the
available sources of short-term funds. When interest rate differentials between
short-term bank borrowings and the commercial paper market narrow, the
Corporate Finance Division of Morgan Guaranty may be competing with the
commercial paper market to provide short-term funds to corporate borrowers.
J.P. Morgan Securities Inc. ("J.P. Securities"), a wholly owned
subsidiary of J.P. Morgan, is a broker-dealer registered with the SEC and a
member of the National Association of
B-13
<PAGE> 64
Securities Dealers, Inc. ("NASD"). J.P. Securities is active as a dealer in the
securities of the United States Government and an underwriter of and dealer in
securities of the United States Government agencies and money market
securities. To a limited extent, J.P. Securities also underwrites and deals in
commercial paper, certain mortgage-related securities, and consumer receivable
securities. J.P. Morgan Securities Limited ("J.P. Limited"), also a wholly
owned subsidiary of J.P. Morgan, underwrites, distributes and trades
international securities, including Eurobonds, commercial paper and foreign
government bonds. To the extent that the Global Money or Growth and Income
Funds are permitted to invest in such securities, the foregoing activities of
J.P. Securities and J.P. Limited may affect the manner in which J.P. Management
makes investments for such Funds and may affect such Funds' portfolios or the
markets for the securities in which such portfolios are invested. Such effects
would be primarily on: (1) the price of securities already held in the Global
Money or Growth and Income Funds or securities considered for purchase, which
are the same as or similar to issues underwritten or traded by J.P. Securities,
J.P. Limited, J.P. Morgan or Morgan Guaranty ("Morgan Affiliates"), and (2) the
supply of issues available for purchase by the Global Money or Growth and
Income Funds. Particularly, where the positions of Morgan Affiliates constitute
a large percentage of a given issue, the price at which that issue is traded
may influence the price of securities of that issue or of similar securities in
the Global Money or Growth and Income Funds or securities being considered for
purchase. Also, since the Global Money and Growth and Income Funds will not
purchase directly from Morgan Affiliates, if the positions of Morgan Affiliates
in given issues is large, it may limit the selection of available securities in
that particular maturity, yield or price range.
In addition, the Global Money and Growth and Income Funds will not
purchase securities of U.S. Government agencies during the existence of any
underwriting or selling group of which a Morgan Affiliate is a member except to
the extent permitted by law. Portfolio securities may not be purchased from or
sold to J.P. Management or any affiliated person (as defined in the 1940 Act)
of J.P. Management except as may be permitted by the Commission and subject to
the rules and regulations of the Comptroller of the Currency.
J.P. Morgan issues commercial paper and long-term debt securities, and
Morgan Guaranty and some of its affiliates issue certificates of deposit and
create bankers' acceptances. The Global Money and Growth and Income Funds will
not invest in the commercial paper or other debt securities of J.P. Morgan or
in certificates of deposit or bankers' acceptances of Morgan Guaranty or such
affiliates. However, the activities of J.P. Morgan and Morgan Guaranty and any
of such affiliates in the market for such instruments might affect the
portfolios of such Funds or the market for such instruments.
The limitations discussed in the preceding three paragraphs, in the
opinion of J.P. Management, will not significantly affect the ability of the
Global Money and Growth and Income Funds to pursue their respective investment
objectives. However, in the future in other circumstances, such Funds may be at
a disadvantage because of such limitations in comparison to other funds with
similar investment objectives which are not subject to such limitations. The
management of Sierra Advisors believes that the effects of such limitations are
more than offset by the experience and expertise J.P. Management provides to
such Funds.
B-14
<PAGE> 65
The Treasurer's Division of Morgan Guaranty manages Morgan Guaranty's
own investment portfolio, composed primarily of securities of the United States
Government and United States Government agencies. Such activities may affect
the portfolios of the Global Money and Growth and Income Funds or the markets
for the securities in which such portfolios invest. In acting for its fiduciary
accounts, including such Funds, J.P. Management will not discuss its investment
decisions or positions with the personnel of any Morgan Affiliates. J.P.
Management will not execute any transactions for such Funds with Morgan
Affiliates and will execute such transactions only with unaffiliated dealers.
The commercial banking divisions of Morgan Guaranty or its affiliates
may have deposit, loan and other commercial banking relationships with issuers
of securities purchased by the Global Money and Growth and Income Funds,
including outstanding loans to such issuers that may be repaid in whole or in
part with the proceeds of securities purchased by such Funds in primary public
offerings. Such Funds will not purchase, except as may be permitted by
applicable law, securities in any primary public offering when the prospectus
discloses that the proceeds will be used to repay in whole or in part the loans
to such issuers. J.P. Management will not cause such Funds to make investments
for the direct purpose of benefitting other commercial interests of Morgan
Affiliates at the expense of such Funds. J.P. Management has advised such Funds
that, in making investment decisions, J.P. Management will not obtain or use
material inside information in the possession of any other division or
department of J.P. Management or from Morgan Affiliates. J.P. Management has
also advised such Funds that its investment personnel do not disclose any
material inside information in their possession regarding such Funds to any
other division or department of J.P. Management or Morgan Affiliates.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS AND PORTFOLIOS
The Prospectuses discuss the investment objective or objectives of each
of the Funds and Portfolios and the policies to be employed to achieve such
objectives. This section contains supplemental information concerning the types
of securities and other instruments in which the Funds and Portfolios may
invest, the investment policies and portfolio strategies that the Funds and
Portfolios may utilize and certain risks attendant to such investments,
policies and strategies.
MONEY MARKET QUALITY AND MATURITY REQUIREMENTS
The Global Money Fund will purchase only those instruments which meet
the applicable quality requirements described below. The Fund will not purchase
a security (other than a U.S. Government security) unless the security or the
issuer with respect to comparable securities (i) is rated by at least two
nationally recognized statistical rating organizations ("NRSROs") such as
Standard & Poor's Corporation ("S&P"), Moody's Investors Service, Inc.
("Moody's"), Duff & Phelps ("Duff") or Fitch Investors Service, Inc. ("Fitch"),
in one of the two highest rating categories for short-term debt securities,
(ii) is rated by the only NRSRO that has issued a rating in one of such NRSRO's
two highest categories for short-term debt, or (iii) if not so rated, the
security is determined to be of comparable quality. In addition, no more than
5% of the Fund's total assets will be invested in securities rated in the
second highest rating category by the
B-15
<PAGE> 66
requisite NRSROs and, no more than 1% of the Fund's total assets will be
invested in the securities of any one such issuer. A description of the rating
systems of S&P, Moody's, Duff and Fitch is contained in the Appendix to this
SAI.
At the time of investment, no security purchased by the Fund (except
securities subject to repurchase agreements and variable rate demand notes)
can have a maturity exceeding 397 days, and the Fund's average portfolio
maturity cannot exceed 90 days. The short average maturity of the portfolio
enhances the Fund's ability to maintain share prices at $1.00 which, in turn,
provides both stability of value and liquidity to shareholders. There can be
no assurances, however, that the Fund will be able to maintain net asset values
at $1.00 per share.
STRATEGIES AVAILABLE TO ALL FUNDS AND PORTFOLIOS
BANK OBLIGATIONS. Domestic commercial banks organized under federal
law are supervised and examined by the Comptroller of the Currency and are
required to be members of the Federal Reserve System and to be insured by the
Federal Deposit Insurance Corporation (the "FDIC"). Domestic banks organized
under state law are supervised and examined by state banking authorities but
are members of the Federal Reserve System only if they elect to join. Most
state banks are insured by the FDIC (although such insurance may not be of
material benefit to a Fund or Portfolio, depending upon the principal amount of
certificates of deposit ("CDs") of each state bank held by a Fund or Portfolio)
and are subject to federal examination and to a substantial body of federal law
and regulation. As a result of federal and state laws and regulations,
domestic branches of domestic banks are, among other things, generally
required to maintain specific levels of reserves, and are subject to other
supervision and regulation designed to promote financial soundness.
Obligations of foreign branches of U.S. banks and of foreign branches
of foreign banks, such as CDs and time deposits ("TDs"), may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and governmental regulation.
Obligations of foreign branches of U.S. banks and foreign banks are subject to
the risks associated with investing in foreign securities generally. Foreign
branches of U.S. banks and foreign branches of foreign banks are not necessarily
subject to the same or similar regulatory requirements that apply to U.S.
banks, such as mandatory reserve requirements, loan limitations, and
accounting, auditing and financial recordkeeping requirements. In addition,
less information may be publicly available about a foreign branch of a U.S.
bank or about a foreign bank than about a U.S. bank.
Obligations of U.S. branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal and state
regulation as well as governmental action in the country in which the foreign
bank has its head office. A U.S. branch of a foreign bank may or may not be
subject to reserve requirements imposed by the Federal Reserve System or by the
state in which the branch is located if the branch is licensed in that state. In
addition, branches licensed by the Comptroller of the Currency and branches
licensed by certain states ("State Branches") may or may not be
B-16
<PAGE> 67
required to (1) pledge to the regulator by depositing assets with a designated
bank within the state an amount of its assets equal to 5% of its total
liabilities, or (2) maintain assets within the state in an amount equal to a
specified percentage of the aggregate amount of liabilities of the foreign bank
payable at or through all of its agencies or branches within the state. The
deposits of State Branches may not necessarily be insured by the FDIC. In
addition, there may be less publicly available information about a U.S. branch
of a foreign bank than about a U.S. bank.
In view of the foregoing factors associated with the purchase of CDs
and TDs issued by foreign banks and foreign branches of U.S. banks, a Fund's
Sub-Advisor or Portfolio's Advisor will carefully evaluate such investments on
a case-by-case basis.
A Fund or Portfolio may purchase a CD, TD or bankers' acceptances
issued by a bank, savings and loan association or other banking institution
with less than $1 billion in assets (a "Small Issuer Bank Obligation") only
so long as the issuer is a member of the FDIC or supervised by the Office of
Thrift Supervision (the "OTS"), and so long as the principal amount of the
Small Issuer Bank Obligation is fully insured by the FDIC and is no more than
$100,000. Each of the Funds will at any one time hold only one Small Issuer
Bank Obligation from any one issuer.
Savings and loan associations whose CDs, TDs and bankers' acceptances
may be purchased by the Funds and Portfolios are supervised by the OTS and
insured by the Savings Association Insurance Fund, which is administered by the
FDIC and is backed by the full faith and credit of the United States
Government. As a result, such savings and loan associations are subject to
regulation and examination.
MORTGAGE-BACKED SECURITIES. The Mortgage-Backed Securities in which
all Funds may invest may be classified as governmental or government-related,
depending on the issuer or guarantor. Governmental mortgage-backed securities
are backed by the full faith and credit of the United States. GNMA, the
principal U.S. guarantor of such securities, is a wholly owned U.S. Government
corporation within the Department of Housing and Urban Development.
Government-related Mortgage-Backed Securities which are not backed by the full
faith and credit of the United States include those issued by FNMA and FHLMC.
FNMA is a government-sponsored corporation owned entirely by private
stockholders, which is subject to general regulation by the Secretary of
Housing and Urban Development. Pass-through securities issued by FNMA are
guaranteed as to timely payment of principal and interest by FNMA. FHLMC is a
corporate instrumentality of the United States, the stock of which is owned by
the Federal Home Loan Bank. Participation certificates representing interests
in mortgages from FHLMC's national portfolio are guaranteed as to the timely
payment of interest and ultimate collection of principal by FHLMC. In addition,
the U.S. Government Fund may invest in commercial mortgage-backed securities.
While these securities generally are structured with one or more types of
credit enhancement, they are issued by non-governmental entities and are not
guaranteed by governmental agency or instrumentality.
Entities may create mortgage loan pools offering pass-through
investments in addition to those described above. The mortgages underlying
these securities may be alternative mortgage
B-17
<PAGE> 68
instruments, that is, mortgage instruments in which principal or interest
payments may vary or terms to maturity may be shorter than previously
customary. As new types of mortgage-backed securities are developed and offered
to investors, the Funds and Portfolios will, consistent with their respective
investment objectives and policies, consider making investments in such new
types of securities.
The average maturity of pass-through pools of mortgage-backed
securities varies with the maturities of the underlying mortgage instruments. In
addition, a pool's stated maturity may be shortened by unscheduled payments on
the underlying mortgages. Factors affecting mortgage prepayments include the
level of interest rates, general economic and social conditions, the location
of the mortgaged property and the age of the mortgage. Because prepayment
rates of individual mortgage pools vary widely, it is not possible to
accurately predict the average life of a particular pool. Common industry
practice, for example, is to assume that prepayments will result in a 7-to
9-year average life for pools of fixed-rate 30-year mortgages. Pools of
mortgages with other maturities of different characteristics will have varying
average life assumptions.
RATINGS AS INVESTMENT CRITERIA. In general, the ratings of NRSROs, such
as Moody's, S&P, Duff and Fitch, represent the opinions of these agencies as to
the quality of securities which they rate. It should be emphasized, however,
that such ratings are relative and subjective and are not absolute standards of
quality. These ratings will be used by the Funds as initial criteria for the
selection of portfolio securities, but the Funds will also rely upon the
independent advice of their respective Sub-Advisors to evaluate potential
investments. The Appendix to this SAI contains further information concerning
the ratings of these services and their significance.
To the extent that the rating given by a rating service for securities
may change as a result of changes in such organizations or their rating
systems, the Funds and Portfolios will attempt to use comparable ratings as
standards for its investments in accordance with the investment policies
contained in the Prospectuses and in this SAI.
REPURCHASE AGREEMENTS. Each Fund and Portfolio may invest in
repurchase agreements without limitation as to amount.
U.S. GOVERNMENT SECURITIES. U.S. Government Securities include debt
obligations of varying maturities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities. U.S. Government Securities include direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Housing Administration, Farmers Home Administration, Export-Import Bank
of the Untied States, Small Business Administration, Government National
Mortgage Association ("GNMA"), General Services Administration, Central Bank
for Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks, Federal
Home Loan Mortgage Corporation ("FHLMC"), Federal Intermediate Credit Banks,
Resolution Trust Corporation, Federal Land Banks, Federal National Mortgage
Association ("FNMA"), Maritime Administration, Tennessee Valley Authority,
District of Columbia Armory Board and Student Loan Marketing Association.
Direct obligations of the U.S. Treasury include a variety of securities that
differ in their interest rates, maturities and dates of issuance. Because the
U.S. Government is not obligated by law to provide support to an
instrumentality it sponsors, a Fund
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<PAGE> 69
or Portfolio will invest in obligations issued by such an instrumentality only
if the Fund's Sub-Advisor or Portfolio's Advisors determines that the credit
risk with respect to the instrumentality does not make its securities
unsuitable for investment by the Fund or Portfolio.
STRATEGIES AVAILABLE TO ALL FUNDS, EXCEPT GLOBAL MONEY, AND THE PORTFOLIOS
FUTURES ACTIVITIES. The Portfolios and Funds may enter into futures
contracts and options on futures contracts that are traded on a U.S. exchange
or board of trade. These investments may be made by the Fund involved for the
purpose of hedging against changes in the value of its portfolio securities due
to anticipated changes in interest rates and market conditions. The ability of
a Fund to trade in futures contracts and options on futures contracts may be
materially limited by the requirement of the Internal Revenue Code of 1986, as
amended (the "Code"), applicable to a regulated investment company. See "Taxes"
below. In addition to the uses of futures described above, all Funds except
the Global Money Fund may use futures for certain other purposes. See
"Strategic Transactions."
FUTURES CONTRACTS. An interest rate futures contract provides for the
future sale by one party and the purchase by the other party of a certain
amount of a specific financial instrument (debt security) at a specified price,
date, time and place. A bond index futures contract is an agreement pursuant to
which two parties agree to take or make delivery of an amount of cash equal to
the difference between the value of the index at the close of the last trading
day of the contract and the price at which the index contract was originally
written. No physical delivery of the underlying securities in the index is
made.
The purpose of entering into a futures contract by a Fund is to protect
the Fund from fluctuations in the value of its securities caused by anticipated
changes in interest rates or market conditions without necessarily buying or
selling the securities. Of course, since the value of portfolio securities will
far exceed the value of the futures contracts entered into by a Fund, an
increase in the value of the futures contract would only mitigate - but not
totally offset - the decline in the value of the portfolio.
No consideration is paid or received by a Fund upon entering into a
futures contract. Initially, a Fund would be required to deposit with the
broker an amount of cash or cash equivalents equal to approximately 1% to 10%
of the contract amount (this amount is subject to change by the board of trade
on which the contract is traded and members of such board of trade may charge a
higher amount). This amount is known as "initial margin" and is in its nature
the equivalent of a performance bond or good faith deposit on the contract,
which is returned to a Fund upon termination of the futures contract, assuming
all contractual obligations have been satisfied. Subsequent payments, known as
"variation margin," to and from the broker, will be made daily as the price of
the index or securities underlying the futures contract fluctuates, making the
long and short positions in the futures contract more or less valuable, a
process known as "marking-to-market." At any time prior to the expiration of a
futures contract, a Fund may elect to close the position by taking an opposite
position, which will operate to terminate the Fund's existing position in the
contract.
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There are several risks in connection with the use of futures contracts
as a hedging device. Successful use of futures contracts by a Fund is subject
to the ability of the Fund's Sub-Advisor to correctly predict movements in the
direction of interest rates or changes in market conditions. These predictions
involve skills and techniques that may be different from those involved in the
management of the portfolio being hedged. In addition, there can be no
assurance that there will be a correlation between movements in the price of the
underlying index or securities and movements in the price of the securities
which are the subject of the hedge. A decision of whether, when and how to
hedge involves the exercise of skill and judgment, and even a well-conceived
hedge may be unsuccessful to some degree because of market behavior or
unexpected trends in interest rates.
Although the Funds intend to enter into futures contracts only if there
is an active market for such contracts, there is no assurance that an active
market will exist for the contracts at any particular time. Most U.S. futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices would move to
the daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, and in the event of
adverse price movements, a Fund would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the
portion of the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. However, as described above, there is no
guarantee that the price of the securities being hedged will, in fact, correlate
with the price movements in a futures contract and thus provide an offset to
losses on the futures contract.
To ensure that transactions constitute bona fide hedges in instances
involving the purchase or sale of a futures contract, the Funds will be required
to either (i) segregate sufficient cash or other liquid assets to cover the
outstanding position or (ii) cover the futures contract by either owning the
instruments underlying the futures contract or by holding a portfolio of
securities with characteristics substantially similar to the underlying index or
stock index comprising the futures contract or by holding a separate option
permitting it to purchase or sell the same futures contract. Because of the
imperfect correlation between the movements in the price of underlying indexes
or stock indexes of various futures contracts and the movement of the price of
securities in the Funds' portfolios, the Funds will periodically make
adjustments to its index futures contracts positions to appropriately reflect
the relationship between the underlying portfolio and the indexes. The Fund
will not maintain short positions in index or stock index futures contracts,
options written on index or stock index futures contracts and options written on
indexes or stock indexes, if in the aggregate, the value of these positions
exceeds the current market value of its securities portfolio plus or minus the
unrealized gain or loss on those positions, adjusted for the historical
volatility relationship between the portfolio and the index contracts.
OPTIONS ON FUTURES CONTRACTS. An option on a futures contract, as
contrasted with the direct investment in such a contract, gives the purchaser
the right, in return for the premium paid, to assume a position in the futures
contract at a specified exercise price at any time prior to the
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expiration date of the option. Upon exercise of an option, the delivery of the
futures position by the writer of the option to the holder of the option will
be accompanied by delivery of the accumulated balance in the writer's futures
margin account, which represents the amount by which the market price of the
futures contract exceeds, in the case of a call, or is less than, in the case
of a put, the exercise price of the option on the futures contract. The
potential loss related to the purchase of an option on futures contracts is
limited to the premium paid for the option (plus transaction costs). Because
the price of the option to the purchaser is fixed at the point of sale, there
are no daily cash payments to reflect changes in the value of the underlying
contract; however, the value of the option does change daily and that change
would be reflected in the net asset value of the fund holding the options.
The Funds may purchase and write put and call options on futures
contracts that are traded on a U.S. exchange or board of trade as a hedge
against changes in the value of its portfolio securities, and may enter into
closing transactions with respect to such options to terminate existing
positions. There is no guarantee that such closing transactions can be effected.
There are several risks relating to options on futures contracts. The
ability to establish and close out positions on such options will be subject to
the existence of a liquid market. In addition, the purchase of put or call
options will be based upon predictions as to anticipated interest rate and
market trends by the Funds' Sub-Advisors, which could prove to be inaccurate.
Even if the expectations of the Sub-Advisors are correct, there may be an
imperfect correlation between the change in the value of the options and the
portfolio securities hedged. In addition to the uses of options described
above, all Funds except the Global Money Fund may use options for certain other
purposes. See "Strategic Transactions."
OPTIONS ON SECURITIES. The Funds may write covered put options and
covered call options on securities, purchase put and call options on securities
and enter into closing transactions. The Funds may not write put options with
respect to more than 50% of their total assets.
Options written by a Fund will normally have expiration dates between
one and nine months from the date written. The exercise price of the options
may be below, equal to or above the market values of the underlying securities
at the times the options are written. In the case of call options, these
exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. A Fund may write (1) in-the-money call
options when its Sub-Advisor expects that the price of the underlying security
will remain flat or decline moderately during the option period, (2)
at-the-money call options when its Sub-Advisor expects that the price of the
underlying security will remain flat or advance moderately during the option
period and (3) out-of-the-money call options when its Sub-Advisor expects that
the premiums received from writing the call option plus the appreciation in the
market price of the underlying security up to the exercise price will be
greater than the appreciation in the price of the underlying security alone. In
any of the preceding situations, if the market price of the underlying security
declines and the security is sold at this lower price, the amount of any
realized loss will be offset wholly or in part by the premium received.
Out-of-the-money, at-the-money and in-the-money put options (the reverse of
call options as to the relation of
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exercise price to market price) may be utilized in the same market environments
as such call options described above.
So long as the obligation of the Fund as the writer of an option
continues, the Fund may be assigned an exercise notice by the broker-dealer
through which the option was sold, requiring the Fund to deliver, in the case
of a call, or take delivery of, in the case of a put, the underlying security
against payment of the exercise price. This obligation terminates when the
option expires or the Fund effects a closing purchase transaction. The Fund can
no longer effect a closing purchase transaction with respect to an option once
it has been assigned an exercise notice. To secure its obligation to deliver
the underlying security when it writes a call option, or to pay for the
underlying security when it writes a put option, the Fund will be required to
deposit in escrow the underlying security or other assets in accordance with
the rules of the Options Clearing Corporation (the "OCC") and of the securities
exchange on which the option is written.
An option may be closed out only when there exists a secondary market
for an option of the same series on a recognized securities exchange or in the
over-the-counter market (see "Over the Counter Options," below). In light of
this fact and current trading conditions, the Fund expects to purchase or write
call or put options issued by the OCC, as well as the following national
securities exchanges on which options are traded: The Chicago Board Options
Exchange (CBOE), The Board of Trade of the City of Chicago (CBT), American Stock
Exchange (AMEX), Philadelphia Stock Exchange (PHLX), Pacific Stock Exchange
(PSE) and the New York Stock Exchange (NYSE).
The Fund may realize a profit or loss upon entering into closing
transactions. In cases where the Fund has written an option, it will realize a
profit if the cost of the closing purchase transaction is less than the premium
received upon writing the original option, and will incur a loss if the cost of
the closing purchase transaction exceeds the premium received upon writing the
original option. Similarly, when the Fund has purchased an option and engages
in a closing sale transaction, the Fund will realize a profit or loss to the
extent that the amount received in the closing sale transaction is more or less
than the premium the Fund initially paid for the original option plus the
related transaction costs.
To facilitate closing transactions, the Fund will generally purchase or
write only those options for which its Sub-Advisor believes there is an active
secondary market although there is no assurance that sufficient trading
interest to create a liquid secondary market on a securities exchange will
exist for any particular option or at any particular time, and for some options
no such secondary market may exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past, for example, higher than
anticipated trading activity or order flow, or other unforeseen events, have at
times rendered certain of the facilities of the OCC and the securities exchanges
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such events, it might not be possible to
effect closing transactions in particular options. If as a covered call option
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writer the Fund is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise.
Securities exchanges have established limitations governing the maximum
number of calls and puts of each class which may be held or written, or
exercised within certain time periods, by an investor or group of investors
acting in concert (regardless of whether the options are written on the same or
different securities exchanges or are held, written or exercised in one or more
accounts or through one or more brokers). It is possible that the particular
Fund and other clients of Sierra Advisors and its Sub-Advisors and certain of
their affiliates may be considered to be such a group. A securities exchange
may order the liquidation of positions found to be in violation of these limits
and it may impose certain other sanctions.
In the case of options written by a Fund that are deemed covered by
virtue of the Fund's holding convertible or exchangeable preferred stock or
debt securities, the time required to convert or exchange and obtain physical
delivery of the underlying security with respect to which the Fund has written
options may exceed the time within which the Fund must make delivery in
accordance with an exercise notice. In these instances, the Fund may purchase or
temporarily borrow the underlying securities for purposes of physical delivery.
By so doing, the Fund will not bear any market risk, since the Fund will have
the absolute right to receive from the issuer of the underlying security an
equal number of shares to replace the borrowed stock. The Fund may however,
incur additional transaction costs or interest expenses in connection with any
such purchase or borrowing.
Additional risks exist with respect to mortgage-backed U.S. Government
Securities for which the Fund may write covered call options. If a Fund writes
covered call options on a mortgage-backed security, the security that it holds
as cover may, because of scheduled amortization of unscheduled prepayments,
cease to be sufficient cover. The Fund will compensate by purchasing an
appropriate additional amount of mortgage-backed securities. In addition to the
uses of options described above, all Funds except the Global Money Fund may use
options for certain other purposes. See "Strategic Transactions."
OPTIONS ON SECURITIES INDEXES. In addition to options on securities,
the Funds may also purchase and sell call and put options on securities
indexes. Such options give the holder the right to receive a cash settlement
during the term of the option based upon the difference between the exercise
price and the value of the index.
Options on securities indexes entail risks in addition to the risks of
options on securities. Because exchange trading of options on securities
indexes is relatively new, the absence of a liquid secondary market to close
out an option position is more likely to occur, although the Fund generally
will purchase or write such an option only if its Sub-Advisor believes the
option can be closed out.
Use of options on securities indexes also entails the risk that trading
in such options may be interrupted if trading in certain securities included in
the index is interrupted. The Fund will
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not purchase or write such options unless its Sub-Advisor believes the market is
sufficiently developed for the risk of trading in such options to be no greater
than the risk of trading in options on securities.
Price movements in the Fund's portfolio may not correlate precisely
with movements in the level of an index and, therefore, the use of options on
securities indexes cannot serve as a complete hedge. Because options on
securities indexes require settlement in cash, the Fund may be forced to
liquidate portfolio securities to meet settlement obligations. In addition to
the uses of options described above, all Funds except the Global Money Fund may
use options for certain other purposes. See "Strategic Transactions."
STRATEGIES AVAILABLE TO ALL FUNDS EXCEPT GLOBAL MONEY
OVER THE COUNTER OPTIONS. Over the Counter Options ("OTC Options") can
be closed out only by agreement with the primary dealer in the transaction, and
thus any OTC Options and their underlying securities or currencies are
considered illiquid. With OTC Options, terms such as expiration date, exercise
price and premium are agreed upon between the Fund and the transacting dealer,
without the intermediation of a third party such as the OCC. Any OTC Options
written by a Fund (other than OTC Currency Options) will be with a qualified
dealer pursuant to an agreement under which the Fund may repurchase the option
at a formula price at which the Fund would have the absolute right to repurchase
an OTC Option it has sold. OTC Options will be considered illiquid in an amount
equal to the formula price, less the amount by which the option is
"in-the-money."
REVERSE REPURCHASE AGREEMENTS. Under the 1940 Act, reverse repurchase
agreements may be considered borrowings by the seller; accordingly each of the
Funds will limit its investments in reverse repurchase agreements and other
borrowings to no more than 33 1/3% of its total assets. A Fund will not engage
in reverse repurchase transactions for the purpose of leverage.
STRATEGIC TRANSACTIONS. No Fund currently intends to enter into
Strategic Transactions, excluding Strategic Transactions that are "covered" or
entered into for bona fide hedging purposes, that are in the aggregate principal
amount in excess of 15% of the Fund's net assets.
Strategic Transactions have associated risks including possible default
by the other party to the transaction, illiquidity and, to the extent the
Sub-Advisor's view as to certain market movements is incorrect, losses greater
than if they had not been used. Use of put and call options, currency
transactions or options and futures transactions entails certain risks as
described herein and in the Appendix to the Prospectuses in sections relating
to such investment or instruments. Losses resulting from the use of Strategic
Transactions would reduce net asset value, and possibly income, and such losses
can be greater than if the Strategic Transactions had not been utilized.
The Funds may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple foreign currency
transactions (including forward foreign currency exchange contracts) and any
combination of futures, options and foreign currency
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transactions (each separately, a "component" transaction), instead of a single
transaction, as part of a single strategy when, in the opinion of the
Sub-Advisor, it is in the best interest of the Fund to do so. A combined
transaction may contain elements of risk that are present in each of its
component transactions.
The use of Strategic Transactions for portfolio management purposes
involves special considerations and risks. Additional risks pertaining to
particular strategies that make up Strategic Transactions are described in
other sections to this SAI. Successful use of most Strategic Transactions
depends upon the Sub-Advisor's ability to predict movements of the overall
securities and interest rate markets, which requires different skills than
predicting changes in the prices of individual securities. There can be no
assurance that any particular strategy adopted will succeed. There may be
imperfect correlation, or even no correlation, between price movements of
Strategic Transactions and price movements of the related portfolio or currency
positions. Such a lack of correlation might occur due to factors unrelated to
the value of the related portfolio or currency positions, such as speculative
or other pressures on the markets in which Strategic Transactions are traded.
Strategic Transactions, if successful, can reduce risk of loss or enhance
income, by wholly or partially offsetting the negative effect of, or accurately
predicting, unfavorable price movements or currency fluctuations in the related
portfolio or currency position. However, Strategic Transactions can also reduce
the opportunity for gain by offsetting the positive effect of favorable price
movements in the positions. In addition, a Fund might be required to maintain
assets as "cover," maintain segregated accounts or make margin payments when it
takes positions in Strategic Transactions involving obligations to third
parties (i.e., Strategic Transactions other than purchased options). These
requirements might impair the Fund's ability to sell a portfolio security or
currency position or make an investment at a time when it would otherwise be
favorable to do so, or require that the Fund sell a portfolio security or
currency position at a disadvantageous time.
WHEN-ISSUED SECURITIES AND DELAYED DELIVERY TRANSACTIONS. A segregated
account in the name of the Funds consisting of cash or liquid debt securities
equal to the amount of when-issued or delayed-delivery commitments will be
established at Boston Safe, the Trust's custodian. For the purpose of
determining the adequacy of the securities in the accounts, the deposited
securities will be valued at market or fair value. If the market or fair value
of the securities declines, additional cash or securities will be placed in the
account daily so that the value of the account will equal the amount of such
commitments by the Fund. On the settlement date, the Fund will meet its
obligations from then-available cash flow, the sale of securities held in the
segregated account, the sale of other securities or, although it would not
normally expect to do so, from the sale of securities purchased on a
when-issued or delayed-delivery basis themselves (which may have a greater or
lesser value than the Fund's payment obligations).
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STRATEGIES AVAILABLE TO ALL FUNDS EXCEPT U.S. GOVERNMENT
AMERICAN DEPOSITARY RECEIPTS ("ADRs"), EUROPEAN DEPOSITARY RECEIPTS
("EDRs"), CONTINENTAL DEPOSITARY RECEIPTS ("CDRs") AND GLOBAL DEPOSITARY
RECEIPTS ("GDRs") ADRs are securities, typically issued by a U.S. financial
institution (a "depositary"), that evidence ownership interests in a security
or a pool of securities issued by a foreign issuer and deposited with the
depositary. ADRs include American Depositary Shares and New York Shares.
EDRs, which are sometimes referred to as CDRs, are securities, typically issued
by a non-U.S. financial institution, that evidence ownership interests in a
security or a pool of securities issued by either a U.S. or foreign issuer.
GDRs are issued globally and evidence a similar ownership arrangement.
Generally, ADRs are designed for trading in the U.S. securities market, EDRs
are designed for trading in European securities market and GDRs are designed
for trading in non-U.S. securities markets. ADRs, EDRs, CDRs and GDRs may be
available for investment through "sponsored" or "unsponsored" facilities. A
sponsored facility is established jointly by the issuer of the security
underlying the receipt and a depositary, whereas an unsponsored facility may be
established by a depositary without participation by the issuer of the
receipt's underlying security. Holders of an unsponsored depositary receipt
generally bear all the costs of the unsponsored facility. The depositary of an
unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited security
or to pass through to the holders of the receipts voting rights with respect to
the deposited securities.
LENDING OF PORTFOLIO SECURITIES. Each of the Funds will adhere to the
following conditions whenever its portfolio securities are loaned: (1) the Fund
must receive at least 100% cash collateral or equivalent securities from the
borrower; (2) the borrower must increase the collateral whenever the market
value of the securities rises above the level of the collateral; (3) the Fund
must be able to terminate the loan at any time; (4) the Fund must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions on the loaned securities and any increase in market value; (5) the
Fund may pay only reasonable custodian fees in connection with the loan; and
(6) voting rights on the loaned securities may pass to the borrower, provided
that if a material event adversely affecting the investment occurs, the Trust's
Board of Trustees must terminate the loan and regain the right to vote the
securities. From time to time, the Funds may pay a part of the interest earned
from the investment of the collateral received for securities loaned to the
borrower and/or a third party that is unaffiliated with the Trust and that is
acting as a "finder."
STRATEGIES AVAILABLE TO ALL FUNDS EXCEPT GLOBAL MONEY AND U.S. GOVERNMENT
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Funds may engage in
currency exchange transactions to protect against uncertainty in the level of
future exchange rates. The Funds' dealings in forward currency exchange
contracts will be limited to hedging involving either specific transactions or
portfolio positions. Transaction hedging is the purchase or sale of forward
foreign currency with respect to specific receivables or payables of the Fund
generally
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arising in connection with the purchase or sale of its portfolio securities.
Position hedging is the sale of forward foreign currency with respect to
portfolio security positions denominated or quoted in such foreign currency. A
Fund may not position hedge with respect to a particular currency to an extent
greater than the aggregate market value (at the time of making such sale) of
the securities held in its portfolio denominated or quoted in or currently
convertible into that particular currency.
If a Fund enters into a position hedging transaction, the Trust's
custodian or sub-custodian will, except in circumstances where segregated
accounts are not required by the 1940 Act and the rules adopted thereunder,
place cash, U.S. Government Securities or high-grade debt obligations in a
segregated account for the Fund in an amount at least equal to the value of the
Fund's total assets committed to the consummation of the forward contract. For
each forward foreign currency exchange contract that is used to hedge a
securities position denominated in a foreign currency, but for which the
hedging position no longer provides, in the opinion of the Sub-Advisor or the
Advisor, sufficient protection to consider the contract to be a hedge, the
Fund maintains with its custodian a segregated account of cash, U.S.
Government Securities or other liquid assets in an amount at least equal to
the portion of the contract that is no longer sufficiently covered by such
hedge. If the value of the securities placed in the segregated account
declines, additional cash or securities will be placed in the account so that
the value of the account will equal the amount of the Fund's unhedged exposure
(in the case of securities denominated in a foreign currency) or commitment
with respect to the contract. Hedging transactions may be made from any
foreign currency into U.S. dollars or into other appropriate currencies.
At or before the maturity of a forward contract, a Fund may either sell
a portfolio security and make delivery of the currency, or retain the security
and offset its contractual obligation to deliver the currency by purchasing a
second contract pursuant to which the Fund will obtain, on the same maturity
date, the amount of the currency that it is obligated to deliver. If the Fund
retains the portfolio security and engages in an offsetting transaction, the
Fund, at the time of execution of the offsetting transaction, will incur a gain
or a loss to the extent that movement has occurred in forward contract prices.
Should forward prices decline during the period between the Fund's entering into
a forward contract for the sale of currency and the date it enters into an
offsetting contract for the purchase of the currency, the Fund will realize a
gain to the extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward prices
increase, the Fund will suffer a loss to the extent the price of the currency it
has agreed to purchase exceeds the price of the currency it has agreed to sell.
The cost to a Fund of engaging in currency transactions varies with
factors such as the currency involved, the length of the contract period and
the prevailing market conditions. Because transactions in currency exchange
are usually conducted on a principal basis, no fees or commissions are
involved. The use of forward currency contracts does not eliminate
fluctuations in the underlying prices of the securities, but it does establish
a rate of exchange that can be achieved in the future. In addition, forward
currency contracts may limit the risk of loss due to a decline in the value of
the hedged currency increase.
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If a devaluation of a currency is generally anticipated, a Fund may not
be able to contract to sell the currency at a price above the devaluation level
it anticipates.
The Funds, in addition, may combine forward currency exchange contracts
with investments in securities denominated in other currencies in an attempt to
create a combined investment position, the overall performance of which will
be similar to that of a security denominated in a Fund's underlying currency.
For instance, a Fund could purchase a U.S. dollar-denominated security and at
the same time enter into a forward currency exchange contract to exchange U.S.
dollars for its underlying currency at a future date. By matching the amount
of U.S. dollars to be exchanged with the anticipated value of the U.S.
dollar-denominated security, the Fund may be able to "lock in" the foreign
currency value of the security and adopt a synthetic investment position
whereby the Fund's overall investment return from the combined position is
similar to the return from purchasing a foreign currency-denominated instrument.
There is a risk in adopting a synthetic investment position. It is
impossible to forecast with absolute precision what the market value of a
particular security will be at any given time. If the value of a security
denominated in the U.S. dollar or other foreign currency is not exactly matched
with a Fund's obligation under a forward currency exchange contract on the date
of maturity, the Fund may be exposed to some risk of loss from fluctuations in
that currency. Although each Fund's Sub-Advisor will attempt to hold such
mismatching to a minimum, there can be no assurance that the Fund's Sub-Advisor
will be able to do so.
Although the foreign currency market is not believed to be necessarily
more volatile than the market in other commodities, there is less protection
against defaults in the forward trading to currencies than there is in trading
such currencies on an exchange because such forward contracts are not guaranteed
by an exchange or clearing house. The CFTC has indicated that it may assert
jurisdiction over forward contracts in foreign currencies and attempt to
prohibit certain entities from engaging in such transactions. In the event that
such prohibition included the Fund, it would cease trading such contracts.
Cessation of trading might adversely affect the performance of a Fund.
In addition to the uses of foreign currency exchange transactions
described above, all Funds except the Global Money and the U.S. Government
Funds may use foreign currency exchange transactions for certain other
purposes. See "Strategic Transactions."
OPTIONS ON FOREIGN CURRENCIES. The Funds may purchase and write put
and call options on foreign currencies for the purpose of hedging against
declines in the U.S. dollar value of foreign currency-denominated portfolio
securities and against increases in the U.S. dollar cost of such securities to
be acquired. Such hedging includes cross hedging and proxy hedging where the
options to buy or sell currencies involve other currencies besides the U.S.
dollar. As one example, a decline in the U.S. dollar value of a foreign
currency in which securities are denominated will reduce the U.S. dollar value
of the securities, even if their value in the foreign currency remains
constant. To protect against diminutions in the value of securities held by a
Fund in a particular foreign currency, the Fund may purchase put options on the
foreign currency. If the value of the currency does decline, the Fund will
have the right to sell the
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currency for a fixed amount in U.S. dollars and will thereby offset, in whole
or in part, the adverse effect on its portfolio that otherwise would have
resulted. When an increase in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of the securities, the Fund conversely may purchase call options on the
currency. The purchase of such options could offset, at least partially, the
effects of the adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Fund deriving from purchases of
foreign currency options will be reduced by the amount of the premium and
related transaction costs. In addition, if currency exchange rates do not move
in the direction, or to the extent anticipated, the Fund could sustain losses
on transactions in foreign currency options that would require it to forego a
portion or all of the benefits of advantageous changes in the rates.
The Fund may also write covered call options on foreign currencies for
the types of hedging purposes described above. As one example, when a Fund
anticipates a decline in the U.S. dollar value of foreign currency-denominated
securities due to adverse fluctuations in exchange rates, it could, instead of
purchasing a put option, write a covered call option on the relevant currency.
If the expected decline occurs, the option will most likely not be exercised,
and the diminution in value of portfolio securities will be offset by the
amount of the premium received. As in the case of other types of options,
however, the writing of a foreign currency option will constitute only a
partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Fund would be required to purchase or sell the underlying currency at a loss
that may not be offset by the amount of the premium. Through the writing of
options on foreign currencies, the Fund may also be required to forego all or a
portion of the benefits that might otherwise have been obtained from favorable
movements in exchange rates.
A call option written on a foreign currency by a Fund is "covered" if
the Fund owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire the foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by Boston Safe, or by a designated sub-custodian) upon conversion or
exchange of other foreign currency held by the Fund. A call option also is
covered if the Fund has a call on the same foreign currency and in the same
principal amount as the call written when the exercise price of the call held
(1) is equal to or less than the exercise price of the call written or (2) is
greater than the exercise price of the call written if the difference is
maintained by the Fund in cash, U.S. Government Securities and other liquid
assets in a segregated account with Boston Safe or with a designated
sub-custodian.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on those
exchanges. As a result, many of the protections provided to traders on
organized exchanges will be available with respect to those transactions. In
particular, all foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the OCC, thereby reducing the
risk of counterparty default. Further, a liquid secondary market in options
traded on a national securities exchange may exist, potentially permitting the
Fund to liquidate open positions at a profit prior to their exercise or
expiration, or to limit losses in the event of adverse market movements.
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The purchase and sale of exchange-traded foreign currency options are
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exercise and settlement of exchange-traded foreign
currency options must be made exclusively through the OCC, which has established
banking relationships in applicable foreign countries for this purpose. As a
result, the OCC may, if it determines that foreign governmental restrictions or
taxes would prevent the orderly settlement of foreign currency option exercises,
or would result in undue burdens on the OCC or its clearing member, impose
special procedures on exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise. For a discussion of the risks involved in OTC Options
in foreign currency, see "Over the Counter Options" above.
In addition to the uses of options on foreign currencies described
above, all Funds except the Global Money and U.S. Government Funds may use
options on foreign currencies for certain other purposes. See "Strategic
Transactions."
STRATEGY AVAILABLE TO SHORT TERM GLOBAL GOVERNMENT, GROWTH AND EMERGING GROWTH
FUNDS
LOWER-RATED SECURITIES. The Short Term Global Government Fund may
invest up to 10% and the Growth and Emerging Growth Funds up to 35% of its
total assets in non-investment grade securities (rated Ba and lower by Moody's
or BB and lower by Standard & Poor's) or unrated securities. Such securities
carry a high degree of risk (including the possibility of default or bankruptcy
of the issuer of such securities), generally involve greater volatility of
price and risk of principal and income, and may be less liquid, than securities
in the higher rating categories and are considered speculative. See the
Appendix to this SAI for a more complete description of the ratings assigned by
ratings organizations and their respective characteristics.
The recent economic downturn disrupted the high yield market and
impaired the ability of issuers to repay principal and interest. Also, an
increase in interest rates could further adversely affect the value of such
obligations held by the Fund. Prices and yields of high yield securities will
fluctuate over time and may affect the Fund's net asset value. In addition,
investments in high yield zero coupon or pay-in-kind bonds, rather than
income-bearing high yield securities, may be more speculative and may be
subject to greater fluctuations in value due to changes in interest rates.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of
the Trustees to accurately value high yield securities in the Fund's portfolio
and to dispose of those securities. Adverse publicity and investor perceptions
may decrease the value and liquidity of high yield securities. These securities
may also involve special registration responsibilities, liabilities and costs.
B-30
<PAGE> 81
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently-issued credit ratings may not fully reflect
the actual risks posed by a particular high yield security. For these reasons,
it is the policy of each of these Fund's Sub-Advisors not to rely exclusively
on ratings issued by established credit rating agencies, but to supplement such
ratings with its own independent and ongoing review of credit quality. The
achievement of the Fund's investment objectives by investment in such
securities may be more dependent on its Sub-Advisor's credit analysis than is
the case for higher quality bonds. Should the rating of a portfolio security be
downgraded, the Fund's Sub-Advisor will determine whether it is in the best
interest of the Fund to retain the security.
Prices for below investment grade securities may be affected by
legislative and regulatory developments. For example, new federal rules require
savings and loan institutions to gradually reduce their holdings of this type
of security. Also, Congress from time to time has considered legislation which
would restrict or eliminate the corporate tax deduction for interest payments
on these securities and would regulate corporate restructurings. Such
legislation may significantly depress the prices of outstanding securities of
this type.
STRATEGY AVAILABLE TO GROWTH, EMERGING GROWTH AND INTERNATIONAL GROWTH FUNDS
SECURITIES IN DEVELOPING COUNTRIES. Although most of the investments of
the Growth, Emerging Growth and International Growth Funds are made in
securities of companies in (or governments of) developed countries, up to 5% of
the total assets of the Growth Fund and Emerging Growth Fund and up to 30% of
the total assets of the International Growth Fund may be invested in securities
of companies in (or governments of) developing or emerging countries (sometimes
referred to as "emerging markets") as well. A developing or emerging country is
generally considered to be a country that is in the initial stages of its
industrialization cycle. Investing in the equity and fixed-income markets of
developing or emerging countries involves exposure to economic structures that
are generally less diverse and mature, and to political systems that can be
expected to have less stability than those of developed countries. Historical
experience indicates that the markets of developing or emerging countries have
been more volatile than the markets of the more mature economies of developed
countries; however, such markets often have provided higher rates of return to
investors.
INVESTMENT RESTRICTIONS OF THE PORTFOLIOS
The following investment restrictions have been adopted by the Trust
with respect to the Portfolios as fundamental policies. A fundamental policy
affecting a particular Portfolio may not be changed without the vote of a
majority of the outstanding shares of the affected Portfolio. Majority is
defined in the 1940 Act as the lesser of (a) 67% or more of the shares present
at a shareholder meeting, if the holders of more than 50% of the outstanding
shares of the Trust are present or represented by proxy, or (b) more than 50%
of the outstanding shares. Each Portfolio will not;
1. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (except this shall not
prevent the Fund from purchasing or
B-31
<PAGE> 82
selling options or futures contracts or from investing in securities or
other instruments backed by physical commodities);
2. Purchase or sell real estate including limited partnership interests,
although it may purchase and sell securities of companies that deal in
real estate and may purchase and sell securities that are secured by
interests in real estate;
3. Make loans to any person, except loans of portfolio securities to the
extent that no more than 33 1/3% of its total assets would be lent to
other parties, but this limitation does not apply to purchases of debt
securities or repurchase agreements;
4. (i) Purchase more than 10% of any class of the outstanding voting
securities of any issuer (except other investment companies as defined
in the 1940 Act) and (ii) purchase securities of an issuer (except
obligations of the U.S. Government and its agencies and
instrumentalities and securities of other investment companies as
defined in the 1940 Act) if as a result, with respect to 75% of its
total assets, more than 5% of the Portfolio's total assets, at market
value, would be invested in the securities of such issuer;
5. Issue senior securities (as defined in the 1940 Act) except as permitted
by rule, regulation or order of the SEC;
6. Will not borrow, except from banks for temporary or emergency (not
leveraging) purposes including the meeting of redemption requests that
might otherwise require the untimely disposition of securities in an
aggregate amount not exceeding 30% of the value of the Portfolio's total
assets (including the amount borrowed) valued at market less liabilities
(not including the amount borrowed) at the time the borrowing is made;
and whenever borrowings by a Portfolio, including reverse repurchase
agreements, exceed 5% of the value of a Portfolio's total assets, the
Portfolio will not purchase any securities;
7. Underwrite securities issued by others, except to the extent that the
Portfolio may be considered an underwriter within the meaning of the
1933 Act in the disposition of restricted securities; and
8. Write or acquire options or interests in oil, gas or other mineral
exploration or development programs.
In addition, each Portfolio has adopted non-fundamental investment
limitations as stated below and in its prospectus. Such limitations may be
changed without shareholder approval. Each Portfolio will not:
B-32
<PAGE> 83
1. Pledge, mortgage, or hypothecate any of its assets except to secure
borrowings permitted by the Portfolio's fundamental limitation on
borrowing;
2. Invest for the purpose of exercising control over management of any
company;
3. Invest its assets in securities of any investment company, except (i) by
purchase in the open market involving only customary brokers'
commissions; (ii) in connection with mergers, acquisitions of assets or
consolidations; (iii) as permitted by SEC exemptive order; or (iv) as
otherwise permitted by the 1940 Act;
4. Purchase warrants if, by reason of such purchase, more than 5% of the
value of the Portfolio's net assets (taken at market value) would be
invested in warrants, valued at the lower of cost or market; included
within this amount, but not to exceed 2% of the value of the Fund's net
assets, may be warrants that are not listed on a recognized stock
exchange;
5. Purchase or hold illiquid securities, which are securities that cannot
be disposed of for their approximate market value in seven days or less
(which terms include repurchase agreements and time deposits maturing in
more than seven days) if, in the aggregate, more than 15% of its net
assets would be invested in illiquid securities;
6. Purchase securities on margin, except that a Portfolio may obtain any
short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with futures contracts or
related options will not be deemed to be a purchase of securities on
margin; and
7. Purchase or hold lower rated bonds ("junk bonds"), directly or
indirectly, if, in the aggregate, 35% or more of its net assets would be
invested, directly or indirectly, in junk bonds.
INVESTMENT RESTRICTIONS OF THE FUNDS
The investment restrictions number 1 through 15 below have been adopted
by the Trust with respect to the Funds as fundamental policies. A fundamental
policy may not be changed without the vote of a majority of the outstanding
voting securities of the Trust, as defined in the 1940 Act. Investment
restrictions 16 through 19 may be changed by vote of a majority of the Trust's
Board of Trustees at any time.
B-33
<PAGE> 84
The investment policies adopted by the Trust prohibit a Fund from:
1. Purchasing the securities of any issuer (other than U.S. Government
Securities) if as a result more than 5% of the value of the Fund's total
assets would be invested in the securities of the issuer (the "5%
Limitation"), except that up to 25% of the value of the Fund's total
assets may be invested without regard to the 5% Limitation; provided
that this restriction shall not apply to the Short Term Global
Government Fund; and provided further that the entire investment
portfolio of the Global Money Fund is subject to the 5% Limitation.
However, the Global Money Fund will be able to invest more than 5% of
its total assets in the securities of a single issuer for a period of up
to three Business Days after the purchase thereof; provided that the
Fund may not hold more than one such investment at any time.
2. Purchasing more than 10% of the securities of any class of any one
issuer; provided that this limitation shall not apply to investments in
U.S. Government Securities; provided further that this restriction shall
not apply to the Short Term Global Government and Growth Funds; and
provided further that the Growth Fund shall not own more than 10% of the
outstanding voting securities of a single issuer.
3. Purchasing securities on margin, except that the Fund may obtain any
short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with futures contracts or
related options will not be deemed to be a purchase of securities on
margin.
4. Making short sales of securities or maintaining a short position;
provided that this restriction shall not apply to the Short Term Global
Government, Growth and International Growth Funds.
5. Borrowing money, except that (a) the Fund may (i) enter into Reverse
Repurchase Agreements or (ii) borrow from banks for temporary (not
leveraging) purposes, including the meeting of redemption requests that
might otherwise require the untimely disposition of securities or
pending settlement of securities transactions or for emergency or
extraordinary purposes in an aggregate amount not exceeding 30% of the
value of the Fund's total assets (including the amount borrowed) valued
at market less liabilities (not including the amount borrowed) at the
time the borrowing is made, (b) all of the Funds except the Global Money
Fund may enter into (i) futures contracts, and (ii) dollar roll
transactions. Whenever borrowings pursuant to (a) above (except that
with respect to the Short Term High Quality Bond, Short Term Global
Government, U.S. Government, Corporate Income, Growth and Income and
Emerging Growth Funds, pursuant to (a)(ii) above) exceed 5% of the value
of a Fund's total assets, (w) continuous asset coverage of at least 300%
is required; (x) in the event such asset coverage falls below 300% due
to market fluctuations or otherwise, the Fund must within 3 days reduce
the amount of its borrowings so that asset coverage will again be at
least 300%, even if disadvantageous from an investment standpoint; (y)
borrowing pursuant to (a) over 5% must be repaid
B-34
<PAGE> 85
before making additional investments; and (z) any interest paid on such
borrowings will reduce income. The Short Term High Quality Bond, Short
Term Global Government, U.S. Government, Corporate Income, Growth and
Income and Emerging Growth Funds may not borrow money or enter into
Reverse Repurchase Agreements or Dollar Roll Transactions in the
aggregate in excess of 33 1/3% of the Fund's total assets (after giving
effect to any such transaction).
6. Pledging, hypothecating, mortgaging or otherwise encumbering more than
30% of the value of the Fund's total assets. For purposes of this
restriction, (a) the deposit of assets in escrow in connection with the
writing of covered put or call options and the purchase of securities on
a when-issued or delayed-delivery basis and (b) collateral arrangements
with respect to (i) the purchase and sale of options on securities,
options on indexes and options on foreign currencies, and (ii) initial
or variation margin for futures contracts will not be deemed to be
pledges of a Fund's assets.
7. Underwriting the securities of other issuers, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933, as
amended, by virtue of disposing of portfolio securities.
8. Purchasing or selling real estate or interests in real estate, except
that the Fund may purchase and sell securities that are secured,
directly or indirectly, by real estate and may purchase securities
issued by companies that invest or deal in real estate.
9. Investing in commodities, except that all of the Funds except the Global
Money Fund may invest in futures contracts and options on futures
contracts. The entry into forward foreign currency exchange contracts is
not and shall not be deemed to involve investing in commodities.
10. Investing in oil, gas or other mineral exploration or development
programs.
11. Making loans to others, except through the purchase of qualified debt
obligations, loans of portfolio securities (except in the case of the
U.S. Government Fund) and the entry into repurchase agreements.
12. Purchasing any securities that would cause more than 25% of the value of
the Fund's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in
the same industry, except in the case of the Global Money Fund, which
under normal market conditions shall have at least 25% of its total
assets invested in bank obligations; provided that this limitation shall
not apply to the purchase of (a) U.S. Government Securities, or (b) with
respect to the Short Term Global Government Fund, Bank Obligations.
13. Purchasing, writing or selling puts, calls, straddles, spreads or
combinations thereof; provided that this restriction shall not apply to
any of the Funds except the Global Money Fund; and provided further that
(a) all of the Funds except the Global Money and Short
B-35
<PAGE> 86
Term Global Government Funds may purchase, write and sell covered put
and call options on securities, (b) all of the funds except the Global
Money Fund may purchase, write and sell futures contracts and options
on futures contracts, (c) all of the Funds except the Global Money Fund
may purchase and write put and call options on stock indexes, and (d)
the International Growth Fund may purchase put and call options and
write cover call options on foreign currency contracts.
14. With respect to the Growth Fund, investing more than 35% of the Fund's
assets in non-investment grade debt securities.
15. With respect to the Short Term High Quality Bond Fund, having a
dollar-weighted average portfolio maturity in excess of five years.
16. With respect to the Growth and Emerging Growth Funds, investing more
than 25% of the Fund's assets in foreign securities.
17. Purchasing securities that are not readily marketable if more than 10%
of the total assets of the Global Money Fund, or more than 15% of the
total assets of the Short Term High Quality Bond, Short Term Global
Government, U.S. Government, Corporate Income, Growth and Income,
Growth, Emerging Growth and International Growth Funds, would be
invested in such securities, including, but not limited to: (1)
repurchase agreements with maturities greater than seven calendar days;
(2) time deposits maturing in more than seven calendar days; (3) to the
extent a liquid secondary market does not exist for the instruments,
futures contracts and options thereon; (4) certain over-the-counter
options, as described in this SAI; (5) certain variable rate demand
notes having a demand period of more than seven days; and (6) certain
Rule 144A restricted securities that are deemed to be illiquid.
18. Making investments for the purpose of exercising control or management.
19. Purchasing or selling interests in real estate limited partnerships.
The percentage limitations contained in the restrictions listed above
apply at the time of purchases of securities.
PORTFOLIO TURNOVER
Portfolio turnover considerations for the Portfolios are addressed in
the Trust's prospectus.
The Global Money Fund, a money market fund, attempts to increase yields
by trading to take advantage of short-term market variations, which results in
high portfolio turnover. Because purchases and sales of money market instruments
are usually effected as principal transactions, this policy does not result in
high brokerage commissions to the Fund. The Growth and Income, Growth,
Emerging Growth and International Growth Funds (together, the "Equity Funds")
and the Short Term High Quality Bond, the Short Term Global Government, the
U.S. Government and the Corporate Income Funds (collectively, the "Bond Funds")
do not intend to seek profits
B-36
<PAGE> 87
through short-term trading. Nevertheless, the Funds will not consider
portfolio turnover rate a limiting factor in making investment decisions.
Under certain market conditions, the Equity Funds and the Bond Funds
may experience increased portfolio turnover as a result of such Fund's options
activities. For instance, the exercise of a substantial number of options
written by the Fund (due to appreciation of the underlying security in the case
of call options or depreciation of the underlying security in the case of put
options) could result in a turnover rate in excess of 100%. A portfolio
turnover rate of 100% would occur if all of the Fund's securities that are
included in the computation of turnover were replaced once during a period of
one year. The portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the year by the monthly average
value of portfolio securities. Securities with remaining maturities of one
year or less at the date of acquisition are excluded from the calculation.
Certain other practices that may be employed by the Funds could result
in high portfolio turnover. For example, portfolio securities may be sold in
anticipation of a rise in interest rates (market decline) or purchased in
anticipation of a decline in interest rates (market rise) and later sold. In
addition, a security may be sold and another of comparable quality purchased at
approximately the same time to take advantage of what a Fund's Sub-Advisor
believes to be a temporary disparity in the normal yield relationship between
the two securities. These yield disparities may occur for reasons not
directly related to the investment quality of particular issues or the general
movement of interest rates, such as changes in the overall demand for, or
supply of, various types of securities.
PORTFOLIO TRANSACTIONS
Purchases and sales of Fund shares by a Portfolio are effected directly
through the Trust's distributor, Sierra Services. In addition, all decisions
to buy and sell securities, including Fund shares, are made by Sierra Services,
subject to the overall review of the Trustees.
Most of the purchases and sales of securities for a Fund, whether
transacted on a securities exchange or over-the-counter, will be effected in
the primary trading market for the securities. Decisions to buy and sell
securities for a Fund are made by its Sub-Advisor, which also is responsible
for placing these transactions, subject to the overall review of the Trust's
Trustees. Although investment decisions for each Fund are made independently
from those of the other accounts managed by its Sub-Advisor, those other
accounts may make investments of the same type as the Fund. When a Fund and one
or more other accounts managed by its Sub-Advisor are prepared to invest in, or
desire to dispose of, the same security, available investments or opportunities
for sales will be allocated in a manner believed by the Sub-Advisor to be
equitable to each. In some cases, this procedure may adversely affect the price
paid or received by a Fund or the size of the position obtained or disposed of
by the Fund. In other cases, however, it is believed that the coordination and
the ability to participate in volume transactions will be to the benefit of the
Fund.
B-37
<PAGE> 88
Transactions on U.S. exchanges involve the payment of negotiated
brokerage commissions. With respect to exchanges on which commissions are
negotiated, the cost of transactions may vary among different brokers. There
is generally no stated commission in the case of securities traded in the
over-the-counter markets, but the prices of those securities include
undisclosed commissions or concessions, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
U.S. Government Securities may be purchased directly from the U.S. Treasury or
from the issuing agency or instrumentality.
In selecting brokers or dealers to execute portfolio transactions on
behalf of a Fund, the Fund's Sub-Advisor seeks the best overall terms available.
In assessing the best overall terms available for any transaction, each
Sub-Advisor will consider the factors the Sub-Advisor deems relevant, including
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker or dealer and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis. In addition, each advisory agreement between the Trust and
Sierra Advisors and each sub-advisory agreement between Sierra Advisors and a
Sub-Advisor authorizes the Advisor or Sub-Advisor, in selecting brokers or
dealers to execute a particular transaction and in evaluating the best overall
terms available, to consider the brokerage and research services (as those terms
are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended)
provided to the Trust, the other Funds and/or other accounts over which the
Sub-Advisors or its affiliates exercise investment discretion. As a result, a
Sub-Advisor may cause a Fund to pay a broker-dealer, which provides brokerage
and research services to the Sub-Advisor, an amount of disclosed commission for
effecting a securities transaction in excess of the commission that another
broker-dealer would have charged for effecting that transaction. The fees under
the advisory agreements between the Trust and the Advisor are not reduced by
reason of the receipt by the Advisor or Sub-Advisors of brokerage and research
services. The Trust's Trustees will periodically review the commissions paid by
the Funds to determine if the commissions paid over representative periods of
time were reasonable in relation to the benefits received by the Trust.
To the extent consistent with applicable provisions of the 1940 Act and
the rules and exemptions adopted by the Commission thereunder, the Trust's Board
of Trustees has determined that portfolio transactions for a Fund may be
executed through GW Securities or any other affiliated broker, including J.P.
Securities or J.P. Limited (which are affiliates of J.P. Management, the
Sub-Advisor of the Global Money and Growth and Income Funds), if, in the
judgment of the Fund's Sub-Advisor, the use of GW Securities or an affiliated
broker is likely to result in price and execution at least as favorable as those
of other qualified broker-dealers, and if, in the transaction, GW Securities or
such other affiliated broker charges the Fund a rate consistent with those
charged for comparable transactions in comparable accounts of the broker's most
favored unaffiliated clients. Over-the-counter purchases and sales are
transacted directly with principal market makers except in those cases in which
better prices and executions may be obtained elsewhere. For the three fiscal
years ended December 31, 1994, December 31, 1995 and December 31, 1996, the
Trust paid brokerage commissions of approximately $0, $0 and $3,086,
respectively, to J.P. Morgan. For the fiscal year ended December 31, 1994,
December 31, 1995 and December 31, 1996, commissions paid to J.P. Morgan
represented approximately 0%, 0% and 51%, respectively, of the total amount of
brokerage commissions paid in such period and which were paid on transactions
that represented 0%, 0% and 47% respectively, of the aggregate dollar amount of
transactions that incurred commissions paid by the Trust during such period. For
the three fiscal years ended December 31, 1994, December 31, 1995 and December
31, 1996, the Trust paid brokerage commissions of approximately $126, $0 and
$2,945, respectively, to Donaldson, Lufkin & Jenrette. For the fiscal years
ended December 31, 1994, December 31, 1995 and December 31, 1996, commissions
paid to Donaldson, Lufkin & Jenrette represented approximately 100%, 0% and 49%,
respectively, of the total amount of brokerage commissions paid in such period
and which were paid on transactions that represented 3%, 0% and 53%
respectively, of the aggregate dollar amount of transactions that incurred
commissions paid by the Trust during such period.
B-38
<PAGE> 89
For the fiscal years ended December 31, 1994, 1995 and 1996, the Funds
paid the following brokerage commissions*:
<TABLE>
<CAPTION>
1996
-------------------------------------------------
Amount Paid for Aggregate
Brokerage Brokerage and Transaction
Fund Commissions Research Amount
- ---- ----------- --------------- -----------
<S> <C> <C> <C>
Global Money Fund $0 $0 $0
Short Term High Quality Bond Fund $3,514 $0 $20,845,613
Short Term Global Government Fund $1,000 $0 $49,500
U.S. Government Fund $9,844 $0 $206,916,397
Corporate Income Fund $0 $0 $0
Growth and Income Fund $106,187 $0 $78,909,538
Growth Fund $215,458 $0 $226,603,698
Emerging Growth Fund $79,295 $0 $48,481,530
International Growth Fund $345,365 $0 $99,133,129
Total for Trust $760,663 $0 $680,939,405
Amount Paid to
Affiliated
Broker-Dealers $6,031 $0 $3,405,755
</TABLE>
<TABLE>
<CAPTION>
1995
-------------------------------------------------
Amount Paid for Aggregate
Brokerage Brokerage and Transaction
Fund Commissions Research Amount
- ---- ----------- --------------- -----------
<S> <C> <C> <C>
Global Money Fund $0 $0 $0
Short Term High Quality Bond Fund $2,332 $0 $164,272
Short Term Global Government Fund $0 $0 $0
U.S. Government Fund $2,430 $0 $75,222,018
Corporate Income Fund $0 $0 $0
Growth and Income Fund $108,464 $0 $61,223,495
Growth Fund $283,404 $0 $1,281,740,556
Emerging Growth Fund $114,232 $0 $372,208,173
International Growth Fund $164,195 $0 $535,107,481
Total for Trust $675,057
</TABLE>
B-39
<PAGE> 90
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Amount Paid to $0
Affiliated
Broker-Dealers
</TABLE>
<TABLE>
<CAPTION>
1994
-------------------------------------------------
Amount Paid for Aggregate
Brokerage Brokerage and Transaction
Fund Commissions Research Amount
- ---- ----------- --------------- -----------
<S> <C> <C> <C>
Global Money Fund $0 $0 $0
Short Term High Quality Bond Fund $0 $0 $0
Short Term Global Government Fund $0 $0 $0
U.S. Government Fund $0 $0 $0
Corporate Income Fund $0 $0 $0
Growth and Income Fund $38,101 $0 $29,470,747
Growth Fund $183,469 $0 $791,695,782
Emerging Growth Fund $58,799 $0 $120,185,937
International Growth Fund $195,231 $0 $50,945,896
Total for Trust $475,600
Amount Paid to
Affiliated $126
Broker-Dealers
</TABLE>
- --------------
* The Global Money, Short Term High Quality Bond, Short Term Global
Government, U.S. Government, Corporate Income, Growth and Income,
Growth, Emerging Growth and International Growth Funds commenced
operations on May 10, 1993, January 12, 1994, May 12, 1993, May 6, 1993,
May 7, 1993, January 12, 1994, May 7, 1993, January 12, 1994 and May 7,
1993, respectively.
The Trust is required to identify any securities of its "regular
brokers or dealers" (as such term is defined in the 1940 Act) which the Trust
has acquired during its most recent fiscal year. As of December 31, 1996, the
Growth and Income Fund held common stock of Dean Witter, Discover & Company
valued at $669,125.
PURCHASE AND PRICING OF SHARES
Shares in the Portfolios and Funds are purchased and redeemed and net
asset value is calculated in the manner described in the Prospectuses.
B-40
<PAGE> 91
REDEMPTIONS
The right of redemption of shares of a Portfolio or Fund may be
suspended or the date of payment postponed (1) for any periods during which the
NYSE is closed (other than for customary weekend and holiday closings), (2)
when trading in the markets the Fund (or underlying Fund of a Portfolio)
normally utilizes is restricted, or an emergency, as defined by the rules and
regulations of the SEC, exists making disposal of the Fund's investments or
determination of its net asset value not reasonably practicable or (3) for such
other periods as the SEC by order may permit for protection of the Fund's
shareholders.
DISTRIBUTIONS IN KIND. If the Board of Trustees determines that it
would be detrimental to the best interests of the shareholders of a Portfolio
or Fund to make a redemption payment wholly in cash, the Trust may pay any
portion of a redemption by distribution in kind of portfolio securities in lieu
of cash. Securities issued in a distribution in kind will be readily
marketable, although shareholders receiving distributions in kind may incur
brokerage commissions when subsequently redeeming shares of those securities.
NET ASSET VALUE
The Trust will not calculate the net asset value of the Funds and
Portfolios on certain holidays. On those days, securities held by a Fund may
nevertheless be actively traded, and the value of the Fund's shares could be
significantly affected.
The assets of each Fund and Portfolio are valued according to generally
accepted accounting principles and applicable law. Generally, a Fund's or
Portfolio's investments are valued at market value or, in the absence of a
market value with respect to any portfolio securities, at fair value as
determined by or under the direction of the Trust's Board of Trustees:
o A security that is primarily traded on a U.S. or foreign
exchange (including securities traded through the National
Association of Securities Dealers, Inc. Automated Quotation
System ("NASDAQ")) is valued at the last sale price on that
exchange or, if there were no sales during the day, at the
current quoted bid price.
o Securities that are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such
securities on their respective exchanges, except when an
occurrence subsequent to the time a value was so established is
likely to have changed the value, then the fair value of those
securities will be determined by consideration of other factors
by or under the direction of the Trust's Board of Trustees or
its delegates.
o Over-the-counter securities that are not reported on the NASDAQ
System and securities listed or traded on certain foreign
exchanges whose operations are similar
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to the U.S. over-the-counter market are valued on the basis of
the bid price at the close of business on each day.
o An option is generally valued at the last sale price or, in the
absence of a last sale price, the last offer price.
o Investments in U.S. Government Securities (other than short-term
securities) are valued at the average of the quoted bid and
asked prices in the over-the-counter market.
o Short-term investments that mature in 60 days or less are valued
at amortized cost when the Board of Trustees determines that
this constitutes fair value; assets of the Global Money Fund are
also valued at amortized cost.
o The value of a futures contract equals the unrealized gain or
loss on the contract, which is determined by marking the
contract to the current settlement price for a like contract
acquired on the day on which the futures contract is being
valued. A settlement price may not be used if the market makes
a limited move with respect to the security or index underlying
the futures contract. In such event, the futures contract will
be valued at a fair market price to be determined by or under
the direction of the Trust's Board of Trustees.
o Shares of open-end investment companies are valued at the net
asset value per share last or, contemporaneously calculated.
In carrying out the Board's valuation policies, First Data Investor
Services Group, Inc. ("FDISG"), a wholly-owned subsidiary of First Data
Corporation, as sub-administrator, may consult with one or more independent
pricing services ("Pricing Services") retained by the Trust. Debt securities
of U.S. issuers (other than U.S. Government Securities and short-term
investments) are valued by FDISG, as sub-administrator, after consultation with
the Pricing Service. The procedures of the Pricing Service are reviewed
periodically by the officers of the Trust under the general supervision and
responsibility of the Board of Trustees.
VALUATION OF THE GLOBAL MONEY FUND. The valuation of the portfolio
securities of the Global Money Fund is based upon its amortized costs, which
does not take into account unrealized capital gains or losses. Amortized cost
valuation involves initially valuing an instrument at its cost and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. While this method provides certainty in valuation, it may
result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund would receive if it sold the instrument.
The use by the Global Money Fund of the amortized cost method of
valuing its respective portfolio securities is permitted by a rule adopted by
the SEC. Under this rule, the Global Money Fund must maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase
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only instruments having remaining maturities of thirteen months or less and
invest only in securities determined by the Board of Trustees of the Trust to
present minimal credit risks and meet certain rating criteria described under
"Investment Objectives and Policies of the Funds -- Money Market Quality and
Maturity Requirements" above. Pursuant to the rule, the Board of Trustees also
has established procedures designed to stabilize, to the extent reasonably
possible, the Fund's price per share as computed for the purpose of sales and
redemptions at $1.00. Such procedures include review of the Fund's portfolio
holdings by the Board of Trustees, at such intervals as it may deem
appropriate, to determine whether the Fund's net asset values calculated by
using available market quotations or market equivalents deviates from $1.00 per
share based on amortized cost.
The rule also provides that the extent of any deviation between the
Fund's net asset values based upon available market quotations or market
equivalents and the $1.00 per share net asset values based on amortized cost
must be examined by the Board of Trustees. In the event the Board of Trustees
determines that a deviation exists which may result in material dilution or
other unfair results to investors or existing shareholders, pursuant to the rule
the Board of Trustees must cause the Trust to take such corrective action as the
Board deems necessary and appropriate including: selling portfolio instruments
prior to maturity to realize capital gains or losses or shorten average
portfolio maturity; withholding dividends or paying distributions from capital
or capital gains; redeeming shares in kind; or establishing a net asset value
per share by using available market quotations.
PERFORMANCE
From time to time, the Trust may quote the performance of a Portfolio or
Fund in terms of yield, effective yield, actual distributions, total return or
capital appreciation in reports or other communications to shareholders or in
advertising material. Fund or Portfolio performance will be advertised only if
accompanied by the comparable performance for the corresponding separate
account.
ANNUITY CONTRACT OWNER VALUES WILL DEPEND NOT ONLY ON THE PERFORMANCE
OF THE FUNDS OR PORTFOLIOS, BUT ALSO ON THE MORTALITY AND EXPENSE RISK CHARGES,
THE ADMINISTRATIVE CHARGES, AND ANY APPLICABLE SALES CHARGES UNDER THE ANNUITY
CONTRACTS. THE TOTAL RETURNS OF THE FUNDS REFLECT THE AGREEMENT OF SIERRA
ADVISORS TO VOLUNTARILY WAIVE FEES AND BEAR CERTAIN EXPENSES. TOTAL RETURNS
WOULD HAVE BEEN LOWER IF THESE FEES AND EXPENSES HAD NOT BEEN WAIVED.
GLOBAL MONEY FUND YIELD INFORMATION
The "yield" of the Global Money Fund refers to the income generated by
an investment in the Fund over a 7-day period (which period will be stated in
the advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the investment.
The "effective yield" is calculated similarly but, when annualized, the income
earned
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by an investment in a Fund is assumed to be reinvested. The "effective yield"
will be slightly higher than the "yield" because of the compounding effect of
this assumed reinvestment.
The yield for the Global Money Fund is computed by: (1) determining the
net change, exclusive of capital changes, in the value of a hypothetical
pre-existing account in the Fund having a balance of one share at the beginning
of a seven calendar day period for which yield is to be quoted, (2) subtracting
a hypothetical charge reflecting deductions from shareholder accounts, (3)
dividing the net change by the value of the account at the beginning of the
period to obtain the base period return, and (4) annualizing the results (i.e.,
multiplying the base period return by 365/7). The net change in the value of
the account reflects the value of additional share purchased with dividends
declared on the original share and any such additional shares and income
received or accrued but not declared as a dividend, but does not include
realized gains and losses or unrealized appreciation or depreciation. In
addition, the Global Money Fund may calculate a compounded effective annualized
yield by adding 1 to the base period return (calculated as described above),
raising the sum to a power equal to 365/7 and subtracting 1.
Based upon the foregoing calculation, for the 7-day period ended
December 31, 1996, the yield for the Global Money Fund was 4.85%, and the
effective yield for the Global Money Fund for the same period was 4.97%.
The Global Money Fund yield may be compared with the yields of other
investments. It should not, however, be compared to the return on fixed rate
investments which guarantee rates of interest for specified periods, such as the
interest guarantees in an annuity contract or bank deposits.
YIELD INFORMATION
From time to time, the Bond Funds and the Balanced, Value and Income
Portfolios may advertise the 30-day "yield." Yield refers to the income
generated by an investment in such Fund or Portfolio over the 30-day period
identified in the advertisement, and is computed by dividing the net investment
income per share earned by the Fund or Portfolio during the period by the net
asset value per share on the last day of the previous period. This income is
"annualized" by assuming that the amount of income is generated each month over
a one-year period and is compounded semiannually. The annualized income is then
shown as a percentage of the net asset value.
The yield formula prescribed by the SEC can be expressed as follows:
6
YIELD = 2[((a-b) + 1) - 1]
---
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
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reimbursement).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations that were purchased by one of the Funds at a
discount or premium, the formula generally calls for amortization of the
discount or premium; the amortization schedule will be adjusted monthly to
reflect changes in the market values of the debt obligations.
Based on the foregoing calculation, for the 30-day period ended
December 31, 1996, the yields for the Short Term High Quality Bond, the Short
Term Global Government, the U.S. Government and the Corporate Income Funds were
5.85%, 4.03%, 5.74% and 6.55%, respectively.
TOTAL RETURN INFORMATION
From time to time, a Fund or Portfolio, other than the Global Money
Fund, may advertise its "average annual total return" or "aggregate total
return" over various periods of time. Such average annual total return figures
show the average percentage change in value of an investment in the Fund or
Portfolio from the beginning date of the measuring period to the end of the
measuring period. These figures reflect changes in the price of the Fund's or
Portfolio's shares and assume that any income dividends and/or capital gains
distributions made by the Fund or Portfolio during the period were reinvested
in shares of that Fund or Portfolio. Figures will be given for recent one-,
five- and ten-year periods (if applicable), and may be given for other periods
as well (such as from commencement of the Fund's or Portfolio's operations, or
on a year-by-year basis).
When considering "average" total return figures for periods longer than
one year, it is important to note that the relevant Fund's or Portfolio's annual
total return for any one year in the period might have been greater or less than
the average for the entire period. A Fund or Portfolio may also use "aggregate"
total return figures for various periods representing the cumulative change in
value of an investment in the Fund or Portfolio for a specific period (again
reflecting changes in the Fund's or Portfolio's share prices and assuming
reinvestment of dividends and distributions). Aggregate total returns may be
shown by means of schedules, charts or graphs and may indicate subtotals of the
various components of total return (i.e., change in value of initial investment,
income dividends and capital gains distributions).
Average annual total return is computed according to a formula
prescribed by the SEC. The formula can be expressed as follows: P(1 + T)n =
ERV, where P = a hypothetical initial
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payment of $1,000; T = average annual total return; n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the designated time period as of the end of such period or the
life of the fund. The formula for calculating aggregate total return can be
expressed as (ERV/P)-1.
Based on the foregoing, the average annual total returns for the fiscal
year ended December 31, 1996 and from inception through December 31, 1996 and
the aggregate total returns for the Funds from inception through December 31,
1996, were as follows*:
<TABLE>
<CAPTION>
Average Annual
Total Return Average Aggregate
for Fiscal Annual Total Total Return
Year Ended Return Since Since
Fund* 12/31/96 Inception Inception
- ----- ------------ ------------ ------------
<S> <C> <C> <C>
Global Money Fund 4.97% 4.32% 16.64%(a)
Short Term High Quality Bond Fund 3.74% 3.75% 11.55%(b)
Short Term Global Government Fund 8.61% 3.96% 15.15%(c)
U.S. Government Fund 3.69% 4.87% 18.94%(d)
Corporate Income Fund 0.43% 5.58% 21.90%(e)
Growth and Income Fund 21.81% 16.80% 58.55%(b)
Growth Fund 16.15% 18.07% 83.30%(e)
Emerging Growth Fund 10.04% 15.09% 51.77%(b)
International Growth Fund 9.04% 8.34% 33.94%(e)
</TABLE>
- --------------
* As of December 31, 1996, the Portfolios had not yet commenced
operations.
(a) Commenced operations on May 10, 1993
(b) Commenced operations on January 12, 1994
(c) Commenced operations on May 12, 1993
(d) Commenced operations on May 6, 1993
(e) Commenced operations on May 7, 1993
The total returns shown for the Funds are not an estimate or guarantee
of future performance and do not take into account charges at the annuity and
separate account level.
The performance of any or all of the Funds or Portfolios may be
compared in advertisements and sales literature to the performance of other
variable annuity issuers in general and to the performance of particular types
of variable annuities investing in mutual funds, or series of mutual funds,
with investment objectives similar to each of the Funds. Lipper Analytical
Services, Inc. ("Lipper") and the Variable Annuity Research and Data Service
("VARDS(R)") are independent services which monitor and rank the performance of
variable annuity issuers in each of the major categories of investment
objectives on an industry-wide basis. Lipper's rankings include variable life
issuers as well as variable annuity issuers. VARDS(R) rankings compare only
variable annuity issuers. The performance analyses prepared
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by Lipper and VARDS(R) rank such issuers on the basis of total return, assuming
reinvestment of dividends and distributions, but do not take sales charges,
redemption fees or certain expense deductions at the separate account level
into consideration. In addition, VARDS(R) prepares risk adjusted rankings,
which consider the effects of market risk on total return performance.
In addition, performance of each Fund or Portfolio may be compared in
advertisements and sales literature to the following benchmarks: (1) the
Standard & Poor's 500 Index, which represents an unmanaged weighted index of 500
industrial, transportation, utility and financial companies that represent
approximately 80% of the market capitalization of the United States equity
markets, widely regarded by investors as representative of the stock market; (2)
the Consumer Price Index, published by the U.S. Bureau of Labor Statistics, a
statistical measure of change, over time, in the prices of goods and services in
major expenditure groups and generally considered to be a measure of inflation;
(3) the Lehman Brothers Mutual Fund Short World Multi-Market Index, which
includes all debt instruments of the United States and 12 Lehman Major Countries
denominated in dollars with maturities of one to five years; (4) the Lehman
Brothers Mutual Fund U.S. Mortgage Index, which includes all agency
Mortgage-Backed Securities; (5) the Lehman Brothers Mutual Fund Debt BBB-Rated
Index, which represents all investment-grade corporate debt securities; (6) the
Morgan Stanley Capital International EAFE (Europe, Australia, Far East) Index,
which includes 1050 companies representing the stock markets of Europe,
Australia, New Zealand and the Far East; and (7) the U.S. Government 90 Day
Treasury Bill rate. Generally, an index represents the market value of an
unmanaged group of securities, regarded by investors as representative of a
particular market. An index does not reflect any asset-based charges for
investment management or other expenses. The performance information may also
include evaluations of the funds published by nationally recognized ranking
services and by financial publications that are nationally recognized, such as
Business Week, Forbes, Institutional Investor, Money and The Wall Street
Journal.
TAXES
The following discussion of federal income tax consequences is based on
the Code and the regulations issued thereunder as in effect on the date of
this SAI. New legislation, as well as administrative changes or court
decisions, may significantly change the conclusions expressed herein and may
have a retroactive effect with respect to the transactions contemplated herein.
Each of the Funds and Portfolios intends to qualify as a "regulated
investment company" ("RIC") under Subchapter M of the Code. A Fund or
Portfolio that is a RIC and distributes to its shareholders at least 90% of its
taxable net investment income (including, for this purpose, its net realized
short-term capital gains) and 90% of its tax-exempt interest income (reduced by
certain expenses), will not be liable for federal income taxes to the extent
its taxable net investment income and its net realized long-term and short-term
capital gains, if any, are distributed to its shareholders.
A number of technical rules are prescribed for computing net investment
income and net capital gains. For example, the Fund or Portfolio is generally
treated as receiving dividends on
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the ex-dividend date. Also, certain foreign currency losses and capital losses
arising after October 31 of a given year may be treated as if they arise on the
first day of the next taxable year.
In order to qualify as a RIC under the Code, in addition to satisfying
the distribution requirement described above, each Fund or Portfolio must (a)
derive at least 90% of its gross income each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities, or foreign currencies, and certain
other related income, including, generally, certain gains from options,
futures, and forward contracts; (b) derive less than 30% of its gross income
each taxable year from the sale or other disposition of the following items if
held for less than three months: (i) stock or securities, (ii) options, futures
or forward contracts (other than options futures, or forward contracts on
foreign currencies), and (iii) foreign currencies (or options, futures, or
forward contracts on foreign currencies) that are not directly related to the
company's business of investing in stock or securities; and (c) diversify its
holdings so that, at the end of each fiscal quarter of the Fund's or
Portfolio's taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items, U.S. Government Securities,
securities of other Registered Investment Companies ("RICs"), and other
securities, with such other securities limited, in respect of any one issuer,
to an amount that does not exceed 10% of the voting securities of such issuer
or 5% of the value of the Fund's or Portfolio's total assets; and (ii) not more
than 25% of the value of its assets is invested in the securities (other than
U.S. Government Securities and securities of other RICs) of any one issuer or
two or more issuers which the Fund or Portfolio controls and which are engaged
in the same, similar or related trades or businesses.
If a Fund or Portfolio fails to qualify as a RIC for any year, all of
its income will be subject to tax at corporate rates, and its distributions
(including capital gain distributions) will be taxable as ordinary income
dividends to its shareholders to the extent of the Fund's or Portfolio's
current and accumulated earnings and profits.
In addition to qualifying under subchapter M by meeting the requirements
described above, each Fund and Portfolio intends to qualify as diversified under
Subchapter L so that non-qualified variable annuity contracts funded by the
Trust will not fail to qualify as annuities for tax purposes. In general, for a
Fund or Portfolio to meet the investment diversification requirements of
Subchapter L of the Code, Treasury regulation 1.817-5 requires that no more
than 55% of the total value of the assets of the Fund or Portfolio be
represented by any one investment, no more than 70% by any two investments, no
more than 80% by three investments and no more than 90% by four investments.
Generally, for purposes of the regulations, all securities of the same issuer
are treated as one investment. In the context of U.S. Government Securities
(including any security that is issued, guaranteed or insured by the United
States or an instrumentality of the United States), each U.S. Government agency
or instrumentality is treated as a separate issuer. In the context of shares of
registered investment companies (including shares of the Trust), each series,
fund or portfolio is treated as a separate issuer. Compliance with the
Subchapter L regulations is tested on the last day of each calendar year
quarter.
Notwithstanding the distribution requirement described above, which
only requires a Fund or Portfolio to distribute at least 90% of its annual
investment company taxable income and
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does not require any minimum distribution of net capital gain, a regulated
investment company is generally subject to a nondeductible 4% excise tax to the
extent it fails to distribute by the end of any calendar year at least 98% of
its ordinary income for that year and 98% of its capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
The excise tax is inapplicable to any RIC all of the shareholders of
which are either tax-exempt pension trusts or separate accounts of life
insurance companies funding variable contracts. Although each Fund and
Portfolio believes that it is not subject to the excise tax, each Fund and
Portfolio intends to make the distributions required to avoid the imposition of
the tax, provided such payments and distributions are determined to be in the
best interest of such Fund's or Portfolio's shareholders.
Dividends declared by a Fund or Portfolio in October, November, or
December of any year and payable to shareholders of record on a date in such
month will be deemed to have been paid by the Fund or Portfolio and received by
the shareholders on December 31 of that year if paid by the Fund or Portfolio
at any time during the following January.
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APPENDIX
DESCRIPTION OF S&P, MOODY'S, DUFF AND FITCH RATINGS
DESCRIPTION OF S&P CORPORATE BOND RATINGS
AAA-Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated debt only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB-Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB, B, CCC, CC or C-Debt rated BB, B, CCC, CC or C is regarded as
having predominantly speculative characteristics with respect to capacity to
pay interest and repay principal. BB indicates the least degree of speculation
and C the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB Debt rated 'BB' has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions that
could lead to inadequate capacity to meet timely interest and principal
payments. The 'BB' rating category is also used for debt subordinated
to senior debt that is assigned an actual or implied 'BBB-' rating.
B Debt rate 'B' has greater vulnerability to default but presently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions would likely impair capacity
or willingness to pay interest and repay principal. The 'B' rating
category also is used for debt subordinated to senior debt that is
assigned an actual or implied 'BB' or 'BB-' rating.
CCC Debt rated 'CCC' has a current identifiable vulnerability to default,
and is dependent on favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The 'CCC' rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied 'B' or
'B-' rating.
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CC The rating 'CC' is typically applied to debt subordinated to senior
debt which is assigned an actual or implied 'CCC' rating.
C The rating 'C' is typically applied to debt subordinated to senior debt
which is assigned an actual or implied 'CCC-' debt rating. The 'C'
rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued.
C1-Debt rated C1 is reserved for income bonds on which no interest is
being paid.
D-Debt is rated D when the issue is in payment default, or the
obligor has filed for bankruptcy. The D rating is used when interest
or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
Aaa-Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than the Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa-Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba-Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be
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very moderate and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa-Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca-Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C-Bonds which are rated C are the lowest class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the security ranks in the lower end of its generic rating
category.
DESCRIPTION OF DUFF CORPORATE BOND RATINGS
AAA-Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA-High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A-Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB-Below average protection factors but still considered sufficient
for prudent investment. Considerable variability in risk during economic cycles.
BB+ Below investment grade but deemed likely to meet obligations when due.
BB Present or prospective financial protection factors fluctuate according
to industry conditions or company fortunes.
BB- Overall quality may move up or down frequently within this category.
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B+ Below investment grade and possessing risk that obligations will not be
met when due.
B Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes.
B- Potential exists for frequent changes in the rating within this category
or into a higher or lower rating grade.
CCC Well below investment grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with unfavorable
company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP Preferred stock with dividend arrearages.
DESCRIPTION OF FITCH CORPORATE BOND RATINGS
AAA-Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA-Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the
AAA and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F-1+.
A-Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and to repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and to repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified
which could assist the obligor in satisfying its debt service
requirements.
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B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business
and economic activity throughout the life of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D
Bonds are in default on interest and/or principal payments. Such bonds
are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor.
'DDD' represents the highest potential for recovery on these bonds, and
'D' represents the lowest potential for recovery.
PLUS (+) MINUS (-)
Plus and minus signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the DDD, DD, or D categories.
DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Debt determined to possess extremely strong
safety characteristics is denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated 'A-1'.
A-3 Debt carrying this designation has an adequate capacity for timely
payment. It is, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B Debt rated 'B' is regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D This rating indicates that the obligation is in payment default.
B-54
<PAGE> 105
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
PRIME-1 Issuers rated Prime-1 (or supporting institutions) have superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
- -- Leading market positions in well established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
NOT PRIME Issuers rate Not Prime do not fall within any of the Prime rating
categories.
DESCRIPTION OF DUFF'S COMMERCIAL PAPER RATINGS
Duff 1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors.
Risk factors are minor.
Duff 1- High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk
factors are very small.
GOOD GRADE
Duff 2 Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs
may enlarge total financing requirements, access to capital
markets is good. Risk factors are small.
B-55
<PAGE> 106
SATISFACTORY GRADE
Duff 3 Satisfactory liquidity and other protection factors qualify
issue as to investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
NON-INVESTMENT GRADE
Duff 4 Speculative investment characteristics. Liquidity is not
sufficient to insure against disruption in debt service. Operating
factors and market access may be subject to a high degree of variation.
DEFAULT
Duff 5 Issuer failed to meet scheduled principal and/or interest
payments.
DESCRIPTION OF FITCH'S COMMERCIAL PAPER RATINGS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated 'F-1+'.
F-2 Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not
as great as for issues assigned 'F-1+' and 'F-1' ratings.
F-3 Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate,
however, near-term adverse changes could cause these securities to be
rated below investment grade.
F-S Weak Credit Quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are
vulnerable to near-term adverse changes in financial and economic
conditions.
D Default. Issues assigned this rating are in actual or imminent payment
default.
LOC The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
B-56
<PAGE> 107
FINANCIAL STATEMENTS
The Trust's financial statements for the fiscal year ended December 31,
1996, including notes thereto and the Report of Price Waterhouse LLP,
Independent Accountants, dated February 14, 1997, are herein incorporated by
reference from the Trust's Annual Report. A copy of the Annual Report to
Shareholders must accompany the delivery of this Statement of Additional
Information.
FS-1
<PAGE> 108
THE SIERRA VARIABLE TRUST
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements (included in Part A)
Audited Financial Highlights for the fiscal year ended December 31, 1996.
Financial Statements (incorporated by reference in Part B)
The following audited financial statements as of December 31, 1996
and the report of Price Waterhouse, LLP dated February 14, 1997 are
hereby incorporated by reference to the Statement of Additional
Information from Form N-30D, the Annual Report of Shareholders, as
filed with the Securities and Exchange Commission on February 28,
1997 (Accession Number 0000927356-97-000186).
Statement of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Financial Highlights
Portfolio of Investments
Notes to Financial Statements
Report of Independent Accountants
(b) Exhibits:
* Filed herewith.
1(a) Agreement and Declaration of Trust, dated January 29,
1993, originally filed as exhibit to Registration Statement
on Form N-1A February 2, 1993, is incorporated by reference
to Post-Effective Amendment No. 7 filed on February 28, 1997.
1(b)-1 Amendment No. 1 to the Trust's Agreement and
Declaration of Trust, dated April 27, 1993, originally filed
as an exhibit to Post-Effective Amendment No. 1 October 13,
1993, is incorporated by reference to Post-Effective
Amendment No. 7 filed on February 28, 1997.
1(b)-2 Amendment No. 2 to the Trust's Agreement and Declaration of
Trust, dated September 22, 1993, originally filed as an
exhibit to Post-Effective Amendment No. 1 October 13, 1993,
is incorporated by reference to Post-Effective Amendment No.
7 filed on February 28, 1997.
C-1
<PAGE> 109
1(c)-1 Establishment and Designation of Series of Shares of
Beneficial Interest, dated April 27, 1993, with respect to
the Global Money, Short Term Global Government, U.S.
Government, Corporate Income, Growth and International Growth
Funds, originally filed as an exhibit to Post-Effective
Amendment No. 1 October 13, 1993, is incorporated by
reference to Post-Effective Amendment No. 7 filed on February
28, 1997.
1(c)-2 Establishment and Designation of Series of Shares of
Beneficial Interest, dated February 3, 1995, with respect to
the Short Term High Quality Bond, Growth and Income and
Emerging Growth Funds, originally filed as an exhibit to
Post-Effective Amendment No. 3 February 10, 1995, is
incorporated by reference to Post-Effective Amendment No. 7
filed on February 28, 1997.
1(c)-3 Establishment and Designation of Series of Shares of
Beneficial Interest, dated January 23, 1997 with respect to
the Income, Value, Balanced, Growth and Capital Growth
Portfolios is incorporated by reference to Post-Effective
Amendment No. 7 filed on February 28, 1997
2 By-Laws of the Trust, originally filed as exhibit to
Registration Statement on Form N-1A February 2, 1993, is
incorporated by reference to Post-Effective Amendment No. 7
filed on February 28, 1997.
3 Not Applicable.
4 Not Applicable.
5(a)-1 Management Agreement, dated as of April 8, 1993, between the
Trust and Sierra Investment Advisors Corporation ("Sierra
Advisors") with respect to the Global Money Fund, originally
filed as an exhibit to Post-Effective Amendment No. 1 October
13, 1993, is incorporated by reference to Post-Effective
Amendment No. 7 filed on February 28, 1997.
5(a)-2 Management Agreement, dated as of April 8, 1993, between the
Trust and Sierra Advisors with respect to the International
Growth Fund, originally filed as an exhibit to Post-Effective
Amendment No. 1 October 13, 1993, is incorporated by
reference to Post-Effective Amendment No. 7 filed on February
28, 1997.
5(a)-3 Management Agreement, dated as of April 8, 1993, between the
Trust and Sierra Advisors with respect to the U.S. Government
Fund, originally filed as an exhibit to Post-Effective
Amendment No. 1 October 13, 1993, is incorporated by
reference to Post-Effective Amendment No. 7 filed on February
28, 1997.
5(a)-4 Management Agreement, dated as of April 8, 1993, between the
Trust and Sierra Advisors with respect to the Corporate
Income Fund, originally filed as an exhibit to Post-Effective
Amendment No. 1 October 13, 1993, is incorporated by
reference to Post-Effective Amendment No. 7 filed on February
28, 1997.
5(a)-5 Management Agreement , dated as of April 8, 1993, between the
Trust and Sierra Advisors with respect to the short Term
Global Government Fund, originally filed as an exhibit to
Post-Effective Amendment No. 1 October 13, 1993, is
incorporated by reference to Post-Effective Amendment No. 7
filed on February 28, 1997.
C-2
<PAGE> 110
5(a)-6 Management Agreement, dated as of April 8, 1993, between the
Trust and Sierra Advisors with respect to the Growth Fund,
originally filed as an exhibit to Post-Effective Amendment
No. 1 October 13, 1993, is incorporated by reference to
Post-Effective Amendment No. 7 filed on February 28, 1997.
5(a)-7 Form of Management Agreement between the Trust and Sierra
Advisors with respect to the Short Term High Quality Bond,
Growth and Income and Emerging Growth Funds, was filed as an
exhibit to Post-Effective Amendment No. 1 on October 13,
1993.
(Replaced by Exhibits 5(a)-9, 5(a)-10, 5(a)-11)
5(a)-8 Investment Advisory Agreement dated May 1, 1997 between the
Trust and Sierra Services.*
5(a)-9 Management Agreement, dated January 1, 1994, between the
Trust and Sierra Advisors, with respect to the Short Term
High Quality Bond Fund, is incorporated by reference to
Post-Effective Amendment No. 7 filed on February 28, 1997.
5(a)-10 Management Agreement, dated January 1, 1994, between the
Trust and Sierra Advisors, with respect to the Growth and
Income Fund, is incorporated by reference to Post-Effective
Amendment No. 7 filed on February 28, 1997.
5(a)-11 Management Agreement, dated January 1, 1994, between the
Trust and Sierra Advisors, with respect to the Emerging
Growth Fund, is incorporated by reference to Post-Effective
Amendment No. 7 filed on February 28, 1997.
5(b)-1 Sub-Adviser Agreement, dated as of April 8, 1993, between
Sierra Advisors and J.P. Morgan Investment Management Inc.
("J.P. Morgan") with respect to the Global Money Fund,
originally filed as an exhibit to Post-Effective Amendment
No. 1 October 13, 1993, is incorporated by reference to Post-
Effective Amendment No. 7 filed on February 28, 1997.
5(b)-2.1 Sub-Adviser Agreement, dated as of April 8, 1993, between
Sierra Advisors and J.P. Morgan with respect to the
International Growth Fund, was filed as Exhibit 5(b)-2 to
Post-Effective Amendment No. 1 on October 13, 1993.
(no longer in effect)
5(b)-2.2 Sub-Adviser Agreement, dated as of April 8, 1996, between
Sierra Advisors and Warburg, Pincus Counsellors, Inc.
("Warburg") with respect to the International Growth Fund, is
incorporated by reference to Exhibit 5(b)-2 of Post-Effective
Amendment No. 5 filed on April 26, 1996.
5(b)-3.1 Sub-Adviser Agreement, dated as of April 8, 1993, between
Sierra Advisors and Van Kampen Merritt Management Inc. with
respect to the U.S. Government Fund, was filed as Exhibit
5(b)-3 to Post-Effective Amendment No. 1 on October 13, 1993.
(no longer in effect)
5(b)-3.2 Sub-Adviser Agreement, dated as of February 28, 1995
between Sierra Advisors and BlackRock Financial Management,
LP. with respect to the U.S. Government Fund is incorporated
by reference to Post-Effective Amendment No. 7 filed on
February 28, 1997.
C-3
<PAGE> 111
5(b)-4 Sub-Adviser Agreement, dated as of April 8, 1993, between
Sierra Advisors and TCW Funds Management, Inc. with respect
to the Corporate Income Fund, originally filed as an exhibit
to Post-Effective Amendment No. 1 October 13, 1993, is
incorporated by reference to Post-Effective Amendment No. 7
filed on February 28, 1997.
5(b)-5 Sub-Adviser Agreement, dated as of April 8, 1993, between
Sierra Advisors and Scudder, Stevens & Clark, Inc.
("Scudder") with respect to the Short Term Global Government
Fund, originally filed as an exhibit to Post-Effective
Amendment No. 1 October 13, 1993, is incorporated by
reference to Post- Effective Amendment No. 7 filed on
February 28, 1997.
5(b)-6.1 Sub-Adviser Agreement, dated as of April 8, 1993, between
Sierra Advisors and Janus Capital Corporation ("Janus") with
respect to the Growth Fund, was filed as exhibit 5(b)-6 to
Post-Effective Amendment No. 1 on October 13, 1993.
(no longer in effect)
5(b)-6.2 Amended and Restated Sub-Adviser Agreement between Sierra
Advisors and Janus with respect to the Growth Fund,
originally filed as an exhibit to Post-Effective Amendment
No. 2 on April 22, 1994, is incorporated by reference to
Exhibit 5(b)-6B of Post-Effective Amendment No. 7 filed on
February 28, 1997.
5(b)-7 Sub-Adviser Agreement, dated as of January 1, 1994, between
Sierra Advisors and J.P. Morgan with respect to the Growth
and Income Fund is incorporated by reference to
Post-Effective Amendment No. 7 filed on February 28, 1997.
5(b)-8 Sub-Adviser Agreement, dated as of January 1, 1994, between
Sierra Advisors and Scudder with respect to the Short Term
High Quality Bond Fund is incorporated by reference to
Post-Effective Amendment No. 7 filed on February 28, 1997.
5(b)-9 Sub-Adviser Agreement, dated as of January 1, 1994, between
Sierra Advisors and Janus with respect to the Emerging Growth
Fund is incorporated by reference to Post-Effective Amendment
No. 7 filed on February 28, 1997.
6(a) Distribution Agreement, dated April 19, 1993, between the
Trust and Sierra Investment Services Corporation ("Sierra
Services"), originally filed as an exhibit to Post-Effective
Amendment No. 1 October 13, 1993, is incorporated by
reference to Post-Effective Amendment No. 7 filed on February
28, 1997.
6(b)-1 Participation Agreement, regarding Sierra Advantage among the
Trust, Sierra Advisors, Sierra Services, American General
Life Insurance Company ("American General") and American
General Securities Incorporated ("American General
Securities"), dated as of may 3, 1993, originally filed as an
exhibit to Post-Effective Amendment No. 2 on April 22, 1994,
is incorporated by reference to Exhibit 6(b) of
Post-Effective No. 7 filed on February 28, 1997.
6(b)-2 Form of First Amendment to Participation Agreement dated as
of May 3, 1993.*
7 Not Applicable.
8(a)-1 Custody Agreement, dated as of January 1, 1996, between the
Trust and Boston Safe Deposit & Trust Company is incorporated
by reference to Exhibit 8(a) of Post-Effective Amendment
No. 7 filed on February 28, 1997.
C-4
<PAGE> 112
8(a)-2 Schedules A and C, as amended and supplemented May 1, 1997,
to Custody Agreement (Exhibit 8(a)-1 above) dated January 1,
1996.*
8(b) Transfer Agency and Services Agreement, dated as of July 1,
1996, between the Trust and First Data Investor Services
Group is incorporated by reference to Post-Effective
Amendment No. 7 filed on February 28, 1997.
9(a)-1 Administration Agreement, dated April 19, 1993, between the
Trust and Sierra Fund Administration Corporation ("Sierra
Administration") was filed as Exhibit 9(a) to Post-Effective
Amendment No. 1 on October 13, 1993.
9(a)-2 Administration Agreement, dated as of July 1, 1996, between
the Trust and Sierra Administration is incorporated by
reference to Exhibit 9(a) of Post-Effective Amendment No. 7
filed on February 28, 1997.
9(a)-3 Form of Administration Agreement dated May 1, 1997 between
the Trust and Sierra Administration. *
9(b)-1 Sub-Administration Agreement, dated April 19, 1993, between
Sierra Administration and The Boston Company Advisors, Inc
was filed as an Exhibit 9(b) to Post-Effective Amendment No.
1 on October 13, 1993.
9(b)-2 Form of Sub-Administration Agreement between Sierra
Administration and First Data Investor Services Group, Inc. *
10 Consent and Opinion of Counsel with Rule 24f-2 Notice filed
with the Securities and Exchange Commission on February 24,
1997.
11(a)-1 Powers of Attorney with respect to Registration Statements
and Amendments thereto signed by the following persons in
their capacities as Trustees and, where applicable, officers
of the Trust: David E. Anderson, Arthur H. Bernstein, F.
Brian Cerini, Edmond R. Davis, Alfred E. Osborne, Jr., and
Keith B. Pipes, originally filed as an exhibit to
Pre-Effective Amendment No. 1 on March 29, 1993, is
incorporated by reference to Post-Effective Amendment No. 7
on February 28, 1997.
11(a)-2 Power of Attorney with respect to Registration Statements and
Amendments thereto signed by the following person in his
capacity as Trustee: John W. English, originally filed as an
exhibit to Post-Effective Amendment No. 3 on February 10,
1995, is incorporated by reference to Post-Effective
Amendment No. 7 filed on February 28, 1997.
11(b) Amended and Restated Agreement Concerning Allocation of
Fidelity Bond Premiums and Recovery, dated February 14, 1996,
among the Trust, the Sierra Trust Funds and the Sierra Prime
Income Fund is incorporated by reference to Post-Effective
Amendment No. 5 filed on April 26, 1996.
11(c) Amended and Restated Agreement Concerning Allocation of Joint
Liability (Errors and Omissions) Insurance Policy Premiums,
dated February 14, 1996, among the Trust, the Sierra Trust
Funds and the Sierra Prime Income Fund is incorporated by
reference to Post-Effective Amendment No. 5 filed on April
26, 1996.
11(d) Indemnification Agreement, dated as of May 3, 1993, among
Sierra Advisors, Sierra Services, American General, and
American General Securities, was filed as an exhibit to
Post-Effective Amendment No. 1 on October 13, 1993.
C-5
<PAGE> 113
11(e) Consent of Independent Accountants. *
12 Not Applicable.
13 Not Applicable.
14 Not Applicable.
15 Not Applicable.
16(a) Certain Performance Data relating to the Funds, originally
filed as an exhibit to Post-Effective Amendment No. 2 on
April 22, 1994, is incorporated by reference to
Post-Effective No. 7 filed on February 28, 1997.
17 Financial Data Schedules are incorporated by reference to
Post-Effective Amendment No. 7 filed on February 28, 1997.
Item 25. Persons Controlled by or Under Common Control with Registrant
The Trust is a business trust organized under the laws of the
Commonwealth of Massachusetts. Separate Account D of American General Life
Insurance Company is the sole shareholder of, and may be deemed to control, the
Trust. American General Life Insurance Company is a subsidiary of American
General Corporation.
The list of American General Corporation's active subsidiaries is
hereby incorporated by reference to Item 26 of the Form N-4 registration
statement of American General Life Insurance Company and its Separate Account D,
File No. 33-57730 and File No. 811-2441.
C-6
<PAGE> 114
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
================================================================================
(2)
(1) No. of Record Holders at
Title of Class December 31, 1996
- --------------------------------------------------------------------------------
<S> <C>
Shares of the Global Money Fund, without par 1
value
- --------------------------------------------------------------------------------
Shares of the Short Term High Quality Bond 1
Fund, without par value
- --------------------------------------------------------------------------------
Shares of the Short Term Global Government 1
Fund, without par value
- --------------------------------------------------------------------------------
Shares of the U.S. Government Fund, without 1
par value
- --------------------------------------------------------------------------------
Shares of the Corporate Income Fund, without 1
par value
- --------------------------------------------------------------------------------
Shares of the Growth and Income Fund, without 1
par value
- --------------------------------------------------------------------------------
Shares of the Growth Fund, without par value 1
- --------------------------------------------------------------------------------
Shares of the Emerging Growth Fund, without 1
par value
- --------------------------------------------------------------------------------
Shares of the International Growth Fund, 1
without par value
- --------------------------------------------------------------------------------
Shares of the Capital Growth 0*
Portfolio, without par value
- --------------------------------------------------------------------------------
Shares of the Growth 0*
Portfolio, without par value
- --------------------------------------------------------------------------------
Shares of the Balanced Portfolio, without par 0*
value
- --------------------------------------------------------------------------------
Shares of the Value Portfolio, 0*
without par value
- --------------------------------------------------------------------------------
Shares of the Income Portfolio, without 0*
par value
================================================================================
</TABLE>
C-7
<PAGE> 115
* The Portfolios have not yet commenced operations.
Item 27. Indemnification
Article VIII of the Registrant's Agreement and Declaration of Trust
provides in relevant part:
The Trust shall indemnify each of its Trustees and officers (including
persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any interest as
a shareholder, creditor or otherwise) (hereinafter referred to as a
"Covered Person") against all liabilities and expenses, including but
not limited to amounts paid in satisfaction of judgments, in compromise
or as fines and penalties, and counsel fees reasonably incurred by any
Covered Person in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which such Covered
Person may be or may have been involved as a party or otherwise or with
which such Covered Person may be or may have been threatened, while in
office or thereafter, by reason of being or having been such a Covered
Person except with respect to any matter as to which such Covered
Person shall have been finally adjudicated in any such action, suit or
other proceeding to be liable to the Trust or its Shareholders by
reason of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered
Person's office. Expenses, including counsel fees so incurred by any
such Covered Person (but excluding amounts paid in satisfaction of
judgments, in compromise or as fines or penalties), shall be paid from
time to time by the Trust in advance of the final disposition of any
such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such Covered Person to repay amounts so paid to the Trust if
it is ultimately determined that indemnification of such expenses is
not authorized under this Article; provided, however, that either (a)
such Covered Person shall have provided appropriate security for such
undertaking, (b) the Trust shall be insured against losses arising from
any such advance payments or (c) either a majority of the disinterested
Trustees acting on the matter (provided that a majority of the
disinterested Trustees then in office act on the matter), or
independent legal counsel in a written opinion, shall have determined,
based upon a review of readily available facts (as opposed to a full
trial type inquiry) that there is reason to believe that such Covered
Person will be found entitled to indemnification under this Article.
C-8
<PAGE> 116
As to any matter disposed of (whether by a compromise payment, pursuant
to a consent decree or otherwise) without an adjudication by a court,
or by any other body before which the proceeding was brought, that such
Covered Person is liable to the Trust or its Shareholders by reason of
wilful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office,
indemnification shall be provided if (a) approved, after notice that it
involves such indemnification, by at least a majority of the
disinterested Trustees acting on the matter (provided that a majority
of the disinterested Trustees then in office act on the matter) upon a
determination, based upon a review of readily available facts (as
opposed to a full trial type inquiry) that such Covered Person is not
liable to the Trust or its Shareholders by reasons of wilful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office, or (b) there has
been obtained an opinion in writing of independent legal counsel, based
upon a review of readily available facts (as opposed to a full trial
type inquiry) to the effect that such indemnification would not protect
such Person against any liability to the Trust to which he or she would
otherwise be subject by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office. Any approval pursuant to this Section shall not prevent
the recovery from any Covered Person of any amount paid to such Covered
Person in accordance with this Section as indemnification if such
Covered Person is subsequently adjudicated by a court of competent
jurisdiction to have been liable to the Trust or its Shareholders by
reason of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered
Person's office.
Section 9 of the Sub-Adviser Agreements that are filed as Exhibits
5(b)-2 and 5(b)-7 to this Registration Statement are hereby incorporated by
reference in response to this item. They provide that, in the absence of willful
misfeasance, bad faith or gross negligence on the part of J.P. Morgan, or
reckless disregard of its obligations and duties thereunder ("Disqualifying
Conduct"), J.P. Morgan shall not be subject to any liability to the Trust or the
Fund, or to any shareholder of the Fund, for any act or omission in the course
of, or connected with, rendering services hereunder. This Section further
provides that Sierra Advisors shall indemnify and hold harmless J.P. Morgan from
and against all claims, losses, liabilities or damages (including reasonable
attorneys' fees and other related expenses) (collectively, "Losses"), howsoever
arising under this Agreement or the performance by J.P. Morgan of its duties
thereunder; provided, however, that nothing contained therein shall require that
J.P. Morgan be indemnified for Losses resulting from Disqualifying Conduct.
C-9
<PAGE> 117
Section 11 of the Sub-Adviser Agreements that are filed as Exhibits
5(b)- 6 and 5(b)-9 to this Registration Statement are hereby incorporated by
reference in response to this item. They provide that Sierra Advisors will
indemnify and hold harmless Janus from and against any and all claims, losses,
liabilities or damages (including reasonable attorneys' fees and other related
expenses), howsoever arising from or in connection with these Sub-Adviser
Agreements or the performance by Janus of its duties thereunder; provided,
however, that nothing contained therein shall require that Janus be indemnified
for Disqualifying Conduct.
Section 12 of the Participation Agreement that is filed as Exhibit 6(b)
to this Registration Statement is hereby incorporated by reference in response
to this item. Section 12.1 thereof provides that American General will indemnify
the Trust and Sierra Services and their directors, trustees, officers and
controlling persons from losses and costs due to misstatements or omissions of
material facts for which American General is responsible in its registration
statement relating to annuities funded through the Trust or otherwise or due to
American General's failure to meet its obligations under the Participation
Agreement. Section 12.2 thereof provides that Sierra Services will indemnify the
Trust, American General, American General Securities and their directors,
trustees, officers and controlling persons from losses and costs due to any
misstatements or omissions of material facts for which Sierra Services or its
affiliates are responsible in American General registration statements relating
to annuities funded through the Trust or otherwise or as a result of any failure
by the Trust or Sierra Services to meet its obligations under the Participation
Agreement.
The Agreement filed as Exhibit 11(d) to this Registration Statement is
hereby incorporated by reference in response to this item. Pursuant to that
Agreement, Sierra Advisors and Sierra Services agree to indemnify American
General and American General Securities with respect to liabilities arising out
of the negligence or bad faith of Sierra Services, Sierra Advisors or any
sub-advisor to the Trust in performing their obligations to the Trust, including
the obligations of Sierra Advisors and the sub-advisors to operate the Trust in
compliance with Sub-Chapter M and Section 817(h) of the Internal Revenue Code of
1986, as amended. Sierra Advisors and Sierra Services also agree to indemnify
American General and American General Securities for 50% of any other
liabilities or costs that they may incur as a result of any failure of the Trust
to comply with Sub-Chapter M or Section 817(h) that does not result from such
negligence or bad faith.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "1933 Act"), may be permitted to Trustees, officers
and controlling persons of Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that, in the opinion of the Securities
and Exchange
C-10
<PAGE> 118
Commission, such indemnification is against public policy as expressed in the
1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a Trustee, officer or controlling person of
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such Trustee, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the 1933 Act and will be governed by the
final adjudication of such issue.
Item 28(a). Business and Other Connections of Investment Advisor -- Sierra
Investment Advisors Corporation, formerly Great Western Financial
Advisors Corporation
As of October 9, 1992, the name of Great Western Financial Advisors
Corporation was changed to Sierra Investment Advisors Corporation ("Sierra
Advisors"). Sierra Advisors is an investment advisor registered under the
Investment Advisers Act of 1940, as amended (the "Advisers Act").
The list required by this Item 28 of officers and directors of Sierra
Advisors, together with information as to any other business, profession,
vocation or employment of substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to Schedules A
and D of Form ADV filed by Sierra Advisors pursuant to the Advisers Act (SEC
File No. 801-32921).
Sierra Investment Services Corporation ("Sierra Services") is the
investment advisor of the Portfolios.
Sierra Services does not currently act as depositor or investment
advisor for any other investment company.
The information required by this Item 28 with respect to each director
and officer of Sierra Services is incorporated by reference to Schedule A of
Form BD filed by Sierra Services pursuant to the Securities Exchange Act of 1934
(SEC File No. 8-45144).
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<PAGE> 119
Item 28(b). Business and Other Connections of Investment Sub-Advisor -- J.P.
Morgan Investment Management Inc.
J.P. Morgan Investment Management Inc. ("J.P. Morgan") is a wholly
owned subsidiary of J.P. Morgan & Co. Incorporated, a bank holding company. J.P.
Morgan is an investment advisor registered under the Advisers Act and manages
employee benefit funds of corporations, labor unions and state and local
governments and the accounts of other institutional investors.
The list required by this Item 28 of officers and directors of J.P.
Morgan, together with information as to any other business, profession, vocation
or employment of a substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by J.P. Morgan pursuant to the Advisers Act (SEC File No.
801-21011).
Item 28(c). Business and Other Connections of Investment Sub-Advisor --
TCW Funds Management, Inc.
TCW Funds Management, Inc. ("TCW") is an investment advisor registered
under the Advisers Act, and acts as investment advisor for registered investment
companies and foreign investment companies. TCW, and its affiliates, including
Trust Company of the West, provide a variety of trust, investment management and
investment advisory services.
The list required by this Item 28 of officers and directors of TCW,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by TCW pursuant to the Advisers Act (SEC File No. 801-29075).
Item 28(d). Business and Other Connections of Investment Sub-Advisor --
Scudder, Stevens & Clark, Inc.
Scudder, Stevens & Clark, Inc. ("Scudder") is an investment advisor
registered under the Advisers Act, and acts as investment advisor for registered
investment companies and foreign investment companies. Scudder, and its
affiliates, provide a variety of trust, investment management and investment
advisory services.
The list required by this Item 28 of officers and directors of Scudder,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and directors
during
C-12
<PAGE> 120
the past two years, is incorporated by reference to Schedules A and D of Form
ADV, filed by Scudder pursuant to the Advisers Act (SEC File No. 801-252).
Item 28(e). Business and Other Connections of Investment Sub-Advisor -- Janus
Capital Corporation
Janus Capital Corporation ("Janus") is an investment advisor registered
under the Advisers Act, and acts as investment advisor for registered investment
companies. Janus provides a variety of investment management and investment
advisory services.
The list required by this Item 28 of officers and directors of Janus,
together with any information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV, filed by Janus pursuant to the Advisers Act (SEC File No. 801-13991).
Item 28(f). Business and Other Connections of Investment Sub-Advisor --
BlackRock Financial Management, Inc.
BlackRock Financial Management, Inc. ("BlackRock") is an investment
advisor registered under the Advisers Act, and acts as investment advisor for
registered investment companies and foreign investment companies. BlackRock, and
its affiliates, provide a variety of trust, investment management and investment
advisory services.
The list required by this Item 28 of officers and directors of
BlackRock, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to Schedules A
and D of Form ADV, filed by BlackRock, pursuant to the Advisers Act (SEC File
No. 801-32183).
Item 28(g). Business and Other Connections of Investment Sub-Advisor --
Warburg, Pincus Counsellors, Inc.
Warburg, Pincus Counsellors, Inc. ("Warburg") is an investment advisor
registered under the Advisers Act, and acts as investment advisor for investment
companies, employee benefit plans, endowment funds, foundations and other
institutions and individuals.
The list required by this Item 28 of officers and directors of Warburg,
together with information as to any other business, profession, vocation or
employment of a substantial nature
C-13
<PAGE> 121
engaged in by such officers and directors during the past two years, is
incorporated by reference to Schedules A and D of Form ADV, filed by Warburg,
pursuant to the Advisers Act (SEC File No. 801-07321).
Item 29. Principal Underwriter
(a) Sierra Investment Services Corporation ("Sierra Services"), the
Distributor of the Trust, currently acts as distributor for the Sierra Trust
Funds.
(b) The information required by this Item 29 with respect to each
director and officer of Sierra Services is incorporated by reference to Schedule
A of Form BD filed by Sierra Services pursuant to the Securities Exchange Act of
1934 (SEC File No. 8-45144).
(c) Not Applicable.
Item 30. Location of Accounts and Records
(1) The Sierra Variable Trust
9301 Corbin Avenue
Northridge, California 91324
(declaration and agreement of trust and by-laws)
(2) Sierra Investment Advisors Corporation
9301 Corbin Avenue
Northridge, California 91324
(with respect to their services as investment advisor)
(3) Sierra Investment Services Corporation
9301 Corbin Avenue
Northridge, California 91324
(with respect to their services as distributor)
(4) Sierra Fund Administration Corporation
9301 Corbin Avenue
Northridge, California 91324
(with respect to their services as administrator,
shareholder servicing agent and transfer agent)
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<PAGE> 122
(5) First Data Investor Services Group, Inc.
One Exchange Place
53 State Street - Mail Zone BOS-873
Boston, MA 02109-2873
(with respect to their services as investment sub-
administrator)
(6) First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, MA 01581
(with respect to their services as Transfer Agent)
(7) Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
(with respect to their services as custodian)
(8) J.P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
(with respect to their services as investment sub-advisor)
(9) TCW Funds Management, Inc.
865 S. Figueroa Street, Suite 1800
Los Angeles, California 90017
(with respect to their services as investment sub-advisor)
(10) Scudder, Stevens & Clark, Inc.
Two International Place
Boston, Massachusetts 02110
(with respect to their services as investment sub-advisor)
(11) Janus Capital Corporation
100 Fillmore Street, Suite 300
Denver, Colorado 80206
(with respect to their services as investment sub-advisor)
(12) BlackRock Financial Management, Inc.
345 Park Avenue, 30th Floor
New York, New York 10154
(with respect to their services as investment sub-advisor)
(13) Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(with respect to their services as investment sub-advisor)
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<PAGE> 123
(14) Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
(with respect to their services as counsel)
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
Shareholders, upon request and without charge.
C-16
<PAGE> 124
**********
NOTICE
**********
A copy of the Agreement and Declaration of Trust of The Sierra Variable
Trust (the "Trust") is on file with the Secretary of State of the Commonwealth
of Massachusetts and notice is hereby given that this Registration Statement has
been executed on behalf of the Trust by an officer of the Trust as an officer
and by its Trustees as trustees and not individually and the obligations of or
arising out of this Registration Statement are not binding upon any of the
Trustees, officers or shareholders individually but are binding only upon the
assets and property of the Trust.
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<PAGE> 125
EXHIBIT INDEX
<TABLE>
<CAPTION>
EDGAR
Exhibit Exhibit
No. No. Description
- --- --- -----------
<S> <C> <C>
1(a) Agreement and Declaration of Trust, dated January 29,
1993, originally filed as exhibit to Registration
Statement on Form N-1A February 2, 1993, is incorporated
by reference to Post-Effective Amendment No. 7 filed on
February 28, 1997.
1(b)-1 Amendment No. 1 to the Trust's Agreement and Declaration
of Trust, dated April 27, 1993, originally filed as an
exhibit to Post-Effective Amendment No. 1 October 13,
1993, is incorporated by reference to Post-Effective
Amendment No. 7 filed on February 28, 1997.
1(b)-2 Amendment No. 2 to the Trust's Agreement and Declaration
of Trust, dated September 22, 1993, originally filed as
an exhibit to Post-Effective Amendment No. 1 October 13,
1993, is incorporated by reference to Post-Effective
Amendment No. 7 filed on February 28, 1997.
1(c)-1 Establishment and Designation of Series of Shares of
Beneficial Interest, dated April 27, 1993, with respect
to the Global Money, Short Term Global Government, U.S.
Government, Corporate Income, Growth and International
Growth Funds, originally filed as an exhibit to Post-
Effective Amendment No. 1 October 13, 1993, is
incorporated by reference to Post-Effective Amendment No.
7 filed on February 28, 1997.
1(c)-2 Establishment and Designation of Series of Shares of
Beneficial Interest, dated February 3, 1995, with respect
to the Short Term High Quality Bond, Growth and Income
and Emerging Growth Funds, originally filed as an exhibit
to Post-Effective Amendment No. 3 February 10, 1995, is
incorporated by reference to Post-Effective Amendment No.
7 filed on February 28, 1997.
1(c)-3 Establishment and Designation of Series of Shares of
Beneficial Interest, dated January 23, 1997 with respect
to the Income, Value, Balanced, Growth and Capital Growth
Portfolios is incorporated by reference to Post-Effective
Amendment No. 7 filed on February 28, 1997
2 By-Laws of the Trust, originally filed as exhibit to
Registration Statement on Form N-1A February 2, 1993, is
incorporated by reference to Post-Effective Amendment No.
7 filed on February 28, 1997.
3 Not Applicable.
4 Not Applicable.
</TABLE>
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<PAGE> 126
<TABLE>
<S> <C> <C>
5(a)-1 Management Agreement, dated as of April 8, 1993, between
the Trust and Sierra Investment Advisors Corporation
("Sierra Advisors") with respect to the Global Money
Fund, originally filed as an exhibit to Post- Effective
Amendment No. 1 October 13, 1993, is incorporated by
reference to Post-Effective Amendment No. 7 filed on
February 28, 1997.
5(a)-2 Management Agreement, dated as of April 8, 1993, between
the Trust and Sierra Advisors with respect to the
International Growth Fund, originally filed as an exhibit
to Post-Effective Amendment No. 1 October 13, 1993, is
incorporated by reference to Post-Effective Amendment No.
7 filed on February 28, 1997.
5(a)-3 Management Agreement, dated as of April 8, 1993, between
the Trust and Sierra Advisors with respect to the U.S.
Government Fund, originally filed as an exhibit to
Post-Effective Amendment No. 1 October 13, 1993, is
incorporated by reference to Post-Effective Amendment No.
7 filed on February 28, 1997.
5(a)-4 Management Agreement, dated as of April 8, 1993, between
the Trust and Sierra Advisors with respect to the
Corporate Income Fund, originally filed as an exhibit to
Post-Effective Amendment No. 1 October 13, 1993, is
incorporated by reference to Post-Effective Amendment No.
7 filed on February 28, 1997.
5(a)-5 Management Agreement , dated as of April 8, 1993, between
the Trust and Sierra Advisors with respect to the short
Term Global Government Fund, originally filed as an
exhibit to Post-Effective Amendment No. 1 October 13,
1993, is incorporated by reference to Post-Effective
Amendment No. 7 filed on February 28, 1997.
5(a)-6 Management Agreement, dated as of April 8, 1993, between
the Trust and Sierra Advisors with respect to the Growth
Fund, originally filed as an exhibit to Post-Effective
Amendment No. 1 October 13, 1993, is incorporated by
reference to Post-Effective Amendment No. 7 filed on
February 28, 1997.
5(a)-7 Form of Management Agreement between the Trust and Sierra
Advisors with respect to the Short Term High Quality
Bond, Growth and Income and Emerging Growth Funds, was
filed as an exhibit to Post-Effective Amendment No. 1 on
October 13, 1993.
(Replaced by Exhibits 5(a)-9, 5(a)-10, 5(a)-11)
EX-99.B 5(a)-8 Investment Advisory Agreement dated May 1, 1997 between
the Trust and Sierra Services.*
5(a)-9 Management Agreement, dated January 1, 1994, between the
Trust and Sierra Advisors, with respect to the Short Term
High Quality Bond Fund, is incorporated by reference to
Post-Effective Amendment No. 7 filed on February 28,
1997.
</TABLE>
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<PAGE> 127
<TABLE>
<S> <C> <C>
5(a)-10 Management Agreement, dated January 1, 1994, between the
Trust and Sierra Advisors, with respect to the Growth and
Income Fund, is incorporated by reference to
Post-Effective Amendment No. 7 filed on February 28,
1997.
5(a)-11 Management Agreement, dated January 1, 1994, between the
Trust and Sierra Advisors, with respect to the Emerging
Growth Fund, is incorporated by reference to
Post-Effective Amendment No. 7 filed on February 28,
1997.
5(b)-1 Sub-Adviser Agreement, dated as of April 8, 1993, between
Sierra Advisors and J.P. Morgan Investment Management
Inc. ("J.P. Morgan") with respect to the Global Money
Fund, originally filed as an exhibit to Post-Effective
Amendment No. 1 October 13, 1993, is incorporated by
reference to Post-Effective Amendment No. 7 filed on
February 28, 1997.
5(b)-2.1 Sub-Adviser Agreement, dated as of April 8, 1993, between
Sierra Advisors and J.P. Morgan with respect to the
International Growth Fund, was filed as Exhibit 5(b)-2 to
Post-Effective Amendment No. 1 on October 13, 1993.
(no longer in effect)
5(b)-2.2 Sub-Adviser Agreement, dated as of April 8, 1996, between
Sierra Advisors and Warburg, Pincus Counsellors, Inc.
("Warburg") with respect to the International Growth
Fund, is incorporated by reference to Exhibit 5(b)-2 of
Post-Effective Amendment No. 5 filed on April 26, 1996.
5(b)-3.1 Sub-Adviser Agreement, dated as of April 8, 1993, between
Sierra Advisors and Van Kampen Merritt Management Inc.
with respect to the U.S. Government Fund, was filed as
Exhibit 5(b)-3 to Post-Effective Amendment No. 1 on
October 13, 1993.
(no longer in effect)
5(b)-3.2 Sub-Adviser Agreement, dated as of February 28, 1995
between Sierra Advisors and BlackRock Financial
Management, LP. with respect to the U.S. Government Fund
is incorporated by reference to Post-Effective Amendment
No. 7 filed on February 28, 1997.
5(b)-4 Sub-Adviser Agreement, dated as of April 8, 1993, between
Sierra Advisors and TCW Funds Management, Inc. with
respect to the Corporate Income Fund, originally filed as
an exhibit to Post-Effective Amendment No. 1 October 13,
1993, is incorporated by reference to Post-Effective
Amendment No. 7 filed on February 28, 1997.
5(b)-5 Sub-Adviser Agreement, dated as of April 8, 1993, between
Sierra Advisors and Scudder, Stevens & Clark, Inc.
("Scudder") with respect to the Short Term Global
Government Fund, originally filed as an exhibit to
Post-Effective Amendment No. 1 October 13, 1993, is
incorporated by reference to Post-Effective Amendment No.
7 filed on February 28, 1997.
</TABLE>
C-20
<PAGE> 128
<TABLE>
<S> <C> <C>
5(b)-6.1 Sub-Adviser Agreement, dated as of April 8, 1993, between
Sierra Advisors and Janus Capital Corporation ("Janus")
with respect to the Growth Fund, was filed as exhibit
5(b)-6 to Post-Effective Amendment No. 1 on October 13,
1993.
(no longer in effect)
5(b)-6.2 Amended and Restated Sub-Adviser Agreement between Sierra
Advisors and Janus with respect to the Growth Fund,
originally filed as an exhibit to Post-Effective
Amendment No. 2 on April 22, 1994, is incorporated by
reference to Exhibit 5(b)-6B of Post-Effective Amendment
No. 7 filed on February 28, 1997.
5(b)-7 Sub-Adviser Agreement, dated as of January 1, 1994,
between Sierra Advisors and J.P. Morgan with respect to
the Growth and Income Fund is incorporated by reference
to Post-Effective Amendment No. 7 filed on February 28,
1997.
5(b)-8 Sub-Adviser Agreement, dated as of January 1, 1994,
between Sierra Advisors and Scudder with respect to the
Short Term High Quality Bond Fund is incorporated by
reference to Post-Effective Amendment No. 7 filed on
February 28, 1997.
5(b)-9 Sub-Adviser Agreement, dated as of January 1, 1994,
between Sierra Advisors and Janus with respect to the
Emerging Growth Fund is incorporated by reference to
Post-Effective Amendment No. 7 filed on February 28,
1997.
6(a) Distribution Agreement, dated April 19, 1993, between the
Trust and Sierra Investment Services Corporation ("Sierra
Services"), originally filed as an exhibit to
Post-Effective Amendment No. 1 October 13, 1993, is
incorporated by reference to Post-Effective Amendment No.
7 filed on February 28, 1997.
6(b)-1 Participation Agreement, regarding Sierra Advantage among
the Trust, Sierra Advisors, Sierra Services, American
General Life Insurance Company ("American General") and
American General Securities Incorporated ("American
General Securities"), dated as of may 3, 1993, originally
filed as an exhibit to Post-Effective Amendment No. 2 on
April 22, 1994, is incorporated by reference to Exhibit
6(b) of Post-Effective Amendment No. 7 filed on
February 28, 1997.
EX-99.B 6(b)-2 Form of First Amendment to Participation Agreement dated
as of May 3, 1993.*
7 Not Applicable.
8(a)-1 Custody Agreement, dated as of January 1, 1996, between
the Trust and Boston Safe Deposit & Trust Company is
incorporated by reference to Exhibit 8(a) of
Post-Effective Amendment No. 7 filed on February 28,
1997.
</TABLE>
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<PAGE> 129
<TABLE>
<S> <C> <C>
EX-99.B 8(a)-2 Schedules A and C, as amended and supplemented May 1,
1997, to Custody Agreement (Exhibit 8(a)-1 above) dated
January 1, 1996.*
8(b) Transfer Agency and Services Agreement, dated as of July
1, 1996, between the Trust and First Data Investor
Services Group is incorporated by reference to
Post-Effective Amendment No. 7 filed on February 28,
1997.
9(a)-1 Administration Agreement, dated April 19, 1993, between
the Trust and Sierra Fund Administration Corporation
("Sierra Administration") was filed as Exhibit 9(a) to
Post-Effective Amendment No. 1 on October 13, 1993.
9(a)-2 Administration Agreement, dated as of July 1, 1996,
between the Trust and Sierra Administration is
incorporated by reference to Exhibit 9(a) of Post-
Effective Amendment No. 7 filed on February 28, 1997.
EX-99.B 9(a)-3 Form of Administration Agreement dated May 1, 1997
between the Trust and Sierra Administration. *
9(b)-1 Sub-Administration Agreement, dated April 19, 1993,
between Sierra Administration and The Boston Company
Advisors, Inc was filed as an Exhibit 9(b) to
Post-Effective Amendment No. 1 on October 13, 1993.
EX-99.B 9(b)-2 Form of Sub-Administration Agreement between Sierra
Administration and First Data Investor Services Group,
Inc. *
10 Consent and Opinion of Counsel with Rule 24f-2 Notice
filed with the Securities and Exchange Commission on
February 24, 1997.
11(a)-1 Powers of Attorney with respect to Registration
Statements and Amendments thereto signed by the following
persons in their capacities as Trustees and, where
applicable, officers of the Trust: David E. Anderson,
Arthur H. Bernstein, F. Brian Cerini, Edmond R. Davis,
Alfred E. Osborne, Jr., and Keith B. Pipes, originally
filed as an exhibit to Pre-Effective Amendment No. 1 on
March 29, 1993, is incorporated by reference to
Post-Effective Amendment No. 7 on February 28, 1997.
11(a)-2 Power of Attorney with respect to Registration Statements
and Amendments thereto signed by the following person in
his capacity as Trustee: John W. English, originally
filed as an exhibit to Post-Effective Amendment No. 3 on
February 10, 1995, is incorporated by reference to
Post-Effective Amendment No. 7 filed on February 28,
1997.
11(b) Amended and Restated Agreement Concerning Allocation of
Fidelity Bond Premiums and Recovery, dated February 14,
1996, among the Trust, the Sierra Trust Funds and the
Sierra Prime Income Fund is incorporated by reference to
Post-Effective Amendment No. 5 filed on April 26, 1996.
</TABLE>
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<PAGE> 130
<TABLE>
<S> <C> <C>
11(c) Amended and Restated Agreement Concerning Allocation of
Joint Liability (Errors and Omissions) Insurance Policy
Premiums, dated February 14, 1996, among the Trust, the
Sierra Trust Funds and the Sierra Prime Income Fund is
incorporated by reference to Post-Effective Amendment No.
5 filed on April 26, 1996.
11(d) Indemnification Agreement, dated as of May 3, 1993, among
Sierra Advisors, Sierra Services, American General, and
American General Securities, was filed as an exhibit to
Post-Effective Amendment No. 1 on October 13, 1993.
EX-99.B 11(e) Consent of Independent Accountants. *
12 Not Applicable.
13 Not Applicable.
14 Not Applicable.
15 Not Applicable.
16(a) Certain Performance Data relating to the Funds,
originally filed as an exhibit to Post-Effective
Amendment No. 2 on April 22, 1994, is incorporated by
reference to Post-Effective No. 7 filed on February 28,
1997.
17 Financial Data Schedules are incorporated by reference to
Post-Effective Amendment No. 7 filed on February 28,
1997.
</TABLE>
- ----------
* Filed herewith.
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<PAGE> 131
Securities Act File No. 33-57732
Investment Company Act File No. 811-7462
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 9 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 10 [X]
The Sierra Variable Trust
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
---------------------------
EXHIBITS
---------------------------
<PAGE> 132
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and the Investment Company Act of 1940, as amended, the Registrant
certifies that it meets all of the requirements for effectiveness of this
Post-Effective Amendment No. 9 pursuant to Rule 485(b) under the 1933 Act and
has duly caused this Post-Effective Amendment No. 9 to the Registrant's
Registration Statement File No. 33-57732 to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Northridge and State of
California on the 29th day of April, 1997.
THE SIERRA VARIABLE TRUST
By: /s/ F. Brian Cerini
----------------------------
F. Brian Cerini
President
Pursuant to the requirements of the 1933 Act, as amended, this
Post-Effective Amendment No. 9 has been signed below by the following persons in
the capacities and on the date(s) indicated.
<TABLE>
<CAPTION>
Signature Title(s) Date
--------- -------- ----
<S> <C> <C>
/s/ F. Brian Cerini President and Trustee April 29,1997
- ------------------------------------
F. Brian Cerini
(Principal Executive Officer)
/s/ Keith B. Pipes Executive Vice President, April 29,1997
- ------------------------------------ Treasurer and Secretary
Keith B. Pipes
(Principal Financial and Accounting Officer)
* Trustee April 29,1997
- ------------------------------------
David E. Anderson
* Trustee April 29,1997
- ------------------------------------
Arthur H. Bernstein
* Trustee April 29,1997
- ------------------------------------
Edmond R. Davis
* Trustee April 29,1997
- ------------------------------------
John W. English
* Trustee April 29,1997
- ------------------------------------
Alfred E. Osborne, Jr. Ph.D.
</TABLE>
*By: /s/ F. Brian Cerini
---------------------------------
F. Brian Cerini
Attorney-In-Fact
<PAGE> 1
EXHIBIT 5(a)-8
INVESTMENT ADVISORY AGREEMENT
MAY 1, 1997
Sierra Investment Services Corporation
9301 Corbin Avenue, Suite 333
Northridge, California 91324
Dear Sirs:
The Sierra Variable Trust (the "Trust"), an unincorporated
business trust organized under the laws of the Commonwealth of Massachusetts,
hereby agrees with Sierra Investment Services Corporation ("Sierra Services"), a
corporation organized under the laws of the state of California, as follows:
1. Investment Description; Appointment
The Trust desires to employ the capital of the Trust's managed
investment portfolios listed in the SCHEDULE(S) attached hereto and made a part
of this Agreement, (each, a "Portfolio," and together, the "Portfolios") by
investing and reinvesting in investments of the kind and in accordance with the
limitations specified in the Trust's Agreement and Declaration of Trust, as
amended (the "Trust Agreement"), and in its prospectus(es) and statement(s) of
additional information relating to the Portfolios as from time to time in effect
(the "Prospectus" and the "Statement of Additional Information", respectively),
and in such manner and to such extent as may from time to time be approved by
the Board of Trustees of the Trust. Copies of the Prospectus, Statement of
Additional Information and Trust Agreement have been or will be submitted to
Sierra Services. The Trust agrees to provide copies of all amendments to the
Prospectus, Statement of Additional Information and Trust Agreement to Sierra
Services on an ongoing basis. The Trust desires to employ and hereby appoints
Sierra Services to act as investment advisor to the Portfolios. Sierra Services
accepts the appointment and agrees to furnish the services described herein for
the compensation set forth below.
<PAGE> 2
2. Services as Investment Advisor
Subject to the supervision and direction of the Board of Trustees
of the Trust, Sierra Services has responsibility for the investment advisory
services provided to the Portfolios and will exercise this responsibility in
accordance with the Trust Agreement, the Investment Company Act of 1940, as
amended (the "1940 Act"), and the Investment Advisers Act of 1940, as amended,
and with the Portfolios' investment objectives and policies as stated in the
Prospectus and Statement of Additional Information relating to the Portfolios as
from time to time in effect. In connection therewith, Sierra Services will,
among other things, (a) make investment decisions for the Portfolios in
accordance with the Portfolios' investment policies, (b) place purchase and sale
orders on behalf of the Portfolios to effectuate the investment decisions made,
(c) maintain books and records with respect to the securities transactions of
the Portfolios and will furnish the Trust's Board of Trustees such periodic,
regular and special reports as the Board may request.
3. Information Provided to the Trust
Sierra Services will keep the Trust informed of developments
materially affecting the Portfolios, and will, on its own initiative, furnish
the Trust from time to time with whatever information Sierra Services believes
is appropriate for this purpose.
4. Standard of Care
Sierra Services shall exercise its best judgment in rendering the
services described in paragraph 2 above. Sierra Services shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the
Portfolios in connection with the matters to which this Agreement relates,
except (a) a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services (in which case any award of damages shall
be limited to the period and the amount set forth in Section 36(b)(3) of the
1940 Act) or (b) a loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement (each such
breach, act or omission described in (a) or (b) shall be referred to as
"Disqualifying Conduct").
5. Compensation
In consideration of the services rendered pursuant to this
Agreement, the Trust will pay Sierra Services on the first business day of each
month a fee for the previous month at the annual rate specified in the
SCHEDULE(S) which is attached hereto and made part of this Agreement. The fee
will be calculated based on each Portfolio's average daily net assets. Upon any
termination of this Agreement before the end of a month, the fee for such part
of that month shall be prorated
<PAGE> 3
according to the proportion that such period bears to the full monthly period
and shall be payable upon the date of termination of this Agreement. For the
purpose of determining fees payable to Sierra Services, the value of each
Portfolio's average daily net assets shall be computed at the times and in the
manner specified in the Prospectus or Statement of Additional Information
relating to the Portfolio as from time to time in effect.
6. Expenses
Sierra Services will bear all expenses in connection with the
performance of its services under this Agreement. The Trust will bear certain
other expenses to be incurred in its operation, including but not limited to:
organizational expenses; taxes, interest, brokerage fees and commissions, if
any; fees of Trustees of the Trust who are not officers, directors, or employees
of Sierra Services, the Portfolios' sub-administrator or any of their
affiliates; Securities and Exchange Commission fees and state Blue Sky
notification fees; transfer agent fees; out-of-pocket expenses of custodians,
transfer and dividend disbursing agents and the Portfolios' sub-administrator
and transaction charges of custodians; insurance premiums; outside auditing and
legal expenses; costs of maintenance of the Trust's existence; costs
attributable to investor services, including, without limitation, telephone and
personnel expenses; costs of preparing and printing prospectuses and statements
of additional information for regulatory purposes and for distribution to
existing shareholders; costs of shareholders' reports and meetings of the
shareholders of the Trust and of the officers or Board of Trustees of the Trust;
and any extraordinary expenses.
7. Services to Other Companies or Accounts
The Trust understands that Sierra Services now acts as investment
advisor to other investment companies and each of the Portfolios, and may act
now or in the future as investment advisor to (i) other series of the Trust;
(ii) fiduciary and other managed accounts; and (iii) one or more other
investment companies or series of investment companies; and the Trust has no
objection to Sierra Services so acting. The Trust understands that the persons
employed by Sierra Services to assist in the performance of Sierra Services'
duties hereunder will not devote their full time to such service and nothing
contained herein shall be deemed to limit or restrict the right of Sierra
Services or any affiliate of Sierra Services to engage in and devote time and
attention to other businesses or to render services of whatever kind or nature.
8. Term of Agreement
This Agreement shall become effective as of the date first
written above and shall continue for an initial two-year term and shall continue
thereafter with respect to any of the Portfolios so long as such continuance is
specifically approved at least annually by (i) the Board of Trustees of
<PAGE> 4
the Trust or (ii) a vote of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of such Portfolio; provided that in either event
the continuance is also approved by a majority of the Board of Trustees who are
not "interested persons" (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. This Agreement is terminable with respect to any of the
Portfolios, without penalty, on 60 days' written notice, by the Board of
Trustees of the Trust or by vote of holders of a majority of the outstanding
voting securities of such Portfolio, or upon 90 days' written notice, by Sierra
Services. This Agreement will also terminate automatically in the event of its
assignment (as defined in the 1940 Act). Sierra Services agrees to notify the
Trust of any circumstances that might result in this Agreement being deemed to
be assigned.
9. Representations of the Trust and Sierra Services
The Trust represents that (i) a copy of the Trust Agreement,
dated January 29, 1993, together with all amendments thereto, is on file in the
office of the Secretary of the Commonwealth of Massachusetts, (ii) the
appointment of Sierra Services has been duly authorized and (iii) the Trust has
acted and will continue to act in conformity with the requirements of the 1940
Act and other applicable laws.
Sierra Services represents that it is authorized to perform the
services described herein.
10. Limitation of Liability
This Agreement has been executed on behalf of the Trust by the
undersigned officer of the Trust in his capacity as an officer of the Trust. The
obligations of this Agreement with respect to each Portfolio shall be binding
upon the assets and property of such Portfolio only and not upon the assets and
property of any other investment fund (i.e., series) of the Trust and shall not
be binding upon any Trustee, officer or shareholder of the Portfolios and/or the
Trust individually.
11. Entire Agreement
This Agreement constitutes the entire agreement between the
parties hereto.
12. Governing Law
This Agreement shall be governed in accordance with laws of the
Commonwealth of Massachusetts.
<PAGE> 5
If the foregoing accurately sets forth our agreement, kindly
indicate your acceptance hereof by signing and returning the enclosed copy
hereof.
Very truly yours,
THE SIERRA VARIABLE TRUST
By /s/ F. Brian Cerini
-----------------------------------
Name: F. Brian Cerini
Title: President and Chairman
Accepted:
SIERRA INVESTMENT SERVICES CORPORATION
By /s/ Keith B. Pipes
--------------------------------------
Name: Keith B. Pipes
Title: Senior Vice President and Secretary
<PAGE> 6
INVESTMENT ADVISORY AGREEMENT
Dated May 1, 1997
PORTFOLIO AND FEE SCHEDULE
(Pursuant to Sections 1 and 5)
The following Portfolios (as defined in the Investment Advisory
Agreement attached hereto) are governed by such Agreement and the Trust will pay
Sierra Investment Services Corporation (as such parties are defined in such
Agreement) fees at the annual rate set forth opposite the name of such Portfolio
below:
<TABLE>
<CAPTION>
Portfolio Annual Rate
- --------- -----------
<S> <C>
Capital Growth .10%
Growth .10%
Balanced .10%
Value .10%
Income .10%
</TABLE>
Schedule Adopted as of May 1, 1997
<PAGE> 1
EXHIBIT 6(b)-2
FORM OF
FIRST AMENDMENT
DATED AS OF APRIL ___, 1997
TO
PARTICIPATION AGREEMENT
DATED AS OF MAY 3, 1993
AMONG
AMERICAN GENERAL LIFE INSURANCE COMPANY
AMERICAN GENERAL SECURITIES INCORPORATED
THE SIERRA VARIABLE TRUST
AND
SIERRA INVESTMENT SERVICES CORPORATION
<PAGE> 2
THIS FIRST AMENDMENT, dated as of the ____ day of April, 1997, to
the Participation Agreement (the "Agreement"), dated as of May 3, 1993, by and
among AMERICAN GENERAL LIFE INSURANCE COMPANY ("AGL"), a Texas life insurance
company, AMERICAN GENERAL SECURITIES INCORPORATED ("AGSI"), a Texas corporation,
THE SIERRA VARIABLE TRUST (the "Trust"), a Massachusetts business trust, and
SIERRA INVESTMENT SERVICES CORPORATION, a California corporation (the
"Distributor") (collectively, the "Parties"):
WITNESSETH:
WHEREAS, the Agreement provides that the Trust and the
Distributor may offer shares of investment funds of the Trust to AGL for its
combination fixed and variable annuity contracts (the "Contracts"), which are in
addition to those currently identified in the Agreement, and that AGL may
purchase shares of such additional investment funds for its Contracts;
WHEREAS, the Trust and the Distributor currently offer shares of
four investment funds of the Trust to AGL for its Contracts, which are in
addition to the investment funds currently identified in the Agreement, and AGL
currently purchases shares of such investment funds for its Contract;
WHEREAS, the Trust and the Distributor desire to offer shares of
five new investment funds to AGL for its Contracts and AGL desires to purchase
shares of such new investment funds for its Contracts;
-2-
<PAGE> 3
WHEREAS, the Parties desire to amend the Agreement to
specifically identify all investment funds of the Trust offered to AGL for its
Contracts; and
WHEREAS, the Parties also desire to amend the Agreement to
include certain representations concerning the new investment funds that the
Trust and the Distributor intend to offer to AGL for its Contract and that AGL
intends to purchase for its Contacts;
NOW, THEREFORE, in consideration of the mutual benefits and
promises contained herein, the Parties agree as follows:
1. Section 1.1 of the Agreement entitled, "Availability of
Separate Account Divisions," is amended to provide as follows:
1.1 Availability of Separate Account Divisions.
AGL represents that American General Life
Insurance Company Separate Account D (the "Separate Account") is
and will continue to be available to serve as an investment
vehicle for its Contracts. The Contracts provide for the
allocation of net amounts received by AGL to separate series (the
"Divisions"; reference herein to the "Separate Account" includes
reference to each Division to the extent the context requires) of
the Separate Account for investment in the shares of
corresponding investment funds of the Trust that are made
available through the Separate Account to act as underlying
investment media. The Trust may from time to time add additional
investment funds, which will become subject to this Agreement if
they are made available as investment media for the Contracts.
The investment funds of the Trust which are subject to this
Agreement are set forth in Exhibit A to the Agreement. Exhibit A
shall be amended from time to time as necessary to identify all
investment funds offered under the Agreement. AGL will not
unreasonably
-3-
<PAGE> 4
deny any request by the Distributor to
create new Divisions corresponding to such new Funds.
2. Paragraph (c) of Section 4.3 of the Agreement is amended to
provide as follows:
(c) The Trust represents and warrants that (i) the
Trust does and will comply in all material respects with the
requirements of the 1940 Act and the rules thereunder, including
the exemptive order issued by the Commission as Release No.
IC-22047, which the Trust further represents and warrants is
applicable to the Trust, (ii) its 1933 Act registration
statement, together with any amendments thereto, will at all
times comply in all material respects with the requirements of
the 1933 Act and rules thereunder, and (iii) the Trust Prospectus
will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
IN WITNESS WHEREOF, the Parties have caused this First Amendment
to the Agreement to be executed in their names and on their behalf by and
through their duly authorized officers signing below.
-4-
<PAGE> 5
AMERICAN GENERAL LIFE INSURANCE COMPANY
By ______________________________________________
Title _____________________________________________
AMERICAN GENERAL SECURITIES INCORPORATED
By ______________________________________________
Title _____________________________________________
THE SIERRA VARIABLE TRUST
By ______________________________________________
Title _____________________________________________
SIERRA INVESTMENT SERVICES CORPORATION
By ______________________________________________
Title _____________________________________________
-5-
<PAGE> 6
EXHIBIT A
INVESTMENT FUNDS OF THE TRUST
AS OF MAY 1, 1997
o Global Money Fund
o Short-Term High Quality Bond Fund
o Short-Term Global Government Fund
o U.S. Government Fund
o Corporate Income Fund
o Growth and Income Fund
o Growth Fund
o Emerging Growth Fund
o International Growth Fund
o Capital Growth Portfolio
o Growth Portfolio
o Balanced Portfolio
o Value Portfolio
o Income Portfolio
<PAGE> 1
EXHIBIT 8(a)-2
SCHEDULE A
BOSTON SAFE DEPOSIT AND TRUST COMPANY
CUSTODY FEE SCHEDULE
A. Transaction Charges:(Domestic)
DTC, FBE $ 8.00 per trade
PTC, Muni Book Entry $10.00 per trade
Physical $30.00 per trade
Paydowns $ 5.00 per Paydown
Time Deposit/Mutual Fund $30.00 per trade
(Other than Dreyfus)
Options: (open, close) $25.00 per trade
Options: (exercised, expired) $10.00 per trade
B. Earnings credits:
Earnings credits will be provided on 90% of idle U.S. dollar balances at
an annualized rate equal to the 90 day U.S. Treasury Bill rate for the
period. If the earnings credit exceeds the total custody bill in a given
month, the excess earnings credit will be carried forward and can be
used to offset future custody bills. If the earnings credit is less than
the custody bill in a given month plus any previous excess earnings
credit, then an invoice will be due for that amount. Earnings credits
will be used exclusively to offset custody bills.
<PAGE> 2
SCHEDULE A
(continued)
BOSTON SAFE DEPOSIT AND TRUST COMPANY
GLOBAL CUSTODY FEE SCHEDULE
C. Global Safekeeping:
1. EUROCLEAR/CEDEL/FIRST CHICAGO CLEARING CORP.: The Trust shall
pay the Custodian the following transaction charge for assets
held through Euroclear/Cedel at the end of each month:
$30 per transaction
2. Global Safekeeping - Group I, Group II, Group III, Group IV,
Group V and Group VI Markets:
The Trust shall pay the Custodian the following transaction
charges with respect to the Group listed below.
Group I Transactions $35.00 per transaction
Group II Transactions $40.00 per transaction
Group III Transactions $50.00 per transaction
Group IV Transactions $60.00 per transaction
Group V Transactions $70.00 per transaction
Group VI Transactions $85.00 per transaction
*Third Party F/X $20.00 per FX
- --------
* A Third Party F/X is one in which Boston Safe is not the
currency broker. This charge will be assessed only on
transactions where funds are actually transferred.
Reimbursable out-of-pocket expenses will be added to each
monthly invoice and will include, but not be limited to, such
customary items as telephone, wire charges ($5.00 per wire),
stamp duties, securities registration, postage, courier services
and duplication charges.
<PAGE> 3
SCHEDULE A
(continued)
COUNTRY GROUPS
<TABLE>
<CAPTION>
GROUP I GROUP II GROUP III GROUP IV
- ------- -------- --------- --------
<S> <C> <C> <C>
Australia Belgium Austria Argentina
Canada Denmark Finland Czech Republic
Germany France Hong Kong Philippines
Japan Ireland Israel Sri Lanka
Italy Malaysia Taiwan
Netherlands Mexico Turkey
New Zealand Norway
South Africa South Korea
Spain Singapore
Sweden Thailand
Switzerland
United Kingdom
GROUP V GROUP VI
Indonesia Bangladesh
Luxembourg Brazil
Peru China-Shanghai
Portugal China Shenzhen
Colombia
Greece
Hungary
India
Jordan
Pakistan
Poland
Venezuela
</TABLE>
THE SIERRA VARIABLE TRUST
BY: /s/ F. Brian Cerini
---------------------------
NAME: F. Brian Cerini
TITLE: President
BOSTON SAFE DEPOSIT AND TRUST
COMPANY
BY: /s/ Ellen M. Furlong
----------------------------
NAME: Ellen M. Furlong
TITLE: Vice President
Dated: January 1, 1996
<PAGE> 4
SUPPLEMENT TO SCHEDULE A
FOR THE SIERRA VARIABLE TRUST
FUND OF FUNDS
BOSTON SAFE DEPOSIT AND TRUST COMPANY
CUSTODY FEE SCHEDULE
for the
Sierra Variable Trust Income Portfolio
Sierra Variable Trust Value Portfolio
Sierra Variable Trust Balanced Portfolio
Sierra Variable Trust Growth Portfolio
Sierra Variable Trust Capital Growth Portfolio
A. Account Maintenance Charge
Per Month per account $100.00
B. Transaction Charges:
(Other than Sierra Mutual Funds and Boston Safe Repurchase Agreements)
<TABLE>
<S> <C>
DTC, FEB $ 8.00 per trade
PTC, Muni Book Entry $ 10.00 per trade
Physical $ 30.00 per trade
Paydowns $ 5.00 per paydown
Time Deposit/Mutual Fund $ 30.00 per trade
Options: (open, close) $ 25.00 per trade
Options: (exercised, expired) $ 10.00 per trade
</TABLE>
C. Earnings Allowance
Earnings credits will be provided on 90% of idle US dollar balances at an
annualized rate equal to the 90 day US Treasury Bill rate for the period.
If the earnings credit exceeds the total custody bill in a given month, the
excess earnings credit will be carried forward and can be used to offset
future custody bills. If the earnings credit is less than the custody bill
in a given month plus any pervious excess earnings credit, then an invoice
will be due for that amount. Earnings credits will be used exclusively to
offset custody bills.
THE SIERRA VARIABLE TRUST
BY: /s/ F. Brian Cerini
---------------------------
NAME: F. Brian Cerini
TITLE: President
BOSTON SAFE DEPOSIT AND TRUST
COMPANY
BY: /s/ Christopher Healy
---------------------------
NAME: Christopher Healy
TITLE: Vice President
Dated: May 1, 1997
<PAGE> 5
SCHEDULE C
FUNDS OF THE SIERRA VARIABLE TRUST
COVERED UNDER THIS CUSTODY AGREEMENT
DATED JANUARY 1, 1996
Global Money Fund
Short Term High Quality Bond Fund
Short Term Global Government Fund
U.S. Government Fund
Corporate Income Fund
Growth and Income Fund
Growth Fund
Emerging Growth Fund
International Growth Fund
New Funds Effective May 1, 1997:
Income Portfolio
Value Portfolio
Balanced Portfolio
Growth Portfolio
Capital Growth Portfolio
THE SIERRA VARIABLE TRUST
By /s/ F. Brian Cerini
---------------------------
Name: F. Brian Cerini
Title: President
BOSTON SAFE DEPOSIT AND TRUST
COMPANY
By /s/ Christopher Healy
---------------------------
Name: Christopher Healy
Title: Vice President
Dated: Effective May 1, 1997
<PAGE> 1
EXHIBIT 9(a)-3
FORM OF
ADMINISTRATION AGREEMENT
May 1, 1997
Sierra Fund Administration Corporation
9301 Corbin Avenue, Suite 333
Northridge, California 91324
Ladies and Gentlemen:
The Sierra Variable Trust (the "Trust"), a business trust
organized under the laws of the Commonwealth of Massachusetts, confirms its
agreements with Sierra Fund Administration Corporation ("Sierra
Administration"), a corporation organized under the laws of the state of
California, regarding administration services to be provided by Sierra
Administration in connection with each of the investment funds offered from time
to time by the Trust (individually, a "Fund" and together, the "Funds"). Sierra
Administration agrees to provide services upon the following terms and
conditions:
1. Investment Description; Appointment
The Trust desires to employ the Trust's capital by investing and
reinvesting (a) in investments of the kind and in accordance with the
limitations specified in (i) the Trust's Agreement and Declaration of Trust
dated January 27, 1993, as amended from time to time (the "Declaration of
Trust"), and (ii) the prospectus (the "Prospectus") and statement of additional
information (the "Statement") relating to the Trust contained in the Trust's
Registration statement on Form N-1A, File No. 33-57732, filed with the
Securities and Exchange Commission (the "Registration Statement") and (b) in
such manner and to such extent as may from time to time be approved by the
Trust's Board of Trustees. Copies of the Prospectus, the Statement and the
Declaration of Trust have been submitted to Sierra Administration. The Trust
desires to employ and hereby appoints Sierra Administration to act as the
Trust's administrator. Sierra Administration accepts this appointment and agrees
to furnish the services described herein for the compensation set forth below.
2. Services as Administrator
Subject to the supervision and direction of the Board of Trustees
of the Trust, Sierra Administration is responsible for all administrative
functions with respect to the Trust and will (a) assist in supervising all
aspects of the operations of the Trust except those performed by the Trust's
investment adviser and/or sub-advisers under their respective investment
management, investment advisory and sub-advisory agreements; (b) supply the
Trust with office facilities
<PAGE> 2
(which may be in Sierra Administration's own offices), statistical and research
data, data processing services, clerical, accounting and bookkeeping services
(including, but not limited to, the calculation of the net asset values of
shares of the Trust, internal auditing and legal services, internal executive
and administrative services, and stationery and office supplies; (c) prepare
reports to the Trust's shareholders and materials for the Board of Trustees of
the Trust; (d) prepare tax returns and reports to and filings with the
Securities and Exchange Commission and state Blue Sky authorities; (e) cooperate
with the Trust's transfer agent for the purpose of establishing and implementing
procedures to ensure that the Trust's transfer agency and shareholder relations
functions are efficiently carried out; and (f) provide such other similar
services as the Trust may reasonably request to the extent permitted under
application statutes, rules and regulations. The services to be performed by
Sierra Administration hereunder may be delegated by it, in whole or in part, to
one or more sub-administrators provided that any delegation of duties to a
sub-administrator shall not relieve Sierra Administration of its
responsibilities hereunder. Notwithstanding anything to the contrary in this
Agreement, Sierra Administration shall not be responsible for the performance of
any duties which are required to be performed by the Trust's transfer agent.
3. Compensation
(a) In consideration of services rendered pursuant to this
Agreement, the Trust will pay Sierra Administration on the first business day of
each month a fee for the previous month at an annual rate based on each Fund's
average daily net assets, as set forth in Schedule A attached hereto. Sierra
Administration shall pay expenses as described in Paragraph 4 including, without
limitation, fees to any sub-administrator and the custodian. The fee for the
period from the date the Trust commences operations to the end of that month
shall be prorated according to the proportion such period bears to the full
monthly period.
(b) Upon any termination of this Agreement before the end of any
month, the fee such part of a month shall be prorated according to the
proportion which such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement. For the purpose of
determining fees payable to Sierra Administration, the value of each Fund's net
assets shall be computed at the times and in the manner specified in the
Prospectus and/or the Statement relating to the Fund as from time to time in
effect.
4. Expenses
Sierra Administration will bear all expenses in connection with
the performance of its services under this Agreement, including, without
limitation, payment of the fee to the custodian, and any sub-administrator
described in Paragraph 3 above. The Trust will bear certain other expenses to be
incurred in its operation, including: organizational expenses; taxes, interest,
brokerage fees and commissions, if any; fees of trustees of the Trust who are
not officers, director, or employees of Sierra Investment Advisors Corporation
and Sierra Investment Services Corporation, any sub-adviser or
sub-administrator, or any of their affiliates; transfer agent fees;
-2-
<PAGE> 3
Securities and Exchange Commission fees and state Blue Sky qualification fees;
out-of-pocket expenses of custodians, transfer and dividend disbursing agents
and the Trust's sub-administrator and transaction charges of custodians;
insurance premiums; outside auditing and legal expenses; costs of maintenance of
the Trust's existence; costs attributable to investor services, including,
without limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for regulatory
purposes and for distribution to existing shareholders; costs of shareholders'
reports and meetings of the shareholders of the Trust and of the officers or
Board of Trustees of the Trust; and any extraordinary expenses.
5. Standard of Care
Sierra Administration shall exercise its best judgment in
rendering the services listed in Paragraph 2 above. Sierra Administration shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the matters to which this Agreement
relates, except (a) a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services (in which case any award of
damages shall be limited to the period and the amount set forth in Section
36(b)(3) of the 1940 Act), or (b) a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under this Agreement.
6. Term of Agreement
This Agreement shall become effective as of the date the Trust
commences its investment operations and shall continue for an initial two-year
term and shall continue automatically from year-to-year thereafter unless
terminated in accordance with the following sentence. This Agreement is
terminable at any time, without penalty, on 60 days' written notice, by the
Board of Trustees of the Trust or upon 90 days' written notice, by Sierra
Administration.
7. Service to Other Companies or Accounts
The Trust understands that Sierra Administration may act in the
future as administrator to other investment companies or series of investment
companies, and the Trust has no objection to Sierra Administration's so acting
in such capacity. The Trust understands that the persons employed by Sierra
Administration to assist in the performance of Sierra Administration's duties
under this Agreement will not devote their full time to such service and nothing
contained in this Agreement shall be deemed to limit or restrict the right of
Sierra Administration affiliate or any affiliate of Sierra Administration to
engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.
8. Representations of the Trust and Sierra Administration
The Trust represents that (i) a copy of the Declaration of Trust
is on file in the office of the Secretary of the Commonwealth of Massachusetts,
(ii) the appointment of Sierra
-3-
<PAGE> 4
Administration has been duly authorized and (iii) it has acted and will continue
to act in conformity with the 1940 Act and other applicable laws. Sierra
Administration represents that it is authorized to perform the services
described herein.
9. Limitation of Liability
The copy of the Declaration of Trust is on file with the
Secretary of The Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the Trustees of the Trust as Trustees
and not individually and that the obligations of this instrument are not binding
upon any of the Trustees, officers or shareholders individually but are binding
only upon the assets and property of the Trust.
10. Entire Agreement
This Agreement constitutes the entire agreement between the
parties hereto.
11. Governing Law
This Agreement shall be governed in accordance with the laws of
the State of Massachusetts.
If the foregoing accurately sets forth our agreement, kindly
indicate your acceptance hereof by signing and returning the enclosed copy
hereof.
Very truly yours,
THE SIERRA VARIABLE TRUST
By __________________________
Name: F. Brian Cerini
Title: Chairman and President
Accepted:
SIERRA FUND ADMINISTRATION
CORPORATION
By ______________________________
Name: Keith B. Pipes
Title: Chief Financial Officer, Treasurer
and Secretary
-4-
<PAGE> 5
Schedule A
ADMINISTRATION AGREEMENT
Dated May 1, 1997
FUND AND FEE SCHEDULE
(Pursuant to Section 3)
The following Funds (as defined in the Administration Agreement
attached hereto) are governed by such Agreement and the Trust will pay Sierra
Administration (as such parties are defined in the Agreement) fees at the annual
rate set forth opposite the name of such Fund below:
<TABLE>
<CAPTION>
Fund Annual Rate
- ---- -----------
<S> <C>
Capital Growth Portfolio 0.15%
Growth Portfolio 0.15%
Balanced Portfolio 0.15%
Value Portfolio 0.15%
Income Portfolio 0.15%
Global Money Fund 0.18%
Growth Fund 0.18%
International Growth Fund 0.18%
U.S. Government Fund 0.18%
Corporate Income Fund 0.18%
Short Term Global Government Fund 0.18%
Emerging Growth Fund 0.18%
Growth and Income Fund 0.18%
Short Term High Quality Bond Fund 0.18%
</TABLE>
Schedule Adopted as of May 1, 1997
-5-
<PAGE> 1
EXHIBIT 9(b)-2
FORM OF
SUB-ADMINISTRATION AGREEMENT
May __, 1997
First Data Investor Services Group, Inc.
One Exchange Place
53 State Street
Boston, MA 02109
Ladies and Gentlemen:
Sierra Fund Administration Corporation ("Sierra Administration"),
a corporation organized under the laws of the State of California hereby
confirms its agreement with First Data Investor Services Group, Inc. ("First
Data"), a corporation organized under the laws of the Commonwealth of
Massachusetts, regarding sub-administration services to be provided by First
Data in connection with each of the investment funds (individually a "Fund" and
together the "Funds") offered from time to time by The Sierra Variable Trust.
First Data agrees to provide services upon the following terms and conditions:
1. Investment Description; Appointment
The Trust, an unincorporated business trust organized under the
laws of the Commonwealth of Massachusetts, desires to employ its capital by
investing and reinvesting (a) investments of the kind and in accordance with the
limitations specified in (i) the Trust's Agreement and Declaration of Trust,
dated January 27, 1993, as amended from time to time (the "Declaration of
Trust"), and (ii) the prospectus(es) (the "Prospectus") and Statement of
Additional Information relating to the Funds contained in the Company's
Registration Statement on Form N-1A filed with the Securities and Exchange
Commission (the "Registration Statement") and (b) in such manner and to such
extent as may from time to time be approved by the Trust's Board of Trustees.
Copies of the Prospectus, the Statement of Additional Information and the
Declaration of Trust have been submitted to Sierra Administration and First
Data. The Company has agreed with Sierra Administration to provide copies of all
amendments to the Prospectus, the Statement of Additional Information and the
Declaration of Trust to Sierra Administration and First Data on an on-going
basis. Sierra Administration as the administrator, desires to employ and hereby
appoints First Data to act as the Funds' sub-administrator. First Data accepts
this appointment and agrees to furnish the services described herein for the
compensation set forth below.
1
<PAGE> 2
2. Services as Sub-Administrator
Subject to the supervision and direction of Sierra
Administration, the Trust's administrator, First Data will, at the direction of
and to the extent specifically delegated to it from time to time by Sierra
Administration, (a) supply the Trust with office facilities (which may be in
First Data's own offices), statistical and research data, data processing
services, clerical, accounting and bookkeeping services (including, but not
limited to, the calculation of the net asset value of shares of each Fund), and
internal executive and administrative services; (b) assist in the preparation of
materials for the Board of Trustees of the Trust; (c) prepare tax returns; (d)
assist in the preparation of the financial sections of reports to and filings
with the Securities and Exchange Commission and state regulatory authorities (if
any); and (e) assist in other aspects of the administration of the Trust as may
be agreed upon from time to time.
3. Compensation
(a) Sierra Administration will compensate First Data for its
services rendered under this Agreement in accordance with the fees set forth in
Appendix A attached hereto. Out- of-pocket disbursements shall include, but
shall not be limited to, the items specified in the schedule of Out-of-Pocket
Expenses delineated in Appendix A, which schedule may be modified by First Data
upon not less than thirty days prior written notice to the Sierra
Administration.
(b) The parties hereto will agree upon the compensation for
acting as sub- administrator for any Fund hereafter established and designated,
and at the time that First Data commences serving as such for said Fund, such
agreement shall be reflected in a revised Schedule A hereto, dated and signed by
an officer of each party.
4. Expenses
First Data will bear all expenses in connection with the
performance of its services under this Agreement. The Trust will bear certain
other expenses to be incurred in its operation, including: organizational
expenses; taxes, interest, brokerage fees and commissions, if any; fees of
trustees of the Trust who are not officers, directors or employees of each
Fund's adviser, sub- adviser, administrator or sub-administrator or any of their
affiliates; Securities and Exchange Commission fees and state Blue Sky
qualification fees; out-of-pocket expenses of custodians, transfer and dividend
disbursing agents and First Data and transaction charges of custodians;
insurance premiums; outside auditing and legal expenses; costs of maintenance of
the Trust's existence; costs attributable to investor services, including,
without limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for regulatory
purposes and for distribution to existing shareholders; costs of shareholders'
reports and meetings of the shareholders of the Trust and of the officers or
Board of Trustees of the Trust; and any extraordinary expenses.
2
<PAGE> 3
5. Standard of Care
First Data shall exercise its best judgment in rendering the
services listed in Paragraph 2 above. First Data shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement (each such breach, act or omission
shall be referred to as "Disqualifying Conduct").
6. Term of Agreement
This Agreement shall become effective as of the date the Trust
commences its investment operations and shall continue for an initial two year
term and shall continue automatically from year-to-year thereafter unless
terminated in accordance with the following sentence. This Agreement is
terminable at any time, without penalty, on 60 days' written notice, by the
Board of Trustees of the Trust or Sierra Administration or upon 90 days' written
notice, by First Data.
7. Service to Other Companies or Accounts
Sierra Administration understands that First Data now acts, will
continue to act and may act in the future as investment adviser to fiduciary and
other managed accounts, and as investment adviser, sub-investment adviser and/or
administrator to other investment companies or series of investment companies,
and the Trust has no objection to First Data's so acting. Sierra Administration
understands that the persons employed by First Data to assist in the performance
of First Data's duties under this Agreement may not devote their full time to
such service and nothing contained in this Agreement shall be deemed to limit or
restrict the right of First Data or any affiliate of First Data to engage in and
devote time and attention to other businesses or to render services of whatever
kind or nature.
8. Representations of the Trust
The Trust has represented to Sierra Administration that (i) a
copy of the Trust Agreement is on file in the office of the Secretary of the
Commonwealth of Massachusetts, (ii) the appointment of First Data has been duly
authorized and (iii) it has acted and will continue to act in conformity with
the requirements of the 1940 Act and other applicable laws.
9. Indemnification
Sierra Administration shall indemnify and hold harmless First
Data from and against any and all claims, losses, liabilities or damages
(including reasonable attorney's fees and other related expenses), howsoever
arising from or in connection with this Agreement or the performance by First
Data of its duties hereunder; provided, however, that nothing contained
3
<PAGE> 4
herein shall require that First Data be indemnified for Disqualifying Conduct.
10. Limitation of Liability
This Agreement has been executed on behalf of Sierra
Administration by the undersigned officer of Sierra Administration in his
capacity as an officer. The obligations of this Agreement shall be binding only
upon the assets and property of the Trust and not upon the assets and property
of any other investment fund of the Trust and shall not be binding upon any
Trustee, officer or shareholder of the Trust and/or the Trust individually.
11. Assignment and Subcontracting.
This Agreement, its benefits and obligations shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. This Agreement may not be assigned or
otherwise transferred by either party hereto, without the prior written consent
of the other party, which consent shall not be unreasonably withheld; provided,
however, that First Data may, in its sole discretion, assign all its right,
title and interest in this Agreement to an affiliate, parent or subsidiary, or
to the purchaser of substantially all of its business. First Data may, in its
sole discretion, engage subcontractors to perform any of the obligations
contained in this Agreement to be performed by First Data.
12. Entire Agreement
This Agreement constitutes the entire agreement between the
parties hereto.
13. Governing Law
This Agreement shall be governed in accordance with the laws of
the Commonwealth of Massachusetts.
4
<PAGE> 5
If the foregoing accurately sets forth our agreement, kindly
indicate your acceptance hereof by signing and returning the enclosed copy
hereof.
Very truly yours,
SIERRA FUND
ADMINISTRATION CORPORATION
By:
--------------------------------
Name:
Title:
Accepted:
FIRST DATA INVESTOR SERVICES GROUP, INC.
By:
---------------------------
Name:
Title:
5
<PAGE> 6
APPENDIX A
FUNDS
Global Money Fund
Short Term High Quality Bond Fund
Short Term Global Government Fund
U.S. Government Fund
Corporate Income Fund
Growth and Income Fund
Growth Fund
Emerging Growth Fund
International Growth Fund
FEE SCHEDULE
<TABLE>
<CAPTION>
Asset Asset Variable Annuity Basis
Increment Level Fixed Fee Points
- --------- ----- --------- ------
<S> <C> <C> <C>
$100m $250,000 0
And
Next $400m $500m $0 *6.25 bp
Next $500m $1b $0 10 bp
</TABLE>
And
All reasonable out-of-pocket expenses to include, but not limited to, such items
as telephone, wire charges, courier services, pricing services, etc.
* 10 bp waived down to 6.25 bp
6
<PAGE> 7
FUNDS
Capital Growth Portfolio
Growth Portfolio
Balanced Portfolio
Value Portfolio
Income Portfolio
FEE SCHEDULE
Asset Asset Variable Annuity Basis
Increment Level Fixed Fee Points
- --------- ----- --------- ------
7
<PAGE> 1
EXHIBIT 11(e)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in each of the Prospectuses
and Statement of Additional Information constituting parts of this
Post-Effective Amendment No. 9 to the registration statement on Form N-1A (the
"Registration Statement") of our report dated February 14, 1997, relating to
the financial statements and financial highlights appearing in the December 31,
1996 Annual Report to Shareholders of The Sierra Variable Trust, which are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the headings "Financial Highlights", "Financial
Highlights of the Global Money Fund" and "Independent Accountants" in the
Prospectuses and under the headings "Counsel and Auditor" and "Financial
Statements" in the Statement of Additional Information.
/S/ PRICE WATERHOUSE LLP
- -------------------------
Price Waterhouse LLP
Boston, Massachusetts
April 29, 1997
