<PAGE>
T H E S I E R R A
V A R I A B L E T R U S T
SEMI-ANNUAL REPORT
For the Six Months Ended June 30, 1997
[ARTWORK APPEARS HERE]
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SIERRA
VARIABLE TRUST
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A Family of Mutual Funds
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C O N T E N T S
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<TABLE>
<C> <S>
1 Message From The President
2 The Six Months In Review &
Our Outlook For 1997 - 1998
6 Individual Fund Reviews
30 Statements of Assets & Liabilities
32 Statements of Operations
34 Statements of Changes in Net Assets
36 Statements of Changes in Net Assets -
Capital Stock Activity
38 Statement of Cash Flows
39 Financial Highlights
51 Portfolio of Investments
71 Notes to Financial Statements
(Unaudited)
</TABLE>
<PAGE>
MESSAGE FROM THE PRESIDENT
DEAR CONTRACT OWNER:
We are pleased to provide you with The Sierra Variable Trust Semi-Annual Report
for the six months ended June 30, 1997.
The past six months have seen a continuation of favorable economic trends. Low
unemployment, low inflation, and sustained consumer confidence were all factors
that created a positive environment for both stocks and bonds. Despite a
correction of nearly 10% in the Dow Jones Industrial Average (the Dow) in the
first quarter of 1997, many stock market indices including the Dow, Standard &
Poor's Composite Index of 500 Stocks (S&P 500), and the Nasdaq Composite Index
posted net returns well above average for the period.
The S&P 500 rose 20.61% for the six months, and on June 30, was up 104% since
December 31, 1994. Such rapid gains are unusual considering the stock market's
history. Over the last 70 years, the S&P 500 posted an average annual return of
10.8%. Since 1919, there have also been 47 years in which the market has fallen
10% or more from the previous year's highs. With the market showing signs of
volatility in early 1997, we continue to advise investors to maintain a
long-term perspective when making investment decisions, and to seek the
assistance of a qualified professional.
The pattern of mutual fund purchases and sales during the first half of 1997 may
suggest, however, that many investors' mutual fund investment decisions are
affected by short-term performance. When stock and bond markets fell sharply in
March 1997 net new cash flow into mutual funds fell 77.4% from February to
March, according to the Investment Company Institute. Net inflows into stock
mutual funds, while still positive in March, fell to their lowest level since
July 1996 while bond and income funds experienced a net outflow. Unfortunately,
investors who curtailed fund purchases or even exited the market during the
downturn in March missed out on the recovery and subsequent net gains during the
second quarter of 1997.
At Sierra, we strive to pursue long-term performance consistent with the stated
objectives of each fund, without exposing investors to excessive risks. We
believe that, over the long-term, mutual fund investors are best served by
applying the principles of asset allocation and diversification in constructing
a portfolio, by selecting funds that follow a disciplined investment approach,
and by staying the course through periods of uncertain markets.
-------------
We believe that,
over the long term,
investors are best served by
applying the principles
of asset allocation and
diversification in building an
investment portfolio.
-------------
As a fund family, Sierra has been recognized by independent research firms such
as Lipper Analytical Services for its solid, above-average returns overall. For
example, for the year ended June 30, 1997, the Sierra Variable Growth & Income
Fund was ranked 31st out of 96 funds, or in the top 35% of its Lipper Growth &
Income Funds category. Since inception (the 3-year period ended June 30), the
Fund ranked in the top half of its category, or 28th out of 57 funds.1
In evaluating fund performance, we encourage investors to look beyond
the short term, and especially, to assess the relative investment risks
different funds may represent. Your Investment Representative can provide
in-depth information about the risk and return profiles of The Sierra Variable
Trust, which include money market, fixed income, and domestic and international
stock funds.
For investors seeking an institutional approach to managing money and a
longer-term focus on balancing risk and return goals, Sierra Asset Management
(SAM) offers an answer: the convenience and flexibility of an actively managed,
professional asset allocation program. SAM continually monitors the markets and
allocates an investor's portfolio among various asset classes to take advantage
of changing market conditions and forecasts. Active asset allocation helps
investors reduce risk and earn returns substantially above inflation.
In our continuing efforts to enhance the SAM Program, we introduced the new
Sierra Asset Manager variable annuity in May of this year. Sierra Asset Manager
is the next generation of the SAM Program in Sierra Advantage. Like the original
SAM Program, Sierra Asset Manager continues to provide all the risk management
tools associated with diversification and asset allocation. However, it offers
additional benefits, such as lower investment minimums and a "stepped-up" death
benefit that protects an investor's family against market risk.
Variable investment options available through Sierra Asset Manager include five
asset allocation portfolios (the new Capital Growth, Growth, Balanced, Value and
Income Portfolios of The Sierra Variable Trust). A fixed rate account is also
offered. For more complete information, including charges and expenses, about
the new Sierra Asset Manager, please contact your Investment Representative to
obtain a prospectus. Please read it carefully before you invest or send money.
As we move into the 21st century, we at Sierra appreciate the confidence you
have placed in us and will continue to demonstrate our commitment to you through
product innovation and the pursuit of disciplined investment management
strategies. Thank you for choosing The Sierra Variable Trust.
Sincerely,
/s/James H. Overholt
James H. Overholt
President
/1/ Lipper rankings exclude sales charges. Rankings represent past performance
and are no guarantee of future results.
<PAGE>
THE SIX MONTHS IN REVIEW & OUR OUTLOOK FOR 1997-1998
A strong, though sometimes bumpy, market environment prevailed during the first
half of 1997, with stock market indices posting double-digit gains and
fixed-income investments also producing positive results.
STOCKS CONTINUE TO BREAK NEW RECORDS
With a growing economy and low inflation, the stock market continued to surge to
new heights. Over the six months ended June 30, 1997, large capitalization
stocks turned in the best performance, with the Standard & Poor's Composite
Index of 500 Stocks (S&P 500) up 20.61%. The S&P MidCap 400 returned 12.99%,
while small-cap stocks, represented by the Russell 2000 Index, returned 13.37%
over the same period.
Although overall gains were impressive, the U.S. stock market experienced
increased volatility during the period, with the S&P 500 falling nearly 10% in
early 1997. After generating only single-digit returns in 1996, the
international stock markets rebounded in 1997, with Morgan Stanley Capital
International's Europe, Australasia and Far East (EAFE) Index returning 11.21%
in U.S. Dollar terms for the six months ended June 30, 1997.
Emerging-market stocks also posted gains in the first half of 1997, returning
16.65% from January to June. Returns on international investments were tempered
by the strength of the U.S. Dollar against the Japanese Yen and many European
currencies. By early July 1997 the Dollar had risen to a six-year high against
the German Mark and a two-year high against the Japanese Yen./1/
BONDS POST POSITIVE RESULTS
In the first quarter of 1997, U.S. gross domestic product rose a stunning 4.9%,
creating renewed concerns about rising inflation. Bond prices fell in March in
anticipation of the Federal Reserve's 0.25% hike in short-term rates on March
25, pushing yields on long-term government bonds above 7%.
With a slowing economy and benign inflation in the second quarter of 1997, the
Federal Reserve did not raise interest rates further. The fixed-income markets
reacted strongly, rebounding to generate their highest returns since the fourth
quarter of 1995. For the six months ended June 30, long-term U.S. Treasury bonds
returned 2.17%, as measured by the Lehman Long Term T-Bond Index.
Investment-grade corporate bonds and mortgage-backed securities also performed
well for the period. According to the Lehman Mortgage-Backed Securities Index
and Lehman Corporate Investment Grade Index, corporate bonds returned 3.07%,
while mortgage-backed securities were one of the strongest performers among
fixed-income securities with a gain of 3.92%.
In the municipal bond market, yields on many health care related issues rose as
legislators continue to focus on reducing health care costs. The Lehman Brothers
Long Muni Bond Index posted a return of 3.20% through June 30, 1997.
MARKET SHOWS SIGNS OF INCREASED VOLATILITY
Continued economic growth and low inflation have led to strong performance in
both the stock and bond markets. At the same time, however, uncertainty over the
future direction of interest rates and sustainable
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
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RETURN FOR MAJOR ASSET CLASSES (ONE YEAR ENDED JUNE 30, 1997)
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<S> <C>
Large Co. Stocks 34.70%
Small Co. Stocks 16.33%
Intl. Stocks 12.84%
LT Bonds 9.19%
IT Bonds 7.22%
T-Bills (30-Day) 4.89%
</TABLE>
Source: Ibbotson Associates. T-bills represent 30-day U.S. Treasury bills.
Intermediate-Term (IT) Bonds are represented by Lehman Brothers
Intermediate-Term Government and Corporate Bond Index. Long-Term (LT) Bonds are
represented by Lehman Brothers Long-Term Government and Corporate Bond Index.
Large Company Stocks are represented by S&P 500 Composite Index. Small Company
Stocks are represented by Russell 2000 Stock Index. International Stocks are
represented by MSCI EAFE Index. Indices represent unmanaged performance.
T-bills are generally considered the safest securities because they are
short-term and offer a fixed yield at maturity, which is guaranteed by the U.S.
Government. Government bonds are riskier than T-bills because of the longer
maturities, yet they are generally subject to less credit risk, because the
interest payments and return of principal are also backed by the U.S.
Government, if held to maturity. An investor would typically purchase stocks for
long-term growth of capital. However, stocks are often subject to significant
price fluctuations and therefore an investor may have a gain or loss in
principal when the shares are sold.
/1/ International investors may be subject to higher taxation and additional
risks compared to domestic investors, including currency, liquidity, and
political risks. Emerging markets may pose higher liquidity and political risks
than other international markets.
<PAGE>
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
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INTEREST RATE FLUCTUATIONS
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30-Year U.S. Treasury Bond Yield
June 30, 1996 - June 30, 1997
High 7.19%
July 5, 1996
30-Year U.S. Treasury Bond Yield
<S> <C>
30-Jun-96 6.87%
5-Jul-96 7.19%
12-Jul-96 7.03%
19-Jul-96 6.97%
26-Jul-96 7.01%
2-Aug-96 6.74%
9-Aug-96 6.69%
16-Aug-96 6.77%
23-Aug-96 6.96%
30-Aug-96 7.12%
6-Sep-96 7.11%
13-Sep-96 6.95%
20-Sep-96 7.04%
27-Sep-96 6.91%
4-Oct-96 6.74%
11-Oct-96 6.84%
18-Oct-96 6.80%
25-Oct-96 6.82%
1-Nov-96 6.68%
8-Nov-96 6.51%
15-Nov-96 6.46%
22-Nov-96 6.44%
29-Nov-96 6.35%
6-Dec-96 6.51%
13-Dec-96 6.57%
20-Dec-96 6.61%
27-Dec-96 6.56%
3-Jan-97 6.73%
10-Jan-97 6.84%
17-Jan-97 6.82%
24-Jan-97 6.89%
31-Jan-97 6.79%
7-Feb-97 6.70%
14-Feb-97 6.52%
21-Feb-97 6.64%
28-Feb-97 6.80%
7-Mar-97 6.81%
14-Mar-97 6.94%
21-Mar-97 6.97%
28-Mar-97 7.09%
4-Apr-97 7.12%
11-Apr-97 7.17%
18-Apr-97 7.05%
25-Apr-97 7.14%
2-May-97 6.87%
9-May-97 6.89%
16-May-97 6.90%
23-May-97 6.99%
30-May-97 6.91%
6-Jun-97 6.77%
13-Jun-97 6.72%
20-Jun-97 6.66%
27-Jun-97 6.74%
30-Jun-97 6.78%
Low 6.35%
Nov. 29, 1996
</TABLE>
Source: Bloomberg Business News
corporate earnings growth has produced higher market volatility. Bond prices
have fluctuated due to changing interest rates, and equities have also been
impacted. From March 11 to April 11, for example, the Dow Jones Industrial
Average dropped 9.8%, and many individual stocks experienced steeper drops.
These declines resulted in many mutual funds reporting negative returns for the
first quarter of 1997, before rebounding in May and June. According to Lipper
Analytical Services, which tracks mutual fund performance, the average equity
mutual fund lost 1.98% in value, the first quarterly decline since 1994.
Large-cap growth funds averaged a decline of 1.28%, while small-cap stock funds
fell 6.91% on average in the first quarter.
Individuals who began investing only in the last few years may find the market
ups and downs disconcerting because the volatility of the stock market has been
unusually low in recent years. From January 1991 through December 1996, the S&P
500 rose or fell more than 1% in a single day on average about once every eight
trading days. In the first six months of 1997, a 1% move has occurred once every
three trading days, on average. The chart below shows, however, that the
market's current volatility is more in line with its longer-term averages. The
period from 1990 to 1996 was an exceptionally quiet one compared to previous
periods.
CONSIDER ASSET ALLOCATION TO
MANAGE RISK
Maintaining a diversified, well-allocated portfolio of investment assets can
help investors weather periods of market turbulence.
Asset allocation refers to the way in which your portfolio is divided among
different asset categories, which may include money market, fixed income, and
stock investments. An effective asset allocation strategy reflects your personal
financial circumstances, such as your investment time horizon, need for current
income versus long-term growth, and your tolerance for short-term market
fluctuations. You can further diversify your portfolio by investing in a variety
of investment subcategories. For example, the stock portion of your portfolio
may be diversified among stocks of small, medium, and large companies.
The strong performance of the U.S. stock market since 1994 means that your
investment portfolio may have a higher allocation in stocks than you
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
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HOW MUCH MARKET VOLATILITY SHOULD INVESTORS EXPECT?
- --------------------------------------------------------------------------------
From 1990-1996,
the stock market was
unusually calm
Standard Deviation (Daily)
<S> <C>
Past 20 yrs 0.89%
Past 10 yrs 0.94%
1990-1996 0.69%
1997 YTD 0.93%
</TABLE>
Source: Standard & Poor's. The S&P 500 is an unmanaged index representative of
the U.S. stock market. Standard deviation is a volatility measurement that
describes the range of performance within which an investment's (e.g., an index)
total return has fallen. A higher standard deviation means a wider range of
returns. A lower standard deviation means less volatility. Past performance is
not a guarantee of future results.
<PAGE>
originally intended. Fixed-income investments such as bonds and bond funds can
help reduce variability in portfolio returns. While stocks have historically
provided higher returns over time and therefore can add important growth
potential to your portfolio, bonds can provide steady income even as market
values fluctuate. In addition, bond prices can move independently from stock
prices over time, helping to reduce investment risk.
For example, the graph below compares the highest and lowest annual returns for
stocks and a diversified portfolio of stocks and bonds over the last 25 years.
While the range of returns for a portfolio of 100% stocks varied from 37% to
- -26%, the variation was only 31% to -8% in a diversified portfolio. In other
words, during this period, a diversified portfolio captured much of the upside
potential of stocks, but with dramatically less downside risk. Of course, past
performance is not a guarantee of future results.
Including international investments can also help smooth out fluctuations in
portfolio returns, since domestic and international stock markets tend to move
out of synch over various periods. International securities can pose higher
currency and liquidity risks relative to domestic issues. However, higher risks
can produce higher returns. Over the twenty years ended December 31, 1996, a
portfolio allocated 80% to the S&P 500 and 20% to international stocks
represented by the EAFE index earned slightly higher returns with less
variability than a portfolio allocated 100% to the S&P 500. Of course, past
performance does not guarantee future results.
THE SIERRA ASSET MANAGEMENT (SAM) SOLUTION
Building an asset allocation strategy that meets investor needs and their
specific risk and return goals requires careful planning and knowledge of the
financial markets. As an investor, you may not have the time or energy to keep
track of the markets and actively manage your investments. Sierra specializes in
active investment management. Our dedication to research, plus our focus on
diversification and asset allocation to help investors control risk, are the
core elements of Sierra's investment philosophy.
For effective asset allocation and risk management, Sierra offers a choice of
Sierra Asset Management (SAM) investments. The SAM Program in the Sierra
Advantage Variable Annuity provides asset allocation strategies designed to help
you control risk and achieve returns substantially above inflation.
In our continuing efforts to enhance the SAM Program, Sierra has recently
introduced five new asset allocation portfolios in The Sierra Variable Trust:
Capital Growth Portfolio, Growth Portfolio, Balanced Portfolio, Value Portfolio,
and Income Portfolio. These Portfolios are available as investment options in a
new variable annuity called Sierra Asset Manager.
THE NEW SIERRA ASSET MANAGER VARIABLE ANNUITY
Launched in May of this year, the Sierra Asset Manager Variable Annuity is the
next generation of the Sierra Asset Management (SAM) Program. In addition to
providing active asset allocation and risk management, Sierra Asset Manager is
one of the first variable annuities that takes advantage of the "fund of funds"
concept. This unique structure makes Sierra Asset Manager easier to maintain
than the SAM Program in Sierra Advantage and offers greater operating
efficiencies.
Like the original SAM Program, the Sierra Asset Manager offers actively managed
diversification, with a focus on regular portfolio monitoring and
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
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DIVERSIFICATION CAN HELP REDUCE DOWNSIDE RISK
- --------------------------------------------------------------------------------
Variability in Investment Returns
For the 25-year period ended 12/31/96
Highest annual return % Lowest annual Return %
<S> <C> <C>
Stocks 37.43 -26.47
Diversified Portfolio 30.89 -8.42
</TABLE>
Source: Ibbotson Associates. Stocks are represented by the Standard & Poor's
Index of 500 Stocks (S&P 500). Diversified Portfolio represents a portfolio
consisting of 40% stocks (S&P 500), 40% long-term bonds (Lehman Brothers
Intermediate-Term Government and Corporate Bond Index), and 20%
intermediate-term bonds (Lehman Brothers Intermediate-Term Government and
Corporate Bond Index). Past performance is not a guarantee of future results.
For a more complete discussion about the risks associated with investing in
stocks, bonds, and other asset classes, please refer to the notes for the graph
on page 2.
<PAGE>
periodic reallocations. Sierra Asset Manager continually monitors the markets
and adjusts your portfolio to take advantage of market opportunities and to
reduce risk.
In addition to providing active asset allocation, the Sierra Asset Manager
offers additional advantages, such as lower investment minimums and a
"stepped-up" death benefit to protect your family against market risk. Of
course, investors will continue to enjoy the power of tax-deferred growth and
the flexibility of numerous income payout options./2/
Your Investment Representative can provide you with a Sierra Asset Manager
prospectus and related Sierra Variable Trust prospectus, which include more
information on charges and expenses. Be sure to read the prospectuses carefully
before investing or sending money.
OUTLOOK FOR 1997-1998
Looking ahead, we expect economic growth to continue slowing to a more healthy,
sustainable level, while inflation pressures moderate. In recent months, the
Federal Reserve has taken a more neutral approach to interest rates, allowing
the markets to dictate their current levels. Interest rates should remain
relatively stable if growth does not rebound significantly and if inflation
remains benign. Recent inflation reports suggest that this trend should
continue, as the Consumer Price Index has been rising only moderately, while the
Producer Price Index has actually been falling so far in 1997.
Another component of inflation, which is closely watched by the Federal Reserve,
is the Employment Cost Index, which on average represents two-thirds of the
final cost of a product. There has been concern that the current economy is
heading towards full employment which will force manufacturers to raise wages
and subsequently prices, as they compete for skilled workers. Recent reports,
however, suggest that wage pressures remain under control. Slowing has become
evident in the manufacturing sector as new orders for durable goods have
recently tapered off. In addition, strong retail sales witnessed in the first
quarter of 1997 have somewhat slowed, demonstrating the unwillingness of
consumers to pay higher prices for goods and services in what is currently a
very competitive environment.
Furthermore, the strength of the U.S. Dollar and productivity gains experienced
by U.S. corporations have also helped to hold down prices and production costs.
These factors all point to a continuation of the currently low inflation
environment and have led to suggestions by Federal Reserve Chairman Alan
Greenspan that an interest rate increase may not be necessary over the near
term.
The markets have performed well in response to current economic conditions.
Since early 1997, bond yields have dropped and equity markets have rallied back
to new highs. Given the favorable economic outlook, we remain positive on both
bonds and stocks. Overseas, there has been continued strength in core Europe and
selected emerging-market countries. Global bond prices have been strengthening,
reflecting the view that worldwide inflation should remain benign. Of course,
while our overall outlook for the financial markets is decidedly positive, we
continue to believe that, regardless of any outlook, risk and risk control
should always remain an important consideration when making investment
decisions.
Outlook Summary:
. Continued economic growth, but at a slower, more sustainable rate than in the
first quarter of 1997
. Continued low levels of worldwide inflation
. Positive outlook for equity markets, although volatility seen in the first
half of 1997 may continue
. Positive outlook for fixed-income investments as interest rates should remain
relatively steady or fall with slow growth and benign inflation
- -------------------
Note: Unless otherwise noted, source for all performance figures is Standard &
Poor's. Past performance is not a guarantee of future results. Individuals
cannot invest directly in any index.
/2/ Like all variable annuities, there are risks associated with investing in
the Sierra Asset Manager, such as the fact that the investment return and
principal value will fluctuate, that liquidity may be limited by surrender
charges and tax penalties if withdrawn before the age of 59 1/2, and that
insurance-related fees and charges may affect the annuity performance.
5
<PAGE>
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INDIVIDUAL FUND REVIEWS
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================================================================================
To Our Contract Owners:
We are pleased to provide you with an overview of the Funds in The Sierra
Variable Trust family (except the Global Money Fund) for the six-month period
ended June 30, 1997. To help you better understand the high quality investment
management available to you as a Sierra Advantage and Sierra Asset Manager (SAM)
Contract Owner, we have also included biographies highlighting the individuals
managing the Funds.
================================================================================
The Funds of The Sierra Variable Trust may not be purchased directly but are
currently available only through the purchase of Sierra Advantage and Sierra
Asset Manager (SAM) tax-deferred variable annuities issued by American General
Life Insurance Company. Annuity contract owner values will depend not only on
the performance of the Funds, but also on the mortality and expense risk charges
and the administrative charges under the Sierra Advantage and Sierra Asset
Manager (SAM) variable annuity contracts.
6
<PAGE>
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INDIVIDUAL FUND REVIEWS
- --------------------------------------------------------------------------------
Sierra Investment Advisors Corporation
Sierra Investment Advisors Corporation ("Sierra Advisors"), a registered
investment advisor, is the investment advisor to The Sierra Variable Trust, and
has general oversight responsibility for the advisory services provided to the
Funds. These services include formulating the Funds' investment policies,
analyzing economic trends affecting the Funds, and directing and evaluating the
investment services provided by the Sub-Advisors and the individual Portfolio
Managers of each Fund. Sierra Advisors supervises the individual Portfolio
Manager's day-to-day management of the Funds in The Sierra Variable Trust Family
to ensure that the policies and guidelines are met, and to determine appropriate
investment performance measures.
Sierra Investment Services Corporation
Sierra Investment Services Corporation is the investment advisor of each of the
Sierra Asset Manager Portfolios. The Advisor provides its proprietary asset
allocation services to the Portfolios, formulates the Portfolios' investment
policies (subject to the terms of the Prospectus), analyzes economic and market
trends, exercises investment discretion over the assets of the Portfolios and
monitors the allocation of each Portfolio's assets and each Portfolio's
performance.
Stephen C. Scott
Portfolio Manager
Sierra Investment Services
Corporation
Mr. Scott received his B.A. and M.B.A. from California State University, Long
Beach. He is responsible for providing economic analysis, as well as conducting
investment analysis and management for the Sierra Asset Management (SAM) Program
and Sierra Asset Manager. Mr. Scott is also President and Chief Investment
Officer of Sierra Investment Advisors Corporation. Prior to joining Sierra
Advisors, Mr. Scott was President & Chairman of his own firm, SDS Investment
Advisors, after serving nine years as Senior Pension Investment Manager with the
Group Pension and Investment Division of The Equitable Life Assurance Society of
the United States.
Michael D. Goth
Chief Operating Officer
Sierra Investment Advisors
Corporation
Mr. Goth received his B.S. and M.S. degrees from Rensselaer Polytechnic
Institute of New York, and M.B.A. from Harvard Business School. He joined the
firm in 1991 and is responsible for the supervision of The Sierra Variable
Trust's Portfolio Managers. Previously, he served as Vice President of The
Boston Company Advisors, Inc. He also served as Executive Vice President of the
GIT Mutual Fund Group for over ten years.
Understanding the Enclosed Charts
In order to help you understand The Sierra Variable Trust's investment
performance, we have included the following discussions along with graphs that
compare the Funds' performance with certain market indices. Descriptions of
these indices are provided next to the individual graphs on the following pages.
Generally, an index represents the market value of an unmanaged group
of securities, regarded by investors as representative of a particular market.
An index does not reflect any asset-based charges for investment management or
other expenses. The total returns shown for the Funds are not an estimate or
guarantee of future performance and do not take into account charges at the
annuity and separate account level.
The total returns of the Funds reflect Sierra Advisors' and Sierra Fund
Administration Corporation's ("Sierra Administration") voluntary waiver of fees,
Sierra Advisors' absorption of certain expenses, and Credits allowed by the
Custodian. Total returns would have been lower if these fees and expenses had
not been waived, absorbed, or reduced by credits.
Both the Funds' performance results and the market indices reflect total
reinvestment of income, dividends, and capital gains. The unit values of these
variable options will fluctuate with market conditions.
Yield indicates the investment income per share as a percentage of the offering
price, whereas total return includes both net investment income and changes in
the value of the shares as a percentage of the initial investment. The 30-day
SEC yield is the yield calculated pursuant to a standard formula required by the
Securities and Exchange Commission ("SEC") for performance advertisement
purposes, and does not imply any endorsement or recommendation by the SEC.
7
<PAGE>
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SHORT TERM HIGH QUALITY BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER:
SCUDDER, STEVENS & CLARK, INC.
[PICTURE OF THOMAS M. POOR APPEARS HERE]
Mr. Poor, Managing Director of Scudder, is the portfolio manager for the Short
Term High Quality Bond Fund. He is a Chartered Financial Analyst and has been
with Scudder since 1970. Mr. Poor has had primary investment management
responsibility for the Fund since its inception.
PERFORMANCE REVIEW:
From the Fund's inception (January 12, 1994) through June 30, 1997, the Short
Term High Quality Bond Fund's average annual total return advanced 3.94%. For
the 12-month period ended June 30, 1997, the Fund's total return was 5.89%. The
Fund's 30-day SEC yield as of June 30, 1997, was 5.76%. For additional
information, see the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE SIX-MONTH PERIOD ENDED JUNE 30, 1997?
The most significant factors contributing to the Fund's performance over the
past six months were the generation of income into the Fund and the strong
performance of the Fund's corporate and mortgage-backed holdings. Over the last
six months, interest rates rose slightly, but a rally in the second quarter
reversed what started out to be another lackluster year in bond markets. While
volatility continues to be present, our focus on income has enabled the Fund to
generate positive total returns over the last six months.
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
Over the last six months, the U.S. bond market has continued to exhibit
volatility, albeit within a fairly tight trading range. On December 31, 1996,
the yield on the 30-year Treasury Bond was 6.64%; the six-month period ended
with a 6.78% yield. The 14 basis point increase in rates masked the positive
returns experienced in the quarter, as well as the confidence created by a
strong June. Conflicting economic statistics made it tough to determine the
magnitude of the economy's growth and structure duration appropriately. As such,
we held the Fund's duration within a fairly tight range--reflecting uncertainty
regarding the direction of interest rates.
Despite the fluctuation of interest rates over the last 12 months, the Fund has
benefited from sizable positions in high-income producing corporate bonds,
asset-backed securities and mortgages. Yield advantages have helped to provide
positive returns in all of these categories.
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Growth of a $10,000 investment
<S> <C> <C>
Inception* 1/12/94 10,000 10,000
10,000 10,000
9,960 9,898
Mar 9,920 9,785
9,880 9,726
9,880 9,743
Jun 9,880 9,770
9,961 9,898
10,001 9,942
Sep 9,953 9,887
9,994 9,899
9,994 9,843
12/94 9,838 9,864
9,838 10,027
9,921 10,227
Mar 9,999 10,291
10,081 10,412
10,288 10,680
Jun 10,329 10,750
10,329 10,778
10,413 10,871
Sep 10,455 10,942
10,583 11,049
10,668 11,182
12/95 10,753 11,288
10,839 11,405
10,753 11,323
Mar 10,710 11,279
10,710 11,269
10,710 11,278
Jun 10,797 11,384
10,841 11,427
10,886 11,450
Sep 10,975 11,596
11,065 11,775
11,156 11,905
12/96 11,156 11,863
11,201 11,924
11,247 11,955
Mar 11,247 11,901
11,293 12,025
11,386 12,121
06/97 11,433 12,227
</TABLE>
The above line graph does not reflect administrative fees or other expenses
charged by American General Life Insurance Company Separate Account D through
which shares of the Fund are purchased.
*Index total returns were calculated from 1/31/94 to 6/30/97. The Lehman
Brothers Mutual Fund Short (1-5) Investment Grade Debt Index includes all
investment-grade corporate debt securities with maturities of one to five years,
assumes reinvestment of all dividends/distributions, and does not reflect any
asset-based charges for investment management or other expenses. Past investment
performance does not guarantee future performance. The returns for the Fund
assume reinvestment of all dividends/distributions by the shareholder.
During the period noted, the Advisor (Sierra Investment Advisors Corporation)
and Administrator (Sierra Fund Administration Corporation) waived a portion of
their management fees, and credits were allowed by the Custodian. In the absence
of the waivers or Custodian credits, yield and total return would have been
lower.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Average Annual Total Returns as of 6/30/97 6 Month 1 Year Since Inception
------- ------ ---------------
(January 12, 1994)
<S> <C> <C> <C>
Fund 2.49% 5.89% 3.94%
Lehman Brothers Mutual Fund Short (1-5) Investment Grade Debt Index* 3.07% 7.41% 6.06%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
- --------------------------------------------------------------------------------
SHORT TERM HIGH QUALITY BOND FUND
- --------------------------------------------------------------------------------
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
There were no major shifts in portfolio holdings that significantly impacted
performance. However, we should note the performance of various sectors.
Corporates, mortgages, and asset-backed securities were important components of
the Fund's portfolio construction. Over the past 12 months, these sectors
performed very well relative to Treasuries. The best performing sector was
mortgages, largely due to strong price performance and high yields. The Fund's
holdings in this sector increased in both value and overall portfolio weighting.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
Given the current economic outlook, we expect strength in the bond market to
continue. Should growth be stronger than expected, we will most likely see a
resurgence of inflation concerns. With this uncertainty over the intermediate
term, the Fund's duration should remain at slightly below two years.
Looking forward, we expect continued growth in the economy but have concerns
regarding how long this expansion can last, especially with little or no
inflation. Potential credit excesses, profit disappointments, and the
unpredictability of foreign capital flows may all have a negative impact on the
bond market. However, over the long run, we continue to believe that
fixed-income investors will be rewarded in terms of both income and total
returns.
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Broad Sector Diversification
- --------------------------------------------------------------------------------
<S> <C>
BBB 23.06%
AAA 67.04%
A 9.90%
</TABLE>
Allocation percentages are based on total investment value of the portfolio as
of 6/30/97.
9
<PAGE>
- --------------------------------------------------------------------------------
SHORT TERM GLOBAL GOVERNMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER:
SCUDDER, STEVENS & CLARK, INC.
[PICTURE OF ADAM M. GRESHIN APPEARS HERE]
Mr. Greshin is the lead portfolio manager for the Short Term Global Government
Fund. Mr. Greshin joined Scudder in 1986 as an international bond analyst.
Currently, he is Product Leader for Scudder's global and international
fixed-income investing. He was involved in the original design of the Fund and
has served as a member of the Fund's portfolio management team since 1993. Mr.
Greshin assumed responsibility for the Fund's day-to-day management and
investment strategies effective November 1995.
PERFORMANCE REVIEW:
From the Fund's inception (May 12, 1993) through June 30, 1997, the Short Term
Global Government Fund's average annual total return was 3.98%. For the 12-month
period ended June 30, 1997, the Fund's total return was 8.25%. The Fund's 30-day
SEC yield as of June 30, 1997, was 4.92%. For additional information, see the
accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE SIX-MONTH PERIOD ENDED JUNE 30, 1997?
Global bond prices increased overall for the period ended June 30, 1997. During
the first half of 1997, bond prices exhibited notable price swings, due in part
to anticipation of central bank activity. Despite interest rate increases by the
U.S., Canada, and the United Kingdom so far this year, investors did not appear
to be overly concerned with those short-term rate hikes. Weak growth in Europe
allowed for rate reductions in Spain, France and Italy.
The U.S. Dollar strengthened significantly during the period, rising 10.99%
against the German Mark and 10.90% versus the French Franc. Factors contributing
to the Dollar's rise included the increased probability of further short-term
rate increases in the U.S., strengthening U.S. equity markets leading to a
demand for U.S. Dollars by overseas investors, and rate cuts in other developed
countries, causing weakness in their underlying currencies.
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
The primary driving force behind the strength in bond prices during the period
was low inflation, subdued economic activity, and increased demand from the
world's main sources of capital in search of yield. The main beneficiaries were
the higher yielding bond markets of Spain, Italy, Australia and the United
Kingdom. However, the Fund remained well diversified geographically in European
countries to reduce risk of over-concentration in any single country. In
addition, European bond positions
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Growth of a $10,000 investment
<S> <C> <C>
Inception* 5/12/93 10,000 10,000
Jun 9,972 9,941
9,932 9,884
9,932 10,089
Sep 9,892 10,197
9,932 10,170
9,932 10,078
12/93 10,012 10,139
10,052 10,247
10,012 10,213
Mar 9,972 10,259
9,972 10,288
9,972 10,273
Jun 9,972 10,386
9,972 10,469
9,931 10,483
Sep 9,972 10,572
10,013 10,729
10,053 10,555
12/94 9,809 10,571
9,767 10,772
9,767 10,964
Mar 9,809 11,301
9,893 11,440
10,059 11,643
Jun 10,059 11,745
10,143 11,872
10,226 11,680
Sep 10,352 11,886
10,435 12,018
10,519 12,084
12/95 10,602 12,236
10,645 12,175
10,645 12,208
Mar 10,687 12,195
10,772 12,158
10,814 12,203
Jun 10,857 12,305
10,900 12,494
11,030 12,557
Sep 11,116 12,588
11,294 12,783
11,427 12,871
12/96 11,516 12,858
11,516 12,573
11,562 12,427
Mar 11,562 12,411
11,609 12,360
11,705 12,564
06/97 11,753 12,618
</TABLE>
The above line graph does not reflect administrative fees or other expenses
charged by American General Life Insurance Company Separate Account D through
which shares of the Fund are purchased.
* Index total returns were calculated from 5/31/93 to 6/30/97. The Lehman
Brothers Mutual Fund Short World Multi-Market Index includes all debt
instruments of the United States and 12 Lehman major countries denominated in
dollars with maturities of one to five years, assumes reinvestment of all
dividends/distributions, and does not reflect any asset-based charges for
investment management or other expenses. Past investment performance does not
guarantee future performance. The returns for the Fund assume reinvestment of
all dividends/distributions by the shareholder.
During the period noted, the Advisor (Sierra Investment Advisors Corporation)
and Administrator (Sierra Fund Administration Corporation) waived a portion of
their management fees and the Advisor absorbed other expenses, and credits were
allowed by the Custodian. In the absence of the waivers and absorption of other
expenses or Custodian credits, yield and total return would have been lower.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Average Annual Total Returns as of 6/30/97 6 Month 1 Year Since Inception
------- ------ ---------------
(May 12, 1993)
<S> <C> <C> <C>
Fund 2.06% 8.25% 3.98%
Lehman Brothers Mutual Fund Short World Multi-Market Index* -1.87% 2.54% 5.86%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
- --------------------------------------------------------------------------------
SHORT TERM GLOBAL GOVERNMENT FUND
- --------------------------------------------------------------------------------
were largely hedged into U.S. Dollars to protect against European currency
weakness (or strength in U.S. Dollars versus those currencies) which would have
the effect of offsetting local market gains. The Fund's exposure to European
bonds remains significant in light of the weak economic recovery there
- --providing liquidity, yield and the potential for gains from active currency
management.
The Fund continued to be well diversified between the U.S. and the dollar-bloc
markets of Australia, Canada and New Zealand. This provided higher income
potential and required only limited currency hedging due to high correlations
with the U.S. Dollar. While growth is higher in the dollar-bloc countries,
inflation remains subdued and investors have not yet fully recognized the
excellent valuations offered by these markets.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/ SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
We redeployed proceeds from core European holdings in Germany and the
Netherlands and placed them in short-term emerging market positions. These
assets provided additional yield and diversification in addition to the relative
stability of their underlying currencies. Returns from emerging market bonds
have been very favorable, as investors expand their search for yield, and
favorable fundamental changes in emerging economies lead to improved credit
quality. Low price correlations of emerging market bonds with developed country
bond markets provide additional long-term stability without altering the
risk/reward characteristics of the Fund.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
We are concerned that any further rate increases will dampen enthusiasm for
bonds around the world, given the recent rate increases in the U.S., Canada, and
the U.K. Continued strength of the U.S. Dollar seems likely due to expected
further increases in U.S. interest rates. The majority of the Fund's foreign
positions is hedged into U.S. Dollars to manage risk.
We will continue to overweight the dollar-bloc bond markets where we find
excellent valuations. In Europe, we will also continue to monitor the major
currencies, particularly the Deutschemark, whose recent weakness may continue.
By 1998 we should see signs of a recovery in Europe and Japan, potentially
exerting upward pressure on global bond yields.
Overall, we expect the strong performance of the Fund to continue, as past
results support our ability to manage currency risk and/or local market trends,
while identifying attractive investment opportunities worldwide.
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Diversification by Region
- --------------------------------------------------------------------------------
<S> <C>
Americas 32.73%
Asia 2.83%
Australia/New Zealand 12.62%
Europe 47.64%
Africa 4.18%
</TABLE>
Allocation percentages are based on total investment value of the portfolio as
of 6/30/97.
11
<PAGE>
- --------------------------------------------------------------------------------
U.S. GOVERNMENT FUND
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER:
BLACKROCK FINANCIAL
MANAGEMENT, INC.
[PICTURE OF KEITH ANDERSON APPEARS HERE]
[PICTURE OF ANDREW J. PHILLIPS APPEARS HERE]
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 1996.
PERFORMANCE REVIEW:
From the Fund's inception (May 6, 1993) through June 30, 1997, the U.S.
Government Fund's average annual total return was 4.99%. For the 12-month period
ended June 30, 1997, the Fund's total return was 8.12%. The Fund's 30-day SEC
yield as of June 30, 1997, was 6.58%. For additional information, see the
accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE SIX-MONTH PERIOD ENDED JUNE 30, 1997?
The Fund's weighting in mortgage-backed securities and a generally favorable
economic environment contributed most significantly to the Fund's performance
over the last period.
The market for mortgage-backed securities (MBS) significantly out-performed the
broader investment-grade bond market for the six months ended June 30, 1997.
Investors sought higher-yielding fixed-income securities and subsequently
boosted prices in the mortgage sector. For the period, the MBS market as
measured by the Lehman Brothers Mortgage Index posted a 3.92% total return
versus the 3.11% return of the Lehman Brothers Aggregate Index.
A slowing economy, favorable statistics, and generally stable interest rates in
the second half of 1996 contributed to positive performance of the Fund.
However, stronger economic data and accompanying inflation fears caused U.S.
Treasury yields to rise in early 1997, causing temporary weakness in the bond
markets overall. Although inflationary measures such as commodity, producer, and
consumer prices remained relatively stable, labor markets continued to
strengthen. After expanding at a blistering pace of 4.9% during the first
quarter, the U.S. economy's growth rate slowed to a more moderate 2% to 2.5%
during the second quarter of 1997, allowing interest rates to decline and bond
markets to rally.
[LINE CHART APPEARS HERE]
<TABLE>
<CAPTION>
Growth of a $10,000 investment
<S> <C> <C> <C>
Inception* 5/6/93 10,000 10,000 10,000
10,010 10,000 10,000
Jun 10,093 10,222 10,076
10,153 10,284 10,116
10,283 10,514 10,164
Sep 10,294 10,554 10,173
10,305 10,594 10,202
10,163 10,477 10,182
12/93 10,227 10,518 10,265
10,359 10,662 10,366
10,176 10,436 10,294
Mar 9,921 10,201 10,026
9,829 10,121 9,952
9,808 10,108 9,992
Jun 9,792 10,084 9,970
9,928 10,270 10,169
9,928 10,272 10,202
Sep 9,824 10,127 10,057
9,803 10,120 10,051
9,760 10,102 10,020
12/94 9,813 10,163 10,100
10,017 10,352
10,265 10,575 10,316
Mar 10,329 10,642 10,579
10,460 10,781 10,629
10,821 11,216 10,779
Jun 10,876 11,302 11,119
11,182
10,853 11,260 11,201
10,976 11,392 11,318
Sep 11,031 11,501 11,418
11,211 11,676 11,519
11,403 11,858 11,650
12/95 11,471 12,027 11,796
11,574 12,100 11,885
11,379 11,853 11,786
Mar 11,333 11,755 11,743
11,263 11,679 11,711
11,193 11,660 11,677
Jun 11,321 11,810 11,838
11,298 11,840 11,882
11,298 11,813 11,882
Sep 11,486 12,010 12,080
11,750 12,274 12,317
11,954 12,487 12,493
12/96 11,894 12,360 12,428
11,931 12,374 12,520
11,980 12,391 12,561
Mar 11,834 12,260 12,443
11,981 12,436 12,641
12,105 12,544 12,765
06/97 12,240 12,685 12,915
</TABLE>
The above line graph does not reflect administrative fees or other expenses
charged by American General Life Insurance Company Separate Account D through
which shares of the Fund are purchased.
* Index total returns were calculated from 5/31/93 to 6/30/97. The Lehman
Brothers Mutual Fund U.S. General Government Index represents all U.S.
Government agency and Treasury securities. The Lehman Brothers Mutual Fund U.S.
Mortgage Index includes all agency mortgage-backed securities. The indices
assume reinvestment of all dividends/distributions and do not reflect any
asset-based charges for investment management or other expenses. Past investment
performance does not guarantee future performance. The returns for the Fund
assume reinvestment of all dividends/distributions by the shareholder.
During the period noted, the Advisor (Sierra Investment Advisors Corporation)
and Administrator (Sierra Fund Administration Corporation) waived a portion of
their management fees, the Advisor absorbed other expenses, and credits were
allowed by the Custodian. In the absence of the waivers and absorption of other
expenses or Custodian credits, yield and total return would have been lower.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Average Annual Total Returns as of 6/30/97 6 Month 1 Year Since Inception
------- ------ ---------------
(May 6, 1993)
<S> <C> <C> <C>
Fund 2.92% 8.12% 4.99%
Lehman Brothers Mutual Fund U.S. General Government Index* 2.63% 7.40% 6.00%
Lehman Brothers Mutual Fund U.S. Mortgage Index* 3.92% 9.10% 6.46%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
- --------------------------------------------------------------------------------
U.S. GOVERNMENT FUND
- --------------------------------------------------------------------------------
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
The Fund's strong total return performance was primarily a result of the Fund's
duration and mortgage-backed security (MBS) holdings. The Fund consistently held
approximately 50% of assets in mortgage pass-throughs, ending the period with
45% in the sector. Additionally, the Fund's stake in collateralized mortgage
obligations (CMOs) and adjustable-rate mortgages (ARMs) increased the Fund's
overall mortgage exposure, enhancing performance versus Treasuries. Over the
period, the Fund sold its entire ARM position in response to the strong price
performance and tighter yield spreads of these securities.
The Fund's duration, or price sensitivity to interest rate movements, was
continually adjusted to reflect our outlook for interest rate trends. The Fund
ended the period with a neutral duration, which reflects our cautiously
optimistic view of interest rates and the domestic bond market.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/ SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
The Fund reduced its mortgage pass-through exposure and sold its ARM holdings
towards the end of the period. In addition, the Fund eliminated its exposure to
10- and 20-year Small Business Administration Loans (SBAs). The cash raised by
the sale of these securities was primarily invested in non-agency CMOs, which
helped the Fund meet the annuity asset requirements as stated in rule 817(h)
(which allows the Trust's shareholders to retain their tax-deferred status).
Specifically, the Fund purchased a private label CMO backed by loans that carry
the full faith and credit of the U.S. Government.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
In our view, the Federal Reserve has managed to achieve a soft landing for the
economy. The economy's growth rate seems to be sustainable, and although data
points towards an economic slowdown, consumer confidence numbers reached a
28-year high at the end of June. As a result, we expect the Fund to maintain its
neutral duration stance. However, we believe consumer spending may increase
during the second half of the year, and the tight labor market may exert wage
pressures on the economy. If this should occur, we may shorten the duration due
to the potential for inflationary pressures to reappear and cause interest rates
to begin rising. The Fund will also seek opportunities to re-enter the mortgage
market should prices fall in response to escalating prepayments caused by
currently lower mortgage rates.
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Portfolio Composition
- --------------------------------------------------------------------------------
<S> <C>
U.S. Treasury Bonds 14.95%
FHLMC 15.58%
GNMA 27.58%
FNMA 1.57%
Residential Funding Mortgage Security 1.41%
U.S. Treasury Notes 6.59%
CMO 32.32%
</TABLE>
Allocation percentages are based on total investment value of the portfolio as
of 6/30/97.
13
<PAGE>
- --------------------------------------------------------------------------------
CORPORATE INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER:
TCW FUNDS MANAGEMENT, INC.
[PICTURE OF JAMES M. GOLDBERG APPEARS HERE]
Mr. Goldberg, a Chartered Financial Analyst and Chartered Investment Counselor,
has been Managing Director of TCW Management since 1989 and Managing Director of
the Trust Company of the West, the parent corporation of TCW Management, since
1984. He has had primary portfolio management responsibility for the Corporate
Income Fund since its inception.
PERFORMANCE REVIEW:
From the Fund's inception (May 7, 1993) through June 30, 1997, the Corporate
Income Fund's average annual total return was 5.57%. For the 12-month period
ended June 30, 1997, the Fund advanced 8.33% on a total return basis. The
Corporate Income Fund's 30-day SEC yield as of June 30, 1997, was 6.68%.For
additional information, see the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE SIX-MONTH PERIOD ENDED JUNE 30, 1997?
The most significant factor contributing to performance over the past six months
was the Fund's longer duration, relative to its benchmark index. The improving
credit quality of issues held by the Fund was also a factor.
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
Over the past year, interest rate volatility had a major impact on Fund
performance. During the period, 10-year Treasury Bond yields experienced an
overall increase of 8 basis points -- ending the period at 6.49% versus 6.41% in
December of 1996. The bellwether 30-year U.S. Treasury Bond yield increased 14
basis points during the same period, rising to 6.78% in June of 1997 versus
6.64% in December of 1996. Improving corporate profitability and benign
inflation also positively affected the Fund's performance. Due to the long-term
nature of the Fund's investment objectives, maturity and duration were
maintained throughout the period and allowed the Fund to participate in the
overall market strength.
[LINE CHART APPEARS HERE]
<TABLE>
<CAPTION>
Growth of a $10,000 investment
<S> <C> <C>
Inception* 5/7/93 10,000 10,000
9,950 10,000
10,224 10,243
10,284 10,317
10,595 10,574
Sep 10,590 10,599
10,661 10,652
12/93 10,489 10,521
10,562 10,583
10,766 10,788
10,429 10,534
Mar 10,010 10,210
9,844 10,112
9,782 10,075
Jun 9,735 10,050
9,999 10,304
9,957 10,315
Sep 9,735 10,123
9,693 10,100
9,693 10,084
12/94 9,703 10,168
9,917 10,383
10,207 10,682
Mar 10,271 10,770
10,414 10,952
11,097 11,468
Jun 11,141 11,571
11,006 11,520
11,275 11,706
Sep 11,432 11,844
11,671 11,998
11,887 12,227
12/95 12,138 12,429
12,127 12,509
11,687 12,212
Mar 11,559 12,108
11,418 12,007
11,394 11,986
Jun 11,559 12,162
11,583 12,185
11,487 12,147
Sep 11,739 12,405
12,092 12,743
12,324 13,016
12/96 12,190 12,836
12,166 12,854
12,216 12,908
Mar 12,016 12,707
12,218 12,900
12,332 13,046
06/97 12,521 13,231
</TABLE>
The above line graph does not reflect administrative fees or other expenses
charged by American General Life Insurance Company Separate Account D through
which shares of the Fund are purchased.
* Index total returns were calculated from 5/31/93 to 6/30/97. The Lehman
Brothers Mutual Fund Corporate Debt BBB-Rated Index represents all
investment-grade corporate debt securities, assumes reinvestment of all
dividends/distributions, and does not reflect any asset-based charges for
investment management or other expenses. Past investment performance does not
guarantee future performance. The returns for the Fund assume reinvestment of
all dividends/distributions by the shareholder.
During the period noted, the Advisor (Sierra Investment Advisors Corporation)
and Administrator (Sierra Fund Administration Corporation) waived a portion of
their management fees and the Advisor absorbed other expenses, and credits were
allowed by the Custodian. In the absence of the waivers and absorption of other
expenses or Custodian credits, yield and total return would have been lower.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Average Annual Total Returns as of 6/30/97 6 Month 1 Year Since Inception
------- ------ ---------------
(May 7, 1993)
<S> <C> <C> <C>
Fund 2.72% 8.33% 5.57%
Lehman Brothers Mutual Fund Corporate Debt BBB-Rated Index* 3.07% 8.79% 7.10%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
- --------------------------------------------------------------------------------
CORPORATE INCOME FUND
- --------------------------------------------------------------------------------
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
There were no major shifts in the Fund's holdings, and none of the minor changes
had a significant impact on Fund performance. The Fund decreased its exposure to
industrial issues during the period, reflecting the sale or reduction of Amax
Inc., Boise Cascade Corporation, Georgia-Pacific Corporation, International
Paper Company, and Mead Corporation. Also during the period, the Fund purchased
a position in Norfolk Southern Corporation, and holdings in the financial sector
varied somewhat as a result of our purchase of Hartford Life Insurance Company,
as well as the sale of Dean Witter, Discover & Company.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
Overall, our outlook is positive. We forecast corporate profitability to be
reasonably maintained in the near future, and a benign inflation environment to
persist. Although corporate bond spreads are at historically tight levels, as
compared to U.S. Treasuries, demand for corporate product remains strong among
investors with new issues easily absorbed by the market.
After posting spectacularly high growth rates from the end of 1996 through early
1997, we expect Gross Domestic Product (GDP) growth to slow to an average of
2.0% to 2.5% for the next 12 months. Despite this slowdown, we anticipate a
modest reacceleration later in 1997 and expect a slight increase in the Federal
Funds rate prior to year-end. We continue to believe that risk remains for
short-term interest rates to increase. However, if the economy proceeds exactly
as forecast, or actually grows below trend, a Fed increase is unlikely. Only a
below-trend GDP growth rate over the next few quarters is likely to produce
further declines in short or intermediate rates.
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Broad Sector Diversification
- --------------------------------------------------------------------------------
<S> <C>
Energy 5.63%
Investment Company Security 1.91%
Manufacturing 19.05%
Industrial 4.40%
Yankee 7.82%
Gas 4.04%
Financial 14.22%
Transportation 15.41%
Electric 5.29%
Media 3.11%
Regional Banks 4.04%
Retail 3.35%
U.S. Treasury Bonds 5.72%
U.S. Government Agency Mortgage-Backed Securities 6.01%
</TABLE>
Allocation percentages are based on total investment value of the portfolio as
of 6/30/97.
15
<PAGE>
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER:
J.P. MORGAN INVESTMENT MANAGEMENT INC.
[PICTURE OF HENRY D. CAVANNA APPEARS HERE]
Mr. Cavanna is a Senior Portfolio Manager in the J.P. Morgan Equity and Balanced
Accounts Group, and has been with J.P. Morgan since 1971.
[PICTURE OF WILLIAM M. RIEGEL APPEARS HERE]
Mr. Riegel is a Senior Equity Portfolio Manager in the Equity and Balanced
Accounts Group, and has been with J.P. Morgan since 1979. Mr. Cavanna and Mr.
Riegel have had primary portfolio management responsibility for the Growth and
Income Fund since January 1994.
PERFORMANCE REVIEW:
From the Fund's inception (January 12, 1994) through June 30, 1997, the Growth
and Income Fund advanced 19.67% on an average annual total return basis. For the
12-month period ended June 30, 1997, the Fund's total return was 31.15%. For
additional information, see the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE SIX-MONTH PERIOD ENDED JUNE 30, 1997?
The stock market continued its record-setting pace in 1997, with the S&P 500
gaining over 20% year to date. Net of fees, the Fund also posted high returns,
outperforming the Lipper Variable Annuity Growth & Income Average by nearly 180
basis points. The most significant factors contributing to the Fund's
performance were stock selection and solid corporate earnings growth.
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
The Fund benefited from the U.S. stock market's impressive gains over the last
two quarters. According to Lipper Analytical Services, Inc., the second quarter
of 1997 was the best quarter for U.S. stock-fund performance since 1991. The
environment in the last half of 1996 centered around strong corporate profits
and weaker economic data, which helped alleviate inflation and interest rate
fears. Market volatility increased in March 1997 as investors feared rising
interest rates. In response, we slightly underweighted interest rate sensitive
sectors--specifically, finance, telephone, utility and insurance sectors--as
compared to the benchmark. However, in the second quarter as interest rates
steadied, these sectors rebounded, and
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Growth of a $10,000 Investment
S&P 500
Fund Index
<S> <C> <C>
Inception* 1/12/94 10,000 10,000
9,970 9,729
Mar 9,670 9,305
9,860 9,424
9,900 9,579
Jun 9,660 9,344
9,950 9,651
10,250 10,046
Sep 10,040 9,801
10,140 10,020
9,670 9,656
12/94 9,830 9,799
10,040 10,053
10,440 10,444
Mar 10,820 10,752
11,030 11,068
11,440 11,510
Jun 11,646 11,777
12,072 12,167
12,123 12,197
Sep 12,437 12,712
12,123 12,667
12,792 13,222
12/95 13,016 13,477
13,442 13,935
13,726 14,065
Mar 13,949 14,200
14,253 14,408
14,415 14,780
Jun 14,213 14,836
13,469 14,181
13,925 14,480
Sep 14,557 15,295
14,734 15,717
15,944 16,904
12/96 15,855 16,568
16,876 17,603
16,931 17,741
Mar 16,398 17,014
17,020 18,029
18,173 19,126
06/97 18,639 19,982
</TABLE>
The above line graph does not reflect administrative fees or other expenses
charged by American General Life Insurance Company Separate Account D through
which shares of the Fund are purchased.
* Index total returns were calculated from 1/31/94 to 6/30/97. The Standard &
Poor's Composite Index of 500 Stocks (S&P 500) represents an unmanaged weighted
index of 500 industrial, transportation, utility and financial companies widely
regarded by investors as representative of the stock market, assumes
reinvestment of all dividends/ distributions, and does not reflect any
asset-based charges for investment management or other expenses. Past investment
performance does not guarantee future performance. The returns for the Fund
assume reinvestment of all dividends/distributions by the shareholder.
During the period noted, the Advisor (Sierra Investment Advisors Corporation)
and Administrator (Sierra Fund Administration Corporation) waived a portion of
their management fees, and credits were allowed by the Custodian. In the absence
of the waivers or Custodian credits, yield and total return would have been
lower.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Average Annual Total Returns as of 6/30/97 6 Month 1 Year Since Inception
------- ------ ---------------
(January 12, 1994)
<S> <C> <C> <C>
Fund 17.56% 31.15% 19.67%
Standard & Poor's Composite Index of 500 Stocks* 20.61% 34.70% 22.46%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
we readjusted our weightings to a more neutral stance while concentrating on
stock selection.
This strategy, combined with identifying undervalued stocks that are
fundamentally attractive for the long term, contributed to the Fund's strong
six-month return.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/ SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
Over the past six months, we focused on individual stock selection and held a
highly diversified portfolio of value stocks. The Fund's best performing sectors
included telephone, drugs, basic industry, retail, and transportation. Warner
Lambert Company contributed most positively to performance, gaining 67.1% in the
first half of 1997. The company benefited from FDA approvals of two new drugs.
In retail, we bought on sector weakness, and the Fund profited as retail
rebounded--evidenced by
Wal-Mart Stores Inc. returning 49.3% in the first six months of 1997, and
Toys R Us Inc. gaining 25% in the last quarter alone.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
Our economic outlook calls for strong growth in 1997 (GDP +3.5%) and below trend
growth in 1998 (GDP +1.75%). Inflation will pick up above 3% in 1998, and the
low unemployment rate of 4.8% will impact wage growth and eventually spill over
to the general inflation rate. We expect corporate profit growth of 10% in 1997
and 4% in 1998, showing a strong correlation with economic growth.
In order to manage the Fund in this environment, we will continue to focus on
finding attractive stocks rather than attempting the risky practice of market
timing. As such, the Fund will be fully invested in a diverse selection of
stocks and remain sector neutral. On a sector basis, we have positioned our
technology holdings away from the PC industry and towards the data networking
areas. We believe the environment in these two subsectors is about to
reverse--with the PC industry slowing due to a lack of significant new products.
On the other hand, data networking companies plan to release a number of new
products to assist corporations with intranet capabilities and upgrade
communication equipment.
- --------------------------------------------------------------------------------
Sector Diversification
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C>
U.S. Treasury Bill 1.79%
Retail 4.65%
Computer Software & Services 1.58%
Materials & Processing 9.87%
Consumer Discretionary 11.61%
Financial Services 12.29%
Consumer Staples 7.43%
Energy 11.76%
Telecommunications 6.07%
Health Care 8.20%
Autos & Transportation 2.80%
Technology 10.47%
Producer Durables 5.71%
Other 4.94%
Utilities 0.83%
</TABLE>
Allocation percentages are based on total investment value of the portfolio as
of 6/30/97.
17
<PAGE>
- --------------------------------------------------------------------------------
GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER:
JANUS CAPITAL CORPORATION
[PICTURE OF WARREN B. LAMMERT APPEARS HERE]
Mr. Lammert is a graduate of Yale University and the London School of Economics.
He first joined Janus in January 1987 and has been portfolio manager for the
Growth Fund since its inception. He is a Chartered Financial Analyst.
PERFORMANCE REVIEW:
From the Fund's inception (May 7, 1993) through June 30, 1997, the Growth Fund
advanced 17.30% on an average annual total return basis. For the 12-month period
ended June 30, 1997, the Fund's total return was 11.47%. For additional
information, see the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE SIX-MONTH PERIOD ENDED JUNE 30, 1997?
For the past year, the stock market has put up very impressive numbers. With
increased investor focus on large-cap stocks, the S&P 500 Index gained 34.70%.
In this environment, the Fund returned 11.47%. While the market's breadth has
improved somewhat, large-capitalization stocks continued to lead their smaller
siblings. The Fund's concentration in mid- and small-cap stocks hurt performance
somewhat, as compared to the stellar returns of the S&P 500.
Although the first quarter of 1997 proved to be a difficult period for the Fund,
we are pleased with its most recent performance. The Fund gained some momentum
and made up for its previous performance, as many stocks we held bounced back
nicely. While we remain somewhat concerned that the economy's underlying
strength may push up interest rates, our research efforts have successfully
uncovered compelling, individual ideas.
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
The large-stock indices continued to be tough competitors for active managers. A
growing trend toward indexing served to bolster the stocks that comprise the S&P
500 Index. New money continued to chase returns, and the "hot" sector of the
market was the large, liquid stocks of the major market indices. Although small-
to mid-sized stocks rallied back to new records, larger stocks maintained their
impressive lead in performance, and have dominated domestic equities during the
reporting period. In fact, when the second quarter began, the dichotomy in
returns between large and small stocks had reached its highest point since 1937,
reflecting investor's affinity for large, liquid companies.
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Growth of a $10,000 Investment
<S> <C> <C>
Inception* 5/7/93 10,000 10,000
10,250 10,000
10,410 10,029
10,220 9,989
10,530 10,367
Sep 10,810 10,285
10,980 10,498
10,900 10,398
12/93 11,190 10,524
11,730 10,881
11,680 10,586
Mar 11,390 10,125
11,320 10,255
10,970 10,423
Jun 10,560 10,168
10,910 10,502
11,541 10,931
Sep 11,571 10,665
11,831 10,903
11,451 10,507
12/94 11,491 10,662
11,611 10,939
11,971 11,365
Mar 12,232 11,699
12,662 12,044
13,162 12,524
Jun 13,934 12,815
14,838 13,239
14,928 13,273
Sep 15,400 13,832
14,988 13,783
15,721 14,387
12/95 15,781 14,665
16,083 15,163
16,835 15,304
Mar 16,956 15,451
17,809 15,678
18,161 16,083
Jun 17,392 16,144
16,120 15,430
17,208 15,756
Sep 18,387 16,643
17,769 17,102
18,331 18,394
12/96 18,331 18,029
19,224 19,155
18,353 19,305
Mar 17,129 18,514
17,427 19,618
18,652 20,811
06/97 19,387 21,743
</TABLE>
The above line graph does not reflect administrative fees or other expenses
charged by American General Life Insurance Company Separate Account D through
which shares of the Fund are purchased.
* Index total returns were calculated from 5/31/93 to 6/30/97. The Standard &
Poor's Composite Index of 500 Stocks (S&P 500) represents an unmanaged weighted
index of 500 industrial, transportation, utility and financial companies widely
regarded by investors as representative of the stock market, assumes
reinvestment of all dividends/ distributions, and does not reflect any
asset-based charges for investment management or other expenses. Past investment
performance does not guarantee future performance. The returns for the Fund
assume reinvestment of all dividends/distributions by the shareholder.
During the period noted, the Advisor (Sierra Investment Advisors Corporation)
and Administrator (Sierra Fund Administration Corporation) waived a portion of
their management fees and the Advisor absorbed other expenses, and credits were
allowed by the Custodian. In the absence of the waivers and absorption of other
expenses or Custodian credits, yield and total return would have been lower.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Average Annual Total Returns as of 6/30/97 6 Month 1 Year Since Inception
------- ------ ---------------
(May 7, 1993)
<S> <C> <C> <C>
Fund 5.76% 11.47% 17.30%
Standard & Poor's Composite Index of 500 Stocks* 20.61% 34.70% 20.95%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
- --------------------------------------------------------------------------------
GROWTH FUND
- --------------------------------------------------------------------------------
In addition, "value" stocks outperformed growth stocks in small-, mid-, and
large-cap stock categories. Value stocks are categorized as those issued by
companies with stock prices considered below market value. They have the
potential to increase their value based on market perception--not increased
growth. Historically within both the large- and small-cap asset sectors, value
and growth stocks have performed consistently in line with each other. However,
during this reporting period, there was greater divergence in their performance
than during any other period in history. Despite this gap, May and June
witnessed a recovery by growth stocks, and--due to their cyclical nature --we
expect them to more closely track value stock performance for the rest of 1997.
Clearly, the Fund missed out on significant short-term gains in both the
large-cap and value stock sectors.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/ SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
The portfolio is somewhat more varied than in the past, but several broad themes
still exist. These include health care and pharmaceuticals, technology and
telecommunications, financial services, and selected retail and consumer
products companies.
Among our drug and health care holdings, Warner Lambert Company had an excellent
second quarter, up over 43%. We also own Rhone-Poulenc Rorer Inc., which gained
some 23% this quarter. Finally, Sofamor Danek Group, Inc., a maker of surgical
spinal implants, also increased in value. The company's products are capturing
market share and it is bringing new products to market at a faster clip due to
streamlined approval procedures at the U.S. Food and Drug Administration.
On the technology front, we did well with a wide variety of stocks, from
equipment manufacturers Cisco Systems, Inc. and Lucent Technologies, Inc., to
software developers Wind River Systems and Aspen Technology, Inc., to PC
retailer Compaq Computer Corporation. Among our financial stocks, UNUM
Corporation and Associates First Capital Corporation posted good performance. We
also continue to own a number of small thrifts, such as Rosyln Bancorp, Inc.,
Ambanc Holdings Company, Inc., and Provident Financial Holdings, Inc. Finally,
we cut Wells Fargo & Company at a significant profit after the integration of
First Interstate proved more problematic than expected.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
Although we have trimmed positions that were fully priced or out of alignment
with previous earnings estimates, our commitment to exceptional earnings
potential has not wavered. This discipline served us well recently, and we
believe it will continue to serve us well going forward. Much of our concern
during 1997 has been that economic growth would pick up and interest rates would
have to move higher. However, low levels of inflation have helped to maintain a
positive environment for interest rates and corporate profitability. Given this
positive economic backdrop, the Fund should continue to be an attractive
investment for growth investors.
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Sector Diversification
- --------------------------------------------------------------------------------
<S> <C>
Commercial Paper 8.46%
Materials & Processing 6.63%
Consumer Discretionary 5.44%
Financial Services 13.60%
Consumer Staples 0.25%
Energy 2.65%
Telecommunications 9.27%
Health Care 12.51%
Autos & Transportation 4.39%
Technology 12.09%
U.S. Government Agency Discount Notes 10.76%
Other 1.37%
Retail 1.61%
Computer Software & Services 10.97%
</TABLE>
Allocation percentages are based on total investment value of the portfolio as
of 6/30/97.
19
<PAGE>
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER:
JANUS CAPITAL CORPORATION
[PICTURE OF JAMES P. GOFF APPEARS HERE]
Mr. Goff has a degree from Yale University, and is a Chartered Financial
Analyst. He has been with Janus since 1988, and has had primary portfolio
management responsibility for the Emerging Growth Fund since its inception.
PERFORMANCE REVIEW:
From the Fund's inception (January 12, 1994) through June 30, 1997, the Emerging
Growth Fund advanced 13.84% on an average annual total return basis. For the
12-month period ended June 30, 1997, the Fund's total return was -0.82%. For
additional information, see the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE SIX-MONTH PERIOD ENDED JUNE 30, 1997?
Stocks continued to post strong gains throughout the six-month period, and the
indices remain at or near record levels. However, large capitalization stocks
have paced the market's returns, and small- to mid-sized stocks continued to
trail the overall market. During the period, the S&P 500 Index gained 20.61%,
and the Standard & Poor's MidCap 400 Index was up 13.04%. Meanwhile, the Sierra
Emerging Growth Fund gained 3.29%.
Despite a strong rebound by the small- and mid-cap sectors in the second quarter
of 1997, the Fund continued to underperform the overall market.
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
For over a year, a major market dichotomy has persisted, with large
capitalization stocks dominating smaller issues. At one point early in the
second quarter, the disparity in performance was the largest we have seen since
1937. A number of factors have contributed to this large-cap stock dominance,
including a long stretch of above-average corporate earnings, an affinity among
investors for liquidity, and "hot" money chasing a limited number of stocks.
Another trend in the market was that of value stocks outperforming their growth
stock counterparts. Companies with stock prices considered below market value
are called value stocks, as they
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Growth of a $10,000 Investment
<S> <C> <C>
Inception* 1/12/94 10,000 10,000
10,070 10,000
10,160 9,729
Mar 9,950 9,305
9,720 9,425
9,800 9,579
Jun 9,530 9,344
9,880 9,651
10,350 10,046
Sep 10,520 9,801
11,010 10,020
10,240 9,656
12/94 10,530 9,799
10,530 10,053
10,830 10,444
Mar 10,790 10,752
10,630 11,068
10,630 11,510
Jun 11,454 11,777
12,267 12,167
12,659 12,197
Sep 13,261 12,712
12,789 12,667
13,010 13,222
12/95 13,793 13,477
13,592 13,935
14,375 14,065
Mar 15,319 14,200
15,791 14,408
16,443 14,780
Jun 15,828 14,836
13,835 14,181
14,950 14,480
Sep 15,539 15,295
15,095 15,717
15,240 16,904
12/96 15,177 16,569
14,672 17,603
14,311 17,741
Mar 13,309 17,014
13,381 18,029
14,920 19,126
06/97 15,678 19,982
</TABLE>
The above line graph does not reflect administrative fees or other expenses
charged by American General Life Insurance Company Separate Account D through
which shares of the Fund are purchased.
* Index total returns were calculated from 1/31/94 to 6/30/97. The Standard &
Poor's Composite Index of 500 Stocks (S&P 500) represents an unmanaged weighted
index of 500 industrial, transportation, utility and financial companies widely
regarded by investors as representative of the stock market, assumes
reinvestment of all dividends/distributions, and does not reflect any
asset-based charges for investment management or other expenses. Past investment
performance does not guarantee future performance. The returns for the Fund
assume reinvestment of all dividends/distributions by the shareholder.
During the period noted, the Advisor (Sierra Investment Advisors Corporation)
and Administrator (Sierra Fund Administration Corporation) waived a portion of
their management fees, and credits were allowed by the Custodian. In the absence
of the waivers or Custodian credits, yield and total return would have been
lower.
<TABLE>
<CAPTION>
Growth of a $10,000 investment
- --------------------------------------------------------------------------------------------------------------
Average Annual Total Returns as of 6/30/97 6 Month 1 Year Since Inception
------- ------ ---------------
(January 12, 1994)
<S> <C> <C> <C>
Fund 3.29% -0.82% 13.84%
Standard & Poor's Composite Index of 500 Stocks* 20.61% 34.70% 22.46%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
have the potential to increase their value based on market perception--not
increased growth. Historically, value and growth stocks have performed
consistently in line with each other, within both the large- and small-cap asset
sectors. However, during this reporting period, there was a far greater
divergence in their performance than during any other period in history. Despite
this gap, May and June witnessed a recovery by growth stocks, and--due to their
cyclical nature--we expect them to more closely track value stock performance
for the rest of 1997.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
Consistent with the Fund's investment strategy to identify emerging companies
with high-growth potential, the Fund owned a number of stocks that gained over
35% in the second quarter. These included Fastenal Company, Papa John's
International Inc., Premier Parks, Inc., Omnicare Inc., and the Apollo Group
Inc. Our research efforts continued to generate new investment ideas, and we
added positions in the media industry, including Clear Channel Communication,
Evergreen Media Corporation, Outdoor Systems Inc., Heftel Broadcasting
Corporation, and Univision Communications, Inc.
Even though the Fund registered strong gains across a broad spectrum of
holdings, we did experience some mild disappointments. Both HFS, Inc. and
Insignia Financial Group, Inc., which have been great performers, were basically
unchanged. In both cases, we remain positive about the companies' prospects, and
therefore maintain the positions.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
Although the Fund recorded good results in the second quarter relative to the
Index, investors are only beginning to be rewarded for their patience, and have
yet to be paid for the Fund's full potential.
While the fundamentals for the stock market and the economy appear intact, we
remain squarely focused on individual stock selection. We continue to search for
companies that can grow their earnings in any environment. Ultimately, stock
prices will follow superior earnings growth. We remain enthusiastic about the
current Fund's prospects, and continue to search for compelling investment ideas
where our research can add value.
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Sector Diversification
- --------------------------------------------------------------------------------
<S> <C>
Telecommunications 1.62%
Materials & Processing 5.46%
Consumer Discretionary 17.22%
Financial Services 16.53%
U.S. Government Agency Discount Note 2.16%
Autos & Transportation 2.62%
Health Care 9.75%
Commercial Paper 4.54%
Technology 0.11%
Consumer Staples 1.91%
Warrant 0.78%
Restaurants 14.39%
Producer Durables 4.30%
Retail 18.61%
</TABLE>
Allocation percentages are based on total investment value of the portfolio as
of 6/30/97.
21
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER:
WARBURG, PINCUS COUNSELLORS, INC.
The following people have been primarily responsible for managing the
International Growth Fund since April 8, 1996. Richard H. King, Senior Managing
Director, joined the firm to found the department and has 31 years of investment
experience. Prior to joining Warburg, Mr. King was chief investment officer and
a director of Fiduciary Trust Company International S.A. in London from 1984 to
1988. P. Nicholas Edwards, Senior Vice President, has 13 years of investment
experience. Prior to joining Warburg, Mr. Edwards was a director and senior
analyst at Jardine Fleming Investment Advisers in Tokyo from 1991 to 1995.
Harold W. Ehrlich, CFA, CIC, Senior Vice President, has 14 years of investment
experience. Prior to joining Warburg, Mr. Ehrlich was a senior vice president,
portfolio manager and analyst at Templeton Investment Counsel Inc. Nicholas P.W.
Horsley, Senior Vice President, has 16 years of investment experience. Prior to
joining Warburg, Mr. Horsley was a director, portfolio manager and analyst at
Barclays de Zoete Wedd in New York. Vincent J. McBride, Vice President, has 10
years of investment experience. Prior to joining Warburg, Mr. McBride was an
international equity analyst at Smith Barney Inc. from 1993 to 1994. He was an
international equity analyst at General Electric Investments from 1992 to 1993
and a portfolio manager/analyst at United Jersey Bank from 1989 to 1992.
PERFORMANCE REVIEW:
From the Fund's inception (May 7, 1993) through June 30, 1997, the International
Growth Fund's average annual total return was 10.57%. For the 12-month period
ended June 30, 1997, the Fund's total return was 16.28%. For the same time
period, the Fund significantly outperformed the benchmark Morgan Stanley Capital
International EAFE Index which advanced 12.84% on an average annual total return
basis.* For additional information, see the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE SIX-MONTH PERIOD ENDED JUNE 30, 1997?
The first three months of 1997 saw mixed performance for foreign stock markets.
Most European markets advanced in local-currency terms, though the strong U.S.
currency tempered those gains in dollar terms. Japan's equity market struggled,
hurt by ongoing concerns over the banking sector and the potential impact higher
taxes might have on Japan's economic recovery. Among emerging markets, the most
noteworthy performance belonged to Latin America--led by Brazil, whose market
rose over 25%.
During the second quarter of 1997, the turnaround in Japan's broad-market
averages reflected renewed bullishness for its economic prospects, as well as
favorable reaction to the government's deregulatory efforts and developments at
the corporate level. In all cases, this optimism appears justified. Japan's
economy grew at an annualized rate of 6.6% in the first quarter, well above
expectations.
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Growth of a $10,000 Investment
<S> <C> <C>
Inception* 5/7/93 10,000 10,000
10,410 10,000
10,120 9,844
10,370 10,189
11,030 10,739
Sep 11,080 10,497
11,430 10,820
10,820 9,875
12/93 11,310 10,588
11,800 11,482
11,890 11,450
Mar 11,470 10,957
11,840 11,421
11,890 11,356
Jun 11,784 11,516
12,065 11,627
12,246 11,902
Sep 11,864 11,527
12,115 11,911
11,643 11,338
12/94 11,523 11,410
11,021 10,972
10,901 10,940
Mar 11,142 11,622
11,473 12,059
11,543 11,916
Jun 11,392 11,707
11,980 12,437
11,787 11,963
Sep 11,868 12,196
11,676 11,868
11,777 12,198
12/95 12,284 12,690
12,680 12,742
12,639 12,785
Mar 12,771 13,056
12,954 13,436
12,933 13,189
Jun 13,045 13,263
12,459 12,875
12,604 12,904
Sep 12,913 13,247
12,809 13,112
13,416 13,623
12/96 13,396 13,447
13,458 12,977
13,540 13,190
Mar 13,426 13,237
13,704 13,307
14,537 14,174
06/97 15,171 14,955
</TABLE>
The above line graph does not reflect administrative fees or other expenses
charged by American General Life Insurance Company Separate Account D through
which shares of the Fund are purchased.
* Index total returns were calculated from 5/31/93 to 6/30/97. The Morgan
Stanley Capital International EAFE Index ("EAFE") includes 1,050 companies
representing the stock markets of Europe, Australia, New Zealand and the Far
East weighted by capitalization. EAFE is a broad-based index of equity markets
representing 18 countries, assumes reinvestment of all dividends/distributions,
and does not reflect any asset-based charges for investment management or other
expenses. Past investment performance does not guarantee future performance. The
returns for the Fund assume reinvestment of all dividends/distributions by the
shareholder.
During the period noted, the Advisor (Sierra Investment Advisor Corporation) and
Administrator (Sierra Fund Administration Corporation) waived a portion of their
management fees and the Advisor absorbed other expenses, and credits were
allowed by the Custodian. In the absence of the waivers and absorption of other
expenses or Custodian credits, yield and total return would have been lower.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Average Annual Total Returns as of 6/30/97 6 Month 1 Year Since Inception
------- ------ ---------------
(May 7, 1993)
<S> <C> <C> <C>
Fund 13.25% 16.28% 10.57%
Morgan Stanley Capital International EAFE Index* 11.21% 12.84% 10.38%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL GROWTH FUND
- --------------------------------------------------------------------------------
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
As 1997 opened, the strength of the U.S. Dollar tempered gains in European
markets, and Japan's market struggled. Latin American markets rose, led by
Brazil's 25% increase in both local-currency and dollar terms. This performance
continued into the second quarter as optimism for progress continued to drive
Latin American equities. European markets also flourished in the second quarter
and Asian-Pacific markets were led by a strong recovery in Japan.
Throughout the period, the Fund continued to use a consistent bottom- up process
of evaluating companies while maintaining a top-down view of economies and
regions. The Fund also continued to look for value on a longer-term basis.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
During the first quarter 1997, we trimmed the Fund's weightings in the
peripheral European markets, specifically Spain and Portugal. Spain rallied with
the decline in bond yields, but with our holdings approaching their target
prices, and given the increased potential for a delay in the launch of monetary
union, we decided to take some profits and redeploy those assets elsewhere.
We continue to find good opportunities in the U.K. and have increased the Fund's
weighting there. We reduced our Japanese exposure to 17% as of the end of March,
taking profits on stocks that had met our target prices. We increased the Fund's
weighting in Brazil in recent months. This has worked to the Fund's advantage
year to date, as the market has been the region's strongest performer.
By country, the Fund's largest weighting was the U.K., which performed
particularly well in U.S. Dollar terms due to the strengthening British Pound.
The Fund's largest weighting in continental Europe during the quarter remained
France, which continued to perform well.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
We feel that European holdings will continue to perform well. Germany has
performed particularly well for the Fund, motivating us to increase its
exposure. British companies have enjoyed strong profit growth in recent
quarters, and we remain underweighted in the U.K. We continue to view our
holdings in the Spanish market favorably, as they have benefited from the
decline in bond yields. Australian stocks have grown increasingly positive given
the tangible signs of a recovery in corporate earnings. We are optimistic about
South Korea--currently one of the cheapest markets in the world--as its economy
has been sufficiently discounted. We are encouraged by the earnings outlook for
many Hong Kong companies in 1997, and are keeping a close watch on stock
valuations. In Japan, our own estimate calls for a higher growth rate and
continued expansion in corporate earnings. This combination should lead to a
turnaround in investor sentiment and a recovery in overall market performance.
We believe non-U.S. equities will continue to provide excellent long-term
growth opportunities. That said, we will continue to research those companies we
feel may provide long-term growth. We continue to find value in many markets,
and believe 1997 stands to be a very rewarding year for international investors.
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Diversification by Region
- --------------------------------------------------------------------------------
<S> <C>
Africa 3.25%
Asia 42.61%
Australia/New Zealand 8.98%
Americas 11.44%
Europe 33.72%
</TABLE>
Allocation percentages are based on total investment value of the portfolio as
of 6/30/97.
23
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
[PIE CHARTS APPEAR HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Portfolio Allocations
- --------------------------------------------------------------------------------
<S> <C>
International Growth Fund 10%
Global Money Fund 10%
Short Term High Quality Bond Fund 5%
Growth & Income Fund 30%
Growth Fund 40%
Emerging Growth Fund 5%
</TABLE>
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Portfolio Composition/(2)/
- --------------------------------------------------------------------------------
<S> <C>
Cash Equivalent 19.30%
U.S. Government Mortgages & Agencies 0.95%
Other 0.95%
Treasuries 0.60%
Corporates 1.56%
U.S. Equity: Small Cap 7.80%
U.S. Equity: Mid Cap 23.33%
U.S. Equity: Large Cap 27.72%
Foreign Stocks 16.69%
Asset-Backs 1.10%
</TABLE>
Goal & Objective
The Capital Growth Portfolio ("Portfolio") is designed to help manage investment
risk and achieve its objective of long-term capital appreciation. The Portfolio
allocates its assets strategically among mutual fund subaccounts in The Sierra
Variable Trust family. The Portfolio is managed similarly to the Sierra Asset
Management (SAM) Program Aggressive Growth Strategy, whose goal was to produce
an average annual return that exceeds the S&P 500 over a period of six years or
longer. Over short-term periods, however, significant differences may exist
between the Portfolio and the S&P 500.(1)
Current Allocation
The Capital Growth Portfolio is positioned to take advantage of the favorable
economic and market environments by remaining 85% invested in equities. The
Portfolio is well-diversified, holding four Sierra Variable Trust equity funds:
Growth and Income, Growth, Emerging Growth, International Growth. The positions
in cash equivalent and short-term bonds also aid in risk management. The six
funds represent nine major asset classes. Allocations between these funds, and
therefore the different asset classes, allow the Portfolio to manage risk while
producing capital appreciation.
More specifically, the Portfolio's current investment strategy is to:
. Enhance prospects for capital appreciation by maintaining a broadly
diversified mix of equities favoring the core holdings found in The Sierra
Variable Trust Growth and Growth & Income Funds
. Lower overall risk of the Portfolio by reducing exposure to both small-cap and
international stocks and by adding a small cash and a short-term bond position
(1) The SAM Program is a discretionary asset allocation service (within the
Sierra Advantage Variable Annuity) that invests in certain funds within The
Sierra Variable Trust. The investment objectives may or may not be met. The
goals of the SAM Program are not intended to reflect past or future performance
of the SAM Program or The Sierra Variable Trust and are in no way a guarantee.
(2) Allocation percentages are based on total investment value of the portfolio
as of 6/30/97.
24
<PAGE>
- --------------------------------------------------------------------------------
GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
Goal & Objective
The Growth Portfolio ("Portfolio") is designed to help manage investment risk
and achieve its objective of long-term capital appreciation. The Portfolio
allocates its assets strategically among mutual fund subaccounts in The Sierra
Variable Trust family. The Portfolio is managed similarly to the Sierra Asset
Management (SAM) Program Growth Strategy, whose goal was to produce an average
annual return of 7% or more above the annual rate of inflation over a period of
six years or longer./(1)/
Current Allocation
The Growth Portfolio is well-diversified, its assets allocated among five mutual
funds representing eight major asset classes. By investing in these different
asset classes, the Portfolio works to reduce risk while producing capital
appreciation. The Portfolio's equity holdings are diversified among different
stock asset classes, such as small-, mid-, and large-cap stocks. These
investment subcategories may react differently to certain economic or market
conditions, helping to reduce the risk of market fluctuations. The addition of
bond asset classes, which produce current income for the Portfolio, also helps
to further decrease overall volatility.
More specifically, the Portfolio's current investment strategy is to:
. Enhance prospects for capital appreciation by maintaining a broadly
diversified mix of domestic and international stocks favoring the core
holdings of mid- and large- cap companies
. Maintain a 75% concentration in equities and 25% in short- to intermediate-
term fixed-income assets to enhance growth potential while reducing overall
levels of risk
[PIE CHARTS APPEAR HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Portfolio Allocations
- --------------------------------------------------------------------------------
<S> <C>
Global Money Fund 10%
U.S. Government Fund 15%
Growth & Income Fund 30%
Growth Fund 25%
International Growth Fund 20%
</TABLE>
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Portfolio Composition/(2)/
- --------------------------------------------------------------------------------
<S> <C>
Cash Equivalent 16.33%
U.S. Government Mortgages & Agencies 6.68%
Other 5.07%
Treasuries 3.26%
Corporates 0.36%
U.S. Equity: Small Cap 4.11%
U.S. Equity: Mid Cap 16.82%
U.S. Equity: Large Cap 24.30%
Foreign Stocks 23.07%
</TABLE>
(1) The SAM Program is a discretionary asset allocation service (within the
Sierra Advantage Variable Annuity) that invests in certain funds within The
Sierra Variable Trust. The investment objectives may or may not be met. The
goals of the SAM Program are not intended to reflect past or future performance
of the SAM Program or The Sierra Variable Trust and are in no way a guarantee.
(2) Allocation percentages are based on total investment value of the portfolio
as of 6/30/97.
25
<PAGE>
- --------------------------------------------------------------------------------
BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
[PIE CHARTS APPEAR HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Portfolio Allocations
- --------------------------------------------------------------------------------
<S> <C>
International Growth Fund 15%
Global Money Fund 20%
U.S. Government Fund 20%
Growth & Income Fund 30%
Growth Fund 15%
</TABLE>
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Portfolio Composition/(2)/
- --------------------------------------------------------------------------------
<S> <C>
Cash Equivalent 24.14%
U.S. Government Mortgages & Agencies 8.90%
Other 6.76%
Treasuries 4.34%
Corporates 0.36%
U.S. Equity: Small Cap 2.82%
U.S. Equity: Mid Cap 13.97%
U.S. Equity: Large Cap 22.02%
Foreign Stocks 16.69%
</TABLE>
Goal & Objective
The Balanced Portfolio ("Portfolio") is designed to help manage investment risk
and achieve its objective of long-term growth of capital and income. The
Portfolio allocates its assets strategically among mutual fund subaccounts in
The Sierra Variable Trust family. The Portfolio is managed similarly to The
Sierra Asset Management (SAM) Program Balanced Strategy, whose goal was to
produce an average annual return of 5% or more above the annual rate of
inflation over a period of six years or longer./(1)/
Current Allocation
The Balanced Portfolio is diversified among five mutual funds. Since those funds
represent eight major asset classes of both bonds and stocks, a high degree of
asset diversification is provided to investors. Diversification of stock asset
classes can help to reduce the risk of market fluctuations. Holding diverse bond
asset classes may also work to reduce price volatility due to interest rate
fluctuations. The Portfolio is well positioned as prospects for continued low
inflation will be beneficial for all financial assets.
More specifically, the current investment strategy for the Portfolio is to:
. Increase the levels of diversification and manage risk by investing 60%
of the Portfolio in equities and 40% in fixed income
. Emphasize mid- and large-cap equities while maintaining a foreign position
and weighting the fixed-income portion towards cash and mortgage-backed
securities
/(1)/ The SAM Program is a discretionary asset allocation service (within the
Sierra Advantage Variable Annuity) that invests in certain funds within The
Sierra Variable Trust. The investment objectives may or may not be met. The
goals of the SAM Program are not intended to reflect past or future performance
of the SAM Program or The Sierra Variable Trust and are in no way a guarantee.
/(2)/ Allocation percentages are based on total investment value of the
portfolio as of 6/30/97.
26
<PAGE>
- --------------------------------------------------------------------------------
VALUE PORTFOLIO
- --------------------------------------------------------------------------------
Goal & Objective
The Value Portfolio ("Portfolio") is designed to help manage investment risk and
achieve its objective of income with some added potential for capital
appreciation. The Portfolio allocates its assets strategically among mutual fund
subaccounts in The Sierra Variable Trust family. The Portfolio is managed
similarly to The Sierra Asset Management (SAM) Program Value Strategy, whose
goal was to produce an average annual return of 4% or more above the annual rate
of inflation over a period of six years or longer./(1)/
Current Allocation
The Value Portfolio is diversified among six mutual funds and one additional
cash position, representing nine major asset classes. This level of
diversification can reduce potential risk, as measured by volatility of returns,
to levels below that of most single-fund holdings. Just as diversification of
stock asset classes reduces the risk of market fluctuations, diversification of
bond asset classes helps to reduce price volatility due to interest rate
fluctuations. Current prospects for low inflation provide a positive backdrop
for both fixed-income and equity markets.
More specifically, the current investment strategy for the Portfolio is to:
. Provide investors with income and potential for capital appreciation with an
80% weight in bonds and a 20% weight in core domestic equities
. Maintain a competitive current yield by investing in corporate bonds and
mortgage-backed securities, which produce higher yields than like-maturity
Treasuries
[PIE CHARTS APPEAR HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Portfolio Allocations
- --------------------------------------------------------------------------------
<S> <C>
Growth Fund 5%
Cash Equivalent 10%
Global Money Fund 15%
Short Term High Quality Bond Fund 10%
U.S. Government Fund 30%
Corporate Income Fund 15%
Growth & Income Fund 15%
</TABLE>
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Portfolio Composition/(2)/
- --------------------------------------------------------------------------------
<S> <C>
Cash Equivalent 26.87%
U.S. Government Mortgage & Agencies 16.14%
Other 12.04%
Treasuries 8.58%
Corporates 15.56%
U.S. Equity: Small Cap 1.08%
U.S. Equity: Mid Cap 6.27%
U.S. Equity: Large Cap 10.44%
Foreign Stocks 0.82%
Asset-Backs 2.20%
</TABLE>
/(1)/ The SAM Program is a discretionary asset allocation service (within the
Sierra Advantage Variable Annuity) that invests in certain funds within The
Sierra Variable Trust . The investment objectives may or may not be met. The
goals of the SAM Program are not intended to reflect past or future performance
of the SAM Program or The Sierra Variable Trust and are in no way a guarantee.
/(2)/ Represents a hypothetical portfolio composition.
27
<PAGE>
- --------------------------------------------------------------------------------
INCOME PORTFOLIO
- --------------------------------------------------------------------------------
[PIE CHARTS APPEAR HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Portfolio Allocations
- --------------------------------------------------------------------------------
<S> <C>
Corporate Income Fund 30%
Global Money Fund 10%
Short Term High Quality Bond Fund 10%
Short Term Global Government Fund 10%
U.S. Government Fund 40%
</TABLE>
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Portfolio Composition/(2)/
- --------------------------------------------------------------------------------
<S> <C>
Foreign Bonds 5.41%
Asset-Backs 2.20%
Cash Equivalents 11.26%
U.S. Government Mortgages & Agencies 23.40%
Other 15.46%
Treasuries 12.69%
Corporates 29.58%
</TABLE>
Goal & Objective
The Income Portfolio ("Portfolio") is designed to help manage investment risk
and achieve its objective of high levels of income and capital preservation. The
Portfolio allocates its assets strategically among mutual fund subaccounts in
The Sierra Variable Trust family. The Portfolio is managed similarly to the
Sierra Asset Management (SAM) Program Fixed Strategy, whose goal was to produce
an average annual return of 3% or more above the annual rate of inflation over a
period of six years or longer./(1)/
Current Allocation
The Income Portfolio is diversified among five bond funds, including a money
market fund. These funds represent six major asset classes which provide a high
degree of asset diversification for investors. Just as diversification of stock
asset classes reduces the risk of market fluctuations, diversification of bond
asset classes helps to reduce price volatility due to interest rate
fluctuations.
More specifically, the current investment strategy for the Portfolio is to:
. Increase the levels of diversification and manage risk by increasing exposure
to global bonds and adding to the cash position
. Maintain a competitive current yield by investing in corporate bonds and
mortgage-backed securities, which produce higher yields compared to
similar-maturity Treasuries.
/(1)/ The SAM Program is a discretionary asset allocation service (within the
Sierra Advantage Variable Annuity) that invests in certain funds within The
Sierra Variable Trust. The investment objectives may or may not be met. The
goals of the SAM Program are not intended to reflect past or future performance
of the SAM Program or The Sierra Variable Trust and are in no way a guarantee.
/(2)/ Represents a hypothetical portfolio composition.
28
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Sierra Variable Trust
Semi-Annual Report
------------------------------------------
For the six months ended June 30, 1997
29
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
THE SIERRA VARIABLE TRUST
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
SHORT TERM SHORT TERM
GLOBAL HIGH GLOBAL U.S.
MONEY QUALITY BOND GOVERNMENT GOVERNMENT
FUND FUND FUND FUND
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value (Note
2)
See portfolios of
investments (a)........... $32,453,100 $12,102,714 $19,182,493 $71,125,567
Cash and/or foreign currency
(b)........................ 1,100 8,710 55,348 47,558
Dividends and/or interest
receivable................. 202,685 99,449 411,581 568,164
Receivable for investment
securities sold............ -- 3,406 -- 1,441,023
Receivable for Fund shares
sold....................... 136,019 -- -- --
Net unrealized appreciation
of forward foreign currency
contracts (Note 2)
See portfolios of
investments............... -- -- 176,523 --
Unamortized organization
costs and/or offering costs
(Note 7)................... 5,238 -- 5,273 5,172
Variation Margin (Note 2)... -- 3,250 -- 75,750
Receivable from
administrator.............. -- -- -- --
Other assets................ 1,693 1,026 1,727 4,505
----------- ----------- ----------- -----------
Total Assets................ 32,799,835 12,218,555 19,832,945 73,267,739
----------- ----------- ----------- -----------
LIABILITIES:
Net unrealized depreciation
of forward foreign currency
contracts (Note 2)
See portfolios of
investments............... -- -- -- --
Payable for investment
securities purchased....... -- -- -- --
Payable for Fund shares
redeemed................... 6,687 2,008 2,191 1,458
Investment advisory fee
payable (Note 3)........... 8,430 3,761 12,291 30,213
Administration fee payable
(Note 3)................... 4,842 1,805 2,950 9,064
Transfer agent fees payable
(Note 3)................... 417 417 417 417
Custodian fees payable (Note
3)......................... 716 651 858 550
Accrued Trustees' fees and
expenses (Note 4).......... 833 304 495 1,524
Reverse repurchase
agreements (Notes 2 and
5)......................... -- -- -- 12,017,088
Options written, at value
(Premium received of
$45,615 for the Short Term
Global Government Fund)
(Notes 2 and 5)
See portfolios of
investments............... -- -- 32,942 --
Dividend payable............ 136,019 -- -- --
Organization and offering
cost payable............... -- -- -- --
Accrued expenses and other
payables................... 12,898 19,366 22,264 38,059
----------- ----------- ----------- -----------
Total Liabilities........... 170,842 28,312 74,408 12,098,373
----------- ----------- ----------- -----------
NET ASSETS.................. $32,628,993 $12,190,243 $19,758,537 $61,169,366
=========== =========== =========== ===========
NET ASSETS CONSIST OF:
Undistributed net investment
income/(distributions in
excess of net investment
income).................... $ 15,877 $ 28,178 $ (496,268) $ 12,350
Accumulated net realized
gain/(loss) from security
transactions, futures
contracts, forward foreign
currency contracts, foreign
currency transactions and
written options............ 3,257 (451,292) 886,397 (2,157,301)
Net unrealized
appreciation/(depreciation)
of securities, futures
contracts, forward foreign
currency contracts, foreign
currency, written options
and other assets and
liabilities................ -- 80,827 (448,967) 869,066
Paid-in capital............. 32,609,859 12,532,530 19,817,375 62,445,251
----------- ----------- ----------- -----------
Total Net Assets............ $32,628,993 $12,190,243 $19,758,537 $61,169,366
=========== =========== =========== ===========
NET ASSET VALUE, offering
price and redemption price
per share of beneficial
interest outstanding....... $ 1.00 $ 2.42 $ 2.42 $ 9.73
=========== =========== =========== ===========
Number of Fund shares
outstanding................ 32,621,861 5,033,452 8,150,482 6,289,577
=========== =========== =========== ===========
- ------------
(a)INVESTMENTS, AT COST
(NOTE 2)................... $32,453,100 $12,014,856 $19,809,397 $70,102,567
(b)CASH AND/OR FOREIGN
CURRENCY, AT COST (NOTE
2)......................... $ 1,100 $ 8,710 $ 54,881 $ 47,558
</TABLE>
See Notes to Financial Statements.
30
<PAGE>
<TABLE>
<CAPTION>
CORPORATE GROWTH AND EMERGING INTERNATIONAL CAPITAL
INCOME INCOME GROWTH GROWTH GROWTH GROWTH GROWTH BALANCED
FUND FUND FUND FUND FUND PORTFOLIO PORTFOLIO PORTFOLIO
- ----------- ----------- ------------ ----------- ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$49,227,580 $90,886,377 $117,911,752 $46,273,656 $62,264,109 $41,340 $ 86,357 $294,360
-- 372 101,691 90,562 42,601 300 500 1,000
947,375 58,488 52,802 8,323 220,077 -- 380 135
-- 109,176 440,700 806,704 1,242,236 -- -- --
-- 3,684 -- -- -- -- -- --
-- -- 120,336 -- 942,581 -- -- --
5,188 -- 5,188 -- 5,188 19,922 19,922 19,922
-- -- -- -- -- -- -- --
-- -- -- -- -- 3,635 3,633 3,610
4,325 4,289 7,901 3,723 4,321 -- 2,627 --
- ----------- ----------- ------------ ----------- ----------- ------- -------- --------
50,184,468 91,062,386 118,640,370 47,182,968 64,721,113 65,197 113,419 319,027
- ----------- ----------- ------------ ----------- ----------- ------- -------- --------
-- -- -- 70,342 -- -- -- --
-- 318,772 981,872 168,108 704,037 -- 3,007 --
2,740 -- 14,615 11,623 11,100 -- -- --
26,945 59,197 84,365 33,320 48,387 3 4 13
7,462 13,319 17,038 6,838 9,376 -- -- --
417 417 417 417 417 417 417 417
679 1,322 3,390 1,553 4,317 100 100 100
1,246 2,293 2,878 1,142 1,587 1 1 5
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- 20,400 20,400 20,400
21,628 24,588 31,132 17,942 25,470 2,645 2,645 2,642
- ----------- ----------- ------------ ----------- ----------- ------- -------- --------
61,117 419,908 1,135,707 311,285 804,691 23,566 26,574 23,577
- ----------- ----------- ------------ ----------- ----------- ------- -------- --------
$50,123,351 $90,642,478 $117,504,663 $46,871,683 $63,916,422 $41,631 $ 86,845 $295,450
=========== =========== ============ =========== =========== ======= ======== ========
$ 8,329 $ 189,591 $ 285,180 $ 27,688 $ (215,386) $ 203 $ 368 $ 2,491
(2,791,067) 6,775,658 5,169,428 436,289 3,678,946 3,302 2,628 13,070
256,928 13,359,912 13,893,934 10,249,818 7,554,731 (2,371) (1,766) (14,565)
52,649,161 70,317,317 98,156,121 36,157,888 52,898,131 40,497 85,615 294,454
- ----------- ----------- ------------ ----------- ----------- ------- -------- --------
$50,123,351 $90,642,478 $117,504,663 $46,871,683 $63,916,422 $41,631 $ 86,845 $295,450
=========== =========== ============ =========== =========== ======= ======== ========
$ 9.72 $ 15.48 $ 14.65 $ 14.34 $ 14.26 $ 10.33 $ 10.29 $ 10.19
=========== =========== ============ =========== =========== ======= ======== ========
5,158,856 5,854,745 8,021,687 3,269,393 4,483,374 4,031 8,438 28,998
=========== =========== ============ =========== =========== ======= ======== ========
$48,970,652 $77,526,465 $104,137,291 $35,953,104 $55,652,849 $43,711 $ 88,123 $308,925
$-- $ 372 $ 102,136 $ 90,569 $ 43,810 $ 300 $ 500 $ 1,000
</TABLE>
See Notes to Financial Statements.
31
<PAGE>
STATEMENTS OF OPERATIONS
THE SIERRA VARIABLE TRUST
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
SHORT TERM SHORT TERM
GLOBAL HIGH GLOBAL U.S.
MONEY QUALITY BOND GOVERNMENT GOVERNMENT
FUND FUND FUND FUND
-------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends....................... $-- $-- $-- $--
Foreign witholding tax on
dividend income................ -- -- -- --
Interest........................ 776,261 431,307 755,585 2,487,995
Foreign witholding tax on
interest income................ -- -- (10,224) --
Fee income (Note 5)............. -- -- -- 41,640
-------- -------- ----------- ----------
Total Investment Income........ 776,261 431,307 745,361 2,529,635
-------- -------- ----------- ----------
EXPENSES:
Investment advisory fee (Note
3)............................. 69,518 30,451 77,203 189,849
Administration fee (Note 3)..... 25,026 10,962 18,529 56,955
Trustees' fees and expenses
(Note 4)....................... 1,850 679 1,089 3,370
Legal and audit fees............ 9,158 8,524 18,858 12,864
Transfer agent fees (Note 3).... 2,083 2,083 2,083 2,083
Custodian fees (Note 3)......... 5,126 4,475 6,885 4,601
Amortization of organization
costs (Note 7)................. 3,069 -- 3,069 3,069
Other........................... 3,448 9,668 1,986 12,345
Interest expense (Note 5)....... -- -- -- 210,651
Fees waived by investment
advisor and administrator (Note
3)............................. (29,077) (5,750) -- --
-------- -------- ----------- ----------
Subtotal....................... 90,201 61,092 129,702 495,787
Credits allowed by the custodian
(Note 3)....................... (26) (248) (237) (1,884)
-------- -------- ----------- ----------
Net expenses................... 90,175 60,844 129,465 493,903
-------- -------- ----------- ----------
NET INVESTMENT INCOME/(LOSS).... 686,086 370,463 615,896 2,035,732
-------- -------- ----------- ----------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS
(NOTES 2 AND 5):
Realized gain/(loss) from:
Security transactions.......... 3,257 (42,692) (212,718) (248,173)
Forward foreign currency
contracts and foreign currency
transactions.................. -- (3,142) 1,161,003 --
Futures contracts.............. -- (16,575) -- 423,278
Written options................ -- 6,383 120,253 --
Capital gain distributions
received...................... -- -- -- --
Net unrealized
appreciation/(depreciation) of:
Securities..................... -- (6,201) (1,072,389) (121,354)
Forward foreign currency
contracts..................... -- -- (154,436) --
Foreign currency, written
options, futures contracts and
other assets and liabilities.. -- (7,479) 12,142 (366,520)
-------- -------- ----------- ----------
Net Realized and Unrealized
Gain/(Loss) on Investments..... 3,257 (69,706) (146,145) (312,769)
-------- -------- ----------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS...... $689,343 $300,757 $ 469,751 $1,722,963
======== ======== =========== ==========
</TABLE>
- ------------
* The Capital Growth, Growth and Balanced Portfolios commenced operations on
June 3, 1997.
See Notes to Financial Statements.
32
<PAGE>
<TABLE>
<CAPTION>
CORPORATE GROWTH AND EMERGING INTERNATIONAL CAPITAL
INCOME INCOME GROWTH GROWTH GROWTH GROWTH GROWTH BALANCED
FUND FUND FUND FUND FUND PORTFOLIO* PORTFOLIO* PORTFOLIO*
---------- ----------- ---------- -------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$-- $ 549,517 $ 456,235 $ 56,983 $ 687,260 $ 212 $ 380 $ 2,501
-- -- (25,215) (3,289) (74,515) -- -- --
2,165,923 90,082 513,516 98,711 91,572 -- -- 35
-- -- -- -- (134) -- -- --
22,031 -- -- -- -- -- -- --
---------- ----------- ---------- -------- ---------- ------- ------- --------
2,187,954 639,599 944,536 152,405 704,183 212 380 2,536
---------- ----------- ---------- -------- ---------- ------- ------- --------
177,498 301,296 504,338 207,622 286,421 3 4 13
49,153 67,792 101,837 42,654 55,403 4 5 19
2,741 4,909 6,149 2,254 3,450 1 1 5
13,885 13,007 15,485 11,414 17,734 2,150 2,150 2,150
2,083 2,083 2,083 2,083 2,083 417 417 417
3,918 8,586 22,815 14,499 33,945 108 127 108
3,069 -- 3,069 -- 3,069 478 478 478
6,609 10,242 12,536 5,428 9,477 495 495 492
-- -- -- -- -- -- -- --
-- -- -- -- -- (3,639) (3,638) (3,629)
---------- ----------- ---------- -------- ---------- ------- ------- --------
258,956 407,915 668,312 285,954 411,582 17 39 53
(17) (525) (2,538) (1,123) (557) (8) (27) (8)
---------- ----------- ---------- -------- ---------- ------- ------- --------
258,939 407,390 665,774 284,831 411,025 9 12 45
---------- ----------- ---------- -------- ---------- ------- ------- --------
1,929,015 232,209 278,762 (132,426) 293,158 203 368 2,491
---------- ----------- ---------- -------- ---------- ------- ------- --------
(547,744) 6,809,480 5,637,114 500,135 3,172,557 -- -- --
-- -- 222,878 (62,167) 489,286 -- -- --
-- -- (3,170) -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- 3,302 2,628 13,070
(206,876) 5,700,444 86,067 299,131 3,082,367 (2,371) (1,766) (14,565)
-- -- 121,417 89,767 586,974 -- -- --
-- -- (1,650) (2,083) (1,547) -- -- --
---------- ----------- ---------- -------- ---------- ------- ------- --------
(754,620) 12,509,924 6,062,656 824,783 7,329,637 931 862 (1,495)
---------- ----------- ---------- -------- ---------- ------- ------- --------
$1,174,395 $12,742,133 $6,341,418 $692,357 $7,622,795 $ 1,134 $ 1,230 $ 996
========== =========== ========== ======== ========== ======= ======= ========
</TABLE>
See Notes to Financial Statements.
33
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
THE SIERRA VARIABLE TRUST
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
SHORT TERM SHORT TERM
GLOBAL HIGH GLOBAL U.S.
MONEY QUALITY BOND GOVERNMENT GOVERNMENT
FUND FUND FUND FUND
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net investment
income/(loss).............. $ 686,086 $ 370,463 $ 615,896 $ 2,035,732
Net realized gain/(loss)
from security transactions,
forward foreign currency
contracts, foreign currency
transactions, futures
contracts and written
options during the period.. 3,257 (56,026) 1,068,538 175,105
Capital gain distributions
received................... -- -- -- --
Net unrealized
appreciation/(depreciation)
of securities, forward
foreign currency contracts,
foreign currency, written
options, futures contracts
and other assets and
liabilities during the
period..................... -- (13,680) (1,214,683) (487,874)
----------- ----------- ----------- -----------
Net increase in net assets
resulting from operations.. 689,343 300,757 469,751 1,722,963
Distributions to
shareholders from:
Net investment income...... (686,086) (346,088) (903,638) (2,048,622)
Net realized gains on
investments............... -- -- -- --
Net increase/(decrease) in
net assets from Fund share
transactions............... 9,360,219 (166,308) (1,717,961) (5,068,270)
----------- ----------- ----------- -----------
Net increase/(decrease) in
net assets................. 9,363,476 (211,639) (2,151,848) (5,393,929)
NET ASSETS:
Beginning of period......... 23,265,517 12,401,882 21,910,385 66,563,295
----------- ----------- ----------- -----------
End of period............... $32,628,993 $12,190,243 $19,758,537 $61,169,366
=========== =========== =========== ===========
Undistributed net investment
income/(distributions in
excess of net investment
income) at end of period... $ 15,877 $ 28,178 $ (496,268) $ 12,350
=========== =========== =========== ===========
</TABLE>
- ------------
* The Capital Growth, Growth and Balanced Portfolios commenced operations on
June 3, 1997.
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHORT TERM SHORT TERM
GLOBAL HIGH GLOBAL U.S.
MONEY QUALITY BOND GOVERNMENT GOVERNMENT
FUND FUND FUND FUND
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net investment
income/(loss).............. $ 990,628 $ 811,642 $ 1,258,830 $ 3,740,172
Net realized gain/(loss)
from security transactions,
forward foreign currency
contracts, foreign currency
transactions, futures
contracts and written
options during the year.... 544 (269,173) 280,399 (316,015)
Net unrealized
appreciation/(depreciation)
of securities, forward
foreign currency contracts,
foreign currency, written
options, futures contracts
and other assets and
liabilities during the
year....................... -- (101,972) 297,489 (900,475)
----------- ----------- ----------- -----------
Net increase in net assets
resulting from operations.. 991,172 440,497 1,836,718 2,523,682
Distributions to
shareholders from:
Net investment income...... (986,806) (798,432) (1,307,469) (3,671,725)
Distributions in excess of
net investment income..... -- -- (639,891) --
Net realized gains on
investments............... (3,822) -- -- --
Net increase/(decrease) in
net assets from Fund share
transactions............... 2,892,099 395,121 (1,783,567) 15,407,844
----------- ----------- ----------- -----------
Net increase/(decrease) in
net assets................. 2,892,643 37,186 (1,894,209) 14,259,801
NET ASSETS:
Beginning of year........... 20,372,874 12,364,696 23,804,594 52,303,494
----------- ----------- ----------- -----------
End of year................. $23,265,517 $12,401,882 $21,910,385 $66,563,295
=========== =========== =========== ===========
Undistributed net investment
income/(distributions in
excess of net investment
income) at end of year..... $ 15,877 $ 3,803 $ (208,526) $ 25,240
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
34
<PAGE>
<TABLE>
<CAPTION>
CORPORATE GROWTH AND EMERGING INTERNATIONAL CAPITAL
INCOME INCOME GROWTH GROWTH GROWTH GROWTH GROWTH BALANCED
FUND FUND FUND FUND FUND PORTFOLIO* PORTFOLIO* PORTFOLIO*
- ----------- ----------- ------------ ----------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1,929,015 $ 232,209 $ 278,762 $ (132,426) $ 293,158 $ 203 $ 368 $ 2,491
(547,744) 6,809,480 5,856,822 437,968 3,661,843 -- -- --
-- -- -- -- -- 3,302 2,628 13,070
(206,876) 5,700,444 205,834 386,815 3,667,794 (2,371) (1,766) (14,565)
- ----------- ----------- ------------ ----------- ----------- ------- ------- --------
1,174,395 12,742,133 6,341,418 692,357 7,622,795 1,134 1,230 996
(1,976,498) (539,740) (138,925) -- (1,127,686) -- -- --
-- (6,617,216) (15,601,297) (2,594,503) (1,036,604) -- -- --
(8,957,746) 22,612,766 10,839,683 (7,113,660) (3,896,599) 40,497 85,615 294,454
- ----------- ----------- ------------ ----------- ----------- ------- ------- --------
(9,759,849) 28,197,943 1,440,879 (9,015,806) 1,561,906 41,631 86,845 295,450
59,883,200 62,444,535 116,063,784 55,887,489 62,354,516 -- -- --
- ----------- ----------- ------------ ----------- ----------- ------- ------- --------
$50,123,351 $90,642,478 $117,504,663 $46,871,683 $63,916,422 $41,631 $86,845 $295,450
=========== =========== ============ =========== =========== ======= ======= ========
$ 8,329 $ 189,591 $ 285,180 $ 27,688 $ (215,386) $ 203 $ 368 $ 2,491
=========== =========== ============ =========== =========== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
CORPORATE GROWTH AND EMERGING INTERNATIONAL
INCOME INCOME GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND
- ----------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
$ 4,065,324 $ 509,646 $ 11,750 $ (435,373) $ 315,138
(162,462) 6,622,266 15,391,961 3,240,181 1,963,901
(3,654,948) 3,780,341 124,075 1,812,579 2,364,693
- ----------- ----------- ------------ ----------- -----------
247,914 10,912,253 15,527,786 4,617,387 4,643,732
(4,024,172) (449,287) -- -- (741,545)
-- -- -- -- --
-- (4,043,586) (13,385,659) (1,615,533) --
2,983,208 9,663,313 14,222,744 6,827,235 12,543,471
- ----------- ----------- ------------ ----------- -----------
(793,050) 16,082,693 16,364,871 9,829,089 16,445,658
60,676,250 46,361,842 99,698,913 46,058,400 45,908,858
- ----------- ----------- ------------ ----------- -----------
$59,883,200 $62,444,535 $116,063,784 $55,887,489 $62,354,516
=========== =========== ============ =========== ===========
$ 55,812 $ 497,122 $ 145,343 $ 160,114 $ 619,142
=========== =========== ============ =========== ===========
</TABLE>
See Notes to Financial Statements.
35
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS -- CAPITAL STOCK ACTIVITY
THE SIERRA VARIABLE TRUST
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
SHORT TERM SHORT TERM
GLOBAL HIGH GLOBAL U.S.
MONEY QUALITY BOND GOVERNMENT GOVERNMENT
FUND FUND FUND FUND
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
AMOUNT
Sold..................... $ 12,904,748 $ 841,721 $ 317,525 $ 577,944
Issued as reinvestment of
dividends............... 686,086 346,088 903,638 2,048,622
Redeemed................. (4,230,615) (1,354,117) (2,939,124) (7,694,836)
------------ ----------- ----------- -----------
Net increase/(decrease).. $ 9,360,219 $ (166,308) $(1,717,961) $(5,068,270)
============ =========== =========== ===========
SHARES
Sold..................... 12,904,748 346,948 128,422 59,114
Issued as reinvestment of
dividends............... 686,086 143,011 373,404 212,037
Redeemed................. (4,230,615) (555,897) (1,194,542) (796,906)
------------ ----------- ----------- -----------
Net increase/(decrease).. 9,360,219 (65,938) (692,716) (525,755)
============ =========== =========== ===========
- ------------
* The Capital Growth, Growth and Balanced Portfolios commenced operations on
June 3, 1997.
FOR THE YEAR ENDED DECEMBER 31, 1996
<CAPTION>
SHORT TERM SHORT TERM
GLOBAL HIGH GLOBAL U.S.
MONEY QUALITY BOND GOVERNMENT GOVERNMENT
FUND FUND FUND FUND
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
AMOUNT
Sold..................... $ 12,763,701 $ 6,588,666 $ 445,892 $15,386,265
Issued as reinvestment of
dividends............... 990,628 798,432 1,947,360 3,671,725
Redeemed................. (10,862,230) (6,991,977) (4,176,819) (3,650,146)
------------ ----------- ----------- -----------
Net increase/(decrease).. $ 2,892,099 $ 395,121 $(1,783,567) $15,407,844
============ =========== =========== ===========
SHARES
Sold..................... 12,763,701 2,668,840 175,234 1,582,359
Issued as reinvestment of
dividends............... 990,628 327,884 780,860 379,773
Redeemed................. (10,862,230) (2,854,666) (1,649,684) (376,308)
------------ ----------- ----------- -----------
Net increase/(decrease).. 2,892,099 142,058 (693,590) 1,585,824
============ =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
36
<PAGE>
<TABLE>
<CAPTION>
CORPORATE GROWTH AND EMERGING INTERNATIONAL CAPITAL
INCOME INCOME GROWTH GROWTH GROWTH GROWTH GROWTH BALANCED
FUND FUND FUND FUND FUND PORTFOLIO* PORTFOLIO* PORTFOLIO*
- ------------ ----------- ------------ ------------ ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 259,043 $17,836,747 $ 1,728,986 $ 580,536 $ 966,564 $40,497 $85,615 $294,454
1,976,498 7,156,956 15,740,222 2,594,503 2,164,290 -- -- --
(11,193,287) (2,380,937) (6,629,525) (10,288,699) (7,027,453) -- -- --
- ------------ ----------- ------------ ------------ ----------- ------- ------- --------
$ (8,957,746) $22,612,766 $ 10,839,683 $ (7,113,660) $(3,896,599) $40,497 $85,615 $294,454
============ =========== ============ ============ =========== ======= ======= ========
26,434 1,178,653 108,791 41,536 72,838 4,031 8,438 28,998
205,590 460,254 1,081,802 182,070 150,927 -- -- --
(1,168,728) (154,950) (416,814) (755,351) (530,907) -- -- --
- ------------ ----------- ------------ ------------ ----------- ------- ------- --------
(936,704) 1,483,957 773,779 (531,745) (307,142) 4,031 8,438 28,998
============ =========== ============ ============ =========== ======= ======= ========
<CAPTION>
CORPORATE GROWTH AND EMERGING INTERNATIONAL
INCOME INCOME GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND
- ------------ ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
$ 3,740,610 $12,265,763 $ 12,305,832 $ 13,195,027 $14,020,583
4,024,172 4,492,873 13,385,659 1,615,533 741,545
(4,781,574) (7,095,323) (11,468,747) (7,983,325) (2,218,657)
- ------------ ----------- ------------ ------------ -----------
$ 2,983,208 $ 9,663,313 $ 14,222,744 $ 6,827,235 $12,543,471
============ =========== ============ ============ ===========
376,148 910,887 740,880 893,632 1,119,133
413,947 350,732 881,215 105,384 58,435
(486,535) (503,372) (716,599) (548,857) (177,556)
- ------------ ----------- ------------ ------------ -----------
303,560 758,247 905,496 450,159 1,000,012
============ =========== ============ ============ ===========
</TABLE>
See Notes to Financial Statements.
37
<PAGE>
STATEMENT OF CASH FLOWS -- U.S. GOVERNMENT FUND
THE SIERRA VARIABLE TRUST
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
CASH USED FOR FINANCING ACTIVITIES:
Proceeds from capital shares sold................. $ 580,084
Payments on capital shares redeemed............... (7,693,378)
-------------
Cash used for capital share transactions.......... (7,113,294)
Net proceeds on dollar roll transactions.......... (5,336,103)
Net payments for reverse repurchase agreements.... 6,922,188
Interest paid on reverse repurchase agreements.... (203,001)
-------------
$(5,730,210)
CASH PROVIDED BY OPERATIONS:
Purchases of long-term portfolio securities....... (101,093,596)
Net purchases of short-term investments........... 10,123
Proceeds from sales of long-term portfolio
securities....................................... 103,532,601
Net payments for futures transactions............. 423,278
Variation margin for futures transactions......... 6,848
-------------
2,879,254
-------------
Net investment income............................. 2,035,732
Net change in receivables/payables related to
operations....................................... 361,158
-------------
2,396,890
-------------
5,276,144
-----------
Net decrease in cash.............................. (454,066)
Cash at beginning of period....................... 501,624
-----------
Cash at end of period............................. $ 47,558
===========
</TABLE>
See Notes to Financial Statements.
38
<PAGE>
FINANCIAL HIGHLIGHTS
GLOBAL MONEY FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR PERIOD
06/30/97 ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/96 12/31/95 12/31/94 12/31/93*
----------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------ -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.024 0.049 0.053 0.037 0.016
------- ------- ------- ------ -------
Total from investment
operations............. 0.024 0.049 0.053 0.037 0.016
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (0.024) (0.049) (0.053) (0.037) (0.016)
Distributions fron net
realized capital
gains.................. -- (0.000)# -- -- --
------- ------- ------- ------ -------
Total distributions..... (0.024) (0.049) (0.053) (0.037) (0.016)
------- ------- ------- ------ -------
Net asset value, end of
period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ====== =======
TOTAL RETURN+ 2.48% 4.97% 5.46% 3.69% 1.59%
======= ======= ======= ====== =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in 000's)...... $32,629 $23,266 $20,373 $6,159 $ 1,488
Ratio of operating
expenses to average net
assets................. 0.65%** 0.58% 0.50% 0.49% 0.39%**
Ratio of net investment
income to average net
assets................. 4.93%** 4.86% 5.30% 3.84% 2.54%**
Ratio of operating
expenses to average net
assets without credits
allowed by the
custodian.............. 0.65%**(a) 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 credits
allowed by the
custodian.............. 0.86%**(a) 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 credits
allowed by the
custodian.............. $ 0.023(a) $ 0.046(a) $ 0.048(a) $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 without credits allowed by the
custodian.
# Amount represents less than $0.001 per share.
(a) The ratio and per share number include custodian fees without credits
allowed by the custodian as required by amended disclosure requirements
effective September 1, 1995.
39
<PAGE>
FINANCIAL HIGHLIGHTS
SHORT TERM HIGH QUALITY BOND FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR PERIOD
06/30/97 ENDED ENDED ENDED
(UNAUDITED) 12/31/96 12/31/95 12/31/94*
----------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period................. $ 2.43 $ 2.49 $ 2.39 $ 2.50
------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income...... 0.07 0.15 0.12 0.08
Net realized and unrealized
gain/(loss) on
investments............... (0.01) (0.06) 0.10 (0.12)
------- ------- ------- -------
Total from investment
operations................ 0.06 0.09 0.22 (0.04)
LESS DISTRIBUTIONS:
Dividends from net
investment income......... (0.07) (0.15) (0.12) (0.07)
------- ------- ------- -------
Total distributions........ (0.07) (0.15) (0.12) (0.07)
------- ------- ------- -------
Net asset value, end of
period.................... $ 2.42 $ 2.43 $ 2.49 $ 2.39
======= ======= ======= =======
TOTAL RETURN+ 2.49% 3.74% 9.30% (1.62)%
======= ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period
(in 000's)................ $12,190 $12,402 $12,365 $15,547
Ratio of operating expenses
to average net assets..... 1.00%** 0.98% 0.85% 0.77%**
Ratio of net investment
income to average net
assets.................... 6.08%** 6.08% 6.14% 5.63%**
Portfolio turnover rate.... 16% 125% 188% 80%
Ratio of operating expenses
to average net assets
without credits allowed by
the custodian............. 1.00%**(a) 0.98%(a) 0.87%(a) N/A
Ratio of operating expenses
to average net assets
without fee waivers and/or
credits allowed by the
custodian................. 1.10%**(a) 1.06%(a) 1.01%(a) 1.10%**
Net investment income per
share without fee waivers
and/or credits allowed by
the custodian............. $ 0.07(a) $ 0.15(a) $ 0.11(a) $ 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 without credits allowed by
the custodian.
(a) The ratio and per share number include custodian fees without credits
allowed by the custodian as required by amended disclosure requirements
effective September 1, 1995.
40
<PAGE>
FINANCIAL HIGHLIGHTS
SHORT TERM GLOBAL GOVERNMENT FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR PERIOD
06/30/97 ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/96 12/31/95 12/31/94 12/31/93*
----------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 2.48 $ 2.50 $ 2.35 $ 2.49 $ 2.50
------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.07 0.14++ 0.07 0.05 0.01
Net realized and
unrealized gain/(loss)
on investments......... (0.02) 0.07 0.12 (0.10) (0.01)
------- ------- ------- ------- -------
Total from investment
operations............. 0.05 0.21 0.19 (0.05) 0.00
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (0.11) (0.15) (0.04) (0.05) (0.01)
Distributions in excess
of net investment
income................. -- (0.08) -- -- --
Distributions from
capital (Note 2)....... -- -- -- (0.04) --
------- ------- ------- ------- -------
Total distributions..... (0.11) (0.23) (0.04) (0.09) (0.01)
------- ------- ------- ------- -------
Net asset value, end of
period................. $ 2.42 $ 2.48 $ 2.50 $ 2.35 $ 2.49
======= ======= ======= ======= =======
TOTAL RETURN+ 2.06% 8.61% 8.09% (2.03)% 0.12%
======= ======= ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in 000's)...... $19,759 $21,910 $23,805 $29,804 $19,147
Ratio of operating
expenses to average net
assets................. 1.26%** 1.28% 1.25% 0.92% 0.52%**
Ratio of net investment
income to average net
assets................. 5.98%** 5.67% 6.22% 5.84% 4.06%**
Portfolio turnover
rate................... 46% 77% 195% 286% 164%
Ratio of operating
expenses to average net
assets without credits
allowed by the
custodian.............. 1.26%**(a) 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 credits
allowed by the
custodian.............. 1.26%**(a) 1.28%(a) 1.26%(a) 1.28% 1.92%**
Net investment income
per share without fee
waivers and/or expenses
absorbed and/or credits
allowed by the
custodian.............. $ 0.07(a) $ 0.14(a) $ 0.07(a) $ 0.05 $ 0.01
</TABLE>
- ------------
* The Fund commenced operations on May 12, 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 without credits allowed by the
custodian.
++ Per share numbers have been calculated using the average shares method.
(a) The ratio and per share number include custodian fees without credits
allowed by the custodian as required by amended disclosure requirements
effective September 1, 1995.
See notes to financial statements.
41
<PAGE>
FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR PERIOD
06/30/97 ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/96 12/31/95 12/31/94 12/31/93*
----------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 9.77 $ 10.00 $ 9.13 $ 10.04 $ 10.00
------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.32 0.58 0.64 0.50 0.19
Net realized and
unrealized gain/(loss)
on investments......... (0.04) (0.23) 0.87## (0.90)## 0.04##
------- ------- ------- ------- -------
Total from investment
operations............. 0.28 0.35 1.51 (0.40) 0.23
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (0.32) (0.58) (0.64) (0.50) (0.19)
Distributions from net
realized gains......... -- -- -- (0.01) --
------- ------- ------- ------- -------
Total distributions..... (0.32) (0.58) (0.64) (0.51) (0.19)
------- ------- ------- ------- -------
Net asset value, end of
period................. $ 9.73 $ 9.77 $ 10.00 $ 9.13 $ 10.04
======= ======= ======= ======= =======
TOTAL RETURN+ 2.92% 3.69% 16.89% (4.04)% 2.27%
======= ======= ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in 000's)...... $61,169 $66,563 $52,303 $43,582 $25,069
Ratio of operating
expenses to average net
assets................. 0.90%** 0.94% 1.00% 0.85% 0.44%**
Ratio of net investment
income to average net
assets................. 6.43%** 6.18% 6.68% 5.75% 5.37%**
Portfolio turnover
rate................... 140% 282% 273% 74% 131%
Ratio of operating
expenses to average net
assets without credits
allowed by the
custodian.............. 0.91%**(a) 0.91%(a) 1.02%(a) N/A N/A
Ratio of operating
expenses to average net
assets without fee
waivers, expenses
absorbed and/or credits
allowed by the
custodian.............. 0.91%**(a) 0.91%(a) 1.03%(a) 1.02% 1.47%**
Ratio of operating
expenses to average net
assets including
interest expense....... 1.56%** 1.08% 1.76% 0.86% 0.44%**
Net investment income
per share without fee
waivers and/or expenses
absorbed and/or credits
allowed by the
custodian.............. $ 0.32(a) $ 0.58(a) $ 0.63(a) $ 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 without 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 and per share number include custodian fees without credits
allowed by the custodian as required by amended disclosure requirements
effective September 1, 1995.
42
<PAGE>
FINANCIAL HIGHLIGHTS
CORPORATE INCOME FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR PERIOD
06/30/97 ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/96 12/31/95 12/31/94 12/31/93*
----------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 9.82 $ 10.48 $ 9.06 $ 10.34 $ 10.00
------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.35 0.68 0.70 0.47 0.23
Net realized and
unrealized gain/(loss)
on investments......... (0.09) (0.66) 1.50 (1.30) 0.33##
------- ------- ------- ------- -------
Total from investment
operations............. 0.26 0.02 2.20 (0.83) 0.56
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (0.36) (0.68) (0.78) (0.40) (0.22)
Distributions from net
realized gains......... -- -- -- (0.05) --
------- ------- ------- ------- -------
Total distributions..... (0.36) (0.68) (0.78) (0.45) (0.22)
------- ------- ------- ------- -------
Net asset value, end of
period................. $ 9.72 $ 9.82 $ 10.48 $ 9.06 $ 10.34
======= ======= ======= ======= =======
TOTAL RETURN+ 2.72% 0.43% 25.09% (8.13)% 5.62%
======= ======= ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in 000's)...... $50,123 $59,883 $60,676 $54,705 $28,732
Ratio of operating
expenses to average net
assets................. 0.95%** 0.98% 0.99% 0.93% 0.54%**
Ratio of net investment
income to average net
assets................. 7.06%** 6.92% 7.00% 7.28% 6.37%**
Portfolio turnover
rate................... 21% 30% 42% 23% 26%
Ratio of operating
expenses to average net
assets without credits
allowed by the
custodian.............. 0.95%**(a) 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 credits
allowed by the
custodian.............. 0.95%**(a) 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 credits
allowed by the
custodian.............. $ 0.35(a) $ 0.68(a) $ 0.70(a) $ 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 without 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 and per share number include custodian fees without credits
allowed by the custodian as required by amended disclosure requirements
effective September 1, 1995.
43
<PAGE>
FINANCIAL HIGHLIGHTS
GROWTH AND INCOME FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR PERIOD
06/30/97 ENDED ENDED ENDED
(UNAUDITED) 12/31/96 12/31/95 12/31/94*
----------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 14.29 $ 12.83 $ 9.83 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.05++ 0.12++ 0.12 0.07
Net realized and
unrealized gain/(loss)
on investments......... 2.47 2.54 3.05 (0.24)
------- ------- ------- -------
Total from investment
operations............. 2.52 2.66 3.17 (0.17)
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (0.10) (0.12) (0.07) --
Distributions from net
realized gains......... (1.23) (1.08) (0.10) --
------- ------- ------- -------
Total distributions..... (1.33) (1.20) (0.17) --
------- ------- ------- -------
Net asset value, end of
period................. $ 15.48 $ 14.29 $ 12.83 $ 9.83
======= ======= ======= =======
TOTAL RETURN+ 17.56% 21.81% 32.41% (1.70)%
======= ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in 000's)...... $90,642 $62,445 $46,362 $24,905
Ratio of operating
expenses to average net
assets................. 1.08%** 1.13% 1.06% 1.20%**
Ratio of net investment
income to average net
assets................. 0.62%** 0.93% 1.31% 1.63%**
Portfolio turnover
rate................... 52% 83% 70% 44%
Ratio of operating
expenses to average net
assets without credits
allowed by the
custodian.............. 1.08%**(a) 1.13%(a) 1.06%(a) N/A
Ratio of operating
expenses to average net
assets without fee
waivers and/or credits
allowed by the
custodian.............. 1.08%**(a) 1.13%(a) 1.16%(a) 1.55%**
Net investment income
per share without fee
waivers and/or credits
allowed by the
custodian.............. $ 0.05++(a) $ 0.12++(a) $ 0.11(a) $ 0.05
Average commission rate
paid (b)............... $0.0473 $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 without credits allowed by
the custodian.
++ Per share numbers have been calculated using the average shares method.
(a) The ratio and per share number include custodian fees without 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.
44
<PAGE>
FINANCIAL HIGHLIGHTS
GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR PERIOD
06/30/97 ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/96 12/31/95 12/31/94 12/31/93*
----------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 16.01 $ 15.72 $ 11.48 $ 11.19 $ 10.00
-------- -------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.04 0.00++# 0.04++ 0.04 0.02
Net realized and
unrealized gain on
investments............ 0.87 2.42 4.24 0.26 1.17
-------- -------- ------- ------- -------
Total from investment
operations............. 0.91 2.42 4.28 0.30 1.19
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (0.02) -- (0.04) (0.01) --
Distributions from net
realized gains......... (2.25) (2.13) (0.00)# -- --
-------- -------- ------- ------- -------
Total distributions..... (2.27) (2.13) (0.04) (0.01) --
-------- -------- ------- ------- -------
Net asset value, end of
period................. $ 14.65 $ 16.01 $ 15.72 $ 11.48 $ 11.19
======== ======== ======= ======= =======
TOTAL RETURN+ 5.76% 16.15% 37.34% 2.69% 11.90%
======== ======== ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in 000's)...... $117,505 $116,064 $99,699 $62,763 $22,795
Ratio of operating
expenses to average net
assets................. 1.18%** 1.22% 1.24% 1.26% 0.78%**
Ratio of net investment
income to average net
assets................. 0.49%** 0.01% 0.29% 0.74% 0.70%**
Portfolio turnover
rate................... 79% 169% 187% 257% 86%
Ratio of operating
expenses to average net
assets without credits
allowed by the
custodian.............. 1.18%**(a) 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 credits
allowed by the
custodian.............. 1.18%**(a) 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 credits
allowed by the
custodian.............. $ 0.04(a) $ 0.00++#(a) $ 0.04++(a) $ 0.04 $ (0.01)
Average commission rate
paid (b)............... $ 0.0405(a) $ 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 without credits allowed by the
custodian.
++ Per share numbers have been calculated using the average shares method.
# Amount represents less than $0.01 per share.
(a) The ratio and per share number include custodian fees without 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.
45
<PAGE>
FINANCIAL HIGHLIGHTS
EMERGING GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR PERIOD
06/30/97 ENDED ENDED ENDED
(UNAUDITED) 12/31/96 12/31/95 12/31/94*
----------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 14.70 $ 13.74 $ 10.53 $ 10.00
------- -------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income/(loss).......... (0.04)++ (0.12)++ (0.01) 0.06
Net realized and
unrealized gain on
investments............ 0.52 1.52 3.26 0.47
------- -------- ------- -------
Total from investment
operations............. 0.48 1.40 3.25 0.53
LESS DISTRIBUTIONS:
Dividends from net
investment income...... -- -- (0.04) --
Distributions from net
realized gains......... (0.84) (0.44) (0.00)# --
------- -------- ------- -------
Total distributions..... (0.84) (0.44) (0.04) --
------- -------- ------- -------
Net asset value, end of
period................. $ 14.34 $ 14.70 $ 13.74 $ 10.53
======= ======== ======= =======
TOTAL RETURN+ 3.29% 10.04% 30.99% 5.30%
======= ======== ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in 000's)...... $46,872 $ 55,887 $46,058 $19,885
Ratio of operating
expenses to average net
assets................. 1.20%** 1.20% 1.20% 1.23%**
Ratio of net investment
income/(loss) to
average net assets..... (0.56)%** (0.82)% (0.35)% 1.03%**
Portfolio turnover
rate................... 54% 97% 135% 192%
Ratio of operating
expenses to average net
assets without credits
allowed by the
custodian.............. 1.20%**(a) 1.21%(a) 1.21%(a) N/A
Ratio of operating
expenses to average net
assets without fee
waivers and/or credits
allowed by the
custodian.............. 1.20%**(a) 1.21%(a) 1.28%(a) 1.38%**
Net investment
income/(loss) per share
without fee waivers
and/or credits allowed
by the custodian....... $ (0.04)++(a) $ (0.12)++(a) $ (0.01)(a) $ 0.05
Average commission rate
paid (b)............... $0.0148 $ 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 without credits allowed by
the custodian.
++ Per share numbers have been calculated using the average shares method.
# Amount represents less than $0.01 per share.
(a) The ratio and per share number include custodian fees without 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.
46
<PAGE>
FINANCIAL HIGHLIGHTS
INTERNATIONAL GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR PERIOD
06/30/97 ENDED ENDED ENDED ENDED
(UNAUDITED) 12/31/96 12/31/95 12/31/94 12/31/93*
----------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 13.02 $ 12.11 $ 11.47 $ 11.31 $ 10.00
------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.08 0.07++ 0.18 0.01 0.02
Net realized and
unrealized gain on
investments............ 1.66 1.01 0.58 0.19## 1.29
------- ------- ------- ------- -------
Total from investment
operations............. 1.74 1.08 0.76 0.20 1.31
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (0.26) (0.17) (0.00)# (0.03) --
Distributions from net
realized gains......... (0.24) -- (0.12) (0.01) --
------- ------- ------- ------- -------
Total distributions..... (0.50) (0.17) (0.12) (0.04) --
------- ------- ------- ------- -------
Net asset value, end of
period................. $ 14.26 $ 13.02 $ 12.11 $ 11.47 $ 11.31
======= ======= ======= ======= =======
TOTAL RETURN+ 13.25% 9.04% 6.61% 1.88% 13.10%
======= ======= ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in 000's)...... $63,916 $62,355 $45,909 $46,529 $10,638
Ratio of operating
expenses to average net
assets................. 1.34%** 1.39% 1.47% 1.34% 0.83%**
Ratio of net investment
income to average net
assets................. 0.95%** 0.56% 0.91% 0.83% 0.61%**
Portfolio turnover
rate................... 40% 98% 72% 51% 24%
Ratio of operating
expenses to average net
assets without credits
allowed by the
custodian.............. 1.34%**(a) 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 credits
allowed by the
custodian.............. 1.34%**(a) 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 credits
allowed by the
custodian.............. $ 0.08(a) $ 0.07++(a) $ 0.17(a) $ 0.01 $ (0.06)
Average commission rate
paid (b)............... $0.0253 $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 without credits allowed by the
custodian.
++ Per share numbers have been calculated using the average shares method.
# 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 and per share number include custodian fees without 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.
47
<PAGE>
FINANCIAL HIGHLIGHTS
CAPITAL GROWTH PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
PERIOD
ENDED
06/30/97*
(UNAUDITED)
-----------
<S> <C>
Net asset value, beginning of period............................. $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................ 0.05
Net realized and unrealized gain on investments.................. 0.28
-------
Total from investment operations................................. 0.33
LESS DISTRIBUTIONS:
Dividends from net investment income............................. --
Distributions from net realized gains............................ --
-------
Total distributions.............................................. --
-------
Net asset value, end of period................................... $ 10.33
=======
TOTAL RETURN+ 3.20%
=======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)............................. $ 42
Ratio of operating expenses to average net assets++.............. 0.33%**
Ratio of net investment income to average net assets............. 7.49%**
Portfolio turnover rate.......................................... 0%
Ratio of operating expenses to average net assets without credits
allowed by the custodian++...................................... 0.63%**
Ratio of operating expenses to average net assets without fee
waivers and credits allowed by the custodian++.................. 134.93%**
Net investment loss per share without fee waivers and credits
allowed by the custodian........................................ $ (0.85)
</TABLE>
- ------------
* The Portfolio commenced operations on June 3, 1997.
** Annualized.
+ Total return represents aggregate total return for the period indicated. The
total return would have been lower if certain fees had not been waived by the
administrator or without credits allowed by the custodian.
++ The Portfolio will indirectly bear its prorated share of expenses of the
Underlying Funds.
48
<PAGE>
FINANCIAL HIGHLIGHTS
GROWTH PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
PERIOD
ENDED
06/30/97*
(UNAUDITED)
-----------
<S> <C>
Net asset value, beginning of period............................. $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................ 0.04
Net realized and unrealized gain on investments.................. 0.25
-------
Total from investment operations................................. 0.29
LESS DISTRIBUTIONS:
Dividends from net investment income............................. --
Distributions from net realized gains............................ --
-------
Total distributions.............................................. --
-------
Net asset value, end of period................................... $ 10.29
=======
TOTAL RETURN+ 3.00%
=======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)............................. $ 87
Ratio of operating expenses to average net assets++.............. 0.33%**
Ratio of net investment income to average net assets............. 10.16%**
Portfolio turnover rate.......................................... 0%
Ratio of operating expenses to average net assets without credits
allowed by the custodian++...................................... 1.08%**
Ratio of operating expenses to average net assets without fee
waivers and credits allowed by the custodian++.................. 101.57%**
Net investment loss per share without fee waivers and credits
allowed by the custodian........................................ $ (0.39)
</TABLE>
- ------------
* The Portfolio commenced operations on June 3, 1997.
** Annualized.
+ Total return represents aggregate total return for the period indicated. The
total return would have been lower if certain fees had not been waived by the
administrator or without credits allowed by the custodian.
++ The Portfolio will indirectly bear its prorated share of expenses of the
Underlying Funds.
49
<PAGE>
FINANCIAL HIGHLIGHTS
BALANCED PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
PERIOD
ENDED
06/30/97*
(UNAUDITED)
-----------
<S> <C>
Net asset value, beginning of period.............................. $10.00
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................. 0.09
Net realized and unrealized gain on investments................... 0.10#
------
Total from investment operations.................................. 0.19
LESS DISTRIBUTIONS:
Dividends from net investment income.............................. --
Distributions from net realized gains............................. --
------
Total distributions............................................... --
------
Net asset value, end of period.................................... $10.19
======
TOTAL RETURN+ 1.90%
======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's).............................. $ 295
Ratio of operating expenses to average net assets++............... 0.35%**
Ratio of net investment income to average net assets.............. 19.50%**
Portfolio turnover rate........................................... 0%
Ratio of operating expenses to average net assets without credits
allowed by the custodian++....................................... 0.41%**
Ratio of operating expenses to average net assets without fee
waivers and credits allowed by the custodian++................... 28.82%**
Net investment loss per share without fee waivers and credits
allowed by the custodian......................................... $(0.04)
</TABLE>
- ------------
* The Portfolio commenced operations on June 3, 1997.
** Annualized.
+ Total return represents aggregate total return for the period indicated. The
total return would have been lower if certain fees had not been waived by the
administrator or without credits allowed by the custodian.
++ The Portfolio will indirectly bear its prorated share of expenses of the
Underlying Funds.
# The amount shown may not accord with the change in the aggregate gains and
losses of portfolio securities due to timing of sales and redemptions of
Portfolio shares.
50
<PAGE>
PORTFOLIO OF INVESTMENTS
GLOBAL MONEY FUND
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
CERTIFICATES OF DEPOSIT -- (YANKEE) -- 32.2%
$1,000,000 Bank of Nova Scotia,
5.650% due 09/23/1997............................... $ 1,000,000
1,500,000 Banque Nationale de Paris,
5.700% due 08/04/1997............................... 1,500,000
1,000,000 Dai-Ichi Kangyo Bank Ltd.,
5.710% due 07/10/1997++............................. 1,000,002
Deutsche Bank:
1,000,000 5.560% due 07/17/1997................................ 1,000,000
500,000 5.700% due 02/06/1998................................ 499,885
1,000,000 Industrial Bank of Japan,
5.670% due 07/11/1997............................... 1,000,003
1,000,000 Rabobank Nederland,
5.990% due 03/24/1998............................... 999,652
1,500,000 Sanwa Bank Ltd.,
5.650% due 07/07/1997............................... 1,499,995
1,000,000 Societe Generale, New York,
5.720% due 08/06/1997............................... 1,000,010
1,000,000 Sumitomo Bank Ltd.,
5.680% due 07/01/1997............................... 1,000,000
-----------
Total Certificates of Deposit--(Yankee)
(Cost $10,499,547).................................. 10,499,547
-----------
COMMERCIAL PAPER -- (FOREIGN) -- 18.9%
1,000,000 ABN Amro Bank, N.V.,
5.590% due 08/19/1997++............................. 992,357
700,000 Barclays U.S. Funding Corporation,
5.590% due 08/22/1997++............................. 694,277
Commonwealth Bank of Australia:
500,000 5.610% due 07/07/1997++.............................. 499,540
1,000,000 5.610% due 12/08/1997++.............................. 974,969
500,000 Cregem North America Inc.,
5.580% due 07/21/1997++............................. 498,436
1,000,000 Export-Import Bank, Korea,
5.610% due 07/10/1997++............................. 998,600
1,500,000 UBS Finance, Inc.,
6.050% due 07/01/1997++............................. 1,500,000
-----------
Total Commercial Paper--(Foreign)
(Cost $6,158,179)................................... 6,158,179
-----------
COMMERCIAL PAPER -- (DOMESTIC) -- 18.3%
1,000,000 Associates Corporation of North America, 5.610% due
07/15/1997++........................................ 997,849
1,000,000 Banc One Corporation,
5.610% due 07/02/1997++............................. 999,846
1,100,000 BBL-North America, Inc.,
5.780% due 07/01/1997++............................. 1,100,000
1,575,000 Ford Motor Credit Company,
5.880% due 12/02/1997++............................. 1,537,001
1,319,000 Koch Industries,
6.080% due 07/01/1997++............................. 1,319,000
-----------
Total Commercial Paper--(Domestic)
(Cost $5,953,696)................................... 5,953,696
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
CERTIFICATES OF DEPOSIT -- (DOMESTIC) -- 15.3%
$1,500,000 Bank of America,
5.850% due 11/03/1997............................... $ 1,500,000
1,000,000 Bankers Trust Corporation,
5.700% due 07/10/1997............................... 1,000,000
1,000,000 Landesbank Hessen-Thueringen,
6.010% due 07/18/1997............................... 1,000,132
1,500,000 NationsBank Corporation,
5.540% due 07/15/1997............................... 1,500,000
-----------
Total Certificates of Deposit--(Domestic) (Cost
$5,000,132)......................................... 5,000,132
-----------
MEDIUM-TERM NOTES -- 10.3%
1,000,000 Bayerische Landesbank,
6.000% due 06/26/1998+.............................. 999,233
1,000,000 CoreStates Bank,
4.000% due 03/16/1998+.............................. 1,000,000
850,000 Federal National Mortgage Association (FNMA),
5.480% due 01/02/1998............................... 849,500
500,000 Korea Development Bank,
5.600% due 06/16/1998+........................... 499,907
-----------
Total Medium-Term Notes
(Cost $3,348,640)................................ 3,348,640
-----------
U.S. GOVERNMENT AGENCY DISCOUNT NOTE -- 3.0%
(Cost $993,235)
1,000,000 Federal Home Loan Bank (FHLB),
5.580% due 08/14/1997++.......................... 993,235
-----------
U.S. TREASURY NOTE -- 1.5%
(Cost $499,671)
500,000 5.375% due 11/30/1997............................. 499,671
-----------
</TABLE>
<TABLE>
<S> <C> <C> <C>
TOTAL INVESTMENTS
(COST
$32,453,100*)................................................ 99.5% 32,453,100
OTHER ASSETS AND
LIABILITIES
(NET)........................................................ 0.5 175,893
----- -----------
NET ASSETS....................................................100.0% $32,628,993
===== ===========
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
+ Variable rate security. The interest rate shown reflects the rate currently
in effect.
++ Rate represents annualized yield at date of purchase.
See Notes to Financial Statements.
51
<PAGE>
PORTFOLIO OF INVESTMENTS
SHORT TERM HIGH QUALITY BOND FUND
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
CORPORATE NOTES -- 23.3%
$ 100,000 Colonial Realty, Sr. Note,
7.500% due 07/15/2001............................... $ 100,875
100,000 ERP Operating LP,
8.500% due 05/15/1999++............................. 103,160
300,000 General Motors Acceptance Corporation, Deb.,
8.625% due 06/15/1999 .............................. 312,081
200,000 Lockheed Martin Corporation,
6.850% due 05/15/2001............................... 200,500
Lyondell Petrochemical Company:
100,000 9.125% due 03/15/2002................................ 108,668
150,000 9.750% due 09/04/2003++.............................. 168,563
250,000 Oasis Residential Inc.,
6.750% due 11/15/2001............................... 246,250
250,000 Southern National Corporation, Sub. Note, 7.050% due
05/23/2003.......................................... 250,065
300,000 Sun Communities Inc., Sr. Note,
7.625% due 05/01/2003**............................. 306,474
100,000 Susa Partnership LP,
7.125% due 11/01/2003............................... 99,000
Taubman Realty Corporation:
100,000 8.000% due 06/15/1999................................ 101,983
100,000 MTN,
7.500% due 06/15/2002................................ 101,663
The Money Store, Inc.:
280,000 9.160% due 09/09/1997++.............................. 281,120
300,000 7.630% due 04/15/1998++.............................. 302,229
Time Warner Inc.:
100,000 7.450% due 02/01/1998................................ 100,596
50,000 7.950% due 02/01/2000................................ 51,405
-----------
Total Corporate Notes (Cost $2,807,927).............. 2,834,632
-----------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES -- 23.2%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA) -- 14.5%
91,320 #121425, Seasoned,
11.000% due 04/15/2015.............................. 102,643
108,631 #140834, Seasoned,
11.000% due 12/15/2015.............................. 122,100
40,328 #144538, Seasoned,
11.000% due 12/15/2015.............................. 45,400
118,579 #151670, Seasoned,
11.000% due 12/15/2015.............................. 133,281
37,043 #254937, Seasoned,
10.000% due 06/15/2019**............................ 40,715
92,809 #257814, Seasoned,
10.000% due 09/15/2018.............................. 102,109
81,996 #293511, Seasoned,
10.000% due 07/15/2020**............................ 90,374
343,233 #400224, Seasoned,
8.000% due 06/15/2009............................... 354,707
234,655 #780081, Seasoned,
10.000% due 02/15/2025**............................ 257,917
60,047 #780121, Seasoned,
10.000% due 04/15/2025**............................ 66,183
57,822 #780141, Seasoned,
10.000% due 12/15/2020**............................ 63,616
365,052 #780317, Seasoned,
9.000% due 12/15/2020**............................. 390,430
-----------
Total GNMAs (Cost $1,743,843)........................ 1,769,475
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES
(ARM) -- 6.3%
$ 145,346 Federal Home Loan Mortgage Corporation (FHLMC),
#845988,
7.807% due 11/01/2021+............................. $ 152,318
Federal National Mortgage Association (FNMA):
237,078 #82247,
6.125% due 04/01/2019+.............................. 234,337
64,565 #124571,
7.847% due 11/01/2022+.............................. 67,662
78,430 #152205,
7.498% due 01/01/2019+.............................. 81,335
233,838 #313257,
6.056% due 11/01/2035............................... 231,135
-----------
Total ARMs (Cost $762,583)........................... 766,787
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION
(FHLMC) -- 2.4% (Cost $298,987)
299,843 5 Year Balloon, GOLD, #G50135,
5.500% due 03/01/1999............................... 296,473
-----------
Total U.S. Government Agency Mortgage-Backed
Securities (Cost $2,805,413)........................ 2,832,735
-----------
ASSET-BACKED SECURITIES -- 22.3%
77,621 Advanta Mortgage Loan Trust, 1996-2-A1, 6.740% due
11/25/2009.......................................... 77,784
Green Tree Financial Corporation:
250,000 1995-1-B2,
9.200% due 06/15/2025................................ 270,703
200,000 1995-6-B1,
7.700% due 09/15/2026................................ 203,000
100,000 Green Tree Home Equity Loan Trust,
1997-B-A5,
7.150% due 04/15/2027............................... 100,563
165,000 Green Tree Home Improvement,
1995-DB2,
7.450% due 09/15/2025............................... 164,071
80,253 Green Tree NIM, 1994-B, Class A,
7.850% due 07/15/2004............................... 80,678
79,571 Green Tree Recreational, Equipment & Consumer, 1996-
A, Class A1,
5.550% due 02/15/2018............................... 78,682
85,972 Green Tree Security Mortgage Trust, 1994-A, 6.900%
due 02/15/2004...................................... 85,811
100,000 H & T Master Trust,
8.430% due 08/15/2002++............................. 100,140
Merrill Lynch Mortgage Investors, Inc.:
37,744 1991-B-A,
9.200% due 04/15/2011................................ 38,240
64,718 1991-I-A,
7.650% due 01/15/2012................................ 65,547
179,878 1992-B-A4,
7.850% due 04/15/2012................................ 181,677
350,697 Mid-State Trust, Series 4, Class A,
8.330% due 04/01/2030............................... 367,472
106,282 Sec Pac Manufacturing Housing,
95-1, Class A1,
6.500% due 04/10/2020............................... 106,524
The Money Store, Inc.:
162,405 1996-A-A2,
6.330% due 06/15/2008................................ 162,186
105,143 1996-B-A1,
6.720% due 02/15/2010................................ 105,389
</TABLE>
See Notes to Financial Statements.
52
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
SHORT TERM HIGH QUALITY BOND FUND
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
ASSET-BACKED SECURITIES -- (CONTINUED)
$ 283,966 UCFC Home Equity Loan Trust, 1995-B1, 6.600% due
07/10/2009.......................................... $ 285,499
250,000 World Omni Automobile Lease Securitization, 1996-B,
6.850% due 11/15/2002++............................. 249,453
-----------
Total Asset-Backed Securities
(Cost $2,702,146)................................... 2,723,419
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 12.6%
Countrywide Funding Corporation:
28,589 1994-1-A3,
6.250% due 03/25/2024................................ 27,311
500,000 1994-2-A8,
6.500% due 02/25/2009................................ 500,000
185,234 Federal Home Loan Mortgage Corporation (FHLMC), P/O,
REMIC, #1719-C,
Zero coupon due 04/15/1999.......................... 171,863
77,276 Fund America Investors Corporation,
1991-1-H,
7.950% due 02/20/2020............................... 78,048
120,349 General Electric Capital Mortgage Association,
1994-27-A1,
6.500% due 07/25/2024............................... 119,858
280,281 Norwest Asset Securities Corporation,
1996-5-A13,
7.500% due 11/25/2026............................... 282,777
Prudential Home Mortgage Securities:
55,321 1992-47,
7.500% due 01/25/2023................................ 55,200
233,734 1993-43-A1,
5.400% due 10/25/2023................................ 230,813
61,742 Ryland Acceptance Corporation,
8.950% due 08/20/2019............................... 62,764
-----------
Total Collateralized Mortgage Obligations (Cost
$1,523,375)......................................... 1,528,634
-----------
U.S. TREASURY NOTES -- 12.3%
1,200,000 6.375% due 04/30/1999................................ 1,206,372
300,000 5.625% due 11/30/2000................................ 293,859
-----------
Total U.S. Treasury Notes
(Cost $1,494,626)................................... 1,500,231
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY OBLIGATION -- 1.5%
(Cost $176,369)
$175,000 Federal National Mortgage Association (FNMA), (Inverse
Floater),
9.781% due 12/29/1997+.................................. $178,063
--------
COMMERCIAL PAPER -- 4.1% (Cost $505,000)
505,000 General Electric Capital Corporation,
6.100% due 07/01/1997................................... 505,000
--------
</TABLE>
<TABLE>
<S> <C> <C> <C>
TOTAL INVESTMENTS
(COST
$12,014,856*)............................................. 99.3% 12,102,714
OTHER ASSETS AND
LIABILITIES
(NET)..................................................... 0.7 87,529
----- -----------
NET ASSETS................................................. 100.0% $12,190,243
===== ===========
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
** A portion or all of this security is pledged as collateral for futures
contracts.
+ Variable rate security. The interest rate shown reflects the rate currently
in effect.
++ Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
<TABLE>
<CAPTION>
NUMBER OF UNREALIZED
CONTRACTS (DEPRECIATION)
--------- --------------
<C> <S> <C>
FUTURES CONTRACTS -- SHORT POSITION
13 U.S. Treasury Note, Five Year, September 1997....... ($7,031)
========
</TABLE>
- --------------------------------------------------------------------------------
GLOSSARY OF TERMS
BALLOON -- Five- and seven-year mortgages with larger dollar amounts of
payments falling due in the later years of the obligation
GOLD -- Payments are on accelerated 45-day payment cycle instead of 75-day
payment cycle
MTN -- Medium Term Note
P/O -- Principal Only
REMIC -- Real Estate Mortgage Investment Conduit
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
53
<PAGE>
PORTFOLIO OF INVESTMENTS
SHORT TERM GLOBAL GOVERNMENT FUND
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<S> <C>
FOREIGN BONDS AND NOTES 62.8%
ITALIAN LIRA BONDS -- 11.4%
Italian Treasury Bonds:
ITL 1,560,000,000 8.500% due 08/01/1997......................... $ 914,122
2,220,000,000 8.500% due 01/01/1999......................... 1,346,836
-----------
Total Italian Lira Bonds
(Cost $2,331,930)............................ 2,260,958
-----------
GERMAN DEUTSCHE MARK BONDS -- 11.0%
Federal Republic of Germany:
DEM 1,500,000 6.625% due 01/20/1998 ........................ 876,201
1,280,000 6.000% due 02/20/1998** ...................... 746,810
925,000 5.250% due 10/20/1998 ........................ 542,976
-----------
Total German Deutsche Mark Bonds (Cost
$2,477,302).................................. 2,165,987
-----------
NEW ZEALAND DOLLAR BOND -- 8.7% (Cost $1,720,676)
NZD 2,505,000 Federal National Mortgage Association (FNMA),
Global Note,
7.250% due 06/20/2020 ....................... 1,720,238
-----------
DANISH KRONER BOND -- 6.3% (Cost $1,435,158)
DKK 7,735,000 Kingdom of Denmark,
9.000% due 11/15/1998** ..................... 1,243,327
-----------
GREAT BRITAIN POUND STERLING NOTE -- 5.8%
(Cost $1,119,140)
GBP 685,000 United Kingdom Treasury Note,
7.000% due 06/07/2000........................ 1,136,454
-----------
CANADIAN DOLLAR BONDS -- 4.8%
CAD 860,000 Government of Canada,
6.500% due 08/01/1999**...................... 642,128
400,000 Royal Bank of Canada,
10.900% due 01/15/1999 ...................... 314,624
-----------
Total Canadian Dollar Bonds
(Cost $957,846).............................. 956,752
-----------
IRISH POUND BOND -- 3.6% (Cost $728,092)
IEP 465,000 Republic of Ireland,
6.250% due 04/01/1999 ....................... 707,037
-----------
SPANISH PESETA BONDS -- 3.4%
Government of Spain:
ESP 59,000,000 11.450% due 08/30/1998 ....................... 428,075
35,000,000 10.250% due 11/30/1998 ....................... 253,587
-----------
Total Spanish Peseta Bonds
(Cost $780,692).............................. 681,662
-----------
AUSTRALIAN DOLLAR BOND -- 3.4% (Cost $657,868)
AUD 850,000 International Finance Corporation, 7.750% due
06/24/1999 .................................. 663,528
-----------
SWEDISH KRONA BOND -- 2.6% (Cost $511,688)
SEK 3,700,000 Kingdom of Sweden,
11.000% due 01/21/1999**..................... 522,982
-----------
MEXICAN PESO BOND -- 1.3% (Cost $251,903)
MXN 2,419,260 Mexican Cetes,
Zero coupon due 06/04/1998................... 252,954
-----------
ARGENTINIAN PESO BOND -- 0.5% (Cost $116,011)
ARP 119,080 Republic of Argentina,
5.625% due 04/01/2000+....................... 108,526
-----------
Total Foreign Bonds and Notes
(Cost $13,088,306)........................... 12,420,405
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<S> <C>
U.S. TREASURY NOTES -- 10.4%
$ 500,000 5.125% due 03/31/1998........................... $ 498,210
1,550,000 6.375% due 01/15/1999**......................... 1,558,537
-----------
Total U.S. Treasury Notes
(Cost $2,063,318).............................. 2,056,747
-----------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 10.0%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) -- 8.0%
(Cost $1,555,776)
1,435,162 Pass-through certificates,
10.000% due 12/15/2017--06/15/2020............. 1,578,310
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 1.3%
(Cost $254,010)
249,213 #141461,
7.784% due 11/01/2021+......................... 260,933
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 0.7%
(Cost $143,342)
142,555 #1223,
7.250% due 07/15/2020.......................... 143,446
-----------
Total U.S. Government Agency Mortgage-Backed
Securities
(Cost $1,953,128).............................. 1,982,689
-----------
INDEXED NOTES -- 4.0%
250,000 Citibank, (Value is directly linked to the
Morrocan Dirham),
8.000% due 12/01/1997.......................... 246,625
J.P. Morgan & Company:
302,750 (Value is directly linked to the Indonesian
Rupiah),
11.200% due 08/11/1997......................... 302,210
240,000 (Value is directly linked to the Philippine
Peso),
10.450% due 07/29/1997......................... 239,696
-----------
Total Indexed Notes
(Cost $792,750)................................ 788,531
-----------
CORPORATE NOTE -- 1.6% (Cost $299,223)
300,000 Sun Communities Inc., Sr. Note,
7.625% due 05/01/2003.......................... 306,474
-----------
TIME DEPOSITS -- 4.8%
GRD 106,086,208 Bankers Trust Corporation,
9.020% due 08/14/1997.......................... 386,133
-----------
EGP 300,000 Citibank,
9.000% due 07/07/1997.......................... 300,000
-----------
ZAR 1,159,888 J.P. Morgan & Company,
15.750% due 09/11/1997......................... 255,651
-----------
Total Time Deposits
(Cost $948,825)................................ 941,784
-----------
COMMERCIAL PAPER -- 3.1% (Cost $613,000)
$ 613,000 General Electric Capital Corporation, 6.100% due
07/01/1997..................................... 613,000
-----------
</TABLE>
<TABLE>
<CAPTION>
EXPIRATION STRIKE
DATE PRICE
---------- ------
<S> <C> <C> <C>
PUT OPTIONS PURCHASED ON FOREIGN CURRENCY -- 0.4%
AUD 880,000 Australian Dollar Put................... 07/16/1997 0.762 8,643
CAD 1,343,500 Canadian Dollar Put..................... 08/01/1997 1.396 1,293
</TABLE>
See Notes to Financial Statements.
54
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
SHORT TERM GLOBAL GOVERNMENT FUND
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL EXPIRATION STRIKE VALUE
AMOUNT DATE PRICE (NOTE 2)
--------- ---------- ------ --------
<S> <C> <C> <C>
PUT OPTIONS PURCHASED ON FOREIGN CURRENCY -- (CONTINUED)
NZD 2,500,000 New Zealand Dollar Put......... 09/15/1997 0.686 $ 28,500
DEM 2,000,000 German Deutsche Mark Put....... 11/26/1997 1.700 34,427
-----------
Total Put Options Purchased on Foreign Currency
(Cost $50,847)................................... 72,863
-----------
TOTAL INVESTMENTS
(COST $19,809,397*)..................................... 97.1% 19,182,493
-----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C> <C> <C>
CALL OPTIONS WRITTEN ON FOREIGN CURRENCY -- (0.2)%
AUD 880,000 Australian Dollar Call......... 07/16/1997 0.777 (338)
CAD 1,343,500 Canadian Dollar Call........... 08/01/1997 1.366 (2,352)
GBP 680,000 Great Britain Pound Sterling
Call.......................... 08/07/1997 1.637 (22,002)
NZD 2,500,000 New Zealand Dollar Call........ 09/15/1997 0.692 (8,250)
-----------
Total Call Options Written on Foreign Currency
(Premiums received $45,615)...................... (32,942)
-----------
OTHER ASSETS AND LIABILITIES (NET)....................... 3.1 608,986
----- -----------
NET ASSETS............................................... 100.0% $19,758,537
===== ===========
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
** A portion or all of this security is pledged as collateral for option
contracts.
+ Variable rate security. The interest rate shown reflects the rate currently
in effect.
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO BUY
<TABLE>
<CAPTION>
CONTRACTS TO RECEIVE UNREALIZED
-------------------------------------------------- APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- -------------------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
07/07/1997 IEP 132,121 200,035 200,000 $ 35
08/12/1997 DKK 1,331,040 200,982 208,627 (7,645)
08/12/1997 DKK 1,195,516 180,519 181,689 (1,170)
08/25/1997 SEK 1,538,160 199,295 200,000 (705)
09/15/1997 CHF 1,466,038 1,013,046 1,014,208 (1,162)
12/01/1997 DEM 44,202 25,639 25,808 (169)
12/01/1997 DEM 44,202 25,639 25,929 (290)
12/01/1997 ESP 58,124,000 395,386 400,000 (4,614)
--------
$(15,720)
--------
</TABLE>
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
<TABLE>
<CAPTION>
CONTRACTS TO DELIVER UNREALIZED
----------------------------------------------------- APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- ----------------------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
07/07/1997 IEP 466,616 706,469 702,817 $ (3,652)
08/07/1997 FRF 3,376,386 576,073 614,000 37,927
08/12/1997 DKK 10,689,600 1,614,090 1,691,392 77,302
08/25/1997 BEF 17,148,400 478,324 497,777 19,453
08/25/1997 SEK 4,000,000 518,269 543,072 24,803
09/15/1997 CHF 1,466,038 1,013,046 1,005,720 (7,326)
09/18/1997 NLG 441,554 226,241 234,620 8,379
09/24/1997 CHF 1,139,680 788,364 800,000 11,636
11/06/1997 DEM 2,409,835 1,395,144 1,414,222 19,078
12/01/1997 DEM 88,405 51,279 52,500 1,221
12/01/1997 ESP 2,305,760 15,685 16,000 315
12/01/1997 FRF 540,786 92,989 94,750 1,761
12/01/1997 GBP 13,917 23,215 22,750 (465)
12/01/1997 ITL 24,642,025 14,441 14,500 59
12/01/1997 ITL 2,000,000,000 1,172,095 1,173,847 1,752
--------
$192,243
--------
Net Unrealized Appreciation of Forward Foreign Currency
Contracts................................................ $176,523
========
</TABLE>
- --------------------------------------------------------------------------------
GLOSSARY OF TERMS
ARP -- Argentine Peso
AUD -- Australian Dollar
BEF -- Belgian Franc
CAD -- Canadian Dollar
CHF -- Swiss Franc
DEM -- German Deutsche Mark
DKK -- Danish Kroner
EGP -- Egyptian Pound
ESP -- Spanish Peseta
FRF -- French Franc
GBP -- Great Britain Pound Sterling
GRD -- Greek Drakma
IEP -- Irish Pound
ITL -- Italian Lira
MXN -- Mexican Peso
NLG -- Netherlands Guilder
NZD -- New Zealand Dollar
SEK -- Swedish Krona
ZAR -- South African Rand
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
55
<PAGE>
PORTFOLIO OF INVESTMENTS
U.S. GOVERNMENT FUND
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<S> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 53.6%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) -- 32.1%
$9,352,839 7.000% due 02/15/2011-04/15/2026..................... $ 9,326,180
8,638,185 7.500% due 01/15/2023-11/15/2023..................... 8,702,971
1,468,083 8.000% due 07/15/2026-06/15/2027..................... 1,502,025
79,768 9.000% due 08/15/2021................................ 85,251
-----------
Total GNMAs (Cost $19,535,264)....................... 19,616,427
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 18.1%
GOLD:
1,189,127 5.500% due 12/01/2008................................ 1,131,526
5,213,541 6.500% due 09/01/2025-06/01/2026..................... 5,000,098
3,454,312 7.000% due 03/01/2012-05/01/2012..................... 3,448,889
1,080,720 8.750% due 01/01/2013................................ 1,130,249
342,952 9.000% due 09/01/2020................................ 367,278
-----------
Total FHLMCs (Cost $10,835,833)...................... 11,078,040
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 1.8%
696,399 8.000% due 05/01/2022................................ 718,433
380,647 8.500% due 02/01/2023................................ 397,525
-----------
Total FNMAs (Cost $1,121,844)........................ 1,115,958
-----------
RESIDENTIAL FUNDING MORTGAGE SECURITY -- 1.6%
(Cost $963,750)
1,000,000 Trust 92-539, Class A8,
7.500% due 11/25/2007............................... 1,004,060
-----------
Total U.S. Government Agency
Mortgage-Backed Securities
(Cost $32,456,691).................................. 32,814,485
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 37.6%
Federal National Mortgage Association (FNMA), REMIC,
Pass-through certificates:
1,168,312 Trust 89-90, Class E,
8.700% due 12/25/2019............................... 1,221,973
4,499,334 Trust 92-55, Class DZ,
8.000% due 04/25/2022............................... 4,586,486
5,670,501 Trust 92-83, Class X,
7.000% due 02/25/2022............................... 5,137,077
1,383,996 Trust 93-159, Class PA, (P/O),
Zero coupon due 01/25/2021.......................... 1,256,405
906,983 Trust 94-57, Class C, (P/O),
Zero coupon due 01/25/2024***....................... 661,807
1,731,904 Federal National Mortgage Association (FNMA), Trust
96-274, Class 1, (P/O),
Zero coupon due 10/01/2025.......................... 1,266,455
721,080 Guaranteed Mortgage Corporation III (GNMA-CMB), Trust
B, Class 1,
9.000% due 12/01/2007............................... 744,061
1,021,024 NYC Mortgage Loan Trust, Trust 1996,
Class A1,
6.750% due 06/25/2006+.............................. 1,008,420
7,000,000 Vendee Mortgage Trust, Trust 1997-2,
Class B,
7.500% due 06/30/2027............................... 7,107,170
-----------
Total Collateralized Mortgage Obligations (Cost
$22,409,008)........................................ 22,989,854
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<S> <C>
U.S. TREASURY OBLIGATIONS -- 25.1%
U.S TREASURY BONDS -- 17.4%
$ 300,000 12.750% due 11/15/2010............................... $ 416,298
4,839,000 6.500% due 11/15/2026** ............................ 4,640,891
5,700,000 6.625% due 02/15/2027** ............................ 5,577,108
-----------
Total U.S. Treasury Bonds
(Cost $10,528,172)................................... 10,634,297
-----------
U.S. TREASURY NOTES -- 7.7%
325,000 6.625% due 03/31/2002................................. 327,945
2,900,000 6.625% due 05/15/2007** .............................. 2,924,012
1,470,350 Inflation Index, 3.375% due 01/15/2007................ 1,434,974
-----------
Total U.S. Treasury Notes
(Cost $4,708,696).................................... 4,686,931
-----------
Total U.S. Treasury Obligations
(Cost $15,236,868)................................... 15,321,228
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (COST $70,102,567*)....................... 116.3% 71,125,567
OTHER ASSETS AND LIABILITIES (NET).......................... (16.3) (9,956,201)
----- -----------
NET ASSETS.................................................. 100.0% $61,169,366
===== ===========
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
** A portion or all of the securities are pledged as collateral for reverse
repurchase agreements (Note 4).
*** A portion or all of this security is pledged as collateral for futures
contracts.
+ Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
<TABLE>
<CAPTION>
NUMBER OF UNREALIZED
CONTRACTS DEPRECIATION
--------- ------------
<S> <C>
FUTURES CONTRACTS -- SHORT POSITION
109 U.S. Treasury Bond, Twenty Year, September 1997...... $(130,120)
42 U.S. Treasury Note, Ten Year,
September 1997...................................... (23,814)
---------
Net Depreciation on Futures
Contracts--Short Position........................... $(153,934)
=========
</TABLE>
- --------------------------------------------------------------------------------
GLOSSARY OF TERMS
GOLD -- Payments are on an accelerated 45-day payment cycle instead of 75-day
payment cycle
P/O -- Principal Only
REMIC -- Real Estate Mortgage Investment Conduit
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
56
<PAGE>
PORTFOLIO OF INVESTMENTS
CORPORATE INCOME FUND
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<S> <C>
CORPORATE BONDS AND NOTES -- 84.8%
MANUFACTURING -- 18.7%
$1,000,000 Boeing Company, Deb.,
8.750% due 08/15/2021............................... $ 1,165,000
1,500,000 Caterpillar Inc., Sinking Fund Deb.,
9.750% due 06/01/2019............................... 1,640,625
Ford Motor Company, Deb.:
250,000 8.875% due 01/15/2022................................ 286,250
600,000 8.875% due 11/15/2022................................ 649,500
1,000,000 General Motors Corporation, Deb.,
9.400% due 07/15/2021............................... 1,185,000
1,500,000 Lockheed Martin Corporation,
7.250% due 05/15/2006............................... 1,518,750
2,550,000 Tyco Laboratories, Inc., Deb.,
9.500% due 05/01/2022............................... 2,932,500
-----------
9,377,625
-----------
TRANSPORTATION -- 15.1%
1,750,000 Carnival Corporation, Deb.,
7.200% due 10/01/2023............................... 1,647,188
1,000,000 Conrail Inc., Deb.,
9.750% due 06/15/2020 .............................. 1,227,500
1,000,000 Norfolk Southern Corporation,
7.800% due 05/15/2027............................... 1,025,000
2,000,000 Southwest Airlines Company,
Pass-through certificates, 94-A, Class A-4,
9.150% due 07/01/2016............................... 2,202,500
1,300,000 United Air Lines Inc.,
Pass-through certificates,
9.560% due 10/19/2018 .............................. 1,485,250
-----------
7,587,438
-----------
FINANCIAL -- 14.0%
500,000 American General Corporation,
Sinking Fund Deb.,
7.500% due 07/15/2025............................... 495,625
1,000,000 Barclays North American Capital Corporation, Capital
Note,
9.750% due 05/15/2021............................... 1,131,250
50,000 Chase Manhattan Corporation, Sub. Note, 8.000% due
06/15/1999.......................................... 51,500
230,000 Citicorp, Sub. Note,
8.625% due 12/01/2002............................... 248,400
First Chicago Corporation, Sub. Note:
600,000 11.250% due 02/20/2001............................... 685,500
100,000 9.250% due 11/15/2001................................ 109,000
1,000,000 First Tennessee National Corporation,
Sub. Capital Note,
10.375% due 06/01/1999.............................. 1,070,000
1,040,000 Fleet/Norstar Financial Group Inc.,
Sub. Note,
9.900% due 06/15/2001............................... 1,147,900
400,000 Ford Holdings, Inc., Deb.,
9.375% due 03/01/2020............................... 473,500
1,000,000 Hartford Life Insurance Company,
7.650% due 06/15/2027............................... 996,250
516,000 Security Pacific Corporation, Sub. Note,
11.500% due 11/15/2000.............................. 590,175
-----------
6,999,100
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<S> <C>
YANKEE (U.S. DOLLAR DENOMINATED) -- 7.7%
$1,000,000 Abbey National Plc, Global Note,
6.690% due 10/17/2005............................... $ 982,500
1,700,000 Northern Telecom Capital, Sub. Note,
7.400% due 06/15/2006............................... 1,742,500
500,000 Petro-Canada, Deb.,
9.250% due 10/15/2021............................... 596,250
500,000 Trans-Canada Pipeline Corporation, Deb.,
8.500% due 03/20/2023............................... 528,125
-----------
3,849,375
-----------
ENERGY -- 5.5%
1,300,000 Occidental Petroleum Corporation, Sr. Deb., 11.125%
due 08/01/2010 ..................................... 1,678,625
1,000,000 Phillips Petroleum Company, Deb.,
9.180% due 09/15/2021 .............................. 1,092,500
-----------
2,771,125
-----------
ELECTRIC -- 5.2%
200,000 Duke Power Company,
First and Refundable Mortgage,
6.875% due 08/01/2023............................... 183,500
700,000 Florida Power & Light Company,
First Mortgage,
7.050% due 12/01/2026............................... 659,750
100,000 Philadelphia Electric Company,
First and Refundable Mortgage,
8.250% due 09/01/2022............................... 105,000
Texas Utilities Electric Company:
150,000 First and Collateral Mortgage,
8.500% due 08/01/2024............................... 157,875
1,500,000 First Mortgage,
7.875% due 04/01/2024............................... 1,500,000
-----------
2,606,125
-----------
INDUSTRIAL -- 4.3%
200,000 Ogden Corporation, Deb.,
9.250% due 03/01/2022 .............................. 224,750
1,800,000 Praxair, Inc., Deb.,
8.700% due 07/15/2022............................... 1,941,750
-----------
2,166,500
-----------
REGIONAL BANKS -- 4.0%
400,000 Banc One Corporation, Sub. Note,
10.000% due 08/15/2010.............................. 490,500
82,000 Barnett Banks, Florida, Inc., Sub. Note,
10.875% due 03/15/2003.............................. 96,863
40,000 First Interstate Bancorp, MTN,
9.375% due 11/15/1998 .............................. 41,629
NCNB Corporation, Sub. Note:
1,100,000 9.375% due 09/15/2009 ............................... 1,285,625
60,000 10.200% due 07/15/2015 .............................. 75,150
-----------
1,989,767
-----------
GAS -- 4.0%
1,200,000 ANR Pipeline Company, Deb.,
9.625% due 11/01/2021............................... 1,455,000
500,000 Panhandle Eastern Pipe Line Company, Deb.,
8.625% due 04/15/2025............................... 532,500
-----------
1,987,500
-----------
</TABLE>
See Notes to Financial Statements.
57
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
CORPORATE INCOME FUND
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<S> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
RETAIL -- 3.3%
May Department Stores Company, Deb.:
$1,000,000 8.375% due 10/01/2022................................. $ 1,027,500
600,000 8.375% due 08/01/2024................................. 621,000
-----------
1,648,500
-----------
MEDIA -- 3.0%
1,200,000 News America Holdings,
8.000% due 10/17/2016................................ 1,198,500
300,000 Time Warner Inc., Deb.,
9.150% due 02/01/2023................................ 330,375
-----------
1,528,875
-----------
Total Corporate Bonds and Notes
(Cost $42,355,716)................................... 42,511,930
-----------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES -- 5.9%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) -- 4.9%
870,767 #386671,
9.000% due 02/15/2025................................ 920,836
1,587,844 #421737,
7.000% due 06/15/2026................................ 1,560,552
-----------
Total GNMAs (Cost $2,409,951)......................... 2,481,388
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<S> <C>
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 1.0%
(Cost $466,555)
$ 453,516 #C00385, GOLD,
9.000% due 01/01/2025............................... $ 479,593
-----------
Total U.S. Government Agency Mortgage-Backed
Securities (Cost $2,876,506)........................ 2,960,981
-----------
U.S. TREASURY BOND -- 5.6% (Cost $2,799,141)
2,000,000 13.750% due 08/15/2004............................... 2,815,380
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
------
<S> <C> <C>
INVESTMENT COMPANY SECURITY -- 1.9% (Cost $939,289)
939,289 Lehman Provident Tempfund............................... 939,289
-----------
TOTAL INVESTMENTS (COST $48,970,652*).................... 98.2% 49,227,580
OTHER ASSETS AND LIABILITIES (NET)....................... 1.8 895,771
------ -----------
NET ASSETS............................................... 100.0% $50,123,351
====== ===========
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
- --------------------------------------------------------------------------------
GLOSSARY OF TERMS
GOLD -- Payments are on an accelerated 45-day payment cycle instead of 75-day
payment cycle
MTN -- Medium Term Note
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
58
<PAGE>
PORTFOLIO OF INVESTMENTS
GROWTH AND INCOME FUND
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C>
COMMON STOCKS -- 97.0%
FINANCIAL SERVICES -- 12.3%
14,575 Aegon N.V., ADR.......................................... $ 1,021,169
12,600 AMBAC Inc. .............................................. 962,325
15,274 Banc One Corporation..................................... 739,800
6,200 Chase Manhattan Corporation.............................. 601,787
29,300 Dime Bancorp, Inc. ...................................... 512,750
25,600 First Chicago NBD Corporation............................ 1,548,800
25,500 First Hawaiian Inc. ..................................... 870,187
17,800 Marsh & McLennan Companies, Inc. ........................ 1,270,475
31,999 NationsBank Corporation.................................. 2,063,952
33,600 Providian Corporation+................................... 1,079,400
8,400 Washington Mutual, Inc. ................................. 501,900
-----------
11,172,545
-----------
ENERGY -- 11.8%
14,600 Anadarko Petroleum Corporation........................... 876,000
17,400 British Petroleum Company Plc, ADR....................... 1,302,825
1,700 Cooper Cameron Corporation+.............................. 79,475
18,300 Duke Energy Corporation.................................. 877,256
27,100 Enron Corporation........................................ 1,106,019
37,400 Exxon Corporation........................................ 2,300,100
12,800 Mobil Corporation........................................ 894,400
28,400 Royal Dutch Petroleum Company, ADR....................... 1,544,250
39,300 Tosco Corporation........................................ 1,176,544
16,224 Ultramar Diamond Shamrock Corporation ................... 529,308
-----------
10,686,177
-----------
CONSUMER DISCRETIONARY -- 11.7%
29,900 ADT Ltd.+................................................ 986,700
42,100 Circus Circus Enterprises, Inc.+......................... 1,036,713
66,200 International Game Technology ........................... 1,175,050
20,900 Procter & Gamble Company ................................ 2,952,125
36,800 TCI Satellite Entertainment, Inc., Class A+.............. 289,800
169,700 Tele-Communications Inc., TCI Group,
Class A+................................................ 2,524,287
32,900 Time Warner, Inc. ....................................... 1,587,425
-----------
10,552,100
-----------
TECHNOLOGY -- 10.5%
46,000 Bay Networks Inc.+....................................... 1,221,875
31,800 Cabletron Systems, Inc.+................................. 900,337
9,000 Cisco Systems, Inc.+..................................... 604,125
23,800 Dominion Resources Inc. ................................. 871,675
51,200 EMC Corporation+......................................... 1,996,800
25,600 Input/Output, Inc.+...................................... 464,000
15,800 International Business Machines Corporation.............. 1,424,963
5,600 Perkin Elmer Corporation................................. 445,550
65,300 Sensormatic Electronics Corporation...................... 840,737
20,100 Sun Microsystems, Inc.+.................................. 748,097
-----------
9,518,159
-----------
MATERIALS & PROCESSING -- 9.9%
1,000 Albemarle Corporation.................................... 21,062
84,200 Allegheny Teledyne Inc. ................................. 2,273,400
24,600 Allied Signal Inc. ...................................... 2,066,400
12,200 Aluminum Company of America ............................. 919,575
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C>
17,800 du Pont (E.I.) de Nemours & Company....................... $ 1,119,175
15,600 Temple-Inland, Inc. ...................................... 842,400
36,700 Union Carbide Corporation................................. 1,727,194
-----------
8,969,206
-----------
HEALTH CARE -- 8.2%
35,700 ALZA Corporation+......................................... 1,033,069
15,900 Bausch & Lomb Inc. ....................................... 749,287
20,800 Forest Labs Inc.+......................................... 861,900
9,200 Gensia, Inc.+............................................. 40,825
36,000 Humana Inc.+.............................................. 832,500
24,300 Schering-Plough Corporation............................... 1,163,363
22,300 Warner Lambert Company.................................... 2,770,775
-----------
7,451,719
-----------
CONSUMER STAPLES -- 7.5%
4,100 CPC International, Inc. .................................. 378,481
32,800 General Mills, Inc. ...................................... 2,136,100
33,800 Philip Morris Companies Inc. ............................. 1,499,875
19,500 Ralston Purina Company.................................... 1,602,656
5,300 Unilever NV............................................... 1,134,531
-----------
6,751,643
-----------
TELECOMMUNICATIONS -- 6.1%
16,000 Aware, Inc.+.............................................. 236,000
15,800 Bell Atlantic Corporation................................. 1,198,825
11,300 GTE Corporation........................................... 495,787
24,300 SBC Communications, Inc. ................................. 1,503,563
16,300 Sprint Corporation........................................ 857,788
38,200 WorldCom, Inc.+........................................... 1,222,400
-----------
5,514,363
-----------
PRODUCER DURABLES -- 5.7%
19,500 Anixter International Inc.+............................... 335,156
41,300 Boeing Company............................................ 2,191,481
71,100 General Instrument Corporation+........................... 1,777,500
21,600 Johnson Controls, Inc. ................................... 886,950
-----------
5,191,087
-----------
RETAIL -- 4.7%
22,800 Circuit City Stores Inc., CarMax Group+................... 326,325
44,700 Circuit City Stores Inc., Circuit City Group.............. 1,589,644
36,900 Toys R Us Inc.+........................................... 1,291,500
30,000 Wal-Mart Stores Inc. ..................................... 1,014,375
-----------
4,221,844
-----------
OTHER -- 3.4%
39,300 Cooper Industries, Inc. .................................. 1,955,175
36,300 Waste Management, Inc. ................................... 1,166,138
-----------
3,121,313
-----------
AUTOS & TRANSPORTATION -- 2.8%
33,100 CSX Corporation........................................... 1,837,050
12,700 General Motors Corporation................................ 707,231
-----------
2,544,281
-----------
COMPUTER SOFTWARE & SERVICES -- 1.6%
24,500 Autodesk Inc. ............................................ 938,656
11,300 First Data Corporation.................................... 496,494
-----------
1,435,150
-----------
</TABLE>
See Notes to Financial Statements.
59
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
GROWTH AND INCOME FUND
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C>
COMMON STOCKS -- (CONTINUED)
UTILITIES -- 0.8%
14,700 Consolidated Edison Company of New York, Inc. ........ $ 432,731
10,700 Pinnacle West Capital Corporation..................... 321,669
-----------
754,400
-----------
Total Common Stocks (Cost $74,680,930)................ 87,883,987
-----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C>
CONVERTIBLE NOTES -- 1.1%
$ 700,000 Berkshire Hathaway, Conv. Sr. Note,
1.000% due 12/03/2001................................ 729,750
125,000 Rohr Inc., Conv. Sub. Note,
7.750% due 05/15/2004................................ 270,781
-----------
Total Convertible Notes (Cost $867,561)............... 1,000,531
-----------
U.S. TREASURY BILL -- 1.8% (Cost $1,629,612)
1,641,000 5.160% due 08/21/1997++............................... 1,628,959
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C>
CONVERTIBLE PREFERRED STOCK -- 0.4%
(Cost $348,362)
6,600 Owens-Corning, Conv. Pfd.+++.............................. $ 372,900
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (COST $77,526,465*)...................... 100.3% 90,886,377
OTHER ASSETS AND LIABILITIES (NET)......................... (0.3) (243,899)
----- -----------
NET ASSETS.................................................. 100.0% $90,642,478
===== ===========
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
+ Non-income producing security.
++ Rate represents annualized yield at date of purchase.
+++ Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
-------------------------------------------------------------------------------
GLOSSARY OF TERMS
ADR -- American Depositary Receipt
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
60
<PAGE>
PORTFOLIO OF INVESTMENTS
GROWTH FUND
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C>
COMMON STOCKS -- 81.0%
FINANCIAL SERVICES -- 13.7%
4,675 Ambanc Holding Company, Inc.+............................. $ 75,969
6,800 AMRESCO, Inc.+............................................ 146,200
28,550 Associates First Capital Corporation, Class A ............ 1,584,525
2,650 Astoria Financial Corporation............................. 125,875
21,100 BankAmerica Corporation .................................. 1,362,269
18,250 Bank of New York Company, Inc. ........................... 793,875
3,625 Catskill Financial Corporation ........................... 56,187
18,800 Charles Schwab Corporation ............................... 764,925
11,675 Citicorp ................................................. 1,407,567
6,375 Dime Bancorp, Inc. ....................................... 111,562
37,625 Equifax, Inc. ............................................ 1,399,180
5,350 First Defiance Financial Corporation ..................... 76,237
1,250 First Savings Bancorp, Inc. .............................. 27,813
3,700 Fleet Financial Group, Inc. .............................. 234,025
775 FSF Financial Corporation ................................ 13,466
1,150 Household International, Inc. ............................ 135,053
6,625 Klamath First Bancorp, Inc. .............................. 126,703
28,000 Nationwide Financial Services, Inc., Class A ............. 743,750
3,600 North Central Bancshares, Inc. ........................... 55,800
3,600 Peekskill Financial Corporation .......................... 54,000
7,225 PFF Bancorp, Inc.+........................................ 135,469
4,550 Provident Financial Holdings, Inc.+....................... 75,644
2,650 Queens County Bancorp, Inc. .............................. 120,575
9,525 Reliance Group Holdings, Inc. ............................ 113,109
19,475 Roslyn Bancorp, Inc. ..................................... 445,491
9,117 Skandia Forsakrings AB ................................... 335,899
14,750 State Street Corporation ................................. 682,187
4,325 TF Financial Corporation ................................. 84,878
9,300 Travelers Group, Inc. .................................... 586,481
73,450 UNUM Corporation ......................................... 3,084,900
3,611 Wells Fargo & Company .................................... 973,165
4,050 Western National Corporation ............................. 108,591
-----------
16,041,370
-----------
HEALTH CARE -- 12.5%
19,950 ESC Medical Systems Limited+.............................. 508,725
13,625 Fresenius Medical Care AG, ADR+........................... 396,828
24,200 IDEXX Laboratories, Inc.+................................. 300,988
54,900 Omnicare, Inc. ........................................... 1,722,488
4,650 PacifiCare Health Systems, Inc., Series B+................ 297,019
7,275 Protein Design Labs, Inc.+................................ 207,337
21,825 Rhone-Poulenc Rorer, Inc. ................................ 1,983,347
34,695 Rhone-Poulenc Rorer, Inc., Ord. .......................... 1,416,918
14,600 Sofamor Danek Group, Inc.+ ............................... 667,950
40,100 Teva Pharmaceutical Industries Ltd. ...................... 2,596,475
37,400 Warner Lambert Company ................................... 4,646,950
-----------
14,745,025
-----------
TECHNOLOGY -- 12.0%
54,050 Analog Devices, Inc.+ .................................... 1,435,703
23,725 Cisco Systems, Inc.+...................................... 1,592,541
11,250 Compaq Computer Corporation+.............................. 1,116,562
22,500 EMC Corporation+.......................................... 877,500
26,100 HBO & Company ............................................ 1,797,638
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C>
14,075 Intel Corporation ...................................... $ 1,996,011
7,050 KLA-Tencor Corporation+ ................................ 343,687
25,941 Philips Electronics NV, NY Shares ...................... 1,864,509
4,391 Philips Electronics NV, Ord. ........................... 314,522
37,325 Pittway Corporation, Class A ........................... 1,856,919
6,875 Technology Solutions Company+........................... 271,563
34,200 Westinghouse Electric Corporation ...................... 790,875
-----------
14,258,030
-----------
COMPUTER SOFTWARE & SERVICES -- 11.0%
42,525 Aspen Technology, Inc.+................................. 1,600,003
39,200 First Data Corporation ................................. 1,722,350
16,275 First USA Paymentech, Inc.+............................. 470,958
24,050 Indus Group Inc.+....................................... 487,012
4,025 Intelligroup, Inc.+..................................... 38,741
3,850 JDA Software Group, Inc.+............................... 131,381
3,575 Microsoft Corporation+.................................. 451,791
125,675 Parametric Technology Company+.......................... 5,349,042
14,975 Peoplesoft, Inc.+....................................... 789,931
7,125 Rational Software Corporation+.......................... 119,789
11,875 Sapient Corporation+.................................... 587,812
31,025 Wind River Systems+..................................... 1,186,706
-----------
12,935,516
-----------
TELECOMMUNICATIONS -- 9.3%
13,975 Ascend Communications, Inc.+............................ 550,266
134,650 Cincinnati Bell, Inc. .................................. 4,241,475
23,875 Lucent Technologies, Inc. .............................. 1,720,492
16,575 Millicom International Cellular SA+..................... 791,456
34,875 Nokia Corporation, Class A, Sponsored ADR .............. 2,572,031
32,806 WorldCom, Inc.+......................................... 1,049,792
-----------
10,925,512
-----------
MATERIALS & PROCESSING -- 6.7%
3,828 AKZO Nobel NV+.......................................... 524,597
7,150 ASM Lithography Holdings, NV+........................... 418,275
14,600 Chicago Bridge & Iron Company, NV ...................... 323,025
44,283 Metra AB, Series B, Ord. ............................... 1,334,609
74,700 Monsanto Company ....................................... 3,216,769
8,861 Potash Corporation of Saskatchewan, Inc. ............... 665,129
29,300 UCAR International, Inc.+............................... 1,340,475
-----------
7,822,879
-----------
CONSUMER DISCRETIONARY -- 5.5%
37,550 Costco Companies, Inc.+................................. 1,234,456
12,475 Gucci Group............................................. 803,078
14,950 Industrie Natuzzi Spa, Sponsored ADR ................... 383,094
21,250 IntelliQuest Information Group, Inc.+................... 478,125
24,475 Lamar Advertising Company+.............................. 624,112
12,675 Outdoor Systems, Inc.+.................................. 484,819
343,678 Rentokil Group Plc+..................................... 1,207,611
10,125 Scholastic Corporation+................................. 354,375
32,225 TeleTech Holdings, Inc.+................................ 845,906
-----------
6,415,576
-----------
</TABLE>
See Notes to Financial Statements.
61
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
GROWTH FUND
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C>
COMMON STOCKS -- (CONTINUED)
AUTOS & TRANSPORTATION -- 4.4%
32,600 Caliber System, Inc. .................................... $ 1,214,350
4,434 Volkswagen AG, ADR ...................................... 3,399,328
15,000 Wisconsin Central Transportation Corporation+............ 558,750
-----------
5,172,428
-----------
ENERGY -- 2.6%
54,125 Noble Drilling Corporation+.............................. 1,221,195
20,125 Santa Fe International Corporation+...................... 684,250
5,000 Texaco, Inc. ............................................ 543,750
14,725 Triton Energy Corporation+............................... 674,589
-----------
3,123,784
-----------
RETAIL -- 1.6%
49,575 Abercrombie & Fitch Company, Class A+ ................... 917,137
21,550 Linens 'N Things, Inc.+.................................. 638,419
7,100 Nordstrom, Inc. ......................................... 348,344
-----------
1,903,900
-----------
OTHER -- 1.4%
10,475 Minnesota Mining &
Manufacturing Company................................... 1,068,450
11,600 Redwood Trust, Inc. ..................................... 542,300
-----------
1,610,750
-----------
CONSUMER STAPLES -- 0.3%
5,627 Cultor OY, Series 1 ..................................... 297,997
-----------
Total Common Stocks (Cost $81,478,306)................... 95,252,767
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<S> <C>
U.S. GOVERNMENT AGENCY DISCOUNT NOTES -- 10.8%
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 9.9%
$6,700,000 5.750% due 07/01/1997++............................. $ 6,700,000
5,000,000 5.440% due 07/23/1997++............................. 4,983,378
------------
Total FHLMCs (Cost $11,683,378)..................... 11,683,378
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 0.9%
(Cost $999,847)
1,000,000 5.720% due 07/02/1997++............................. 999,847
------------
Total U.S. Government Agency Discount Notes (Cost
$12,683,225)....................................... 12,683,225
------------
COMMERCIAL PAPER -- 8.5%
5,000,000 Household Finance,
5.750% due 07/01/1997++............................ 5,000,000
5,000,000 NationsBank Corporation,
5.630% due 08/01/1997++............................ 4,975,760
------------
Total Commercial Paper (Cost $9,975,760)............ 9,975,760
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (COST $104,137,291*)..................... 100.3% 117,911,752
OTHER ASSETS AND LIABILITIES (NET)......................... (0.3) (407,089)
----- ------------
NET ASSETS................................................. 100.0% $117,504,663
===== ============
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
+ Non-income producing security.
++ Rate represents annualized yield at date of purchase.
See Notes to Financial Statements.
62
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
GROWTH FUND
JUNE 30, 1997 (UNAUDITED)
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO BUY
<TABLE>
<CAPTION>
CONTRACTS TO RECEIVE UNREALIZED
------------------------------------------------------- APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- ---------------------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
07/15/1997 GBP 175,000 291,469 286,414 $ 5,055
07/18/1997 GBP 400,000 666,236 653,892 12,344
08/11/1997 DEM 630,000 362,412 376,478 (14,066)
--------
$ 3,333
--------
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
<CAPTION>
CONTRACTS TO DELIVER UNREALIZED
------------------------------------------------------- APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- ---------------------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
07/15/1997 FIM 800,000 154,241 172,842 $ 18,601
07/15/1997 GBP 175,000 291,469 294,793 3,324
07/18/1997 GBP 475,000 791,155 791,875 720
08/11/1997 DEM 1,200,000 690,309 726,649 36,340
08/13/1997 DEM 900,000 517,806 539,660 21,854
09/11/1997 FIM 2,000,000 387,324 395,218 7,894
09/25/1997 NLG 1,600,000 820,209 852,742 32,533
10/22/1997 FIM 400,000 77,700 78,694 994
10/22/1997 GBP 70,000 116,717 113,960 (2,757)
10/23/1997 DEM 100,000 57,832 59,708 1,876
11/28/1997 FIM 3,200,000 623,322 635,779 12,457
11/28/1997 GBP 200,000 333,615 324,020 (9,595)
12/04/1997 GBP 200,000 333,638 326,400 (7,238)
--------
$117,003
--------
Net Unrealized Appreciation of Forward
Foreign Currency Contracts................ $120,336
========
</TABLE>
- --------------------------------------------------------------------------------
GLOSSARY OF TERMS
ADR -- American Depositary Receipt
DEM -- German Deutsche Mark
FIM -- Finnish Markka
GBP -- Great Britain Pound Sterling
NLG -- Netherlands Guilder
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
63
<PAGE>
PORTFOLIO OF INVESTMENTS
EMERGING GROWTH FUND
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C>
COMMON STOCKS -- 91.3%
RETAIL -- 18.4%
33,925 Barnett, Inc.+............................................ $ 831,163
68,875 Fastenal Company.......................................... 3,374,875
12,525 MSC Industrial Direct Company, Inc.,
Class A+................................................. 502,566
21,550 O'Reilly Automotive, Inc.+................................ 829,675
89,150 Petco Animal Supplies, Inc.+.............................. 2,674,500
19,950 Renters Choice, Inc.+..................................... 396,506
-----------
8,609,285
-----------
CONSUMER DISCRETIONARY -- 17.0%
11,150 American Residential Services, Inc.+...................... 259,237
28,075 Apollo Group, Inc., Class A+.............................. 989,644
75 Cox Radio, Inc., Class A+................................. 1,922
25,125 Educational Medical, Inc.+................................ 204,141
9,612 Ekornes ASA............................................... 81,311
11,650 Evergreen Media Corporation, Class A+..................... 519,881
32,275 Family Golf Centers, Inc.+................................ 742,325
9,575 Fred Meyer, Inc.+......................................... 494,908
4,675 Heftel Broadcasting Corporation, Class A+................. 258,294
17,325 Outdoor Systems, Inc.+.................................... 662,681
22,250 Paychex, Inc. ............................................ 845,500
2,500 Pierce Leahy Corporation+................................. 45,000
31,850 Premier Parks, Inc.+...................................... 1,174,469
9,300 Profit Recovery Group International, Inc.+................ 129,038
21,100 Regal Cinemas, Inc.+...................................... 696,300
11,375 Royal Caribbean Cruises, Ltd. ............................ 397,414
11,875 Univision Communications, Inc.+........................... 464,609
-----------
7,966,674
-----------
FINANCIAL SERVICES -- 16.3%
2,093 Affiliated Community Bancorp, Inc. ....................... 49,186
1,350 Ambanc Holding Company, Inc.+............................. 21,937
1,250 Anchor Bancorp Wisconsin, Inc. ........................... 60,937
2,875 Avondale Financial Corporation+........................... 41,688
2,625 Catskill Financial Corporation............................ 40,687
11,325 Charles Schwab Corporation................................ 460,786
3,625 Chester Bancorp, Inc. .................................... 53,469
3,600 Citizens First Financial Corporation+..................... 55,800
9,350 Credit Acceptance Corporation+............................ 120,381
3,725 Empire Federal Bancorp, Inc. ............................. 53,547
2,950 Fed One Bancorp, Inc. .................................... 59,737
2,250 FFVA Financial Corporation................................ 61,313
2,175 Fidelity Bancorp, Inc. ................................... 40,238
3,800 First Bell Bancorp, Inc. ................................. 63,650
4,175 First Defiance Financial Corporation...................... 59,494
725 First Empire State Corporation............................ 244,325
2,850 Flushing Financial Corporation............................ 63,769
3,050 GA Financial, Inc. ....................................... 57,950
6,400 Hartford Life, Inc., Class A+............................. 240,000
36,450 HealthCare Financial Partners, Inc.+...................... 742,669
2,875 HMN Financial, Inc.+...................................... 66,125
3,500 Home Bancorp of Elgin, Inc. .............................. 57,750
88,100 Insignia Financial Group, Inc., Class A+.................. 1,596,813
2,325 ISB Financial Corporation................................. 60,450
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C>
25,450 Medallion Financial Corporation.......................... $ 486,731
3,025 MFB Corporation.......................................... 57,475
6,800 Park Bancorp, Inc.+...................................... 110,500
1,475 Penn-America Group, Inc. ................................ 21,572
3,625 PFF Bancorp, Inc.+....................................... 67,969
3,100 Philadelphia Consolidated Holding Corporation+........... 105,400
20,450 Protective Life Corporation.............................. 1,027,612
2,450 Reliance Bancorp, Inc. .................................. 72,122
16,450 Roslyn Bancorp, Inc. .................................... 376,294
2,525 Standard Financial, Inc. ................................ 61,862
3,050 Sterling Bancorp......................................... 56,806
28,275 UICI+.................................................... 834,112
-----------
7,651,156
-----------
RESTAURANTS -- 14.2%
125,830 J. D. Wetherspoon Plc Ord. .............................. 2,855,048
51,900 Papa John's International Inc.+.......................... 1,907,325
178,483 PizzaExpress Plc......................................... 1,869,564
1,450 PJ America Inc.+......................................... 24,650
-----------
6,656,587
-----------
HEALTH CARE -- 9.6%
2,450 Dentsply International, Inc. ............................ 120,050
17,500 DepoTech Corporation+.................................... 238,437
11,400 ESC Medical Systems Limited, Inc.+....................... 290,700
11,500 Karrington Health, Inc.+................................. 172,500
8,075 Mentor Corporation....................................... 239,222
24,050 Omnicare Inc. ........................................... 754,569
28,400 Sofamor Danek Group, Inc.+............................... 1,299,300
9,225 Sunrise Assisted Living, Inc.+........................... 322,875
14,900 Teva Pharmaceutical Industries Ltd,
Sponsored ADR........................................... 964,775
6,975 Weider Nutrition International, Inc., Class A............ 110,728
-----------
4,513,156
-----------
MATERIALS & PROCESSING -- 5.4%
5,575 Minerals Technologies Inc. .............................. 209,062
14,075 Sealed Air Corporation+.................................. 668,562
65,975 Trigen Energy Corporation................................ 1,649,375
-----------
2,526,999
-----------
PRODUCER DURABLES -- 4.2%
26,225 Culligan Water Technologies, Inc.+....................... 1,173,569
28,950 Littelfuse Inc.+......................................... 817,837
-----------
1,991,406
-----------
AUTOS & TRANSPORTATION -- 2.6%
32,600 Wisconsin Central Transportation Corporation+............ 1,214,350
-----------
CONSUMER STAPLES -- 1.9%
21,625 JP Foodservice Inc.+..................................... 620,367
6,975 Quality Food Centers, Inc.+.............................. 265,050
-----------
885,417
-----------
TELECOMMUNICATIONS -- 1.6%
2,450 CommNet Cellular Inc.+................................... 85,137
73,946 Pricellular Corporation, Class A+........................ 665,514
-----------
750,651
-----------
</TABLE>
See Notes to Financial Statements.
64
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
EMERGING GROWTH FUND
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C>
COMMON STOCKS -- (CONTINUED)
TECHNOLOGY -- 0.1%
5,575 Amdahl Corporation+................................... $ 49,130
-----------
Total Common Stocks (Cost $32,704,911)................ 42,814,811
-----------
WARRANT -- 0.8% (Cost $149,086)
15,900 Littelfuse Inc., Series A, expires 12/27/2001+........ 359,738
-----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C>
U.S. GOVERNMENT AGENCY DISCOUNT NOTE -- 2.1% (Cost $999,107)
$1,000,000 Federal Home Loan Mortgage Corporation (FHLMC),
5.360% due 07/07/1997++.............................. 999,107
-----------
COMMERCIAL PAPER -- 4.5% (Cost $2,100,000)
2,100,000 Prudential Insurance Company,
6.000% due 07/01/1997................................ 2,100,000
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (COST $35,953,104*)........................ 98.7% 46,273,656
OTHER ASSETS AND LIABILITIES (NET)........................... 1.3 598,027
----- -----------
NET ASSETS................................................... 100.0% $46,871,683
===== ===========
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
+ Non-income producing security.
++ Rate represents annualized yield at date of purchase.
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO BUY
<TABLE>
<CAPTION>
CONTRACTS TO RECEIVE
----------------------------------------------------- UNREALIZED
EXPIRATION LOCAL VALUE IN IN EXCHANGE APPRECIATION
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- -------------------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
07/24/1997 GBP 250,000 416,427 408,612 $ 7,815
07/24/1997 GBP 150,000 249,856 245,175 4,681
07/28/1997 GBP 100,000 166,580 163,440 3,140
-------
$15,636
-------
</TABLE>
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
<TABLE>
<CAPTION>
CONTRACTS TO DELIVER UNREALIZED
------------------------------------------------------ APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- -------------------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
07/01/1997 GBP 148,196 246,790 246,900 $ 110
07/18/1997 GBP 700,000 1,165,913 1,166,974 1,061
07/24/1997 GBP 150,000 249,856 248,544 (1,312)
07/24/1997 GBP 250,000 416,427 409,600 (6,827)
07/28/1997 GBP 100,000 166,580 161,726 (4,854)
08/20/1997 GBP 650,000 1,083,054 1,036,297 (46,757)
09/11/1997 GBP 136,000 226,663 217,192 (9,471)
11/28/1997 GBP 320,000 533,784 518,432 (15,352)
12/04/1997 GBP 75,000 125,114 122,538 (2,576)
--------
$(85,978)
--------
Net Unrealized Depreciation of Forward
Foreign Currency Contracts .............. $(70,342)
========
</TABLE>
- --------------------------------------------------------------------------------
GLOSSARY OF TERMS
ADR -- American Depositary Receipt
GBP -- Great Britain Pound Sterling
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
65
<PAGE>
PORTFOLIO OF INVESTMENTS
INTERNATIONAL GROWTH FUND
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C>
COMMON STOCKS -- 91.0%
JAPAN -- 25.5%
11,000 Advantest Corporation................................ $ 844,567
25,000 Daiwa Securities Company............................. 197,182
92 DDI Corporation...................................... 679,073
25,000 Fuji Bank Ltd. ...................................... 375,169
50,000 Fujikura Ltd. ....................................... 466,780
49,000 Fujitsu Ltd. ........................................ 679,754
27,000 Hankyu Realty........................................ 217,197
125,000 Isuzu Motors Ltd. ................................... 430,790
23,000 JUSCO Company........................................ 776,600
48,000 Kao Corporation...................................... 665,881
102,000 Kawasaki Heavy Industries............................ 474,336
15,000 Matsushita Electric Industrial Company............... 302,316
60,000 Matsushita Electric Works Ltd. ...................... 680,539
58,000 Mitsubishi Estate Company............................ 444,811
20,000 Mycal Corporation.................................... 287,920
50,000 NEC Corporation...................................... 697,989
2,000 Net One Systems Company.............................. 184,095
2,000 Nitta Corporation.................................... 24,604
20,000 Nomura Securities Company Ltd. ...................... 275,706
11 NTT Data Communication Systems Corporation........... 425,163
13,000 Orix Corporation..................................... 962,963
26,000 Pioneer Electric Corporation......................... 630,633
9,000 Rohm Company......................................... 926,580
23,000 Sankyo Company Ltd. ................................. 772,586
30,000 Sharp Corporation.................................... 413,558
3,740 Shin Nippon Air Technologies......................... 31,913
1,000 Shohkoh Fund & Company Ltd. ......................... 302,753
11,000 Sony Corporation..................................... 958,775
24,000 Sumitomo Bank Ltd. .................................. 393,666
12,000 Takashimaya Company Ltd. ............................ 163,329
75,000 Toray Industries Inc. ............................... 534,616
30,000 Yamanouchi Pharmaceutical Company Ltd. .............. 806,177
34,000 Yokagawa Electric Corporation........................ 295,162
-----------
16,323,183
-----------
UNITED KINGDOM -- 9.1%
78,151 British Airport Authority............................ 720,352
216,691 Cookson Group Plc.................................... 763,210
37,480 Energy Group Plc..................................... 400,083
97,475 Hanson Plc........................................... 484,541
31,100 Imperial Chemical Industries......................... 432,713
92,600 Medeva Plc........................................... 395,540
131,200 Orange Plc+.......................................... 433,698
170,000 Pace Micro Technology................................ 189,678
13,000 Rio Tinto Plc........................................ 226,556
127,500 Rolls Royce Plc...................................... 487,288
81,450 Thistle Hotels Plc................................... 214,988
139,420 Vodafone Group....................................... 679,115
69,943 Williams Holdings Plc................................ 376,218
-----------
5,803,980
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C>
FRANCE -- 4.9%
7,600 Chargeurs International.............................. $ 437,892
5,200 Eaux (Cie Generale Des).............................. 666,292
26,457 La Gardere Groupe.................................... 768,494
5,300 Marine-Wendel SA..................................... 541,120
6,200 Societe Generale Ord. ............................... 692,089
-----------
3,105,887
-----------
NEW ZEALAND -- 4.7%
665,400 Brierly Investments Ltd. Ord. ....................... 650,841
199,700 Fletcher Challenge -- Building Division.............. 600,913
862,088 Fletcher Challenge -- Forest Division................ 1,253,127
793,000 Wrightson Ltd. ...................................... 506,326
-----------
3,011,207
-----------
AUSTRALIA -- 4.0%
119,300 Boral Ltd. .......................................... 376,121
57,100 National Australia Bank Ltd. ........................ 818,943
100,200 Oil Search Ltd. ..................................... 272,722
20,000 Qantas Airways Ltd., ADR++........................... 468,751
275,452 Qantas Airways Ltd. ................................. 645,592
-----------
2,582,129
-----------
NETHERLANDS -- 3.9%
4,600 ASM Lithography Holdings NV+......................... 265,984
12,730 ASM Lithography Holding NV, ADR+..................... 744,705
20,600 Philips Electronics NV............................... 1,475,551
-----------
2,486,240
-----------
SWEDEN -- 3.7%
82,200 ABB AB, B Shares..................................... 1,147,644
21,700 Biacore International AB, Sponsored ADR+............. 252,263
13,500 Electrolux AB, B Shares.............................. 973,822
-----------
2,373,729
-----------
ARGENTINA -- 3.3%
34,700 Telefonica de Argentina, ADR......................... 1,201,488
29,000 YPF Sociedad Anonima, Sponsored ADR.................. 891,750
-----------
2,093,238
-----------
SOUTH KOREA -- 3.3%
6,500 Hansol Paper Company, GDS............................ 78,000
10,200 Hyundai Motor Company Ltd., GDR...................... 104,550
625 Kookmin Bank, Ord.................................... 13,397
23,348 Kookmin Bank, Sponsored GDR++........................ 500,453
22,500 Korea Electric Power Corporation, Ord. .............. 671,453
10,700 Korea Electric Power Corporation, Sponsored ADR...... 199,956
4,540 Samsung Electronics Company Ltd., Ord. .............. 360,439
5,679 Samsung Electronics Company Ltd., GDS................ 152,968
-----------
2,081,216
-----------
HONG KONG -- 3.1%
132,300 Cheung Kong Infrastructure Holdings.................. 383,377
180,162 First Pacific Company................................ 227,460
</TABLE>
See Notes to Financial Statements.
66
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
INTERNATIONAL GROWTH FUND
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C>
COMMON STOCKS -- (CONTINUED)
HONG KONG -- (CONTINUED)
19,400 Guangshen Railway Ltd., ADR.......................... $ 424,375
30,500 Henderson China...................................... 51,376
237,558 Hong Kong Land Holdings.............................. 631,904
7,600 HSBC Holdings Ord. .................................. 228,570
110,000 Jiangsu Expressway Company Ltd.+..................... 39,046
-----------
1,986,108
-----------
SINGAPORE -- 3.0%
81,000 D.B.S. Land Ltd. .................................... 256,082
1,800 Development Bank of Singapore, ADR................... 90,000
41,000 Development Bank of Singapore (F).................... 516,192
41,089 Jardine Matheson Holdings............................ 291,735
74,000 Keppel Bank.......................................... 190,474
9,500 Keppel Corporation Ltd., Class A..................... 41,197
38,000 Keppel Corporation Ltd., Ord. ....................... 168,777
18,000 Singapore International Airlines Ltd. (F)............ 161,153
11,000 Singapore Press Holdings (F)......................... 221,585
-----------
1,937,195
-----------
INDIA -- 3.0%
55,600 Reliance Industries Ltd., GDS........................ 1,278,800
23,500 State Bank of India, GDR+ ++......................... 621,575
-----------
1,900,375
-----------
ISRAEL -- 2.6%
46,500 Blue Square-Israel Ltd., ADR+........................ 802,125
29,900 ECI Telecommunications Ltd., ADR..................... 889,525
-----------
1,691,650
-----------
GERMANY -- 2.3%
500 Ava Allgemeine Handels Der Verbr AG+................. 142,206
526 Bayerische Motoren Werke AG.......................... 435,229
12,500 Deutsche Bank AG..................................... 730,382
360 G.E.A. AG............................................ 141,816
-----------
1,449,633
-----------
FINLAND -- 2.1%
12,790 Huhtamaki Group, I Shares............................ 550,492
13,514 Rauma Group.......................................... 309,694
21,100 UPM-Kymmene Corporation.............................. 495,730
-----------
1,355,916
-----------
INDONESIA -- 1.7%
125,500 International Nickel of Indonesia (F)................ 247,697
158,000 PT Indosat........................................... 472,636
7,900 PT Indosat, ADR...................................... 236,506
54,000 Semen Gresik (F)..................................... 121,012
-----------
1,077,851
-----------
SWITZERLAND -- 1.4%
350 Julius Baer Holding AG, Series B..................... 535,531
243 Novartis AG.......................................... 388,281
-----------
923,812
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C>
PORTUGAL -- 1.4%
11,100 Cimpor............................................ $ 258,720
5,100 Portugal Telecommunications, ADR.................. 204,638
10,500 Portugal Telecommunications SA.................... 423,604
-----------
886,962
-----------
MEXICO -- 1.2%
24,000 Panamerican Beverages, Class A.................... 789,000
-----------
DENMARK -- 1.2%
22,000 International Service Systems AS, Class B......... 788,566
-----------
BRAZIL -- 1.2%
4,900 Telebras, Sponsored ADR........................... 743,575
-----------
ITALY -- 0.7%
79,800 ENI, Spa.......................................... 451,835
-----------
LUXEMBOURG -- 0.7%
9,100 Millicom International Cellular SA+............... 434,525
-----------
AUSTRIA -- 0.7%
2,275 VA Technologie AG................................. 416,330
-----------
THAILAND -- 0.6%
12,800 Bangkok Bank Public Company Ltd. (F).............. 91,502
14,700 Siam Cement Public Company Ltd. (F)............... 264,482
-----------
355,984
-----------
NORWAY -- 0.5%
12,700 Smedvig ASA, B Shares............................. 311,903
825 Smedvig ASA, B Shares, Sponsored ADR.............. 21,038
-----------
332,941
-----------
SOUTH AFRICA -- 0.5%
9,000 De Beers Centenary AG............................. 332,268
-----------
CHILE -- 0.4%
12,200 Banco de Edwards, ADR............................. 254,675
-----------
SPAIN -- 0.3%
4,300 Repsol SA, ADR.................................... 182,481
-----------
Total Common Stocks (Cost $51,258,195)............ 58,152,491
-----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C>
CORPORATE BONDS -- 1.3%
$ 299,000 Bangkok Bank, Convertible,
3.250% due 03/03/2004............................ 228,735
JPY17,000,000 Izumiya, Convertible,
0.800% due 08/31/1999............................ 191,930
JPY10,000,000 NEC Corporation, Convertible,
1.900% due 03/30/2001............................ 146,665
$ 310,000 Telekom Malaysia Berhad,
4.000% due 10/03/2004............................ 282,100
-----------
Total Corporate Bonds (Cost $930,620)............. 849,430
-----------
</TABLE>
See Notes to Financial Statements.
67
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
INTERNATIONAL GROWTH FUND
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C>
WARRANTS -- 0.0%#
4,700 Eaux (Cie Generale Des),
expires 05/02/2001+................................ $ 2,815
5,464 PT Bank International of Indonesia, expires
01/17/2000+........................................ 2,146
-----------
Total Warrants (Cost $1,988)........................ 4,961
-----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C>
REPURCHASE AGREEMENT -- 5.1%
(Cost $3,241,000)
$3,241,000 Agreement with State Street Bank & Trust Company,
5.800% dated 06/30/1997, to be repurchased at
$3,241,522 on 07/01/1997, collateralized by
$3,250,000 U.S. Treasury Note, 6.125% due
03/31/1998 (Market Value -- $3,306,875)............ 3,241,000
-----------
</TABLE>
<TABLE>
<CAPTION>
EXPIRATION STRIKE
DATE PRICE
---------- -------
<S> <C> <C> <C>
CALL OPTIONS PURCHASED ON STOCK INDICES -- 0.0%#
SGD 755 Singapore DBS 50 Index................ 01/22/1998 402.713 4,821
THB102,669 Thailand SET 50 Index................. 01/22/1998 2.142 559
SGD 733 Singapore DBS 50 Index................ 01/23/1998 406.912 4,161
THB102,349 Thailand SET 50 Index................. 01/23/1998 2.114 974
SGD 722 Singapore DBS 50 Index................ 01/26/1998 407.393 4,140
THB102,072 Thailand SET 50 Index................. 01/26/1998 2.478 129
SGD 137 Singapore DBS 50 Index................ 02/26/1998 404.003 1,079
THB104,575 Thailand SET 50 Index................. 01/30/1998 2.363 364
------
Total Call Options Purchased on Stock Indices (Cost
$221,046)................................................. 16,227
------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (COST $55,652,849*)........................ 97.4% 62,264,109
OTHER ASSETS AND LIABILITIES (NET)........................... 2.6 1,652,313
----- -----------
NET ASSETS................................................... 100.0% $63,916,422
===== ===========
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
+ Non-income producing security.
++ A portion or all of this security is exempt from registration under Rule
144A of the Securities Act of 1933. This security may be resold in
transactions exempt from registration, normally to qualified institutional
buyers.
# Amount represents less than 0.1% of net assets.
AS OF JUNE 30, 1997 SECTOR DIVERSIFICATION WAS AS FOLLOWS:
<TABLE>
<CAPTION>
% OF VALUE (NOTE
SECTOR DIVERSIFICATION NET ASSETS 2)
---------------------- ---------- -----------
<S> <C> <C>
COMMON STOCKS:
Financial Services...................................... 18.7% $11,941,978
Materials & Processing.................................. 16.0 10,230,383
Producer Durables....................................... 10.8 6,891,912
Telecommunications...................................... 9.6 6,121,587
Autos & Transportation.................................. 7.2 4,564,992
Technology.............................................. 6.5 4,142,718
Consumer Discretionary.................................. 4.8 3,058,153
Health Care............................................. 4.7 3,028,467
Energy.................................................. 3.3 2,131,730
Utilities............................................... 2.5 1,624,070
Retail.................................................. 2.1 1,355,358
Consumer Staples........................................ 2.0 1,295,327
Computer Software & Services............................ 1.0 609,257
Other................................................... 1.8 1,156,559
----- -----------
TOTAL COMMON STOCKS..................................... 91.0 58,152,491
OTHER INVESTMENTS....................................... 6.4 4,111,618
----- -----------
TOTAL INVESTMENTS....................................... 97.4 62,264,109
OTHER ASSETS AND LIABILITIES (NET)...................... 2.6 1,652,313
----- -----------
NET ASSETS.............................................. 100.0% $63,916,422
===== ===========
</TABLE>
See Notes to Financial Statements.
68
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
INTERNATIONAL GROWTH FUND
JUNE 30, 1997 (UNAUDITED)
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
U. S. FORWARD FOREIGN CURRENCY CONTRACTS TO BUY
<TABLE>
<CAPTION>
CONTRACTS TO RECEIVE UNREALIZED
----------------------------------- APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- ---------------- --------- ----------- --------------
<S> <C> <C> <C> <C>
07/01/1997 ZAR 439,730 96,922 97,415 $ (493)
07/23/1997 DEM 1,527,396 877,050 912,900 (35,850)
10/24/1997 JPY 616,298,200 5,470,029 5,786,838 (316,809)
10/24/1997 JPY 107,478,000 953,934 900,000 53,934
10/24/1997 JPY 308,599,200 2,739,009 2,600,000 139,009
10/24/1997 JPY 128,841,000 1,143,544 1,082,402 61,142
10/24/1997 JPY 515,350,000 4,574,050 4,213,440 360,610
--------
$261,543
--------
</TABLE>
U. S. FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
<TABLE>
<CAPTION>
CONTRACTS TO DELIVER UNREALIZED
----------------------------------- APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- ---------------- --------- ----------- --------------
<S> <C> <C> <C> <C>
07/23/1997 DEM 802,950 461,064 500,000 $ 38,936
07/23/1997 DEM 724,446 415,986 450,000 34,014
08/26/1997 JPY 466,246,990 4,102,634 4,070,000 (32,634)
08/26/1997 JPY 129,249,400 1,137,300 1,130,000 (7,300)
09/08/1997 FRF 16,380,000 2,800,430 2,829,016 28,586
10/24/1997 JPY 857,130,400 7,607,563 8,000,000 392,437
10/24/1997 JPY 375,466,000 3,332,493 3,500,000 167,507
10/24/1997 JPY 276,300,000 2,452,333 2,500,000 47,667
10/24/1997 JPY 167,670,000 1,488,175 1,500,000 11,825
--------
$681,038
--------
Net Unrealized Appreciation of Forward
Foreign Currency Contracts................. $942,581
========
</TABLE>
- --------------------------------------------------------------------------------
GLOSSARY OF TERMS
ADR -- American Depositary Receipt
DEM -- German Deutsche Mark
(F) -- Foreign or Alien Shares
FRF -- French Franc
GDR -- Global Depositary Receipt
GDS -- Global Depositary Share
JPY -- Japanese Yen
SGD -- Singapore Dollar
THB -- Thai Baht
ZAR -- South African Rand
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
69
<PAGE>
PORTFOLIO OF INVESTMENTS
CAPITAL GROWTH PORTFOLIO
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C>
INVESTMENT COMPANY SECURITIES -- 99.3%
145 Emerging Growth Fund......................................... $ 2,073
4,033 Global Money Fund............................................ 4,033
799 Growth and Income Fund....................................... 12,368
1,141 Growth Fund.................................................. 16,721
289 International Growth Fund.................................... 4,126
834 Short Term High Quality Bond Fund............................ 2,019
-------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (COST $43,711*)............................... 99.3% 41,340
OTHER ASSETS AND LIABILITIES (NET).............................. 0.7 291
----- -------
NET ASSETS...................................................... 100.0% $41,631
===== =======
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
GROWTH PORTFOLIO
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C>
INVESTMENT COMPANY SECURITIES -- 99.4%
8,682 Global Money Fund............................................ $ 8,682
1,661 Growth and Income Fund....................................... 25,710
1,483 Growth Fund.................................................. 21,726
1,207 International Growth Fund.................................... 17,206
1,339 U.S. Government Fund......................................... 13,033
-------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (COST $88,123*)............................... 99.4% 86,357
OTHER ASSETS AND LIABILITIES (NET).............................. 0.6 488
----- -------
NET ASSETS...................................................... 100.0% $86,845
===== =======
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
BALANCED PORTFOLIO
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C>
INVESTMENT COMPANY SECURITIES -- 99.6%
58,698 Global Money Fund............................................ $ 58,698
5,649 Growth and Income Fund....................................... 87,441
3,070 Growth Fund.................................................. 44,978
3,125 International Growth Fund.................................... 44,558
6,031 U.S. Government Fund......................................... 58,685
--------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (COST $308,925*)............................. 99.6% 294,360
OTHER ASSETS AND LIABILITIES (NET)............................. 0.4 1,090
----- --------
NET ASSETS..................................................... 100.0% $295,450
===== ========
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
See Notes to Financial Statements.
70
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
THE SIERRA VARIABLE TRUST
1. ORGANIZATION AND BUSINESS
The Sierra Variable Trust (the "Trust") was organized under the laws of the
Commonwealth of Massachusetts on January 29, 1993 as a business entity commonly
known as a "Massachusetts business trust". The Trust is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a no-load,
open-end management investment company. The Trust offers fourteen managed
investment funds, consisting of nine funds: the Global Money Fund (the "Money
Fund"); the Short Term High Quality Bond, Short Term Global Government, U.S.
Government and Corporate Income Funds (the "Bonds Funds"); the Growth and
Income, Growth, Emerging Growth and International Growth Funds (the "Equity
Funds"); (collectively the "Funds" or "Underlying Funds") and five portfolios:
Capital Growth, Growth, Balanced, Value and Income Portfolios (individually a
"Portfolio" and collectively the "Portfolios"), to the public through certain
variable annuity contracts offered by American General Life Insurance Company
("AG Life"). As of June 30, 1997, the Value and Income Portfolios had not
commenced operations. Through investment in the Underlying Funds, the
Portfolios offer a range of asset allocation strategies designed to accommodate
different investment philosophies and goals.
The Money Fund invests directly in money market instruments of foreign and U.S.
issuers. The Bond Funds and the Equity Funds invest directly in securities or
other financial instruments. Each Portfolio of the Trust invests, within
predetermined percentage ranges, in up to nine of the Underlying Funds of the
Trust. In order to achieve its investment objective, each Portfolio typically
allocates its assets, within determined percentage ranges, among certain of the
Underlying Funds. The percentages reflect the extent to which each Portfolio
will invest in the particular market segment represented by each Underlying
Fund, and the varying degrees of potential investment risk and reward
represented by each Portfolios' investments in those market segments and their
corresponding Underlying Funds. Sierra Investment Services Corporation ("Sierra
Services") may alter these percentage ranges when it deems appropriate. The
assets of each Portfolio will be allocated among the Underlying Funds in
accordance with its investment objective, Sierra Services' outlook for the
economy and the financial markets and the relative market valuations of the
Underlying Funds. In addition, generally in order to meet liquidity needs or
for temporary defensive purposes, each Portfolio may invest its assets directly
in cash, stock or bond index futures, options, money market securities and
certain short-term debt instruments.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Funds and
Portfolios in the preparation of their financial statements.
PORTFOLIO VALUATION:
Money Fund: The investments of the Money Fund are valued on the basis of
amortized cost so long as the Trust's Board of Trustees (the "Board of
Trustees") determines that this method constitutes fair value. Amortized cost
involves valuing a portfolio instrument at its cost initially, and, thereafter,
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. The Money Fund attempts to maintain a constant net asset value
of $1.00 per share.
Bond Funds and Equity Funds: A security that is primarily traded on a United
States ("U.S.") or foreign exchange (including securities traded through the
NASDAQ National Market System) is valued at the last sale price on that
exchange or, if there were no sales during the day, at the current quoted bid
price. Portfolio securities that are primarily traded on foreign exchanges are
generally valued at the most recent closing values of such securities on their
respective exchanges. However, when an occurrence subsequent to the time a
value was so established is likely to have changed the value, then the fair
value of those securities will be determined in good faith through
consideration of other factors by or under the direction of the Board of
Trustees or its delegates. Over-the-counter securities that are not traded
through the NASDAQ National Market System and securities listed or traded on
certain foreign exchanges whose operations are similar to the U.S. over-the-
counter market, are valued on the basis of the bid price at the close of
business on each day. Investments in U.S. Government securities (other than
short-term securities) are valued at the average of the quoted bid and asked
prices in the over-the-counter market. The current market value of an option is
the last price on the principal exchange on which such option is traded or, in
the absence of a sale, is the mean between the last bid and offering price. 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 issued 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 value to be
determined by or under the direction of the Board of Trustees. Short-term
investments that mature
71
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
THE SIERRA VARIABLE TRUST
in 60 days or less are valued at amortized cost; such investments denominated
in foreign currencies are stated at amortized cost as determined in the foreign
currency, translated to U.S. dollars at the current day's exchange rate.
Corporate debt securities and debt securities of U.S. issuers (other than U.S.
Government securities and short-term investments) are valued by an independent
pricing service which utilizes market quotations and transactions, quotations
from dealers and various relationships among securities in determining value.
If not valued by a pricing service, such securities are valued at prices
obtained from independent brokers. Investments with prices that cannot be
readily obtained, if any, are carried at fair value as determined in good faith
under consistently applied procedures established by and under the supervision
of the Board of Trustees.
The Capital Growth Portfolio, Growth Portfolio and Balanced Portfolio are
valued at their net asset value per share of each Underlying Fund determined as
of the close of the New York Stock Exchange on the valuation date.
REPURCHASE AGREEMENTS:
Each Fund or Portfolio may engage in repurchase agreement transactions. Under
the terms of a typical repurchase agreement, the Fund or Portfolio through its
custodian, takes possession of an underlying debt obligation subject to an
obligation of the seller to repurchase, and the Fund or Portfolio to resell,
the obligation at an agreed upon price and time, thereby determining the yield
during the Fund's or Portfolio's holding period. This arrangement results in a
fixed rate of return that is not subject to market fluctuations during the
Fund's or Portfolio's holding period. The value of the collateral is at least
equal at all times to the total amount of the repurchase obligation, including
interest. In the event of counterparty default, the Fund or Portfolio has the
right to use the collateral to offset losses incurred. There is potential loss
to the Fund or Portfolio in the event the Fund or Portfolio is delayed or
prevented from exercising its right to dispose of the collateral securities,
including the risk of a possible decline in the value of the underlying
securities during the period while the Fund or Portfolio seeks to assert its
rights. Each Fund's respective Sub-advisor, acting under the supervision of the
Trust's investment advisor, Sierra Investment Advisors Corporation ("Sierra
Advisors") and the Board of Trustees, reviews the value of the collateral and
the creditworthiness of those banks and dealers with which the Fund enters into
repurchase agreements to evaluate potential risks. Sierra Services, the
Portfolios' investment advisor, acting under the supervision of the Board of
Trustees, reviews the value of the collateral and the creditworthiness of those
banks and dealers with which the Portfolio enters into repurchase agreements to
evaluate potential risks.
REVERSE REPURCHASE AGREEMENTS:
Except for the Money Fund, all Funds and Portfolios may engage in reverse
repurchase agreements. Reverse repurchase agreements are the same as repurchase
agreements except that, in this instance, the Funds or Portfolios would assume
the role of seller/borrower in the transaction. The Funds or Portfolios may use
reverse repurchase agreements to borrow short term funds. The value of the
reverse repurchase agreements that the Funds or Portfolios have committed to
sell are reflected in the Funds' or Portfolios' Statements of Assets and
Liabilities. The Funds or Portfolios will maintain segregated accounts with the
Trust's custodian consisting of U.S. Government securities, cash or money
market instruments that at all times are in an amount equal to their
obligations under reverse repurchase agreements. Reverse repurchase agreements
involve the risks that the market value of the securities sold by the Funds or
Portfolios may decline below the repurchase price of the securities and, if the
proceeds from the reverse repurchase agreement are invested in securities, that
the market value of the securities bought may decline below the repurchase
price of the securities sold.
OPTION CONTRACTS:
All Funds, except the Money Fund, may engage in option contracts. The Funds may
use option contracts to manage their exposure to the stock and bond markets and
to fluctuations in interest rates and currency values. The underlying principal
amounts and option values are shown in the Portfolio of Investments under the
captions "Put Options Purchased on Foreign Currency," "Call Options Purchased
on Stock Indices" and "Call Options Written on Foreign Currency". These amounts
reflect each contract's exposure to the underlying instrument at June 30, 1997.
Writing puts and buying calls tends to increase the Funds' exposure to the
underlying instrument. Buying puts and writing calls tends to decrease the
Funds' exposure to the underlying instrument or to hedge other Fund
investments.
Upon the purchase of a put option or a call option by the Funds, the premium
paid is recorded as an investment, the value of which is marked-to-market
daily. When a purchased option expires, the Funds will realize a loss in the
amount of the cost of
72
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
THE SIERRA VARIABLE TRUST
the option. When the Funds enter into a closing sale transaction, the Funds
will realize a gain or loss depending on whether the sales proceeds from the
closing sale transaction are greater or less than the cost of the option. When
the Funds exercise a put option, they will realize a gain or loss from the sale
of the underlying security and the proceeds from such sale will be decreased by
the premium originally paid. When the Funds exercise a call option, the cost of
the security which the Funds purchase upon exercise will be increased by the
premium originally paid.
When the Funds write a call option or a put option, an amount equal to the
premium received by the Funds are recorded as a liability, the value of which
is marked-to-market daily. When a written option expires, the Funds realize a
gain equal to the amount of the premium received. When the Funds enter into a
closing purchase transaction, the Funds realize a gain (or loss if the cost of
the closing purchase transaction exceeds the premium received when the option
was sold) without regard to any unrealized gain or loss on the underlying
security, and the liability related to such option is eliminated. When a
written call option is exercised, the Funds realize a gain or loss from the
sale of the underlying security and the proceeds from such sale are increased
by the premium originally received. When a written put option is exercised, the
amount of the premium originally received will reduce the cost of the security
that the Funds purchased upon exercise.
The risk associated with purchasing options is limited to the premium
originally paid. Options written by a Fund involve, to varying degrees, risk of
loss in excess of the option value reflected in the Statements of Assets and
Liabilities. The risk in writing a covered call option is that the Funds may
forego the opportunity of profit if the market price of the underlying security
increases and the option is exercised. The risk in writing a covered put option
is that the Funds may incur a loss if the market price of the underlying
security decreases and the option is exercised. In addition, there is the risk
the Funds may not be able to enter into a closing transaction because of an
illiquid secondary market or, for over-the-counter options, because of a
counterparty's inability to perform.
The Short Term High Quality Bond, Short Term Global Government, Growth and
International Growth Funds may engage in options on foreign currency and
options on interest rate futures as a hedge to provide protection against
adverse movements in the value of foreign securities in the portfolio.
Certain risks are associated with the use of options on foreign currency and
options on interest rate futures contracts as hedging devices. The predominant
risk is that the movement in the price of the instrument underlying such
options may not correlate perfectly with the movement in the prices of the
assets being hedged. The lack of correlation could render the Funds' hedging
strategy unsuccessful and could result in a loss to the Funds. In addition,
there is the risk that the Funds may not be able to enter into a closing
transaction because of an illiquid secondary market or, for over-the-counter
options, because of the counterparty's inability to perform. Options written by
a Fund involve, to varying degrees, risk of loss in excess of the option value
reflected in the Statements of Assets and Liabilities.
FUTURES CONTRACTS:
Except for the Money Fund, all Funds and Portfolios may engage in futures
transactions. The Funds and Portfolios may use futures contracts to manage
their exposure to the stock and bond markets and to fluctuations in interest
rates and currency values. The underlying value of a futures contract is
incorporated within the unrealized appreciation/(depreciation) shown in the
Portfolio of Investments under the caption "Futures Contracts". This amount
reflects each contract's exposure to the underlying instrument at June 30,
1997. Buying futures contracts tends to increase the Fund's or Portfolio's
exposure to the underlying instrument. Selling futures contracts tends to
either decrease the Fund's or Portfolio's exposure to the underlying
instrument, or to hedge other Fund or Portfolio investments.
Upon entering into a futures contract, the Fund or Portfolio is required to
deposit with the broker an amount of cash or cash equivalents equal to a
certain percentage of the contract amount. This is known as the "initial
margin". Subsequent payments ("variation margin") are made or received by the
Fund or Portfolio each day, depending on the daily fluctuation of the value of
the contract. The daily changes in contract value are recorded as unrealized
gains or losses and the Fund or Portfolio recognizes a realized gain or loss
when the contract is closed. Futures contracts are valued at the settlement
price established by the board of trade or exchange on which they are traded.
There are several risks in connection with the use of futures contracts as a
hedging device. Futures contracts involve, to varying degrees, risk of loss in
excess of the futures variation margin reflected in the Statements of Assets
and Liabilities. The change in the value of futures contracts primarily
corresponds with the value of their underlying instruments, which may not
correlate with the change in the value of the hedged instruments. In addition,
there is the risk that the Fund or Portfolio may not be able to enter into a
closing transaction because of an illiquid secondary market.
73
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
THE SIERRA VARIABLE TRUST
FOREIGN CURRENCY:
The books and records of the Funds and Portfolios are maintained in U.S.
dollars. Foreign currencies, investments and other assets and liabilities are
translated into U.S. dollars at the exchange rates prevailing at the end of the
period, and purchases and sales of investment securities, income and expenses
are translated on the respective dates of such transactions. It is not
practicable to isolate that portion of the results of operations arising as a
result of changes in the foreign exchange rates from the portion that arises
from changes in market prices of investments during the period. Accordingly,
all such changes have been reflected as net gain/(loss) from security
transactions in the Statements of Operations.
Unrealized gains and losses, not relating to securities, which result from
changes in foreign currency exchange rates have been included in unrealized
appreciation/(depreciation) of foreign currency and other assets and
liabilities. Unrealized gains and losses of securities, which result from
changes in foreign currency exchange rates as well as changes in market prices
of securities, have been included in unrealized appreciation/(depreciation) of
securities. Net realized foreign currency gains and losses include foreign
currency gains and losses resulting from changes in exchange rates between
trade date and settlement date on investment securities transactions, gains and
losses on foreign currency transactions and the difference between the amounts
of interest and dividends recorded on the books of the Funds and the amount
actually received. The portion of foreign currency gains and losses related to
fluctuation in exchange rates between the initial purchase trade date and
subsequent sale trade date is included in realized gain/(loss) from security
transactions.
FORWARD FOREIGN CURRENCY CONTRACTS:
The Short Term High Quality Bond, Short Term Global Government, Corporate
Income, Growth and Income, Growth, Emerging Growth and International Growth
Funds may enter into forward foreign currency contracts. Forward foreign
currency contracts are agreements to exchange one currency for another at a
future date and at a specified price. The Funds may use forward foreign
currency contracts to facilitate transactions in foreign securities and to
manage the Funds' foreign currency exposure. The U.S. dollar market value,
contract value and the foreign currencies the Funds have committed to buy or
sell are shown in the Portfolio of Investments under the caption "Schedule of
Forward Foreign Currency Contracts". These amounts represent the aggregate
exposure to each foreign currency the Funds have acquired or hedged through
forward foreign currency contracts at June 30, 1997. Forward foreign currency
contracts are reflected as both a forward foreign currency contract to buy and
a forward foreign currency contract to sell. Forward foreign currency contracts
to buy generally are used to acquire exposure to foreign currencies, while
forward foreign currency contracts to sell are used to hedge the Funds'
investments against currency fluctuations. Also, a forward foreign currency
contract to buy or sell can offset a previously acquired opposite forward
foreign currency contract.
Forward foreign currency contracts are marked-to-market daily using foreign
currency exchange rates supplied by an independent pricing service. The change
in a contract's market value is recorded by the Funds as an unrealized gain or
loss. When the contract is closed or delivery is taken, the Funds record a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
The use of forward foreign currency contracts does not eliminate fluctuations
in the underlying prices of the Fund's securities, but it does establish a rate
of exchange that can be achieved in the future. These forward foreign currency
contracts involve market risk in excess of the unrealized
appreciation/(depreciation) of forward foreign currency contracts reflected in
the Funds' Statements of Assets and Liabilities. Although forward foreign
currency contracts used for hedging purposes limit the risk of loss due to a
decline in the value of the hedged currency, they also limit any potential gain
that might result should the value of the currency increase. In addition, the
Funds could be exposed to risks if the counterparties to the contracts are
unable to meet the terms of their contracts. The Fund's Sub-advisor will enter
into forward foreign currency contracts only with parties approved by the Board
of Trustees because there is a risk of loss to the Funds if the counterparties
do not complete the transaction.
DOLLAR ROLL TRANSACTIONS:
The Short Term High Quality Bond, Short Term Global Government, U.S. Government
and Corporate Income Funds, in order to seek a high level of current income,
may enter into dollar roll transactions with financial institutions to take
advantage of opportunities in the mortgage market. The value of the dollar roll
transactions are reflected in the Funds' Statements of Assets and Liabilities.
A dollar roll transaction involves a sale by the Funds of securities that they
hold with an agreement by the Funds to repurchase similar securities at an
agreed upon price and date. The securities repurchased will bear the same
interest as those sold, but generally will be collateralized at time of
delivery by different pools of mortgages with different prepayment
74
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
THE SIERRA VARIABLE TRUST
histories than those securities sold. The Funds are paid a fee for entering
into a dollar roll transaction, that is accrued as income over the life of the
dollar roll contract. During the period between the sale and repurchase, the
Funds will not be entitled to receive interest and principal payments on the
securities sold. Management anticipates that the proceeds of the sale will be
invested in additional instruments for the Funds, and the income from these
investments, together with any additional fee income received on the dollar
roll transaction will generate income for the Funds exceeding the interest that
would have been earned on the securities sold. Dollar roll transactions involve
the risk that the market value of the securities sold by the Funds may decline
below the repurchase price of those similar securities which the Fund is
obligated to purchase or that the return earned by the Fund with the proceeds
of a dollar roll may not exceed transaction costs.
INDEXED SECURITIES:
Each of the Funds, except for the Money Fund, may invest in indexed securities
whose value is linked either directly or inversely to changes in foreign
currencies, interest rates, commodities, inflation, indices, or other reference
instruments. Indexed securities may be more volatile than the reference
instrument itself, but any loss is limited to the amount of the original
investment.
ILLIQUID INVESTMENTS:
Up to 15% of the assets of each Bond and Equity Fund, and up to 10% of the
assets of the Money Fund, may be invested in securities that are not readily
marketable, including: (1) repurchase agreements with maturities greater than
seven calendar days; (2) time deposits maturing in more than seven calendar
days; (3) except for the Money Fund, to the extent a liquid secondary market
does not exist for the instruments, futures contracts and options thereon; (4)
certain over-the-counter options; (5) for the Money Fund and Growth and Income
Fund certain variable rate demand notes having a demand period of more than
seven days; and (6) securities, the disposition of which are restricted under
Federal securities laws, excluding certain Rule 144A securities as defined
below.
Illiquid securities generally cannot be sold or disposed of in the ordinary
course of business within seven days at approximately the value at which the
Funds have valued the investments. This may have an adverse effect on the
Fund's ability to dispose of particular illiquid securities at fair market
value and may limit the Fund's ability to obtain accurate market quotations for
purposes of valuing the securities and calculating the net asset value of
shares of the Fund. The Funds may also purchase securities that are not
registered under the Securities Act of 1933, as amended (the "Act"), but that
can be sold to qualified institutional buyers in accordance with Rule 144A
under the Act ("Rule 144A securities"). Rule 144A securities generally may be
resold only to other qualified institutional buyers. If a particular investment
in Rule 144A securities is not determined to be liquid under guidelines
established by the Board of Trustees, that investment will be included within
the 15% or 10% limitation, as applicable, on investment in illiquid securities.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are recorded as of the trade date (the date the order
to buy or sell is executed). Realized gains and losses from securities sold are
recorded on the identified cost basis. Interest income is recorded on the
accrual basis and consists of interest accrued and, if applicable, discount
earned less premiums amortized. Dividend income is recorded on the ex-dividend
date, except that certain dividends from foreign securities are recorded as
soon as the Funds are informed of the ex-dividend date.
Securities purchased or sold on a when-issued or delayed-delivery basis may be
settled a month or more after the trade date; interest income is not accrued
until settlement date. Each Fund instructs the custodian to segregate assets of
the Fund in a separate account with a current value at least equal to the
amount of its when-issued purchase commitments.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income of the Money Fund are declared daily and
paid monthly. Dividends from net investment income of the Bond Funds and each
of the Balanced, Value and Income Portfolios are declared and paid quarterly.
Dividends from net investment income of the Equity Funds and the Capital Growth
and Growth Portfolios are declared and paid annually. Distributions of any net
long-term capital gains earned by a Fund or Portfolio are made annually.
Distributions of any net short-term capital gains earned by a Fund or Portfolio
are distributed no less frequently than annually at the discretion of the Board
of Trustees. Income distributions and capital gain distributions are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
75
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
THE SIERRA VARIABLE TRUST
differing treatments of income and gains on various investment securities held
by the Funds or Portfolios, timing differences and differing characterization
of distributions made by each Fund or Portfolio as a whole.
FEDERAL INCOME TAXES:
It is each Fund's and Portfolio's policy to qualify as a regulated investment
company by complying with the requirements of the Internal Revenue Code of
1986, as amended, applicable to regulated investment companies and by, among
other things, distributing substantially all of its taxable and tax-exempt
earnings to its shareholders. Therefore, no Federal income tax provision is
required.
EXPENSES:
Expenses that are directly related to one of the Funds or Portfolios are
charged directly to that Fund or Portfolio. General expenses of the Trust are
allocated to the Funds or Portfolios based upon the relative net assets of each
Fund or Portfolio. In addition, the Portfolios will indirectly bear their
prorated share of expenses of the Underlying Funds.
OTHER:
The Corporate Income Fund may purchase floating rate, inverse floating rate and
variable rate obligations. Floating rate obligations have an interest rate that
changes whenever there is a change in the external interest rate, while
variable rate obligations provide for a specified periodic adjustment in the
interest rate. The interest rate on an inverse floating rate obligation (an
"inverse floater") can be expected to move in the opposite direction from the
market rate of interest to which the inverse floater is indexed. The Fund may
purchase floating rate, inverse floating rate and variable rate obligations
that carry a demand feature which would permit the Fund to tender them back to
the issuer or remarketing agent at par value prior to maturity. Frequently,
floating rate, inverse floating rate and variable rate obligations are secured
by letters of credit or other credit support arrangements provided by banks.
The Corporate Income Fund may purchase mortgage-backed securities that are
floating rate, inverse floating rate and variable rate obligations. The Money
Fund and Growth and Income Fund may purchase variable rate demand notes.
Although variable rate demand notes are frequently not rated by credit rating
agencies, unrated notes purchased by the Funds will be of comparable quality at
the time of purchase to rated instruments that may be purchased by such Fund,
as determined by such Fund's Sub-advisor. Moreover, while there may be no
active secondary market with respect to a particular variable rate demand note
purchased by a Fund, the Fund may, upon the notice specified in the note,
demand payment of the principal of and accrued interest on the note at any time
and may resell the note at any time to a third party. The absence of such an
active secondary market, however, could make it difficult for a Fund to dispose
of a particular variable rate demand note in the event the issuer of the note
defaulted on its payment obligations, and the Fund could, for this or other
reasons, suffer a loss to the extent of the default.
An inverse floater may be considered to be leveraged to the extent that its
interest rate varies by a magnitude that exceeds the magnitude of the change in
the index rate of interest. The higher degree of leverage inherent in inverse
floaters is associated with greater volatility in their market values.
Accordingly, the duration of an inverse floater may exceed its stated final
maturity. Inherent in these instruments is the risk of potential loss should
the Fund be delayed or prevented from exercising the put feature.
3. INVESTMENT ADVISORY, SUB-ADVISORY, ADMINISTRATION FEES AND OTHER
TRANSACTIONS
Sierra Advisors, an indirect wholly-owned subsidiary of Great Western Financial
Corporation ("GWFC"), a publicly held corporation, serves as investment advisor
to the Funds. Sierra Services, a wholly-owned subsidiary of Sierra Capital
Management Corporation ("SCMC"), which is a wholly-owned subsidiary of GWFC,
serves as investment advisor of each of the Portfolios. J.P. Morgan Investment
Management Inc. ("J.P. Morgan"), a wholly-owned subsidiary of J.P. Morgan & Co.
Incorporated, a publicly traded company, serves as the Sub-advisor to the Money
Fund and Growth and Income Fund. Scudder, Stevens & Clark, Inc. ("Scudder"), a
privately held corporation, serves as the Sub-advisor to the Short Term High
Quality Bond and Short Term Global Government Funds. BlackRock Financial
Management, Inc. ("BlackRock"), an indirect wholly-owned subsidiary of PNC
Bank, N.A., an indirect wholly-owned subsidiary of PNC Bank Corp. ("PNC"), a
publicly traded multi-bank holding company, serves as the Sub-advisor to the
U.S. Government Fund. TCW Funds Management, Inc. ("TCW"), a wholly-owned
subsidiary of The TCW Group, Inc., a privately held company, serves as the Sub-
advisor to the Corporate Income Fund. Janus Capital Corporation ("Janus"), an
indirect majority-owned subsidiary of Kansas City Southern Industries, Inc.,
which is a publicly traded holding company, serves as the Sub-advisor to the
Growth and Emerging Growth
76
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
THE SIERRA VARIABLE TRUST
Funds. Warburg, Pincus Counsellors, Inc. ("Warburg"), a privately held
corporation, serves as the Sub-advisor to the International Growth Fund. Each
of the foregoing sub-advisors is referred to individually as a "Sub-advisor"
and collectively as the "Sub-advisors".
The Trust pays Sierra Advisors a monthly fee, in arrears, based on a percentage
of the average daily net assets of each Fund during the month, out of which
Sierra Advisors pays the Sub-advisor of each Fund a monthly fee, in arrears, at
annual rates as follows:
<TABLE>
<CAPTION>
FEES ON
ASSETS EQUAL TO FEES ON
OR LESS THAN ASSETS EXCEEDING
NAME OF FUND $500 MILLION $500 MILLION
------------ --------------- ----------------
<S> <C> <C>
Global Money Fund
Sierra Advisors.......... .35% .25%
Sub-advisor.............. .15% .15%
--- ---
Total fees paid to
Sierra Advisors*....... .50% .40%
=== ===
<CAPTION>
FEES ON
ASSETS EXCEEDING
FEES ON $200 MILLION AND FEES ON
ASSETS EQUAL TO EQUAL TO OR ASSETS
OR LESS THAN LESS THAN EXCEEDING
$200 MILLION $500 MILLION $500 MILLION
--------------- ---------------- ------------
<S> <C> <C> <C>
Short Term High Quality
Bond Fund
Sierra Advisors.......... .35% .35% .30%
Sub-advisor.............. .15% .10% .10%
--- --- ---
Total fees paid to
Sierra Advisors*....... .50% .45% .40%
=== === ===
Short Term Global
Government Fund
Sierra Advisors.......... .47% .65% .55%
Sub-advisor.............. .28% .10% .10%
--- --- ---
Total fees paid to
Sierra Advisors*....... .75% .75% .65%
=== === ===
</TABLE>
<TABLE>
<CAPTION>
WHEN "COMBINED ASSETS"**
WHEN "COMBINED ASSETS"** ARE EXCEED $650 MILLION
EQUAL TO OR LESS THAN $650 AND ARE EQUAL TO OR LESS WHEN "COMBINED ASSETS"**
MILLION THAN $1 BILLION EXCEED $1 BILLION
---------------------------- ---------------------------- ----------------------------
FEES ON FEES ON FEES ON FEES ON FEES ON FEES ON
ASSETS EQUAL TO ASSETS ASSETS EQUAL TO ASSETS ASSETS EQUAL TO ASSETS
OR LESS THAN EXCEEDING OR LESS THAN EXCEEDING OR LESS THAN EXCEEDING
$500 MILLION $500 MILLION $500 MILLION $500 MILLION $500 MILLION $500 MILLION
--------------- ------------ --------------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government Fund
Sierra Advisors........ .415% .315% .45% .35% .50% .40%
Sub-advisor**.......... .185% .185% .15% .15% .10% .10%
---- ---- --- --- --- ---
Total fees paid to
Sierra Advisors*..... .600% .500% .60% .50% .60% .50%
==== ==== === === === ===
</TABLE>
<TABLE>
<CAPTION>
FEES ON FEES ON
ASSETS EQUAL TO ASSETS
OR LESS THAN EXCEEDING
$500 MILLION $500 MILLION
--------------- ------------
<S> <C> <C>
Corporate Income Fund
Sierra Advisors............................. .35% .25%
Sub-advisor................................. .30% .25%
--- ---
Total fees paid to Sierra Advisors*........ .65% .50%
=== ===
</TABLE>
77
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
THE SIERRA VARIABLE TRUST
<TABLE>
<CAPTION>
FEES ON FEES ON FEES ON
ASSETS EXCEEDING ASSETS EXCEEDING ASSETS EXCEEDING
FEES ON $100 MILLION AND $200 MILLION AND $400 MILLION AND FEES ON
ASSETS EQUAL TO EQUAL TO OR LESS EQUAL TO OR LESS EQUAL TO OR LESS ASSETS
OR LESS THAN THAN $200 THAN $400 THAN $500 EXCEEDING
NAME OF FUND $100 MILLION MILLION MILLION MILLION $500 MILLION
------------ --------------- ---------------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Growth and Income Fund
Sierra Advisors........ .35% .35% .35% .35% .275%
Sub-advisor............ .45% .40% .35% .30% .300%
--- --- --- --- ----
Total fees paid to
Sierra Advisors*..... .80% .75% .70% .65% .575%
=== === === === ====
</TABLE>
<TABLE>
<CAPTION>
FEES ON
ASSETS EQUAL TO FEES ON
OR LESS THAN ASSETS EXCEEDING
$25 MILLION $25 MILLION
--------------- ----------------
<S> <C> <C>
Growth Fund
Sierra Advisors.......... .40% .375%
Sub-advisor.............. .55% .500%
--- ----
Total fees paid to
Sierra Advisors*....... .95% .875%
=== ====
<CAPTION>
FEES ON
ASSETS EXCEEDING
FEES ON $25 MILLION FEES ON
ASSETS EQUAL TO AND EQUAL TO ASSETS
OR LESS THAN OR LESS THAN EXCEEDING
$25 MILLION $500 MILLION $500 MILLION
--------------- ---------------- ------------
<S> <C> <C> <C>
Emerging Growth Fund
Sierra Advisors.......... .35% .35% .25%
Sub-advisor.............. .55% .50% .50%
--- ---- ---
Total fees paid to
Sierra Advisors*....... .90% .85% .75%
=== ==== ===
<CAPTION>
FEES ON
ASSETS EXCEEDING
FEES ON $50 MILLION FEES ON
ASSETS EQUAL TO AND EQUAL TO ASSETS
OR LESS THAN OR LESS THAN EXCEEDING
$50 MILLION $125 MILLION $125 MILLION
--------------- ---------------- ------------
<S> <C> <C> <C>
International Growth Fund
Sierra Advisors.......... .45% .35% .25%
Sub-advisor.............. .50% .50% .50%
--- ---- ---
Total fees paid to
Sierra Advisors*....... .95% .85% .75%
=== ==== ===
</TABLE>
------------
* Sierra Advisors retains only the net amount of the fees after sub-
advisory fees have been paid.
** The monthly fee paid to BlackRock is based upon the combined average
daily net assets of the U.S. Government Fund and the Sierra Trust
Fund's U.S. Government Fund (together, the "Combined Assets").
As investment advisor to the Portfolios, Sierra Services provides its
proprietary asset allocation services to the Portfolios, formulates the
Portfolios' investment policies, analyzes economic and market trends, exercises
investment discretion over the assets of the Portfolios and monitors the
allocation of each Portfolio's assets and each Portfolio's performance. For its
investment advisory services to the Portfolios, Sierra Services is entitled to
a fee, which is calculated daily and paid monthly, at an annual rate of 0.10%
of each Portfolio's average daily net assets.
Sierra Advisors, certain Sub-advisors, and Sierra Services may voluntarily
waive fees payable to them from time to time. Any fee waivers by a Sub-advisor
may be retained by Sierra Advisors, or Sierra Advisors may pass part or all of
such fee waivers through to the Funds.
78
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
THE SIERRA VARIABLE TRUST
Fees voluntarily waived by Sierra Advisors for the six months ended June 30,
1997 are as follows:
<TABLE>
<CAPTION>
NAME OF FUND FEES WAIVED
------------ -----------
<S> <C>
Global Money Fund............................................. $29,077
Short Term High Quality Bond Fund............................. 5,750
</TABLE>
Sierra Fund Administration Corporation ("Sierra Administration"), an indirect
wholly-owned subsidiary of GWFC, serves as administrator to each Fund and
Portfolio. First Data Investor Services Group, Inc., a wholly-owned subsidiary
of First Data Corporation, serves as sub-administrator and transfer agent to
each Fund and Portfolio. For its services as administrator, each Fund or
Portfolio pays Sierra Administration a monthly fee at an annual rate of .18%
and .15%, respectively, of the value of each Fund's or Portfolio's average
daily net assets. Out of its fee, Sierra Administration pays First Data
Investor Services Group, Inc. for its services as sub-administrator. The Trust
pays First Data Investor Services Group, Inc. certain out-of-pocket expenses as
transfer agent. Separately, the Trust pays First Data Investor Services Group,
Inc. for its services as transfer agent.
Fees voluntarily waived by Sierra Administration for the six months ended June
30, 1997 are as follows:
<TABLE>
<CAPTION>
NAME OF FUND FEES WAIVED
------------ -----------
<S> <C>
Capital Growth Portfolio...................................... $3,639
Growth Portfolio.............................................. 3,638
Balanced Portfolio............................................ 3,629
</TABLE>
The Trust also pays Boston Safe Deposit and Trust Company ("Boston Safe"), the
Trust's custodian, certain custodial transaction charges. Boston Safe is a
wholly-owned subsidiary of Mellon Bank Corporation.
Custodian fees have been reduced by credits allowed by Boston Safe for the six
months ended June 30, 1997 as follows:
<TABLE>
<CAPTION>
CREDITS
ALLOWED BY THE
NAME OF FUND CUSTODIAN
------------ --------------
<S> <C>
Global Money Fund.......................................... $ 26
Short Term High Quality Bond Fund.......................... 248
Short Term Global Government Fund.......................... 237
U.S. Government Fund....................................... 1,884
Corporate Income Fund...................................... 17
Growth and Income Fund..................................... 525
Growth Fund................................................ 2,538
Emerging Growth Fund....................................... 1,123
International Growth Fund.................................. 557
Capital Growth Portfolio................................... 8
Growth Portfolio........................................... 27
Balanced Portfolio......................................... 8
</TABLE>
4. TRUSTEES' FEES
No director, officer or employee of Great Western Financial Securities
Corporation ("GW Securities"), a registered broker-dealer, Sierra Services, a
registered investment adviser and broker-dealer and the Trust's distributor,
Sierra Advisors, Sierra Administration, the Sub-advisors or First Data Investor
Services Group, Inc., or any of their affiliates receives any compensation from
the Trust for serving as an officer or Trustee of the Trust. GW Securities is a
wholly-owned subsidiary and Sierra Services is an indirect wholly-owned
subsidiary of GWFC. The Trust pays each Trustee who is not a director, officer
or employee of GW Securities, Sierra Services, Sierra Advisors, Sierra
Administration, the Sub-advisors or First Data Investor Services Group, Inc.,
or any of their affiliates, $5,000 per annum plus $1,250 per board meeting
attended, $1,000 per audit and/or nominating committee meeting attended and
reimbursement for travel and out-of-pocket expenses. The Lead Trustee receives
one and a half times the normal Trustee's compensation. The Chairman of the
Audit Committee receives $1,500 per audit committee meeting attended.
For the six months ended June 30, 1997, Sierra Advisors paid Trustees fees in
the amount of $39,000 for all special meetings held with regard to the
contemplation of the sale of Sierra Capital Management Corporation, as well as,
to the proposed merger between GWFC and Washington Mutual, Inc. ("Washington
Mutual").
79
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
THE SIERRA VARIABLE TRUST
Pursuant to an exemptive order granted by the Securities and Exchange
Commission, the Trust's eligible Trustees may participate in a deferred
compensation plan (the "Plan") which may be terminated at any time. Under the
Plan, Trustees may elect to defer receipt of all or a portion of their fees
which, in accordance with the Plan, are invested in mutual fund shares. Upon
termination of the Plan, Trustees that have deferred accounts under the Plan
will be paid benefits no later than the time the payments would otherwise have
been made without regard to such termination. All benefits provided under these
plans are funded and any payments to plan participants are paid solely out of
the Trust's assets.
5. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities,
excluding U.S. Government and short-term investments, for the six months ended
June 30, 1997 were as follows:
<TABLE>
<CAPTION>
NAME OF FUND PURCHASES SALES
------------ ----------- -----------
<S> <C> <C>
Short Term High Quality Bond Fund................ $ 301,313 $ 999,814
Short Term Global Government Fund................ 7,976,115 7,561,621
U.S. Government Fund............................. 12,039,463 4,764,971
Corporate Income Fund............................ 1,998,490 9,150,621
Growth and Income Fund........................... 52,907,685 38,253,209
Growth Fund...................................... 76,037,994 96,518,437
Emerging Growth Fund............................. 23,890,970 33,656,410
International Growth Fund........................ 23,074,794 30,161,894
Capital Growth Portfolio......................... 43,711 --
Growth Portfolio................................. 88,213 --
Balanced Portfolio............................... 308,925 --
</TABLE>
The aggregate cost of purchases and proceeds from sales of U.S. Government
securities, excluding short-term investments, for the six months ended June 30,
1997 were as follows:
<TABLE>
<CAPTION>
NAME OF FUND PURCHASES SALES
------------ ----------- ------------
<S> <C> <C>
Short Term High Quality Bond Fund............... $ 1,558,524 $ 878,285
Short Term Global Government Fund............... -- 930,425
U.S. Government Fund............................ 88,177,265 100,208,653
Corporate Income Fund........................... 8,601,328 7,465,906
</TABLE>
At June 30, 1997, aggregate gross unrealized appreciation for all securities in
which there is an excess of value over tax cost and aggregate gross unrealized
depreciation for all securities in which there is an excess of tax cost over
value were as follows:
<TABLE>
<CAPTION>
TAX BASIS TAX BASIS
UNREALIZED UNREALIZED
NAME OF FUND APPRECIATION DEPRECIATION
------------ ------------ ------------
<S> <C> <C>
Short Term High Quality Bond Fund............... $ 105,313 $ 17,455
Short Term Global Government Fund............... 109,737 736,641
U.S. Government Fund............................ 1,341,341 318,341
Corporate Income Fund........................... 1,153,422 896,494
Growth and Income Fund.......................... 14,265,848 905,936
Growth Fund..................................... 15,432,791 1,658,330
Emerging Growth Fund............................ 10,727,965 407,413
International Growth Fund....................... 9,797,429 3,186,169
Capital Growth Portfolio........................ -- 2,371
Growth Portfolio................................ 40 1,806
Balanced Portfolio.............................. -- 14,565
</TABLE>
80
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
THE SIERRA VARIABLE TRUST
Option activity for the Short Term High Quality Bond Fund for the six months
ended June 30, 1997 was as follows:
<TABLE>
<CAPTION>
NUMBER OF
WRITTEN OPTIONS: PREMIUMS CONTRACTS
---------------- ---------- -----------
<S> <C> <C>
Options outstanding at December 31, 1996..... $ 3,552 725,000
Options written.............................. 3,589 725,000
Options expired.............................. (3,589) (725,000)
Options closed............................... (3,552) (725,000)
----------- ----------
Options outstanding at June 30, 1997......... $ 0 0
=========== ==========
Option activity for the Short Term Global Government Fund for the six months
ended June 30, 1997 was as follows:
<CAPTION>
WRITTEN OPTIONS ON FOREIGN CURRENCY: PREMIUMS
------------------------------------ ----------
<S> <C>
Options outstanding at December 31, 1996..... $ 34,280
Options written.............................. 152,871
Options closed............................... (141,536)
-----------
Options outstanding at June 30, 1997......... $ 45,615
===========
Information regarding dollar roll transactions by the U.S. Government and
Corporate Income Funds is as follows:
<CAPTION>
U.S. GOVERNMENT CORPORATE
DOLLAR ROLL TRANSACTIONS: FUND INCOME FUND
------------------------- --------------- -----------
<S> <C> <C>
Maximum amount outstanding during the
period...................................... $10,194,376 $3,061,563
Average amount outstanding during the
period*..................................... $ 4,057,272 $1,143,683
Average monthly shares outstanding during the
period...................................... 6,549,002 5,660,895
Average debt per share outstanding during the
period...................................... $ 0.62 $ 0.20
</TABLE>
------------
* The average amount outstanding during the period was calculated by
adding the borrowings at the end of each day and dividing the sum by
the number of days in the six months ended June 30, 1997.
Fee income earned for the six months ended June 30, 1997 by the U.S. Government
and Corporate Income Funds for dollar roll transactions aggregated $41,640 and
$22,031, respectively.
Information regarding reverse repurchase agreement transactions by the U.S.
Government Fund is as follows:
Reverse Repurchase Agreement for the U.S. Government Fund:
<TABLE>
<CAPTION>
FACE MARKET
VALUE VALUE
----- -----------
<S> <C>
$2,615,625 Reverse Repurchase Agreement with Lehman
Brothers, 5.400% dated 06/27/1997, to be
repurchased at $2,617,194 on 07/01/1997,
collateralized by $2,700,000 U.S. Treasury
Bonds, 6.500% due 11/15/2026.................. $ 2,615,625
2,224,750 Reverse Repurchase Agreement with Lehman
Brothers, 4.000% dated 06/30/1997, to be
repurchased at $2,226,480 on 07/07/1997,
collateralized by $2,200,000 U.S. Treasury
Notes, 6.625% due 05/15/2007.................. 2,224,750
5,764,125 Reverse Repurchase Agreement with Merrill Lynch
& Company, 3.400% dated 06/25/1997, to be
repurchased at $5,767,391 on 07/01/1997,
collateralized by $5,700,000 U.S. Treasury
Bonds, 6.625% due 02/15/2027.................. 5,764,125
1,412,588 Reverse Repurchase Agreement with Merrill Lynch
& Company, 5.450% dated 06/19/1997, to be
repurchased at $1,415,154 on 07/01/1997,
collateralized by $1,390,000 U.S. Treasury
Notes, 6.250% due 03/31/1999.................. 1,412,588
-----------
$12,017,088
===========
</TABLE>
81
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
THE SIERRA VARIABLE TRUST
<TABLE>
<CAPTION>
REVERSE REPURCHASE AGREEMENTS:
------------------------------
<S> <C>
Maximum amount outstanding during the period................. $13,886,750
Average amount outstanding during the period*................ $ 8,403,269
Average monthly shares outstanding during the period......... 6,549,002
Average debt per share outstanding during the period......... $ 1.28
</TABLE>
------------
* The average amount outstanding during the period was calculated by
adding the borrowings at the end of each day and dividing the sum by
the number of days in the six months ended June 30, 1997.
Interest rates ranged from 3.40% to 5.60% during the period. Interest incurred
for the six months ended June 30, 1997, on borrowings by the Fund under reverse
repurchase agreements aggregated $210,651.
6. SHARES OF BENEFICIAL INTEREST
The Trust may issue an unlimited number of shares of beneficial interest, each
without par value.
7. ORGANIZATION COSTS
Expenses incurred in connection with the organization of the Global Money,
Short Term Global Government, U.S. Government, Corporate Income, Growth and
International Growth Funds and the Portfolios, including the fees and expenses
of registering and qualifying each Fund's and Portfolio's shares for
distribution under Federal and state securities regulations, are being
amortized on a straight-line basis over a period of 60 months from commencement
of operations of each Fund and Portfolio. In the event any of the initial
shares of a Fund or Portfolio are redeemed by any holder thereof during the
amortization period, the proceeds of such redemptions will be reduced by an
amount equal to the pro-rata portion of the applicable Fund's and Portfolio's
unamortized deferred organizational expenses in the same proportion as the
number of shares being redeemed bears to the number of initial shares of such
Fund or Portfolio outstanding at the time of such redemption.
8. CAPITAL LOSS CARRYFORWARDS
At December 31, 1996, the following Funds had available for federal income tax
purposes unused capital losses as follows:
<TABLE>
<CAPTION>
NAME OF FUND EXPIRING IN 2002 EXPIRING IN 2003 EXPIRING IN 2004
------------ ---------------- ---------------- ----------------
<S> <C> <C> <C>
Short Term High Quality
Bond Fund.............. $ 87,775 $ 71,035 $241,115
Short Term Global Gov-
ernment Fund........... 89,073 91,070 --
U.S. Government Fund.... 750,083 1,366,480 --
Corporate Income Fund... 1,220,489 878,516 144,318
</TABLE>
Under current tax law, capital losses realized after October 31, may be
deferred and treated as occurring on the first day of the following fiscal
year.
For the fiscal year ended December 31, 1996, the following Funds have elected
to defer losses occurring between November 1, 1996 and December 31, 1996 under
these rules, as follows:
<TABLE>
<CAPTION>
CAPITAL
LOSSES
NAME OF FUND DEFERRED
------------ --------
<S> <C>
Short Term High Quality Bond Fund............................... $ 841
Short Term Global Government Fund............................... 1,998
U.S. Government Fund............................................ 3,257
Growth Fund..................................................... 270,127
</TABLE>
Such deferred losses will be treated as arising on the first day of the fiscal
year ending December 31, 1997.
82
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
THE SIERRA VARIABLE TRUST
9. GEOGRAPHIC AND INDUSTRY CONCENTRATION
All Funds, except the U.S. Government Fund, may invest in securities of foreign
companies and foreign governments. There are certain risks involved in
investing in foreign securities that are in addition to the usual risks
inherent in domestic investments. These risks include those resulting from
future adverse political and economic developments and the possible imposition
of currency exchange blockages or other foreign governmental laws or
restrictions.
In addition, the Money Fund may invest at least 25% of its assets in bank
obligations. As a result of this concentration policy, the Fund's investments
may be subject to greater risk than a fund that does not concentrate in the
banking industry. In particular, bank obligations may be subject to the risks
associated with interest rate volatility, changes in Federal and state laws and
regulations governing the banking industry and the inability of borrowers to
pay principal and interest when due. In addition, foreign banks present risks
similar to those investing in foreign securities generally and are not subject
to the same reserve requirements and other regulations as U.S. banks.
10. RISK FACTORS OF THE PORTFOLIOS
Investing in the Underlying Funds through the Portfolios involves certain
additional expenses and tax results that would not be present in a direct
investment in the Underlying Funds. Under certain circumstances, an Underlying
Fund may determine to make payment of a redemption request by a Portfolio
wholly or partly by a distribution in kind of securities from its portfolio,
instead of cash, in accordance with the rules of the Security and Exchange
Commission. In such cases, the Portfolios may hold securities distributed by an
Underlying Fund until Sierra Services determines that it is appropriate to
dispose of such securities.
Certain Underlying Funds may: invest a portion of their assets in foreign
securities; enter into forward foreign currency transactions; lend their
portfolio securities; enter into stock index, interest rate and currency
futures contracts, and options on such contracts; enter into interest rate
swaps or purchase or sell interest rate caps or floors; engage in other types
of options transactions; make short sales; purchase zero coupon and payment-in-
kind bonds; engage in repurchase or reverse repurchase agreements; purchase and
sell "when-issued" securities and engage in "delayed-delivery" transactions;
and engage in various other investment practices each with inherent risks.
The Capital Growth Portfolio can invest as much as 50% of its total assets in
the Growth Fund and as much as 50% of its total assets in the Emerging Growth
Fund, each of which Underlying Funds may invest as much as 35% of its total
assets in lower-rated bonds. Securities rated below investment grade generally
involve greater price volatility and risk of principal and income and may be
less liquid than higher rated securities.
Certain Portfolios invest as much as 50% of their total assets in the Growth or
Emerging Growth Funds, each of which may invest up to 25% of its total assets
in foreign equity securities and as much as 5% of its total assets in
securities in developing or emerging markets countries. Certain Portfolios
invest as much as 50% of their total assets in the International Growth Fund,
which invests primarily in the foreign equity securities, and may invest as
much as 30% of its total assets in securities in developing or emerging market
countries. These investments will subject such Portfolios to risks associated
with investing in foreign securities including those resulting from future
adverse political and economic developments and the possible imposition of
currency exchange blockages or other foreign governmental laws or restrictions.
The officers and Trustees of the Trust also serve as officers and Trustees of
the Underlying Funds. In addition, Sierra Services, the investment advisor and
distributor of each Portfolio, and Sierra Advisors, the investment advisor of
the Underlying Funds, are both wholly-owned subsidiaries of SCMC. Also, Sierra
Services is the distributor of the shares of the Underlying Funds. Conflicts
may arise as these companies seek to fulfill their fiduciary responsibilities
to both the Portfolios and the Underlying Funds.
From time to time, one or more of the Underlying Funds used for investment by a
Portfolio may experience relatively large investments or redemptions due to
reallocations or rebalancings by the Portfolios as recommended by Sierra
Services. These transactions will affect the Underlying Funds, since the
Underlying Funds that experience redemptions as a result of the reallocations
or rebalancings may have to sell portfolio securities and Underlying Funds that
receive additional cash will have to invest such cash. While it is impossible
to predict the overall impact of these transactions over time, there could be
adverse effects on portfolio management to the extent that the Underlying Funds
may be required to sell securities or invest cash at times when they would not
otherwise do so. These transactions could also have tax consequences if sales
of securities resulted in gains and could also increase transactions costs.
Sierra Advisors, representing the interests of the Underlying Funds, is
83
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
THE SIERRA VARIABLE TRUST
committed to minimizing the impact of Portfolio transactions on the Underlying
Funds; Sierra Services, representing the interest of the shareholders of the
Portfolios, is also committed to minimizing such impact on the Underlying Funds
to the extent it is consistent with pursuing the investment objectives of the
Portfolios. Sierra Advisors and Sierra Services will nevertheless face
conflicts in fulfilling their respective responsibilities because they are
affiliates and employ some of the same investment professionals.
11. SUBSEQUENT EVENT
Effective July 1, 1997, the merger of GWFC into Washington Mutual was
completed. As a result, Sierra Advisors, Sierra Administration, Sierra Services
and GW Securities are now indirect wholly-owned subsidiaries of Washington
Mutual.
On June 27, 1997 Scudder announced that it had entered into an agreement with
The Zurich Group, pursuant to which Scudder would be combined with Zurich
Kemper Investments, Inc. to form Scudder Kemper Investments, Inc. Subject to
various regulatory and other approvals, it is currently anticipated that the
transaction will close in the fourth quarter of 1997.
84
<PAGE>
This material is not an offer to sell nor a solicitation to buy The Sierra
Advantage Variable Annuity, Sierra Asset Manager Variable Annuity, or shares of
The Sierra Variable Trust. It is not authorized for distribution unless
preceded or accompanied by a current prospectus(es) that includes information
regarding the risk factors, expenses, policies, and objectives of The Sierra
Advantage Variable Annuity and Sierra Asset Manager Variable Annuity programs.
Please read it carefully before investing. Sierra Advantage and Sierra Asset
Manager may not be available for sale in all states.
Shares of The Sierra Variable Trust are not insured by the FDIC. They are not
deposits or obligations of, nor are they guaranteed by, the depository
institution or any other agency. These securities are subject to investment
risk, including possible loss of principal amount invested.
Distributed by
Sierra Investment Services Corporation
Member NASD
- ------------------------ ----------------
SIERRA BULK RATE
VARIABLE TRUST U.S. POSTAGE
- ------------------------ P A I D
A Family of Mutual Funds Van Nuys, CA
Permit No. 987
----------------
The Sierra Variable Trust
9301 Corbin Avenue
Mail Stop N 03 21
Northridge, California 91324
3995(8/97)30K
