<PAGE>
As filed with the Securities and Exchange Commission on October 10, 1997
Registration No. ____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[_] Pre-Effective Amendment No. __
[_] Post-Effective Amendment No. __
The Sierra Variable Trust
(Exact name of Registrant as Specified in Charter)
9301 Corbin Avenue, Suite 333
Northridge, California 91324
(Address of Principal Executive Offices)
(800) 222-5852
(Area Code and Telephone Number)
------------
Keith B. Pipes
9301 Corbin Avenue
Northridge, California 91324
(Name and Address of Agent for Service)
Copies to:
Richard W. Grant, Esq. Joseph B. Kittredge, Esq.
Morgan, Lewis & Bockius, LLP Ropes & Gray
2000 One Logan Square One International Place
Philadelphia, PA 19103 Boston, MA 02110
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Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes effective.
------------
It is proposed that this filing will become effective on November 10, 1997
pursuant to Rule 488.
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The Registrant has registered an indefinite amount of its securities under
the Securities Act of 1933, pursuant to Rule 24f-2 under the Investment Company
Act of 1940. In reliance upon Rule 24f-2, no filing fee is being paid at this
time. A Rule 24f-2 Notice for the Registrant for the fiscal year ended December
31, 1996 was filed on February 24, 1997.
<PAGE>
The Sierra Variable Trust
Cross-Reference Sheet
as required by Rule 481(a)
Form N-14 Item Caption in Prospectus/Proxy Statement
1 Cross-Reference Sheet; Outside Front Cover of Prospectus
2 Outside Back Cover Page of Prospectus; Table of Contents
3 Overview of Merger; Risk Factors
4 Approval or Disapproval of Agreement and Plan of
Reorganization
5,6 Information about the Acquired and Acquiring Funds
7 Voting Information
8,9 Not Applicable
Form N-14 Item Caption in Statement of Additional Information
10 Cover Page
11 Table of Contents
12, 13 Additional Information about the Acquiring and Acquired Funds
14 Financial Statements
Form N-14 Item Caption in Part C
15 Indemnification
16 Exhibits
17 Undertakings
<PAGE>
[AMERICAN GENERAL LIFE LOGO]
November , 1997
Dear Variable Annuity Contract Holder:
American General Life Insurance Company ("AGL") has been offering various
forms of variable annuity contracts through Separate Account D (the "Separate
Account"), a unit investment trust, since 1973. The Separate Account consists
of forty-three (43) investment divisions (the "Divisions") which are each
available under annuity contracts funded through the Separate Account (the
"Contracts"). If you've had your Contract for some time, you'll recall that we
periodically ask you to tell us how you would like us to represent your inter-
ests at meetings of shareholders of The Sierra Variable Trust (the "Trust").
The issues that are considered at shareholder meetings generally have to do
with the management of the Trust and/or the various funds within the Trust.
The Trust is a family of funds underlying the investment options in your Con-
tract, and it includes the Short Term Global Government Fund (the "Global Gov-
ernment Fund") and the Short Term High Quality Bond Fund (the "High Quality
Bond Fund").
Included in this booklet is information about the upcoming Shareholder's
meeting (the "Special Meeting"):
. A NOTICE OF A SPECIAL MEETING OF THE SHAREHOLDERS OF THE GLOBAL GOVERN-
MENT FUND, which explains, in summary format, the issues for which you
are being asked to provide voting instructions;
. AN INFORMATION STATEMENT, which outlines the voting procedures;
. A PROSPECTUS/PROXY STATEMENT FOR THE SPECIAL MEETING, which provides
comprehensive information on the specific issues being considered at the
Special Meeting.
ALSO ENCLOSED ARE YOUR BALLOT AND POSTAGE-PAID RETURN ENVELOPE.
We encourage you to review each of these items thoroughly. Once you've de-
termined how you wish to vote, please mark your preferences on your ballot,
making sure that you sign and date your ballot before mailing it in the post-
age-paid envelope. A prompt response on your part will help to ensure that
your interests are represented.
Sincerely,
-----------------------------------
<PAGE>
AMERICAN GENERAL LIFE
INSURANCE COMPANY
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF THE SIERRA VARIABLE TRUST
SHORT TERM GLOBAL GOVERNMENT FUND
To be held on December , 1997
Dear American General Life Client:
The net purchase payments made under your American General Life ("AGL")
variable annuity contract (the "Contract") have been allocated at your direc-
tion to the investment divisions ("Division/s") of Separate Account D (the
"Separate Account"). The Separate Account invests in Divisions which include
corresponding series of The Sierra Variable Trust (the "Trust"), an open end
management investment company, including the Short Term Global Government Fund
(the "Fund").
As a Contract owner ("Contractowner") of record at the close of business on
, 1997 (the "Record Date"), you are entitled to instruct AGL as to how it
should vote on certain proposals to be considered at a Special Meeting of the
Fund's shareholders.
The Special Meeting of Shareholders of the Fund, will be held on , De-
cember , 1997 at at the offices of to consider the following, on
which you are entitled to provide AGL with voting instructions:
1. To consider and act upon a proposal to elect the Board of Trustees.
2. To approve or disapprove an Agreement and Plan of Reorganization pro-
viding for the transfer of all of the assets of the Fund to the Short Term
High Quality Bond Fund (the "High Quality Bond Fund"), a series of the
Trust, in exchange for shares of the High Quality Bond Fund and the assump-
tion by the High Quality Bond Fund of all of the liabilities of the Fund,
and the distribution of such shares to the shareholders of the Fund in com-
plete liquidation of the Fund.
3. To consider such other business as may properly come before the meet-
ing.
Attached to this notice are the Information Statement of AGL and the
Prospectus/Proxy Statement of the Trust. You are urged to read both of these
statements before completing your ballot.
Steven A. Glover
Assistant Secretary
November , 1997
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IT IS IMPORTANT THAT YOUR CONTRACT BE REPRESENTED. PLEASE PROMPTLY MARK
YOUR VOTING INSTRUCTIONS ON THE ENCLOSED BALLOT; THEN, SIGN, DATE AND MAIL
IT IN THE ACCOMPANYING ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE
UNITED STATES. YOUR PROMPT RESPONSE WILL HELP AVOID THE UNNECESSARY
EXPENSE OF A FURTHER SOLICITATION OF BALLOTS.
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<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
-----------------------------------------------------
INFORMATION STATEMENT
REGARDING A SPECIAL MEETING OF THE
SHAREHOLDERS OF THE SIERRA VARIABLE TRUST SHORT TERM GLOBAL GOVERNMENT FUND
-----------------------------------------------------
NOVEMBER , 1997
GENERAL
This information statement is furnished by American General Life Insurance
Company ("AGL"), a Texas stock life insurance company, to owners of its vari-
able annuity contracts ("Contractowners") who had net purchase payments allo-
cated to the Short Term Global Government Fund investment division of AGL's
Separate Account D (the "Separate Account") as of , 1997 (the "Record
Date"). The assets in such investment division of the Separate Account (the
"Division") are invested in the shares of beneficial interest of the Short
Term Global Government Fund (the "Fund"), a series of The Sierra Variable
Trust (the "Trust").
AGL is required to offer Contractowners the opportunity to instruct AGL, as
owner of all Trust shares held by the Separate Account, as to how it should
vote on the proposals to be considered at the Special Meeting of the share-
holders of the Fund referred to in the preceding notice and at any adjourn-
ments (the "Special Meeting").
The proposals to be considered at the Special Meeting are discussed in the
Trust's Prospectus/Proxy Statement, which is enclosed. Contractowners are
urged to read the enclosed Prospectus/Proxy Statement prior to completing the
ballot.
AGL is an indirect, wholly-owned subsidiary of American General Corporation,
formerly American General Insurance Company, a diversified financial services
holding company engaged primarily in the insurance business. The home office
of AGL is located at 2727-A Allen Parkway, Houston, Texas 77019, and the mail-
ing address is American General Life Insurance Company, Annuity Administration
Department, P.O. Box 1401, Houston, Texas 77251-1401.
This Information Statement and the accompanying ballot are being mailed to
Contractowners on or about November , 1997.
HOW TO INSTRUCT AGL
To instruct AGL as to how to vote the shares of beneficial interest of the
Trust (the "Shares") held in the Division, Contractowners are asked to
promptly mark their voting instructions on the enclosed ballot; then, sign,
date and mail it in the accompanying postage-paid envelope.
<PAGE>
IF A BALLOT IS NOT MARKED TO INDICATE VOTING
INSTRUCTIONS BUT IS SIGNED, DATED AND RETURNED,
IT WILL BE TREATED AS AN INSTRUCTION TO
VOTE THE SHARES FOR EACH OF THE PROPOSALS.
The number of Shares held in the Division for which a Contractowner may pro-
vide voting instructions (in the aggregate, "Shares Attributable to
Contractowners") was determined as of the Record Date by dividing (i) a Con-
tract's account value (minus any contract indebtedness) allocable to the Divi-
sion by (ii) the net asset value of one share of the Fund.
At any time prior to AGL's voting of the Shares held in the Division at the
Special Meeting, a Contractowner may revoke his or her ballot with respect to
the Division by written notice to the Vice President--Annuity Administrator of
AGL at P.O. Box 1401, Houston, Texas 77251-1401.
HOW AGL WILL VOTE
The Shares Attributable to Contractowners in the Division for which AGL re-
ceives no voting instructions in time will be voted by AGL for or against ap-
proval of a proposal, or as an abstention, in the same proportion as the
Shares of Attributable to Contractowners for which AGL receives voting in-
structions. Shares attributable to amounts retained by AGL in the Division
will be voted in the same proportion as votes cast by Contractowners of all
Shareholders in respect of the Division.
OTHER MATTERS
AGL is not aware of any matters, other than the specified proposals, to be
acted upon at the Special Meeting. If any other matters come before the Spe-
cial Meeting, AGL will vote the Shares upon such matters in its discretion.
Ballots may be solicited by employees of AGL and its subsidiaries. The so-
licitation will be by mail and may also be by telephone, telegram or personal
interview. AGL reserves the right to vote for adjournment of the Special Meet-
ing for the purpose of further solicitation of ballots.
Steven A. Glover
Assistant Secretary
PLEASE PROMPTLY MARK YOUR VOTING INSTRUCTIONS ON THE ENCLOSED BALLOT; THEN
SIGN, DATE AND MAIL IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE. IT IS IMPORTANT
THAT YOUR CONTRACT BE REPRESENTED.
2
<PAGE>
THE SIERRA VARIABLE TRUST
SHORT TERM GLOBAL GOVERNMENT FUND
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
DECEMBER , 1997
To the Shareholders:
Notice is hereby given that a Special Meeting of Shareholders of the Short
Term Global Government Fund (the "Fund"), a series of The Sierra Variable Trust
(the "Trust"), will be held on , December , 1997 at at the offices of
to consider the following:
1. To consider and act upon a proposal to elect the Board of Trustees.
2. To approve or disapprove an Agreement and Plan of Reorganization providing
for the transfer of all of the assets of the Fund to the Short Term High Qual-
ity Bond Fund (the "High Quality Bond Fund"), a series of the Trust, in ex-
change for shares of the High Quality Bond Fund and the assumption by the High
Quality Bond Fund of all of the liabilities of the Fund, and the distribution
of such shares to the shareholders of the Fund in complete liquidation of the
High Quality Bond Fund.
3. To consider such other business as may properly come before the meeting.
The Trustees have fixed the close of business on October , 1997 as the record
date for determination of shareholders entitled to notice of, and to vote at,
the special meeting.
By order of the Board of Trustees
Keith B. Pipes, Secretary
November , 1997
1
<PAGE>
PROSPECTUS/PROXY STATEMENT
November , 1997
This Prospectus/Proxy Statement relates to (1) the election of Trustees of
The Sierra Variable Trust (the "Trust"), 9301 Corbin Avenue, Suite 333, North-
ridge, California 91324, and (2) the proposed acquisition of the assets of the
Short Term Global Government Fund, a series of the Trust (the "Global Govern-
ment Fund"), by and in exchange for shares of the Short Term High Quality Bond
Fund, also a series of the Trust (the "High Quality Bond Fund") (the "Merg-
er"). The Merger is to be effected through the transfer of all of the assets
of the Global Government Fund to the High Quality Bond Fund in exchange for
shares of beneficial interest of the High Quality Bond Fund (the "Merger
Shares") and the assumption by the High Quality Bond Fund of all of the lia-
bilities of the Global Government Fund, followed by the distribution of the
Merger Shares to the shareholders of the Global Government Fund in liquidation
of the Global Government Fund. As a result of the proposed Merger, each share-
holder of the Global Government Fund will receive in exchange for its Global
Government Fund shares a number of High Quality Bond Fund shares equal in
value at the date of the exchange to the aggregate value of the shareholder's
Global Government Fund shares.
The Trust is a no-load, open-end management investment company that serves as
an investment vehicle for variable annuity contracts (the "Contracts") issued
by American General Life Insurance Company ("AGL") and its Separate Account D
(the "Separate Account"). As a technical matter, AGL holds Trust shares in the
Separate Account in which contributions and premiums received under the Con-
tracts are initially invested. The Separate Account, in turn, purchases Trust
shares which are divided into fourteen series, five of which are asset alloca-
tion portfolios (the "Asset Allocation Portfolios") that invest in various
combinations of the other nine series, including both the Global Government
Fund and the High Quality Bond Fund. Consequently, as used herein, the term
"shareholder" refers to AGL and the Asset Allocation Portfolios of the Trust
which have invested in the Global Government Fund. AGL offers certain con-
tract-owners (the "Global Government Contractown-ers") the right to give AGL
instructions as to how those shares of the Fund attributable to their Contract
should be voted, although owners of Contracts whose premiums are invested in
Asset Allocation Portfolios do not have the right so to instruct AGL.
This Prospectus/Proxy Statement is being furnished on behalf of the Board of
Trustees of the Trust to AGL in its capacity as shareholder of the Global Gov-
ernment Fund for its use in obtaining instructions from the Global Government
Contractowners as to how to vote on the proposals to be considered at the spe-
cial meeting of shareholders of the Global Government Fund to be held on De-
cember , 1997 (the "Special Meeting"). AGL will attend the Special Meeting in
person [or by proxy] and will vote shares of the Global Government Fund held
directly by the Separate Account in accordance with voting instructions re-
ceived from Global Government Contractowners and in accordance with voting
procedures established by the Trust. Shares of the Global Government Fund at-
tributable to contracts for which no voting instructions have been received by
AGL, shares attributable to amounts retained by AGL in the Separate Account
and shares owned by the Trust's Asset Allocation Portfolios will be voted for,
against or withheld from voting on each proposal in the same proportions as
are the shares for which voting instructions have been received by AGL from
Global Government Contractowners. Global Government Contractowners as of ,
1997 (the "Record Date") have the right to give voting instructions with re-
spect to the Special Meeting or any adjournment thereof.
2
<PAGE>
This Prospectus/Proxy Statement is being mailed to shareholders on or about
November , 1997. Instructions executed by Global Government Contractowners
may be revoked at any time before they are exercised by a written revocation
received [by at AGL] or by properly executing later-dated instructions.
The Trust expects that the Information Statement and ballot prepared for use
by AGL, as well as this Prospectus/Proxy Statement, will be mailed by AGL to
the Global Government Contractown- ers by AGL on or about November , 1997 in
order to obtain voting instructions from those Contractowners.
Because shareholders of the Global Government Fund are being asked to approve
a transaction which will result in their receiving shares of the High Quality
Bond Fund, this Proxy Statement also serves as a Prospectus for the Merger
Shares of the High Quality Bond Fund. The High Quality Bond Fund seeks as high
a level of current income as is consistent with prudent investment management
and stability of principal. It will pursue this objective by investing primar-
ily in high quality short-term bonds and other debt instruments. This
Prospectus/Proxy Statement explains concisely what you should know before in-
vesting in the High Quality Bond Fund. Please read it and keep it for future
reference.
This Prospectus/Proxy Statement is accompanied by the current Prospectus of
the Trust which includes the Global Government Fund and the High Quality Bond
Fund dated May 1, 1997 (as amended or supplemented from time to time the "Pro-
spectus"). The information regarding the Funds contained in such Prospectus is
incorporated into this Prospectus/Proxy Statement by reference. The following
documents have been filed with the Securities and Exchange Commission (the
"SEC") and are also incorporated into this Prospectus/Proxy Statement by ref-
erence: (i) the Trust's Annual Report to Shareholders for the year ended De-
cember 31, 1996 (the "Annual Report"); (ii) the Trust's Semi-Annual Report to
Shareholders for the six months ended June 30, 1997 (the "Semi-Annual Re-
port"); (iii) the current Statement of Additional Information of the Trust,
dated May 1, 1997, as amended or supplemented from time to time (the "SAI");
and (iv) a Statement of Additional Information dated November , 1997 relating
to the transaction described in this Prospectus/Proxy Statement (the "Merger
SAI").
For a free copy of any or all of the Prospectus, SAI, Merger SAI, Annual Re-
port or Semi-Annual Report referred to in the foregoing paragraph, please call
1-800-247-6584 or write to [American General Life Insurance Company, Attn: An-
nuity Administration, P.O. Box 1401, Houston, Texas 77251-1401.]
THE SECURITIES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT HAVE NOT BEEN AP-
PROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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3
<PAGE>
OVERVIEW OF MERGER
PROPOSED TRANSACTION
The transaction described on the first page of this Prospectus/Proxy State-
ment is a separate part of an overall restructuring of the registered invest-
ment companies (the "Composite/Sierra Mutual Funds") advised by Composite Re-
search & Management Co. ("CRM") and Sierra Investment Advisors Corporation
("Sierra"). CRM, which has been in the business of investment management since
1944, is a direct subsidiary of Washington Mutual, Inc. ("Washington Mutual"),
a financial services company, and Sierra is an indirect subsidiary of Washing-
ton Mutual as a result of the merger, which took place on July 1, 1997, of Si-
erra's former indirect parent, Great Western Financial Corporation, with and
into a wholly-owned subsidiary of Washington Mutual. The restructuring in-
volves, among other components, several "mergers" of the Composite/Sierra Mu-
tual Funds with similar investment objectives and policies and the substitu-
tion of CRM for Sierra as investment manager/adviser for most of the
Composite/Sierra Mutual Funds. The result of the restructuring will be a sin-
gle, more integrated mutual fund complex.
As a result of the proposed transaction that is the focus of this
Prospectus/Proxy Statement, the Global Government Fund will receive a number
of shares of the High Quality Bond Fund (the "Merger Shares") equal in value
to the value of the net assets of the Global Government Fund being trans-
ferred. Following the transfer, (i) the High Quality Bond Fund will distribute
to its shareholders a number of full and fractional Merger Shares of the High
Quality Bond Fund equal in value to the aggregate value of its Global Govern-
ment Fund shares, and (ii) the Global Government Fund will be liquidated.
Shares of both Funds (referred to together as the "Funds") are sold without a
front-end sales charge and are not subject to a contingent deferred sales
charge. No sales charge will be charged to Global Government Fund shareholders
on the issuance of the Merger Shares, and no CDSC will be charged to Global
Government Fund shareholders on the exchange of their Global Government Fund
shares for the Merger Shares.
The Trustees unanimously recommend that shareholders of the Global Government
Fund approve the Merger because it offers shareholders the opportunity to pur-
sue a similar investment program in a larger fund, which should offer opportu-
nities for greater diversification of risk and reduced operating expenses. See
"Operating Expenses" below and "Background and Reasons for the Proposed Merg-
er."
OPERATING EXPENSES
As described more fully below, Sierra currently serves as investment manager
and Scudder, Stevens & Clark, Inc. ("Scudder") serves as subadviser to both
Funds. In addition to investment management fees, both Funds currently pay ad-
ministrative fees to an affiliate of Sierra at an annual rate equal to .18%
per annum of average daily net assets. As the following table and related
notes indicate, the currently approved contractual management fee rate for the
High Quality Bond Fund is lower than the currently approved contractual man-
agement fee rate for the Global Government Fund. Effective on or about January
1, 1998, it is proposed that CRM become the investment manager of the High
Quality Bond Fund at the same management fee rate as is presently paid to Si-
erra, such change being part of the general restructuring described above. It
is also proposed that at that time the Funds will no longer pay administrative
fees. Accordingly, and as a result of expected economies of scale, it is ex-
pected that aggregate operating expenses of the High Quality Bond Fund will be
lower following the Merger than the aggregate operating expenses currently
borne by the Global Government Fund. There can be no assurance that the Merger
will result in expense savings for shareholders. These tables
4
<PAGE>
summarize expenses, adjusted in each case to reflect the proposed elimination
of the administrative fees, (i) that the Global Government Fund would have in-
curred in the first six months of its current fiscal year as well as its fis-
cal year ending December 31, 1996, (ii) that the High Quality Bond Fund would
have incurred in the first six months of its current fiscal year as well as
its fiscal year ending December 31, 1996, and (iii) that the High Quality Bond
Fund would have incurred in the first six months of its current fiscal year as
well as its fiscal year ending December 31, 1996, after giving effect on a pro
forma combined basis to the proposed Merger, as if the Merger had occurred as
of the beginning of such fiscal year. The tables are provided to help explain
a shareholder's share of the operating expenses which each Fund incurs and do
not reflect any Contract level expenses.
5
<PAGE>
<TABLE>
<CAPTION>
ADJUSTED EXPENSES ADJUSTED EXPENSES PRO FORMA EXPENSES
GLOBAL GOVERNMENT FUND HIGH QUALITY BOND FUND HIGH QUALITY BOND FUND
(FOR THE YEAR ENDING (FOR THE YEAR ENDING (FOR THE YEAR ENDING
DECEMBER 31, 1996)(1) DECEMBER 31, 1996)(1) DECEMBER 31, 1996)(1)
------------------------- ------------------------- -------------------------
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of
average net assets)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees......... .75% .50% .50%
12b-1 Fees.............. None None None
Other Expenses.......... .35% .38% .24%
Total Fund Operating
Expenses............... 1.10%(2) .88%(2) .74%
- ------------------------------------------------------------------------------------------------------
<CAPTION>
ADJUSTED EXPENSES ADJUSTED EXPENSES PRO FORMA EXPENSES
GLOBAL GOVERNMENT FUND HIGH QUALITY BOND FUND HIGH QUALITY BOND FUND
(FOR THE SIX MONTHS ENDED (FOR THE SIX MONTHS ENDED (FOR THE SIX MONTHS ENDED
JUNE 30, 1997)(1) JUNE 30, 1997)(1) JUNE 30, 1997)(1)
------------------------- ------------------------- -------------------------
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of
average net assets)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees......... .75% .50% .50%
12b-1 Fees.............. None None None
Other Expenses.......... .33% .42% .22%
Total Fund Operating
Expenses............... 1.08%(2) .92%(2) .72%
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Adjusted to reflect the elimination of administrative fees at the rate of
0.18% per annum.
(2) Before application of the waiver described below and custodial credits,
Total Fund Operating Expenses of the Global Government Fund and the High
Quality Bond Fund would have been 1.26% and 1.10%, respectively, for the
six-month period and 1.28% and 1.06%, respectively for the 1996 fiscal
year (which percentages include the administrative fees described in note
1). During the relevant periods, however, the Funds' investment manager
and administrator undertook to waive their fees and/or bear certain ex-
penses to the extent necessary to limit Total Fund Operating Expenses to
the annual rates of 1.35%, in the case of the Global Government Fund, and
to 1.00%, in the case of the High Quality Bond Fund. Consequently, actual
historical expenses for the period were reduced to the annual rate of
1.00% for the High Quality Bond Fund pursuant to the waiver. Actual his-
torical expenses for the Global Government Fund were unaffected by the
waiver. For more information, see the Annual Report and the Semi-Annual
Report.
6
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
So long as the Contracts qualify as annuity contracts under Section 72 of the
Internal Revenue Code, the Merger will not create any tax liability for owners
of Contracts. The Global Government Fund is expected to recognize gain or loss
on both (i) the anticipated significant realignment of the Global Government
Fund's portfolio that will occur in connection with the Merger, and (ii) the
sale of its assets to the High Quality Bond Fund in the merger itself, and
Global Government Fund shareholders (but not owners of Contracts) are expected
to recognize taxable gain or loss on receipt of shares in the High Quality
Bond Fund, equal to the difference between the net asset value of the High
Quality Bond Fund shares received and the shareholder's tax basis in its
Global Government Fund shares.
If, as expected, the Merger is a taxable transaction, the High Quality Bond
Fund's cost basis for each security will be the market value of such security
at the time of the Merger (rather the Global Government Fund's cost basis).
The Global Government Fund will distribute at the time of the Merger all of
the Global Government Fund's net investment income and net realized capital
gains to its shareholders. There is some uncertainty as to the federal tax
treatment of the Merger. The Internal Revenue Service may take the position
that the Merger is a tax-free reorganization, and there can be no assurance
that the Fund's reporting position will prevail.
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COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The High Quality Bond Fund has an investment objectives that is similar to
that of the Global Government Fund. The investment objectives, policies and
restrictions of the Global Government Fund and the High Quality Bond Fund, and
certain differences between them, are summarized below. For a more detailed
description of the investment techniques used by the Funds, please see the ac-
companying Prospectus, the Merger SAI and the SAI.
The Funds have substantially similar investment objectives. The High Quality
Bond Fund attempts to provide as high a level of current income as is consis-
tent with prudent investment management and stability of principal. The Global
Government Fund attempts to provide high current income consistent with pro-
tection of principal. The Global Government Fund is a non-diversified fund,
generally invests a substantial portion of its assets in foreign securities
and has greater flexibility to invest in lower-rated securities. The High
Quality Bond Fund is a diversified fund and may only invest in securities
that, at the time of purchase, are investment grade bonds.
Both Funds seek to maintain a dollar-weighted average portfolio maturity of
three years or less but may hold individual securities with remaining maturi-
ties of more than three years. However, under no circumstances will the High
Quality Bond Fund have a dollar-weighted average portfolio maturity in excess
of five years. The Global Government Fund seeks to maintain greater price sta-
bility than longer-term bond funds.
Under normal market conditions, the Global Government Fund will invest at
least 65% of its total assets in short-term bonds and money market instruments
issued or guaranteed by foreign governments or the U.S. Government or their
agencies, instrumentalities or political subdivisions (including securities
which are majority owned by such government, agency, instrumentality or polit-
ical subdivision) that are rated within the three
7
<PAGE>
highest rating categories by Standard & Poor's ("S&P") or Moody's Investors
Service, Inc. ("Moody's") or, if unrated, are judged to be of comparable qual-
ity. These securities may be denominated in foreign currencies, multinational
currency units or the U.S. dollar and under normal market conditions will be
invested in government securities in at least three different countries, one
of which may be the United States. In the case of the High Quality Bond Fund,
at least 65% of total assets will be invested in short-term investment-grade
bonds and other fixed-income securities issued by the U.S. Government, corpo-
rations and other issuers, or mortgage-related securities rated in one of the
two highest categories by a nationally recognized statistical rating organiza-
tion ("NRSRO"). No more than 10% of its assets may be invested in foreign se-
curities. All debt securities purchased by the High Quality Bond Fund will be
investment-grade (rated in one of the four highest categories by a NRSRO) at
the time of purchase. See "Risk Factors--Credit Risk."
The Funds may also invest in: (i) American depository receipts; (ii) securi-
ties indexed to foreign currency exchange rates; (iii) floating rate, inverse
floating rate and variable rate obligations, including participation interests
therein; (iv) bank obligations, which include certificates of deposit, time
deposits and bankers' acceptances of U.S. commercial banks or savings and loan
institutions with assets of at least $500 million as of the end of the most
recent fiscal year; (v) mortgage-backed and government stripped mortgage-
backed securities; (vi) repurchase agreements; and (vii) lease obligation
bonds. Each Fund may also borrow up to 30% of total assets for temporary emer-
gency purposes, purchase securities on a "when-issued" or "delayed-delivery"
basis, invest up to 10% of assets in securities of unaffiliated mutual funds
and lend securities up to 20% of the Fund's total assets.
The Funds may utilize various other investment strategies involving deriva-
tives, including exchange-listed and over-the-counter put and call options on
securities, foreign currencies, equity and fixed-income indices and other fi-
nancial instruments, financial futures contracts and options thereon, currency
forward transactions, and interest rate transactions such as swaps, caps,
floors and collars to hedge various market risks, to manage the effective ma-
turity or duration of fixed-income securities, or to seek potentially higher
returns. The Funds may write covered put and call options on securities but
neither Fund will use more than 10% of assets to purchase put options or more
than 10% of assets to purchase call options, will not write put options with
respect to more than 50% of total assets, and will not enter into derivative
transactions that are not "covered" or entered into for "bona fide hedging"
purposes that are in the aggregate principal amount in excess of 25% of its
net assets. In addition, neither Fund may enter into any futures or options
contracts for which aggregate initial margin deposits and premiums paid for
unexpired options entered into for purposes other than bona fide hedging ex-
ceed 5% of the fair market value of the Fund's assets.
The Global Government Fund may also invest: (i) up to 10% of its assets in
securities rated at the time of purchase below investment-grade (below BBB by
S&P or Baa by Moody's) and unrated securities of comparable quality; (ii) in
non-government foreign and domestic securities, including debt securities is-
sued or guaranteed by supranational organizations, corporate debt securities,
and bank or bank holding company obligations such as certificates of deposit,
bankers' acceptances and time deposits; and (iv) up to 10% of total assets in
asset-backed securities. See "Risk Factors."
The High Quality Bond Fund may also invest: (i) in high-quality, short-term
obligations with a maturity of 12 months or less, such as commercial paper is-
sued by domestic and foreign corporations, bankers' acceptances issued by do-
mestic and foreign banks, certificates of deposit and demand and time deposits
of domestic and foreign banks and savings and loan associations; (ii) obliga-
tions
8
<PAGE>
issued or guaranteed by domestic or foreign governments or their agencies or
instrumentalities; (iii) high-grade corporate debt obligations, such as bonds,
debentures, notes, equipment lease and truck certificates; (iv) collateralized
mortgage obligations; (v) up to 25% of total assets in asset-backed securi-
ties; and (vi) in certain illiquid investments such as privately placed obli-
gations including restricted securities and may borrow money or enter into re-
verse repurchase agreements or dollar roll transactions in the aggregate up to
33 1/3% of total assets (but currently intends to limit such activity to 10%
of total assets). See "Risk Factors--Prepayment Risk," "--Repurchase Agree-
ments," and "--Reverse Repurchase Agreements and Borrowings."
In addition to the investment restrictions described above, the Global Gov-
ernment Fund may not invest in dollar rolls and will not purchase any addi-
tional securities whenever borrowings, including reverse repurchase agree-
ments, exceed 5% of total assets.
In addition to the investment restrictions described above, the High Quality
Bond Fund may not engage in short sales or maintain short positions or invest
in non-investment-grade securities (rated lower than BBB by S&P or Baa by
Moody's).
Adam M. Greshin, Product Leader for Scudder's global and international fixed-
income investing, is primarily responsible for the management of the Global
Government Fund. The day-to-day management of the High Quality Bond Fund's
portfolio has been the responsibility of Thomas M. Poor, Managing Director of
Scudder.
As part of the overall restructuring described above, the Trustees of the
Trust have approved for The High Quality Bond Fund a new Advisory Agreement
(the "CRM Advisory Agreement") with CRM whereby CRM will provide the services
currently provided by both Sierra, as the investment manager, and Scudder as
the sub-advisor. The CRM Advisory Agreement will be voted upon at the meeting
of the High Quality Bond Fund's shareholders to be held on or about December
, 1997.
, of CRM, would be primarily responsible for the management of the
High Quality Bond Fund. CRM does not intend to effect any changes to the in-
vestment objectives, policies or restrictions of the Fund, as outlined above.
The approval of CRM as adviser to the High Quality Bond Fund is not a condi-
tion to the Merger. Thus, depending on whether shareholders of the High Qual-
ity Bond Fund approve the proposed advisory arrangement with CRM, the day-to-
day portfolio management of the High Quality Bond Fund following the Merger
may be provided either by CRM or by Scudder.
COMPARISON OF DISTRIBUTION POLICIES AND PURCHASE, EXCHANGE AND REDEMPTION
PROCEDURES
The Shares of the Funds are sold in a continuous offering to AGL and to the
Asset Allocation Portfolios for the Separate Account to fund Contracts. Net
purchase payments under the Contracts are placed in one or more of the invest-
ment divisions ("Divisions") of the Separate Account and are invested in the
shares of the Trust's portfolios, including the Funds, corresponding to such
Divisions. Shares of the Funds are purchased and redeemed at net asset value
without sales or redemption charges.
For each day on which either the Global Government Fund's or the High Quality
Bond Fund's net asset value is calculated, the Separate Account transmits to
the Trust any orders to purchase or redeem shares of the Global Government
Fund or the High Quality Bond Fund based upon the purchase payments, redemp-
tion (surrender) requests and transfer requests from Contractowners,
annuitants or beneficiaries which are priced as of that day.
9
<PAGE>
All purchase and redemption orders will be processed in accordance with ap-
plicable regulations. The Trust may also suspend redemption, if permitted un-
der the 1940 Act, for any period during which the New York Stock Exchange
("NYSE") is closed or during which trading is restricted by the SEC for the
protection of the Trust's shareholders.
AGL also offers certain contracts under its "Sierra Asset Manager" product.
Under the relevant Contracts (the "SAM Contracts"), purchase premiums are al-
located to Divisions of the Separate Account investing in the Asset Allocation
Portfolios. As indicated above, Asset Allocation Portfolios invest in turn in
the Trust's other nine series (the "Primary Funds") including both Funds. The
current investment advisor to the Asset Allocation Portfolios is Sierra In-
vestment Services Corporation ("Sierra Services") and, as part of the restruc-
turing, CRM will take over the responsibilities of the investment advisor. Si-
erra Services also serves as distributor of each Asset Allocation Portfolio
and is affiliated with Sierra, the Funds' current investment manager, and CRM,
the Funds' proposed investment advisor. Conflicts of interest may arise as
these companies seek to fulfill their fiduciary responsibilities to both the
Asset Allocation Portfolios and the Primary Funds, including the High Quality
Bond Fund.
From time to time, one or more of the Primary Funds used for investment by
the Asset Allocation Portfolios may experience relatively large investments or
redemptions due to reallocations or rebalancings by the Asset Allocation Port-
folios as recommended by their investment adviser(s). These transactions will
affect the Primary Funds, since those that experience redemptions as a result
of reallocations or rebalancings may have to sell portfolio securities and
those 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
Primary Funds, including the Funds, may be required to sell securities or in-
vest cash at times when they would not otherwise do so. These transactions
could also increase transaction costs. The investment advisors to the Primary
Funds are committed to minimizing the impact of Asset Allocation Portfolio
transactions on the Primary Funds and the investment advisor to the Asset Al-
location Portfolios is committed to minimizing such impact on the Primary
Funds to the extent it is consistent with pursuing the investment objectives
of the Asset Allocation Portfolios. Those advisors will nevertheless face con-
flicts in fulfilling their respective responsibilities because they are affil-
iates and employ some of the same investment professionals.
- --------------------------------------------------------------------------------
RISK FACTORS
Certain risks associated with an investment in the High Quality Bond Fund are
summarized below. Because the High Quality Bond Fund shares similar investment
objectives with the Global Government Fund and because both the High Quality
Bond Fund and the Global Government Fund share certain policies described more
fully above under "Overview of Merger--Comparison of Investment Objectives,
Policies and Restrictions," many of the risks of an investment in the High
Quality Bond Fund are substantially similar to the risks of an investment in
the Global Government Fund. A more detailed description of certain of the
risks associated with an investment in the High Quality Bond Fund may be found
in the Prospectus under the caption "Investment Policies" and in the SAI under
the caption "Investment Objectives and Policies of the Funds and Portfolios."
The values of all securities and other instruments held by the High Quality
Bond Funds vary
10
<PAGE>
from time to time in response to a wide variety of market factors. Consequent-
ly, the net asset value per share of the High Quality Bond Fund will vary so
that an investor's shares, when redeemed, may be worth more or less than the
amount invested.
INTEREST RATE RISK. The Funds share similar interest rate risk associated
with investment in fixed income securities, including U.S. Government securi-
ties. U.S. Government securities are considered among the safest of fixed-in-
come investments, but their values, like those of other debt securities, will
fluctuate with changes in interest rates. Thus, a decrease in interest rates
will generally result in an increase in the value of the High Quality Bond
Fund's holdings of fixed income securities. Conversely, during periods of ris-
ing interest rates, the value of the High Quality Bond Fund's holdings of
fixed-income securities will generally decline.
CREDIT RISK. Fixed income securities are subject to credit risk. Credit risk
related to the ability of the issuer to make payments of principal and inter-
est. All fixed income securities are therefore subject to the risk of default.
As described above, the High Quality Bond Fund invests only in investment
grade securities and invests 65% of its assets in securities which are rated
in one of the two highest categories by a nationally recognized statistical
rating organization. The Global Government Fund may invest in below investment
grade fixed income securities which offer a more substantial risk of default.
Risks of lower-rated high-yield securities include (i) limited liquidity and
secondary market support; (ii) substantial market price volatility resulting
from changes in prevailing interest rates; (iii) subordination to the prior
claims of banks and other senior lenders; (vi) the operation of mandatory
sinking fund or call/redemption provisions during periods of declining inter-
est rates whereby the Fund may reinvest premature redemption proceeds in lower
yielding portfolio securities; (v) the possibility that earnings of the issuer
may be insufficient to meet its debt service; and (vi) the issuer's low cred-
itworthiness and potential for insolvency during periods of rising interest
rates and economic downturn.
PREPAYMENT RISK. The Funds share risks associated with investment in mort-
gage-backed or asset-backed securities. The High Quality Bond Fund may invest
in mortgage-backed securities. Prepayment on mortgage-backed or asset-backed
securities may require reinvestment of principal under less attractive terms.
Prepayments may also significantly shorten the effective maturities of these
securities, especially during periods of declining interest rates. Conversely,
during periods of rising interest rates, a reduction in prepayments may in-
crease the effective maturities of these securities. Prepayments may cause
losses in securities purchased at a premium. Prepayments could result in
losses on stripped mortgage-backed or asset-backed securities. The yield-to-
maturity on an interest-only class of stripped mortgage-backed or asset-backed
securities is extremely sensitive not only to changes in prevailing interest
rates but also to the rate of principal payments (including prepayments) on
the underlying assets. Because of the foregoing characteristics, mortgage-
backed securities may be more volatile than other fixed income securities.
REPURCHASE AGREEMENTS. Investing in repurchase agreements subjects the High
Quality Bond Fund, like the Global Government Fund, to the risk that the de-
fault or bankruptcy of the other party to the repurchase agreement could sub-
ject the Fund to expenses, delays and risk of loss on the securities subject
thereto.
REVERSE REPURCHASE AGREEMENTS AND BORROWINGS. The High Quality Bond Fund may
invest in reverse repurchase agreements in the aggregate up to 33 1/3% of its
total assets but currently intends to limit such activity to 10% of total as-
sets. Reverse repurchase agreements and borrowings subject the High Quality
Bond Fund to the risk that changes in the value of a Fund's
11
<PAGE>
portfolio securities may amplify changes in the Fund's net asset value per
share and also may cause the Fund to liquidate portfolio positions when it
would not be advantageous to do so.
ILLIQUID SECURITIES. The Funds share similar risks for investment in illiquid
securities--specifically, higher transaction costs.
INVESTMENT IN FOREIGN SECURITIES. The High Quality Bond Fund may invest in
non-government foreign and domestic securities, including debt securities is-
sued or guaranteed by supranational organizations. Investment in foreign secu-
rities involves the risk of potentially reduced domestic marketability of such
securities, the lower reserve requirements generally mandated for overseas
banking operations, the possible impact of interruptions in the flow of inter-
national currency transactions, potential political and social instability or
expropriation, imposition of foreign taxes, less government supervision of is-
suers, difficulty in enforcing contractual obligations and lack of uniform ac-
counting standards.
LENDING OF PORTFOLIO SECURITIES. The Funds may incur similar risks from lend-
ing their securities. As with other extensions of credit, there are risks of
delay in recovery or even loss of rights in the collateral should the borrower
of the securities fail financially.
DERIVATIVE INSTRUMENTS. The High Quality Bond Fund may enter into options and
futures contracts for hedging purposes or as a part of their investment strat-
egies and may engage in swap agreements. Use of derivative instruments may in-
volve certain costs and risks, including the risk that the Fund could not
close out a position when it would be most advantageous to do so due to an il-
liquid market, the risk of an imperfect correlation between the value of the
securities being hedged and the value of the particular derivative instrument,
the risk of bankruptcy or default of counter- parties, and the risk that unex-
pected changes in interest rates or other market movements may adversely af-
fect the value of the Fund's investments in particular derivative instruments.
- --------------------------------------------------------------------------------
SPECIAL MEETING OF SHAREHOLDERS
This Prospectus/Proxy Statement is furnished in connection with a Special
Meeting of Global Government Fund shareholders to be held on December , 1997
or at such later time made necessary by adjournment (the "Meeting") and the
solicitation of proxies by and on behalf of the Trustees of the Trust for use
at the Meeting. The Meeting is being held to consider the election of Trustees
of the Trust and the proposed Merger of the Global Government Fund and the
High Quality Bond Fund by the transfer of all of the Global Government Fund's
assets and liabilities to the High Quality Bond Fund. This Prospectus/Proxy
Statement and the enclosed form of proxy are being mailed to shareholders on
or about November , 1997.
The Trustees of the Trust know of no matters other than those set forth
herein to be brought before the Meeting. If, however, any other matters prop-
erly come before the Meeting, it is the Trustees' intention that proxies will
be voted on such matters in accordance with the judgment of the persons named
in the enclosed form of proxy.
- --------------------------------------------------------------------------------
12
<PAGE>
PROPOSAL 1:
ELECTION OF TRUSTEES
At the Meeting, it is proposed that thirteen Trustees of the Trust be elected
to hold office until their successors are duly elected and qualified. The nom-
inees for election are: David E. Anderson, Wayne L. Attwood, M.D., Arthur H.
Bernstein, Esq., Kristianne Blake, Edmond R. Davis, Esq., John W. English,
Anne V. Farrell, Michael K. Murphy, Alfred E. Osborne, Jr., Ph.D., William G.
Papesh, Daniel L. Pavelich, Jay Rockey and Richard C. Yancey (each a "Nominee"
and collectively, the "Nominees"). Messrs. Anderson, Bernstein, Davis, English
and Osborne are currently members of the Trust's Board of Trustees. Messrs.
Atwood, Murphy, Papesh, Pavelich, Rockey and Yancey and Mses. Blake and
Farrell are all directors of the mutual funds advised by CRM (the "Composite
Funds"), but have not previously served on the Trust's Board of Trustees.
Shareholders of the Global Government Fund, along with the shareholders of
each other series of the Trust, are entitled to vote in the election of the
Trust's Trustees. If the proposed Merger by and between the Global Government
Fund and the High Quality Bond Fund is consummated, the Global Government's
separate existence would be terminated and its shareholders would become
shareholders of the High Quality Bond Fund, which is also a series of the
Trust, and would be governed by the same Board of Trustees.
The proposal to elect the Board of Trustees is being presented for share-
holder approval pursuant to requirements of the Investment Company Act of 1940
(the "1940 Act"). Under the 1940 Act, Trustees may not fill vacancies unless
at least two-thirds of the Trustees holding office after such vacancies are
filled have been elected by the shareholders. Approval of this proposal will
result in a combined Board of Trustees consisting of the current Trustees and
the Trustees of The Composite
Funds. The proposal, if approved, will provide the Board with operating flexi-
bility by making it possible for the Board of Trustees to fill vacancies that
may occur in the future.
Each of the Nominees has consented to being named in this Prospectus/Proxy
Statement and to serving as a Trustee if elected. The Trust knows of no reason
why any Nominee would be unable or unwilling to serve if elected.
The Trust is organized as a business trust under the laws of the Commonwealth
of Massachusetts. Under Massachusetts law, the Trust is not required to hold
annual meetings. The Trust has availed itself of this provision and achieves
cost savings by eliminating printing costs, mailing charges and other expenses
involved in routine annual meetings. Because the Trust does not hold regular
annual shareholder meetings, each Nominee, if elected, will hold office until
his or her successor is elected and qualified.
Even with the elimination of routine annual meetings, the Board of Trustees
may call special meetings of shareholders for action by shareholder vote as
may be required by the 1940 Act, or as required or permitted by the Trust's
Master Trust Agreement. Shareholder meetings will be held, in compliance with
the 1940 Act, to elect Trustees under certain circumstances. Shareholder meet-
ings may also be held by the Trust for other purposes, including to approve
investment policy changes, a new investment advisory agreement or other mat-
ters requiring shareholder action under the 1940 Act.
A meeting may also be called by shareholders holding at least 10% of the
shares entitled to vote at the meeting for the purpose of voting upon the re-
moval of Trustees, in which case shareholders may receive assistance in commu-
nicating with other shareholders as if the provisions contained in Section
16(c) of the 1940 Act applied.
13
<PAGE>
INFORMATION REGARDING NOMINEES
The following information is provided for each Nominee. It includes his or
her name, position with the Trust, if so held, tenure in office, trustee posi-
tions, principal occupations or employment during the past five years,
directorships/trusteeships with other companies which file reports periodi-
cally with the SEC, number of trustee positions with the registered investment
companies which hold themselves out to investors as related companies for pur-
poses of investment and investor services to which Sierra or an affiliated
person of Sierra provides investment advisory or administration services (col-
lectively, the "Fund Complex"). As of July 1, 1997, no Nominee, Trustee or of-
ficer of the Trust beneficially owned any shares of any series of the Trust,
since they are offered exclusively to the Separate Account and the Asset Allo-
cation Portfolios and no Nominee, Trustee, or officer of the Trust own any
Contracts.
<TABLE>
<CAPTION>
ADDRESS AND BUSINESS EXPERIENCE
NAME, AGE AND POSITION DURING THE PAST
WITH THE FUND FIVE YEARS (INCLUDING ALL DIRECTORSHIPS)
---------------------- ----------------------------------------
<C> <S>
Arthur H. Bernstein, Esq. (72) 11661 San Vicente Blvd. Suite 701
Chairman of the Board Los Angeles, CA 90049.
and Trustee since 1989. President, Bancorp Capital Group, Inc., 1988
to present; President, Bancorp Venture
Capital, Inc., 1988 to present. Trustee of 4
trusts in the Fund Complex, which includes the
Sierra Trust Funds, The Sierra Variable Trust,
Sierra Prime Income Fund and Sierra Asset
Management Portfolios.
David E. Anderson (70) 17960 Seabreeze Drive
Trustee since 1989. Pacific Palisades, CA 90272.
Retired. Formerly, President and Chief
Executive Officer, GTE California, Inc., 1979
to 1988. Trustee of 4 trusts in the Fund
Complex.
Edmond R. Davis, Esq. (69) 550 South Hope Street
Trustee since 1989. 21st Floor
Los Angeles, CA 90071.
Partner, Brobeck, Phleger & Harrison (law
firm) 1987 to present. Trustee of 4 trusts in
the Fund Complex.
John W. English (64) 50 H New England Ave.
Trustee since 1994. PO Box 640
Summit, NJ 07902-0640.
Retired. Formerly, Vice President and Chief
Investment Officer, Ford Foundation, 1981 to
1993. Chairman of the Board and Director, The
China Fund, Inc. (a closed-end mutual fund),
1993 to present; Trustee, Retail Property
Trust (a company providing management services
for shopping centers), 1994 to 1997; Director,
The Northern Trust Company's Benchmark Funds
(open-end mutual funds), 1994 to present.
Trustee of 4 trusts in the Fund Complex.
+Alfred E. Osborne, Jr. Ph.D. (52) 110 Westwood Plaza, Suite C305
Trustee since 1996. Los Angeles, CA 90095-1481.
Professor, The Anderson School and Director,
The Harold Price Center for Entrepreneurial
Studies at University of California at Los
Angeles, 1972 to present; Independent general
partner, Technology Funding Venture Partners
V, 1990 to present. Formerly, Governor,
National Association of Securities Dealers,
Inc., 1994 to 1996; Director, NASD Regulation,
September 1996 to December 1996. Director,
Times Mirror Company, 1980 to present;
Director, United States Filter Corporation,
1991 to present; Director, Nordstrom, Inc.,
1987 to present; Director, Seda Specialty
Packing Corporation, 1993 to 1997; Director,
Greyhound Lines, Inc., 1994 to present.
Trustee of 4 trusts in the Fund Complex.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND POSITION ADDRESS AND BUSINESS EXPERIENCE DURING THE PAST
WITH THE FUND FIVE YEARS (INCLUDING ALL DIRECTORSHIPS)
---------------------- -----------------------------------------------
<C> <S>
Wayne L. Attwood, M.D. (68) 2931 S. Howard
Nominee Spokane, WA 99203.
Retired. Formerly, Doctor of internal medicine and
gastroenterology. Director of [7] funds in the Fund
Complex.
Kristianne Blake (43) 705 W. 7th, Suite D
Nominee Spokane, Washington 99203.
President, Kristianne Gates Blake, PS Director of [7]
funds in the Fund Complex.
*Anne V. Farrell (62) 425 Pike Street, Suite 510
Nominee Seattle, WA 98101.
President and Chief Executive Officer, The Seattle
Foundation. Director, Washington Mutual, Inc.
Director of [7] funds in the Fund Complex.
*Michael K. Murphy (60) P.O. Box 3366
Nominee Spokane, WA 99220.
Chairman and Chief Executive Officer, CPM Development
Corporation. Director, Washington Mutual, Inc.
Director of [7] funds in the Fund Complex.
*William G. Papesh (54) 601 W. Main Avenue
Nominee Suite 300
Spokane, WA 99201.
President and Director, Advisor and Transfer Agent;
an executive vice president and Director,
Distributor. Director of [7] funds in the Fund
Complex.
Daniel L. Pavelich (53) Two Prudential Plaza
Nominee 180 North Stetson Avenue
Suite 4300
Chicago, IL 60601.
Chairman and Chief Executive Office, BDO Seidman.
Director of [7] funds in the Fund Complex.
Jay Rockey (69) 2121 Fifth Avenue
Nominee Seattle, WA 98121.
Chairman and Chief Executive Officer, The Rockey
Company Director of [7] funds in the Fund Complex.
Richard C. Yancey (71) 535 Madison Avenue
Nominee New York, NY 10022.
Senior Advisor, Dillon, Read & Co., Inc. Director of
[7] funds in the Fund Complex.
</TABLE>
+ Dr. Osborne also served as Trustee of the Trust from 1989 to .
* Denotes an individual who is an "interested person" of the Funds as defined
in the 1940 Act.
** This information has been provided by each Nominee.
*** As of July 1, 1997, the Nominees as a group beneficially owned an aggregate
of less than 1% of the shares of each fund of the Trust.
15
<PAGE>
COMPENSATION OF TRUSTEES
Each Trustee who is not an "interested person" receives an aggregate annual
fee (plus reimbursement for reasonable out-of-pocket expenses incurred in con-
nection with his or her attendance at Board and committee meetings) from the
Funds and all of the funds in the Fund Complex for which he or she serves. The
Trust pays each Trustee who is not a director, officer or employee of Washing-
ton Mutual, Inc., Sierra Investment Services Corporation, Sierra Investment
Advisors Corporation, the sub-advisors to the Trust 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 meet-
ing attended and reimbursement for travel and out-of-pocket expenses. Since
December 1996, Mr. Bernstein, the Chairman, has received one and a half times
the Trustee's compensation described above. The Chairman of the Audit Commit-
tee receives $1,500 per Audit Committee meeting attended. Officers of the
Trust receive no direct remuneration in such capacity from the Trust. Officers
of the Trust who are employees of Sierra or its affiliates may be considered
to have received remuneration indirectly.
Pursuant to an exemptive order granted by the SEC, 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 re-
ceipt 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 pay-
ments to plan participants are paid solely out of the Trust's assets.
The aggregate compensation payable by the Trust to each of the Trust's Trust-
ees serving during the fiscal year ended December 31, 1996 is set forth in the
compensation table below. The aggregate compensation payable to such Trustees
during the fiscal year ended December 31, 1996, by the Fund Complex is also
set forth in the compensation table below.
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR
AGGREGATE RETIREMENT TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED AS FROM THE FUND
PAYABLE PART OF FUND AND FUND COMPLEX**
NAME AND POSITION FROM THE TRUST* EXPENSES PAYABLE TO DIRECTORS
----------------- --------------- ------------------- -------------------------------
<S> <C> <C> <C>
Arthur H. Bernstein,
Esq.,+,++, Trustee..... $14,814 $ 0 $53,625 for service on 4 boards
David E. Anderson,
Trustee................ $14,459 0 50,250 for service on 4 boards
Edmond R. Davis, Esq.,
Trustee................ $13,959 0 50,250 for service on 4 boards
John W. English,
Trustee................ $13,959 0 51,250 for service on 4 boards
Alfred E. Osborne, Jr.,
+++, Trustee........... $ 6,709 0 28,750 for service on 4 boards
- --------------------------------------------------------------------------------------------
</TABLE>
* Includes compensation deferred pursuant to the Plan. The total amount of
deferred compensation payable by the Trust to Messrs. Bernstein, Anderson,
Davis, English and Osborne as of December 31, 1996 were $ , 0, 0, 0, and
0, respectively, including income earned on such amounts.
** The Fund Complex consisted of the Trust, the Sierra Trust Funds ("STF"),
Sierra Prime Income Fund ("SPIF") and Sierra Asset Management Portfolios
("SAMP") as of December 31, 1996.
+ Includes $1,500 paid to Mr. Anderson for serving as Chairman of the Audit
Committee held by the Trust.
++ Includes $1,500 and $1,125 paid to Mr. Bernstein for Audit Committee meet-
ings held by STF and SPIF respectively.
+++ Dr. Osborne was appointed a Trustee of the Trust, STF, SPIF and SAMP on
July 1, 1996
16
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARD OF TRUSTEES
There were ten meetings of the Board of Trustees held during the fiscal year
ended December 31, 1996. In such fiscal year, all Trustees attended at least
75% of the meetings of the Board of Trustees.
The Board of Trustees has an Audit Committee. The Audit Committee makes rec-
ommendations to the full Board of Trustees with respect to the engagement of
independent accountants and reviews, with the independent accountants, the re-
sults of the audit engagement and matters having a material effect on the
Fund's financial operations. The members of the Audit Committee during the
fiscal year ended December 31, 1996, were Messrs. Bernstein (Chairman), Ander-
son, Davis, English and Osborne, each of whom is not an "interested person"
within the meaning of the 1940 Act. The Audit Committee met once during the
fiscal year ended December 31, 1996 and all members attended the meeting.
The Board of Trustees has a Nominating Committee. The Nominating Committee
makes recommendations to the full Board of Trustees with respect to candidates
for the Board of Trustees. The members of the Nominating Committee during the
fiscal year ended December 31, 1996, were Messrs. Cerini (Mr. Cerini resigned
as a Trustee of the Trust effective May 29,1997), Anderson, Bernstein, Davis,
Osborne and English, each of whom, with the exception of Mr. Cerini, is not an
"interested person" within the meaning of the 1940 Act. The Nominating Commit-
tee did not meet during the fiscal year ended December 31, 1996 and all mem-
bers attended the meeting held on October 27 and 28, 1997.
BOARD APPROVAL OF THE ELECTION OF TRUSTEES
At a meeting of the Board of Trustees held October 27 and 28, 1997, the Board
of Trustees recommended that shareholders vote FOR each of the Nominees for
Trustee named herein. In recommending that shareholders elect the Nominees as
Trustees of the Trust, the Board considered the Nominees' experience and qual-
ifications. In particular, each of the Nominees who has not previously served
on the Board of Trustees of the Trust has previous experience serving on the
Board of Directors of the various Composite Funds.
SHAREHOLDER APPROVAL OF THE ELECTION OF TRUSTEES
The Election of the Trustees requires the affirmative vote of a plurality of
all votes cast at the Meeting, provided that a majority of the shares entitled
to vote are present in person or by proxy at the Meeting. If your shares are
represented at the meeting but you give no voting instructions, your shares
will be voted FOR all Nominees named herein. If the Nominees are not approved
by shareholders of the Trust, the Board of Trustees will consider alternative
nominations.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT THE SHAREHOLDERS OF THE
GLOBAL GOVERNMENT FUND VOTE FOR THE ELECTION OF THE NOMINEES AS TRUSTEES OF
THE TRUST.
- --------------------------------------------------------------------------------
PROPOSAL 2:
APPROVAL OR DISAPPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
The shareholders of the Global Government Fund are being asked to approve or
disapprove a Merger between the Global Government Fund and
the High Quality Bond Fund. The Merger is proposed to take place pursuant to
an Agreement and Plan of Reorganization between the Global Gov-
17
<PAGE>
ernment Fund and the High Quality Bond Fund, [dated as of November , 1997]
(the "Agreement"), the form of which is attached to this Prospectus/Proxy
Statement as Appendix A.
The Agreement provides, among other things, for the transfer of all of the
assets of the Global Government Fund to the High Quality Bond Fund in exchange
for (i) the assumption by the High Quality Bond Fund of all of the liabilities
of the Global Government Fund and (ii) the issuance to the Global Government
Fund of the Merger Shares, the number of which will be calculated based upon
the value of the net assets of the Global Government Fund acquired by the High
Quality Bond Fund and the net asset value per share of the High Quality Bond
Fund, all as more fully described below under "Information About the Merger."
After receipt of the Merger Shares, the Global Government Fund will cause the
Merger Shares to be distributed to its shareholders in complete liquidation of
the Global Government Fund. Each shareholder of the Global Government Fund
will receive a number of full and fractional Merger Shares equal in value at
the date of the exchange to the aggregate value of the shareholder's Global
Government Fund shares.
TRUSTEES' RECOMMENDATION. THE TRUSTEES OF THE TRUST HAVE VOTED UNANIMOUSLY TO
APPROVE THE PROPOSED MERGER BY AND BETWEEN THE GLOBAL GOVERNMENT FUND AND HIGH
QUALITY BOND FUND AND TO RECOMMEND THAT SHAREHOLDERS OF THE GLOBAL GOVERNMENT
FUND ALSO APPROVE THE MERGER FOR SUCH FUND.
REQUIRED SHAREHOLDER VOTE. Approval of the proposed Merger will require the
affirmative vote of the lesser of (A) 67% or more of the shares of the Global
Government Fund present or represented at the Meeting if the holders of more
than 50% of the outstanding shares are present or represented by proxy at the
Meeting, or (B) more than 50% of the outstanding shares of the Global Govern-
ment Fund.
A shareholder of the Global Government Fund objecting to the proposed Merger
is not entitled under either Massachusetts law or the Trust's Master Trust
Agreement (the "Sierra Declaration of Trust") to demand payment for or an
appraisal of Global Government Fund shares if the Merger is consummated over
his or her objection. Global Government Contractowners may be able to exercise
exchange rights under their Contracts to reallocate purchase premiums to
Divisions of the Separate Account investing in other series of the Trust.
BACKGROUND AND REASONS FOR THE PROPOSED MERGERS
The Trustees of the Trust, including the Trustees who are not "interested
persons" of the Trust (the "Independent Trustees"), have determined that the
Merger would be in the best interests of the Global Government Fund, and that
the interests of the Global Government Fund's shareholders would not be di-
luted as a result of effecting the Merger. At a meeting held on October 27 and
28, 1997, the Trustees [unanimously] approved the proposed Merger and recom-
mended its approval by shareholders. Before reaching its conclusions, the
Trust's Board of Trustees conducted an extensive "due diligence" review. Among
other things, the Board received reports from counsel and experts hired to
evaluate the Merger.
The principal reasons why the Trustees are recommending the Merger are as
follows:
(i) ECONOMIES OF SCALE AT FUND LEVEL. The Trustees have determined that it
is in the best interests of the Global Government Fund's shareholders to com-
bine the Global Government Fund with the High Quality Bond Fund in order to
increase the asset base over which the Global Government Fund's expenses will
be spread. The increased asset base is expected to result in aggregate oper-
ating expenses (exclusive of management fees) that would be lower than those
that will otherwise be borne by the Global Government Fund.
18
<PAGE>
(ii) APPROPRIATE INVESTMENT OBJECTIVES, DIVERSIFICATION, ETC. The investment
objectives of the High Quality Bond Fund are substantially similar to those
of the Global Government Fund, and the Trustees believe that an investment in
shares of the High Quality Bond Fund (whose portfolio will have been combined
with that of the Global Government Fund) will provide shareholders with an
investment opportunity comparable to that currently afforded by the Global
Government Fund, with the potential for reduced investment risk because of
the opportunities for additional diversification of portfolio investments
through increased Fund assets.
INFORMATION ABOUT THE MERGER
AGREEMENT AND PLAN OF REORGANIZATION. The proposed Agreement and Plan of Re-
organization provides that the High Quality Bond Fund will acquire all of the
assets of the Global Government Fund in exchange for the assumption by the
High Quality Bond Fund of all of the liabilities of the Global Government Fund
and for the issuance of the Merger Shares, all as of the Exchange Date (de-
fined in the Agreement to be December [31], 1997 or such other date as may be
agreed upon by the Funds). The following discussion of the Agreement is quali-
fied in its entirety by the full text of the Agreement, the form of which is
attached as Appendix A to this Prospectus/Proxy Statement.
The Global Government Fund will sell all of its assets to the High Quality
Bond Fund, and, in exchange, the High Quality Bond Fund will assume all of the
liabilities of the Global Government Fund and deliver to the Global Government
Fund a number of full and fractional Merger Shares having an aggregate net as-
set value equal to the value of the assets of the Global Government Fund, less
the value of the liabilities of the Global Government Fund assumed by the High
Quality Bond Fund.
Immediately following the Exchange Date, the Global Government Fund will dis-
tribute pro rata to its shareholders of record as of the close of business on
the Exchange Date the full and fractional Merger Shares received by the Global
Government Fund, with Merger Shares being distributed to holders of shares of
the Global Government Fund. As a result of the proposed transaction, each
holder of shares of the Global Government Fund will receive a number of Merger
Shares equal in aggregate value at the Exchange Date to the value of the
shares of the Global Government Fund held by the shareholder. This distribu-
tion will be accomplished by the establishment of accounts on the share rec-
ords of the High Quality Bond Fund in the names of the Global Government Fund
shareholders, each account representing the number of full and fractional
Merger Shares due such shareholder. New certificates for Merger Shares will
not be issued.
The consummation of the Merger is subject to the conditions set forth in the
Agreement, including the receipt of certain regulatory approvals, and certain
of these conditions may be waived. The Agreement may be terminated and the
Merger abandoned at any time, before or after approval by the shareholders of
the Global Government Fund, prior to the Exchange Date, by mutual consent of
the Funds or, if any condition set forth in the Agreement has not been ful-
filled and has not been waived by the party entitled to its benefits, by such
party.
All legal and accounting fees and expenses, printing and other fees and ex-
penses (other than portfolio transfer taxes (if any), brokerage and other sim-
ilar expenses, all of which will be borne by the relevant Fund) incurred in
connection with the consummation of the transactions contemplated by the
Agreement will be [borne by CRM and/or Washington Mutual] [allocated in accor-
dance with the following: First, the costs of the overall restructuring of the
Composite/Sierra Mutual Funds referred to in the Overview under "Proposed
Transactions," including the costs of
19
<PAGE>
the Merger and this Prospectus/Proxy Statement, are being preliminarily allo-
cated on a basis approved by the Trustees, including the Independent Trustees,
of the Trust as well as by the Trustees of the Composite Funds, including the
Trustees who are not "interested persons" thereof, and directors of the Com-
posite Funds, including the directors who are not "interested persons" there-
of. CRM and/or Sierra will bear any and all expenses preliminarily allocated
to any of the series of Composite Funds involved in the overall restructuring
and CRM and/or Sierra will also bear any and all expenses allocated to Sierra
Funds, including the Global Government Fund and the High Quality Bond Fund to
the extent that they would otherwise exceed the respective expense caps (the
"Relevant Expense Caps") set forth below. The Sierra Funds, including the
Global Government Fund and the High Quality Bond Fund have agreed to pay the
expenses preliminarily allocated to them but not, however, in an amount ex-
ceeding the Relevant Expense Caps. The Relevant Expense Caps represent a per-
centage (approximately 50%) of the projected aggregate savings for sharehold-
ers for the first year following the Mergers. The currently estimated expenses
to be borne by the Funds and the Relevant Expense Caps are as follows:
<TABLE>
<CAPTION>
CURRENT
EXPENSE
NAME OF FUND ESTIMATE EXPENSE CAP
------------ -------- -----------
<S> <C> <C>
Global Government Fund....................................
High Quality Bond Fund....................................
</TABLE>
Notwithstanding any of the foregoing, expenses will in any event be paid by
the party directly incurring such expenses if and to the extent that the pay-
ment by any other party of such expenses would result in the disqualification
of the first party as a "regulated investment company" within the meaning of
Section 851 of the Internal Revenue Code of 1986, as amended (the "Code").
DESCRIPTION OF THE MERGER SHARES. Full and fractional Merger Shares will be
issued to the Global Government Fund's shareholders in accordance with the
procedure under the Agreement as described above. The Merger Shares are shares
of the High Quality Bond Fund, which have characteristics similar to shares of
the Global Government Fund with respect to sales charges and other fees. The
purchase of shares of the High Quality Bond Fund by AGL through the Separate
Account involve no sales charge at the time of purchase, and the Global Gov-
ernment Fund shareholders receiving Merger Shares in the Merger will not pay a
sales charge on such shares.
DECLARATION OF TRUST. Each of the Merger Shares will be fully paid and nonas-
sessable by the High Quality Bond Fund when issued, will be transferable with-
out restriction, and will have no preemptive or conversion rights.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for the obliga-
tions of the trust. However, the Sierra Declaration of Trust disclaims share-
holder liability for acts or obligations of the Trust and/or the High Quality
Bond Fund and requires that notice of such disclaimer be given in each agree-
ment, undertaking, or obligation entered into or executed by the Trust, the
High Quality Bond Fund or the Trust's Trustees. The Sierra Declaration of
Trust provides for indemnification out of the High Quality Bond Fund property
for all loss and expense of any shareholder held personally liable for the ob-
ligations of the High Quality Bond Fund. Thus, the risk of a shareholder's in-
curring financial loss from shareholder liability is limited to circumstances
in which the High Quality Bond Fund would be unable to meet its obligations.
The likelihood of such a circumstance is considered remote. The shareholders
of the Global Government Fund are currently subject to the same risk of share-
holder liability under Massachusetts law and the Sierra Declaration of Trust.
The Sierra Declaration of Trust provides that Trustees may be removed by two-
thirds vote of the Trustees or by vote of shareholders holding at least
20
<PAGE>
two-thirds of the outstanding shares of the Trust. In addition, the Sierra
Declaration of Trust provides that shareholders holding 10% or more of the
outstanding shares of the Trust may call a meeting of shareholders to consider
the removal of any Trustee.
The Sierra Declaration of Trust provides that the liquidation of any fund,
including the Global Government Fund, requires the approval not only of a ma-
jority of the Trustees, but also of a "majority of the outstanding voting se-
curities" of the fund, as defined in the 1940 Act, which means the lesser of
(A) 67% or more of the shares of the fund present at a meeting, if the holders
of more than 50% of the outstanding shares of the fund are present or repre-
sented by proxy, or (B) more than 50% of the outstanding shares of the fund.
The Sierra Declaration of Trust provides that the Trust may be terminated only
by both the vote of a majority of the outstanding voting securities of each
fund and the vote of a majority of the Trustees.
The Sierra Declaration of Trust provides that a quorum for a meeting of
shareholders is a majority of the shares entitled to vote at the meeting.
CAPITALIZATION. The following table shows the capitalization of the High
Quality Bond Fund and the Global Government Fund as of December 31, 1997 and
of the High Quality Bond Fund on a pro forma basis as of that date, giving ef-
fect to the proposed acquisition by the High Quality Bond Fund of the assets
and liabilities of the Global Government Fund at net asset value:
DECEMBER 31, 1996
<TABLE>
<CAPTION>
HIGH QUALITY BOND
FUND:
HIGH QUALITY BOND GLOBAL GOVERNMENT PRO FORMA
FUND FUND COMBINED
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net Assets (000's omit-
ted)................... $12,402 $21,910 $34,312
Shares outstanding
(000's omitted)........ 5,099 8,843 14,108
Net asset value per
share*................. $ 2.43 $ 2.48 $ 2.43
- ------------------------------------------------------------------------------
</TABLE>
* Although the Net Asset Value per share of the High Quality Bond Fund stated
on a pro forma basis subsequent to the Merger is less than the current Net
Asset Value per share of the Global Government Fund reflected in the above
table, a shareholder's net assets will remain unchanged as a result of the
Merger because the amount of shares they hold will change.
Because the Agreement provides that the High Quality Bond Fund will be the
surviving Fund following the reorganization and because the High Quality Bond
Fund's investment objective and policies will remain unchanged, the pro forma
financial statements reflect the transfer of the assets and liabilities of the
Global Government Fund to the High Quality Bond Fund as contemplated by the
Agreement.
- -------------------------------------------------------------------------------
INFORMATION ABOUT THE ACQUIRED AND ACQUIRING FUNDS
Other information regarding the Global Government Fund and the High Quality
Bond Fund, including information with respect to the investment objectives,
policies and restrictions and financial history may be found in the accompany-
ing Prospectus, as well as in the Merger SAI, the SAI and the Annual Report
and the Semi-Annual Re
port, which are available upon request by calling [1-800-247-6584]. To the ex-
tent that any information in respect of the Global Government Fund or the High
Quality Bond Fund found in any such document is inconsistent with the informa-
tion contained in this Prospectus/Proxy Statement, this Prospectus/ Proxy
Statement should be deemed to
21
<PAGE>
supersede such other document. Certain recent financial information and cer-
tain information and commentary from the Semi-Annual Report relating to the
High Quality Bond Fund's recent investment performance is set forth in Appen-
dix B to this Prospectus/Proxy Statement.
Proxy materials, reports, proxy and information statements and other informa-
tion filed by the Trust with respect to the Funds can be inspected and copied
at the Public Reference Facilities maintained by the Securities and Exchange
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; 7 World Trade
Center, Suite 1300, New York, New York 10048; and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can also be ob-
tained from the Public Reference Branch, Office of Consumer Affairs and Infor-
mation Services, Securities and Exchange Commission, Washington, D.C. 20549 at
prescribed rates.
- -------------------------------------------------------------------------------
VOTING INFORMATION
RECORD DATE, QUORUM AND METHOD OF TABULATION. Shareholders of record of the
Global Government Fund at the close of business on October , 1997 (the "Rec-
ord Date") will be entitled to notice of and to vote at the Meeting or any ad-
journment thereof. The holders of a majority of the shares of the Global Gov-
ernment Fund outstanding at the close of business on the Record Date present
in person or represented by proxy will constitute a quorum for the Meeting
with respect to that Fund. Shareholders are entitled to one vote for each
share held, with fractional shares voting proportionally. Only shareholders of
the Global Government Fund will vote on the approval or disapproval of the
Merger. Shareholders of all of the funds within the Trust will vote together
as a single class on the election of the Trust's Board of Trustees.
Votes cast by proxy or in person at the Meeting will be counted by persons
appointed by the Trust as tellers for the Meeting. The tellers will count the
total number of votes cast "for" approval of the proposal for purposes of de-
termining whether sufficient affirmative votes have been cast. Shares of the
Global Government Fund which are held by the Asset Allocation Portfolios and
shares with respect to which AGL has not received instructions from
Contractowners are required to be voted for, voted against or withheld from
voting on each Proposal in the same proportion as the other outstanding shares
of the Global Government Fund are voted.
SHARES OUTSTANDING AND BENEFICIAL OWNERSHIP. As of the Record Date, as shown
on the books of the Trust, there were issued and outstanding shares of benefi-
cial interest of the Global Government Fund.
As of the Record Date, to the best of the knowledge of the Trust, the follow-
ing persons owned of record or beneficially 5% or more of the outstanding
shares of the indicated classes of the Global Government Fund and the High
Quality Bond Fund:
[insert list of 5% shareholders and pro forma ownership of the 5% sharehold-
ers following Merger]
SOLICITATION OF INSTRUCTIONS. Solicitation of proxies by personal interview,
mail, and telephone, may be made by officers and Trustees of the Trust and em-
ployees of Sierra and CRM and their affiliates. The costs for solicitation of
instructions, like the other costs associated with the overall restructuring
of the Composite/Sierra Mutual Funds, will be [borne by CRM and/or Sierra]
[only partially borne by the Funds]. See "Information About the Merger."
22
<PAGE>
REVOCATION OF INSTRUCTIONS. Any shareholder giving instructions has the power
to revoke such instructions by mail (addressed to American General Life Insur-
ance Company, Attn: Annuity Administration, P.O. Box 1401, Houston, Texas
77251) by executing superseding instructions. All properly executed instruc-
tions received in time for the Meeting will be voted as specified in the in-
structions.
SHAREHOLDER PROPOSALS AT FUTURE MEETINGS OF SHAREHOLDERS. The Sierra Declara-
tion of Trust does not provide for annual meetings of shareholders and the
Trust does not currently intend to hold such a meeting for shareholders in 1997
or 1998. Shareholder proposals for inclusion in a proxy statement for any sub-
sequent meeting of the Global Government Fund's shareholders must be received
by the Trust a reasonable period of time prior to any such meeting. If the
Merger is consummated, the Global Government Fund's existence will terminate in
December 1997 or shortly thereafter, after which there would be no meetings of
the shareholders of the Global Government Fund.
ADJOURNMENT. [If sufficient votes in favor of any proposal are not received by
the time scheduled for the Meeting, the persons named as proxies may propose
one or more adjournments of the Meeting to permit further solicitation of prox-
ies. Any adjournment will require the affirmative vote of a plurality of the
votes cast on the question in person or by proxy at the session of the Meeting
to be adjourned. If the Meeting is adjourned only with respect to one proposal,
any other proposal may still be acted upon by the shareholders. The persons
named as proxies will vote in favor of such adjournment those proxies which
they are entitled to vote in favor of the proposal. They will vote against any
such adjournment those proxies required to be voted against the proposal. [The
Global Government Fund/CRM or its affiliates] will pay the costs of any addi-
tional solicitation and of any adjourned session.]
November , 1997
23
<PAGE>
APPENDIX A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as of
October , 1997 in , , by and between The Sierra Variable Trust, a
Massachusetts business trust (the "Sierra Trust") on behalf of its Short Term
Global Government Fund series (the "Acquired Fund"), and the Sierra Trust, on
behalf of its Short Term High Quality Bond Fund series (the "Acquiring Fund").
PLAN OF REORGANIZATION
(a) The Acquired Fund will sell, assign, convey, transfer and deliver to the
Acquiring Fund on the Exchange Date (as defined in Section 6) all of its prop-
erties and assets. In consideration therefor, the Acquiring Fund shall, on the
Exchange Date, assume all of the liabilities of the Acquired Fund existing at
the Valuation Time (as defined in Section 3(c)) and deliver to the Acquired
Fund (i) a number of full and fractional shares of beneficial interest of the
Acquiring Fund (the "Merger Shares") having an aggregate net asset value equal
to the value of the assets of the Acquired Fund shares of the Acquired Fund
transferred to the Acquiring Fund on such date less the value of the liabili-
ties of the Acquired Fund shares of the Acquired Fund assumed by the Acquiring
Fund on that date (the "Merger Shares"). It is intended that the reorganiza-
tion described in this Agreement shall be a reorganization within the meaning
of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code").
(b) Upon consummation of the transaction described in paragraph (a) of this
Agreement, the Acquired Fund shall distribute in complete liquidation to its
shareholders of record as of the Exchange Date the Merger Shares of the Ac-
quiring Fund, each such shareholder being entitled to receive that proportion
of such Merger Shares which the number of shares of beneficial interest of the
Acquired Fund held by such shareholder bears to the number of shares of the
Acquired Fund outstanding on such date. Certificates representing the Merger
Shares will not be issued. All issued and outstanding shares of the Acquired
Fund will simultaneously be canceled on the books of the Acquired Fund.
(c) As promptly as practicable after the liquidation of the Acquired Fund as
aforesaid, the Acquired Fund shall be dissolved pursuant to the provisions of
the Declaration of Trust of the Sierra Trust, as amended, and applicable law,
and its legal existence terminated. Any reporting responsibility of the Ac-
quired Fund is and shall remain the responsibility of the Acquired Fund up to
and including the Exchange Date and, if applicable, such later date on which
the Acquired Fund is liquidated.
AGREEMENT
The Acquiring Fund and the Acquired Fund agree as follows:
1. Representations, Warranties and Agreements of the Acquiring Fund. The Ac-
quiring Fund represents and warrants to and agrees with the Acquired Fund
that:
a. The Acquiring Fund is a series of shares of the Sierra Trust, a Massachu-
setts business trust duly established and validly existing under the laws of
The Commonwealth of Massachusetts, and has power to own all of its properties
and assets and to carry out its obligations under this Agreement. The Sierra
Trust is qualified as a foreign association in every jurisdiction where re-
quired, except to the extent that failure to so qualify would not have a ma-
terial adverse effect on the Sierra Trust. Each of the Sierra Trust and
A-1
<PAGE>
the Acquiring Fund has all necessary federal, state and local authorizations
to carry on its business as now being conducted and to carry out this Agree-
ment.
b. The Sierra Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end management investment company,
and such registration has not been revoked or rescinded and is in full force
and effect.
c. Statements of assets and liabilities, statements of operations, state-
ments of changes in net assets and schedules of investments (indicating their
market values) of the Acquiring Fund as of and for the year ended December
31, 1996 and as of and for the six months ended 6/30/97 have been furnished
to the Acquired Fund. Such statements of assets and liabilities and schedules
fairly present the financial position of the Acquiring Fund as of their dates
and such statements of operations and changes in net assets fairly reflect
the results of its operations and changes in net assets for the periods cov-
ered thereby in conformity with generally accepted accounting principles.
d. The current prospectus and statement of additional information of the Si-
erra Trust, each dated May 1, 1997 (collectively, the "Sierra Prospectus"),
which has previously been furnished to the Acquired Fund, did not as of such
date and does not contain as of the date hereof, with respect to the Sierra
Trust and the Acquiring Fund, any untrue statements of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading.
e. There are no material legal, administrative or other proceedings pending
or, to the knowledge of the Sierra Trust or the Acquiring Fund, threatened
against the Sierra Trust or the Acquiring Fund, which assert liability on the
part of the Sierra Trust or the Acquiring Fund. The Acquiring Fund knows of
no facts which might form the basis for the institution of such proceedings
and is not a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and adversely af-
fects its business or its ability to consummate the transactions herein con-
templated.
f. The Acquiring Fund has no known liabilities of a material nature, contin-
gent or otherwise, other than those shown belonging to it on its statement of
assets and liabilities as of June 30, 1997, those incurred in the ordinary
course of its business as an investment company since June 30, 1997 and those
to be assumed pursuant to this Agreement. Prior to the Exchange Date, the Ac-
quiring Fund will endeavor to quantify and to reflect on its balance sheet
all of its material known liabilities and will advise the Acquired Fund of
all material liabilities, contingent or otherwise, incurred by it subsequent
to June 30, 1997, whether or not incurred in the ordinary course of business.
g. As of the Exchange Date, the Acquiring Fund will have filed all federal
and other tax returns and reports which, to the knowledge of the Sierra
Trust's officers, are required to be filed by the Acquiring Fund and have
paid or will pay all federal and other taxes shown to be due on said returns
or on any assessments received by the Acquiring Fund. All tax liabilities of
the Acquiring Fund have been adequately provided for on its books, and no tax
deficiency or liability of the Acquiring Fund has been asserted, and no ques-
tion with respect thereto has been raised or is under audit, by the Internal
Revenue Service or by any state or local tax authority for taxes in excess of
those already paid.
h. No consent, approval, authorization or order of any court or governmental
authority is required for the consummation by the Acquiring Fund of the
transactions contemplated by this Agreement, except such as may be required
A-2
<PAGE>
under the Securities Act of 1933, as amended (the "1933 Act"), the Securities
Exchange Act of 1934, as amended (the "1934 Act"), the 1940 Act and state se-
curities or blue sky laws (which term as used herein shall include the laws
of the District of Columbia and of Puerto Rico).
i. The registration statement (the "Registration Statement") filed with the
Securities and Exchange Commission (the "Commission") by the Sierra Trust on
Form N-14 on behalf of the Acquiring Fund and relating to the Merger Shares
issuable hereunder and the proxy statement of the Acquired Fund relating to
the meeting of the Acquired Fund shareholders referred to in Section 7(a)
herein (together with the documents incorporated therein by reference, the
"Acquired Fund Proxy Statement"), on the effective date of the Registration
Statement, (i) will comply in all material respects with the provisions of
the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder and (ii) will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; and at the time of the share-
holders meeting referred to in Section 7(a) and on the Exchange Date, the
prospectus which is contained in the Registration Statement, as amended or
supplemented by any amendments or supplements filed with the Commission by
the Sierra Trust, and the Acquired Fund Proxy Statement will not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not mislead-
ing; provided, however, that none of the representations and warranties in
this subsection shall apply to statements in or omissions from the Registra-
tion Statement or the Acquired Fund Proxy Statement made in reliance upon and
in conformity with information furnished in writing by the Acquired Fund to
the Acquiring Fund or the Sierra Trust specifically for use in the Registra-
tion Statement or the Acquired Fund Proxy Statement.
j. There are no material contracts outstanding to which the Acquiring Fund
is a party, other than as are or will be disclosed in the Sierra Prospectus,
the Registration Statement or the Acquired Fund Proxy Statement.
k. The Acquiring Fund has no shares of beneficial interest issued and out-
standing. All of the issued and outstanding shares of beneficial interest of
the Acquiring Fund have been offered for sale and sold in conformity with all
applicable federal and state securities laws (including any applicable exemp-
tions therefrom), or the Acquiring Fund has taken any action necessary to
remedy any prior failure to have offered for sale and sold such shares in
conformity with such laws.
l. The Acquiring Fund qualifies and will at all times through the Exchange
Date qualify for taxation as a "regulated investment company" under Sections
851 and 852 of the Code.
m. The issuance of the Merger Shares pursuant to this Agreement will be in
compliance with all applicable federal and state securities laws.
n. The Merger Shares to be issued to the Acquired Fund have been duly autho-
rized and, when issued and delivered pursuant to this Agreement, will be le-
gally and validly issued and will be fully paid and non-assessable by the Ac-
quiring Fund, and no shareholder of the Acquiring Fund will have any preemp-
tive right of subscription or purchase in respect thereof.
o. All issued and outstanding shares of the Acquiring Fund are, and at the
Exchange Date all issued and outstanding shares of the Acquiring Fund will
be, duly authorized, validly issued, fully paid and non-assessable by the Ac-
quiring Fund. The Acquiring Fund does not have outstanding any options, war-
rants or other rights to
A-3
<PAGE>
subscribe for or purchase any Acquiring Fund shares, nor is there outstanding
any security convertible into any Acquiring Fund shares.
2. Representations, Warranties and Agreements of the Acquired Fund. The Ac-
quired Fund represents and warrants to and agrees with the Acquiring Fund
that:
a. The Acquired Fund is a series of shares of the Sierra Trust, a Massachu-
setts business trust duly established and validly existing under the laws of
The Commonwealth of Massachusetts, and has power to own all of its properties
and assets and to carry out this Agreement. The Sierra Trust is qualified as
a foreign association in every jurisdiction where required, except to the ex-
tent that failure to so qualify would not have a material adverse effect on
the Sierra Trust. Each of the Sierra Trust and the Acquired Fund has all nec-
essary federal, state and local authorizations to own all of its properties
and assets and to carry on its business as now being conducted and to carry
out this Agreement.
b. The Sierra Trust is registered under the 1940 Act as an open-end manage-
ment investment company, and such registration has not been revoked or re-
scinded and is in full force and effect.
c. A statement of assets and liabilities, statement of operations, statement
of changes in net assets and a schedule of investments (indicating their mar-
ket values) of the Acquired Fund as of and for the year ended June 30, 1997
have been furnished to the Acquiring Fund. Such statement of assets and lia-
bilities and schedule fairly present the financial position of the Acquired
Fund as of their date, and such statements of operations and changes in net
assets fairly reflect the results of its operations and changes in net assets
for the period covered thereby, in conformity with generally accepted ac-
counting principles.
d. The Sierra Prospectus, which has been previously furnished to the Acquir-
ing Fund, did not contain as of such dates and does not contain, with respect
to the Sierra Trust and the Acquired Fund, any untrue statement of a material
fact or omit to state a material fact required to be stated therein or neces-
sary to make the statements therein not misleading.
e. There are no material legal, administrative or other proceedings pending
or, to the knowledge of the Sierra Trust or the Acquired Fund, threatened
against the Sierra Trust or the Acquired Fund, which assert liability on the
part of the Sierra Trust or the Acquired Fund. The Acquired Fund knows of no
facts which might form the basis for the institution of such proceedings and
is not a party to or subject to the provisions of any order, decree or judg-
ment of any court or governmental body which materially and adversely affects
its business or its ability to consummate the transactions herein contemplat-
ed.
f. There are no material contracts outstanding to which the Acquired Fund is
a party, other than as are disclosed in the Sierra Trust's registration
statement on Form N-1A or the Sierra Prospectus.
g. The Acquired Fund has no known liabilities of a material nature, contin-
gent or otherwise, other than those shown on the Acquired Fund's statement of
assets and liabilities as of June 30, 1997 referred to above and those in-
curred in the ordinary course of its business as an investment company since
such date. Prior to the Exchange Date, the Acquired Fund will endeavor to
quantify and to reflect on its balance sheet all of its material known lia-
bilities and will advise the Acquiring Fund of all material liabilities, con-
tingent or otherwise, incurred by it subsequent to June 30, 1997, whether or
not incurred in the ordinary course of business.
h. As of the Exchange Date, the Acquired Fund will have filed all federal
and other tax
A-4
<PAGE>
returns and reports which, to the knowledge of the Sierra Trust's officers,
are required to be filed by the Acquired Fund and has paid or will pay all
federal and other taxes shown to be due on said returns or on any assessments
received by the Acquired Fund. All tax liabilities of the Acquired Fund have
been adequately provided for on its books, and no tax deficiency or liability
of the Acquired Fund has been asserted, and no question with respect thereto
has been raised or is under audit, by the Internal Revenue Service or by any
state or local tax authority for taxes in excess of those already paid.
i. At the Exchange Date, the Sierra Trust, on behalf of the Acquired Fund,
will have full right, power and authority to sell, assign, transfer and de-
liver the Investments (as defined below) and any other assets and liabilities
of the Acquired Fund to be transferred to the Acquiring Fund pursuant to this
Agreement. At the Exchange Date, subject only to the delivery of the Invest-
ments and any such other assets and liabilities as contemplated by this
Agreement, the Acquiring Fund will acquire the Investments and any such other
assets and liabilities subject to no encumbrances, liens or security inter-
ests whatsoever and without any restrictions upon the transfer thereof. As
used in this Agreement, the term "Investments" shall mean the Acquired Fund's
investments shown on the schedule of its investments as of December 31, 1996
referred to in Section 2(c) hereof, as supplemented with such changes in the
portfolio as the Acquired Fund shall make, and changes resulting from stock
dividends, stock split-ups, mergers and similar corporate actions through the
Exchange Date.
j. No registration under the 1933 Act of any of the Investments would be re-
quired if they were, as of the time of such transfer, the subject of a public
distribution by either of the Acquiring Fund or the Acquired Fund, except as
previously disclosed to the Acquiring Fund by the Acquired Fund.
k. No consent, approval, authorization or order of any court or governmental
authority is required for the consummation by the Acquired Fund of the trans-
actions contemplated by this Agreement, except such as may be required under
the 1933 Act, 1934 Act, the 1940 Act or state securities or blue sky laws.
l. The Registration Statement and the Acquired Fund Proxy Statement, on the
effective date of the Registration Statement, (i) will comply in all material
respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act
and the rules and regulations thereunder and (ii) will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading;
and at the time of the shareholders meeting referred to in Section 7(a) and
on the Exchange Date, the Acquired Fund Proxy Statement and the Registration
Statement will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that none of the repre-
sentations and warranties in this subsection shall apply to statements in or
omissions from the Registration Statement or the Acquired Fund Proxy State-
ment made in reliance upon and in conformity with information furnished in
writing by the Acquiring Fund to the Acquired Fund or the Sierra Trust spe-
cifically for use in the Registration Statement or the Acquired Fund Proxy
Statement.
m. The Acquired Fund qualifies and will at all times through the Exchange
Date qualify for taxation as a "regulated investment company" under Section
851 and 852 of the Code.
n. At the Exchange Date, the Acquired Fund will have sold such of its as-
sets, if any, as are necessary to assure that, after giving effect to the ac-
quisition of the assets of the Acquired Fund pursuant to this Agreement, the
Acquiring Fund
A-5
<PAGE>
will remain a "diversified company" within the meaning of Section 5(b)(1) of
the 1940 Act and in compliance with such other mandatory investment restric-
tions as are set forth in the Sierra Prospectus, as amended through the Ex-
change Date.
o. All of the issued and outstanding shares of beneficial interest of the
Acquired Fund shall have been offered for sale and sold in conformity with
all applicable federal and state securities laws (including any applicable
exemptions therefrom), or the Acquired Fund has taken any action necessary to
remedy any prior failure to have offered for sale and sold such shares in
conformity with such laws.
p. All issued and outstanding shares of the Acquired Fund are, and at the
Exchange Date will be, duly authorized, validly issued, fully paid and non-
assessable by the Acquired Fund. The Acquired Fund does not have outstanding
any options, warrants or other rights to subscribe for or purchase any of the
Acquired Fund shares, nor is there outstanding any security convertible into
any of the Acquired Fund shares.
3. Reorganization.
a. Subject to the requisite approval of the shareholders of the Acquired
Fund and to the other terms and conditions contained herein (including the
Acquired Fund's obligation to distribute to its shareholders all of its in-
vestment company taxable income and net capital gain as described in Section
8(m)), the Acquired Fund agrees to sell, assign, convey, transfer and deliver
to the Acquiring Fund, and the Acquiring Fund agrees to acquire from the Ac-
quired Fund, on the Exchange Date all of the Investments and all of the cash
and other properties and assets of the Acquired Fund, whether accrued or con-
tingent (including cash received by the Acquired Fund upon the liquidation by
the Acquired Fund of any investments purchased by the Acquired Fund after
June 30, 1997 and designated by the Acquiring Fund as being unsuitable for it
to acquire), in exchange for that number of shares of beneficial interest of
the Acquiring Fund provided for in Section 4 and the assumption by the Ac-
quiring Fund of all of the liabilities of the Acquired Fund, whether accrued
or contingent, existing at the Valuation Time except for the Acquired Fund's
liabilities, if any, arising in connection with this Agreement. Pursuant to
this Agreement, the Acquired Fund will, as soon as practicable after the Ex-
change Date, distribute all of the Merger Shares received by it to the share-
holders of the Acquired Fund in exchange for their shares of the Acquired
Fund.
b. The Acquired Fund will pay or cause to be paid to the Acquiring Fund any
interest, cash or such dividends, rights and other payments received by it on
or after the Exchange Date with respect to the Investments and other proper-
ties and assets of the Acquired Fund, whether accrued or contingent, received
by it on or after the Exchange Date. Any such distribution shall be deemed
included in the assets transferred to the Acquiring Fund at the Exchange Date
and shall not be separately valued unless the securities in respect of which
such distribution is made shall have gone "ex" such distribution prior to the
Valuation Time, in which case any such distribution which remains unpaid at
the Exchange Date shall be included in the determination of the value of the
assets of the Acquired Fund acquired by the Acquiring Fund.
c. The Valuation Time shall be 4:00 p.m. Eastern time on [the Exchange Date]
or such earlier or later day as may be mutually agreed upon in writing by the
parties hereto (the "Valuation Time").
4. Exchange Date: Valuation Time. On the Exchange Date, the Acquiring Fund
will deliver to
A-6
<PAGE>
the Acquired Fund (i) a number of full and fractional Merger Shares having an
aggregate net asset value equal to the value of the assets of the Acquired
Fund shares of the Acquired Fund transferred to the Acquiring Fund on such
date less the value of the liabilities of the Acquired Fund shares of the Ac-
quired Fund assumed by the Acquiring Fund on that date.
a. The net asset value of the Merger Shares to be delivered to the Acquired
Fund, the value of the assets attributable to the shares of the Acquired
Fund, and the value of the liabilities attributable to the shares of the Ac-
quired Fund to be assumed by the Acquiring Fund, shall in each case be deter-
mined as of the Valuation Time.
b. The net asset value of the Merger Shares shall be computed in the manner
set forth in the Sierra Prospectus. The value of the assets and liabilities
of the shares of the Acquired Fund shall be determined by the Acquiring Fund,
in cooperation with the Acquired Fund, pursuant to procedures which the Ac-
quiring Fund would use in determining the fair market value of the Acquiring
Fund's assets and liabilities.
c. No adjustment shall be made in the net asset value of either the Acquired
Fund or the Acquiring Fund to take into account differences in realized and
unrealized gains and losses.
d. The Acquiring Fund shall issue the Merger Shares to the Acquired Fund in
a certificate registered in the name of the Acquired Fund, representing the
Merger Shares. The Acquired Fund shall distribute the Merger Shares to the
shareholders of the Acquired Fund by redelivering such certificate to the Ac-
quiring Fund's transfer agent, which will as soon as practicable set up open
accounts for each Acquired Fund shareholder in accordance with written in-
structions furnished by the Acquired Fund. [With respect to any Acquired Fund
shareholder holding share certificates as of the Exchange Date, such certifi-
cates will from and after the Exchange Date be deemed to be certificates for
the Merger Shares issued to each shareholder in respect of the Acquired Fund
shares represented by such certificates; certificates representing the Merger
Shares will not be issued to Acquired Fund shareholders.]
e. The Acquiring Fund shall assume all liabilities of the Acquired Fund,
whether accrued or contingent, in connection with the acquisition of assets
and subsequent dissolution of the Acquired Fund or otherwise, except for the
Acquired Fund's liabilities, if any, pursuant to this Agreement.
5. Expenses, Fees, etc.
a. The parties hereto understand and agree that the transactions contem-
plated by this Agreement are being undertaken contemporaneously with a gen-
eral restructuring and consolidation of certain of the registered investment
companies advised by Composite Research & Management Co. and Sierra Invest-
ment Advisors Corporation and their affiliates; and that in connection there-
with the costs of all such transactions are being [borne by Sierra Investment
Advisors Corporation] [preliminarily allocated on a basis approved, inter
alia, by the Trustees of the Trust. Each of the Acquired Fund and the Acquir-
ing Fund agrees to pay the expenses preliminarily allocated to it but not,
however, in an amount exceeding $ and $ , respectively (the "Relevant
Expense Cap"). Sierra Investment Advisors Corporation will bear any and all
expenses (1) preliminarily allocated to Acquiring Fund and (2) preliminarily
allocated to the Acquired Fund, in each case to the extent that they would
otherwise exceed the Relevant Expense Cap.] Notwithstanding any of the fore-
going, expenses will in any event be paid by the party directly incurring
such expenses if and to the extent that the payment by the other party of
such expenses would result in the disqualification of such party as a "regu-
lated investment company" within the meaning of Section 851 of the Code.
A-7
<PAGE>
b. In the event the transactions contemplated by this Agreement are not con-
summated by reason of the Acquiring Fund's being either unwilling or unable
to go forward other than by reason of the nonfulfillment or failure of any
condition to the Acquiring Fund's obligations referred to in Section 7(a) or
Section 8, the Acquiring Fund shall pay directly all reasonable fees and ex-
penses incurred by the Acquired Fund in connection with such transactions,
including, without limitation, legal, accounting and filing fees.
c. In the event the transactions contemplated by this Agreement are not con-
summated by reason of the Acquired Fund's being either unwilling or unable to
go forward other than by reason of the nonfulfillment or failure of any con-
dition to the Acquired Fund's obligations referred to in Section 7(a) or Sec-
tion 9, the Acquired Fund shall pay directly all reasonable fees and expenses
incurred by the Acquiring Fund in connection with such transactions, includ-
ing, without limitation, legal, accounting and filings fees.
d. In the event the transactions contemplated by this Agreement are not con-
summated for any reason other than (i) the Acquiring Fund's or the Acquired
Fund's being either unwilling or unable to go forward or (ii) the nonfulfill-
ment or failure of any condition to the Acquiring Fund's or the Acquired
Fund's obligations referred to in Section 7(a), Section 8 or Section 9 of
this Agreement, then each of the Acquiring Fund and the Acquired Fund shall
bear all of its own expenses incurred in connection with such transactions.
e. Notwithstanding any other provisions of this Agreement, if for any reason
the transactions contemplated by this Agreement are not consummated, no party
shall be liable to the other party for any damages resulting therefrom, in-
cluding, without limitation, consequential damages, except as specifically
set forth above.
6. Exchange Date. Delivery of the assets of the Acquired Fund to be trans-
ferred, assumption of the liabilities of the Acquired Fund to be assumed, and
the delivery of the Merger Shares to be issued shall be made at [place] at
[time] as of December [31], 1997, or at such other time and date agreed to by
the Acquiring Fund and the Acquired Fund, the date and time upon which such
delivery is to take place being referred to herein as the "Exchange Date."
7. Meetings of Shareholders; Dissolution.
a. The Sierra Trust, on behalf of the Acquired Fund, agrees to call a meet-
ing of the Acquired Fund's shareholders as soon as is practicable after the
effective date of the Registration Statement for the purpose of considering
the sale of all of its assets to and the assumption of all of its liabilities
by the Acquiring Fund as herein provided, adopting this Agreement, and autho-
rizing the liquidation and dissolution of the Acquired Fund.
b. The Acquired Fund agrees that the liquidation and dissolution of the Ac-
quired Fund will be effected in the manner provided in the Sierra Trust's
Declaration of Trust in accordance with applicable law and that on and after
the Exchange Date, the Acquired Fund shall not conduct any business except in
connection with its liquidation and dissolution.
c. The Acquiring Fund has, in consultation with the Acquired Fund and based
in part on information furnished by the Acquired Fund, filed the Registration
Statement with the Commission. Each of the Acquired Fund and the Acquiring
Fund will cooperate with the other, and each will furnish to the other the
information relating to itself required by the 1933 Act, the 1934 Act and the
1940 Act and the rules and regulations thereunder to be set forth in the Reg-
istration Statement.
8. Conditions to the Acquiring Fund's Obligations. The obligations of the Ac-
quiring Fund hereunder shall be subject to the following conditions:
A-8
<PAGE>
a. That this Agreement shall have been adopted and the transactions contem-
plated hereby shall have been approved by the requisite votes of the holders
of the outstanding shares of beneficial interest of the Acquired Fund enti-
tled to vote.
b. That the Acquired Fund shall have furnished to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities, with values deter-
mined as provided in Section 4 of this Agreement, together with a list of In-
vestments with their respective tax costs, all as of the Valuation Time, cer-
tified on the Acquired Fund's behalf by the Sierra Trust's President (or any
Vice President) and Treasurer (or any Assistant Treasurer), and a certificate
of both such officers, dated the Exchange Date, that there has been no mate-
rial adverse change in the financial position of the Acquired Fund since June
30, 1997, other than changes in the Investments and other assets and proper-
ties since that date or changes in the market value of the Investments and
other assets of the Acquired Fund, or changes due to dividends paid or losses
from operations.
c. That the Acquired Fund shall have furnished to the Acquiring Fund a
statement, dated the Exchange Date, signed by the Sierra Trust's President
(or any Vice President) and Treasurer (or any Assistant Treasurer) certifying
that as of the Valuation Time and as of the Exchange Date all representations
and warranties of the Acquired Fund made in this Agreement are true and cor-
rect in all material respects as if made at and as of such dates and the Ac-
quired Fund has complied with all the agreements and satisfied all the condi-
tions on its part to be performed or satisfied at or prior to such dates.
d. [That the Acquired Fund shall have delivered to the Acquiring Fund a let-
ter from [Price Waterhouse LLP] dated the Exchange Date stating that such
firm has employed certain procedures whereby it has obtained schedules of the
tax provisions and qualifying tests for regulated investment companies as
prepared for the fiscal year ended June 30, 1997 and the period July 1, 1997
to the Exchange Date (the latter period being based on unaudited data) and
that, in the course of such procedures, nothing came to their attention which
caused them to believe that the Acquired Fund (i) would not qualify as a reg-
ulated investment company for federal, state, or local income tax purposes or
(ii) would owe any federal, state or local income tax or excise tax, for the
tax year ended June 30, 1997, and for the period from July 1, 1997 to the Ex-
change Date.] [To be discussed.]
e. That there shall not be any material litigation pending with respect to
the matters contemplated by this Agreement.
f. That the Acquiring Fund shall have received an opinion of counsel to the
Acquired Fund, in form satisfactory to counsel to the Acquiring Fund, and
dated the Exchange Date, to the effect that (i) the Sierra Trust is a Massa-
chusetts business trust duly formed and is validly existing under the laws of
The Commonwealth of Massachusetts and has the power to own all its properties
and to carry on its business as presently conducted; (ii) this Agreement has
been duly authorized, executed and delivered by the Sierra Trust on behalf of
the Acquired Fund and, assuming that the Registration Statement, the Sierra
Prospectus and the Acquired Fund Proxy Statement comply with the 1933 Act,
the 1934 Act and the 1940 Act and assuming due authorization, execution and
delivery of this Agreement by the Sierra Trust on behalf of the Acquiring
Fund, is a valid and binding obligation of the Sierra Trust and the Acquired
Fund; (iii) the Sierra Trust, on behalf of the Acquired Fund, has power to
sell, assign, convey, transfer and deliver the assets contemplated hereby
and, upon consummation of the transactions contemplated hereby in accordance
with the terms of this Agreement, the Acquired Fund will have
A-9
<PAGE>
duly sold, assigned, conveyed, transferred and delivered such assets to the
Acquiring Fund; (iv) the execution and delivery of this Agreement did not,
and the consummation of the transactions contemplated hereby will not, vio-
late the Sierra Trust's Declaration of Trust or By-Laws or any provision of
any agreement known to such counsel to which the Sierra Trust or the Acquired
Fund is a party or by which it is bound; and (v) no consent, approval, autho-
rization or order of any court or governmental authority is required for the
consummation by the Sierra Trust on behalf of the Acquired Fund of the trans-
actions contemplated hereby, except such as have been obtained under the 1933
Act, the 1934 Act and the 1940 Act and such as may be required under state
securities or blue sky laws.
g. [Reserved]
h. [Reserved]
i. That the assets of the Acquired Fund to be acquired by the Acquiring Fund
will include no assets which the Acquiring Fund, by reason of charter limita-
tions or of investment restrictions disclosed in the Registration Statement
in effect on the Exchange Date, may not properly acquire.
j. That the Registration Statement shall have become effective under the
1933 Act, and no stop order suspending such effectiveness shall have been in-
stituted or, to the knowledge of the Sierra Trust or the Acquiring Fund,
threatened by the Commission.
k. That the Sierra Trust shall have received from the Commission, any rele-
vant state securities administrator and any relevant state insurance regula-
tory authority such order or orders as are reasonably necessary or desirable
under the 1933 Act, the 1934 Act, the 1940 Act, and any applicable state se-
curities or blue sky laws or state insurance laws in connection with the
transactions contemplated hereby, and that all such orders shall be in full
force and effect.
l. That all actions taken by the Sierra Trust on behalf of the Acquired Fund
in connection with the transactions contemplated by this Agreement and all
documents incidental thereto shall be satisfactory in form and substance to
the Acquiring Fund and its counsel.
m. That, prior to the Exchange Date, the Acquired Fund shall have declared a
dividend or dividends which, together with all previous such dividends, shall
have the effect of distributing to the shareholders of the Acquired Fund (i)
all of the excess of (x) the Acquired Fund's investment income excludable
from gross income under Section 103(a) of the Code over (y) the Acquired
Fund's deductions disallowed under Sections 265 and 171(a)(2) of the Code,
(ii) all of the Acquired Fund's investment company taxable income (as defined
in Section 852 of the Code) for its taxable years ending on or after December
31, 1996 and on or prior to the Exchange Date (computed in each case without
regard to any deduction for dividends paid), and (iii) all of the Acquired
Fund's net capital gain realized (after reduction for any capital loss carry-
over), in each case for both the taxable year ending on December 31, 1996 and
the short taxable period beginning on January 1, 1997 and ending on the Ex-
change Date.
n. That the Acquired Fund shall have furnished to the Acquiring Fund a cer-
tificate, signed by the President (or any Vice President) and the Treasurer
(or any Assistant Treasurer) of the Sierra Trust, as to the tax cost to the
Acquired Fund of the securities delivered to the Acquiring Fund pursuant to
this Agreement, together with any such other evidence as to such tax cost as
the Acquiring Fund may reasonably request.
o. That the Acquired Fund's custodian shall have delivered to the Acquiring
Fund a certificate identifying all of the assets of the Acquired Fund held or
maintained by such custodian as of the Valuation Time.
A-10
<PAGE>
p. That the Acquired Fund's transfer agent shall have provided to the Ac-
quiring Fund (i) the originals or true copies of all of the records of the
Acquired Fund in the possession of such transfer agent as of the Exchange
Date, (ii) a certificate setting forth the number of shares of the Acquired
Fund outstanding as of the Valuation Time, and (iii) the name and address of
each holder of record of any shares and the number of shares held of record
by each such shareholder.
q. That all of the issued and outstanding shares of beneficial interest of
the Acquired Fund shall have been offered for sale and sold in conformity
with all applicable state securities or blue sky laws (including any applica-
ble exemptions therefrom) and, to the extent that any audit of the records of
the Acquired Fund or its transfer agent by the Acquiring Fund or its agents
shall have revealed otherwise, either (i) the Acquired Fund shall have taken
all actions that in the opinion of the Acquiring Fund or its counsel are nec-
essary to remedy any prior failure on the part of the Acquired Fund to have
offered for sale and sold such shares in conformity with such laws or (ii)
the Acquired Fund shall have furnished (or caused to be furnished) surety, or
deposited (or caused to be deposited) assets in escrow, for the benefit of
the Acquiring Fund in amounts sufficient and upon terms satisfactory, in the
opinion of the Acquiring Fund or its counsel, to indemnify the Acquiring Fund
against any expense, loss, claim, damage or liability whatsoever that may be
asserted or threatened by reason of such failure on the part of the Acquired
Fund to have offered and sold such shares in conformity with such laws.
r. [That the Acquiring Fund shall have received from [Price Waterhouse LLP]
a letter addressed to the Acquiring Fund dated as of the Exchange Date satis-
factory in form and substance to the Acquiring Fund to the effect that, on
the basis of limited procedures agreed upon by the Acquiring Fund and de-
scribed in such letter (but not an examination in accordance with generally
accepted auditing standards), as of the Valuation Time the value of the as-
sets and liabilities of the Acquired Fund to be exchanged for the Merger
Shares has been determined in accordance with the provisions of the Sierra
Trust's Declaration of Trust, pursuant to the procedures customarily utilized
by the Acquiring Fund in valuing its assets and issuing its shares.] [To be
discussed.]
9. Conditions to the Acquired Fund's Obligations. The obligations of the Ac-
quired Fund hereunder shall be subject to the following conditions:
a. That this Agreement shall have been adopted and the transactions contem-
plated hereby shall have been approved by the requisite votes of the holders
of the outstanding shares of beneficial interest of the Acquired Fund enti-
tled to vote.
b. That the Sierra Trust, on behalf of the Acquiring Fund, shall have exe-
cuted and delivered to the Acquired Fund an Assumption of Liabilities dated
as of the Exchange Date pursuant to which the Acquiring Fund will assume all
of the liabilities of the Acquired Fund existing at the Valuation Time in
connection with the transactions contemplated by this Agreement, other than
liabilities arising pursuant to this Agreement.
c. That the Acquiring Fund shall have furnished to the Acquired Fund a
statement, dated the Exchange Date, signed by the Sierra Trust's President
(or any Vice President) and Treasurer (or any Assistant Treasurer) certifying
that as of the Valuation Time and as of the Exchange Date all representations
and warranties of the Acquiring Fund made in this Agreement are true and cor-
rect in all material respects as if made at and as of such dates, and that
the Acquiring Fund has complied with all of the agreements and satisfied all
of the conditions on its part to be
A-11
<PAGE>
performed or satisfied at or prior to each of such dates.
d. That there shall not be any material litigation pending or threatened
with respect to the matters contemplated by this Agreement.
e. That the Acquired Fund shall have received an opinion of counsel to the
Acquiring Fund, in form satisfactory to counsel to the Acquired Fund, and
dated the Exchange Date, to the effect that (i) the Sierra Trust is a Massa-
chusetts business trust duly formed and is validly existing under the laws of
The Commonwealth of Massachusetts and has the power to own all its properties
and to carry on its business as presently conducted; (ii) the Merger Shares
to be delivered to the Acquired Fund as provided for by this Agreement are
duly authorized and upon such delivery will be validly issued and will be
fully paid and non-assessable by the Sierra Trust and the Acquiring Fund and
no shareholder of the Acquiring Fund has any preemptive right to subscription
or purchase in respect thereof; (iii) this Agreement has been duly autho-
rized, executed and delivered by the Sierra Trust on behalf of the Acquiring
Fund and, assuming that the Sierra Prospectus, the Registration Statement and
the Acquired Fund Proxy Statement comply with the 1933 Act, the 1934 Act and
the 1940 Act and assuming due authorization, execution and delivery of this
Agreement by the Sierra Trust on behalf of the Acquired Fund, is a valid and
binding obligation of the Sierra Trust and the Acquiring Fund; (iv) the exe-
cution and delivery of this Agreement did not, and the consummation of the
transactions contemplated hereby will not, violate the Sierra Trust's Decla-
ration of Trust or By-Laws, or any provision of any agreement known to such
counsel to which the Sierra Trust or the Acquiring Fund is a party or by
which it is bound; (v) no consent, approval, authorization or order of any
court or governmental authority is required for the consummation by the Si-
erra Trust on behalf of the Acquiring Fund of the transactions contemplated
herein, except such as have been obtained under the 1933 Act, the 1934 Act
and the 1940 Act and such as may be required under state securities or blue
sky laws; and (vi) the Registration Statement has become effective under the
1933 Act, and to best of the knowledge of such counsel, no stop order sus-
pending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been instituted or are pending or con-
templated under the 1933 Act.
f. [Reserved]
g. That all actions taken by the Sierra Trust on behalf of the Acquiring
Fund in connection with the transactions contemplated by this Agreement and
all documents incidental thereto shall be satisfactory in form and substance
to the Acquired Fund and its counsel.
h. That the Registration Statement shall have become effective under the
1933 Act, and no stop order suspending such effectiveness shall have been in-
stituted or, to the knowledge of the Sierra Trust or the Acquiring Fund,
threatened by the Commission.
i. That the Sierra Trust shall have received from the Commission, any rele-
vant state securities administrator and any relevant state insurance regula-
tory authority such order or orders as are reasonably necessary or desirable
under the 1933 Act, the 1934 Act, the 1940 Act, and any applicable state se-
curities or blue sky laws or state insurance laws in connection with the
transactions contemplated hereby, and that all such orders shall be in full
force and effect.
10. Indemnification.
a. The Acquired Fund will indemnify and hold harmless, out of the assets of
the Acquired Fund (which shall be deemed to include the assets of the Acquir-
ing Fund represented by the Merger Shares following the Exchange Date) but no
other assets, the trustees and officers of the
A-12
<PAGE>
Sierra Trust (for purposes of this subparagraph, the "Indemnified Parties")
against any and all expenses, losses, claims, damages and liabilities at any
time imposed upon or reasonably incurred by any one or more of the Indemni-
fied Parties in connection with, arising out of, or resulting from any claim,
action, suit or proceeding in which any one or more of the Indemnified Par-
ties may be involved or with which any one or more of the Indemnified Parties
may be threatened by reason of any untrue statement or alleged untrue state-
ment of a material fact relating to the Sierra Trust or the Acquired Fund
contained in the Registration Statement or the Sierra Prospectus, the Ac-
quired Fund Proxy Statement or any amendment or supplement to any of the
foregoing, or arising out of or based upon the omission or alleged omission
to state in any of the foregoing a material fact relating to the Sierra Trust
or the Acquired Fund required to be stated therein or necessary to make the
statements relating to the Sierra Trust or the Acquired Fund therein not mis-
leading, including, without limitation, any amounts paid by any one or more
of the Indemnified Parties in a reasonable compromise or settlement of any
such claim, action, suit or proceeding, or threatened claim, action, suit or
proceeding made with the consent of the Sierra Trust or the Acquired Fund.
The Indemnified Parties will notify the Sierra Trust and the Acquired Fund in
writing within ten days after the receipt by any one or more of the Indemni-
fied Parties of any notice of legal process or any suit brought against or
claim made against such Indemnified Party as to any matters covered by this
Section 10(a). The Acquired Fund shall be entitled to participate at its own
expense in the defense of any claim, action, suit or proceeding covered by
this Section 10(a), or, if it so elects, to assume at its expense by counsel
satisfactory to the Indemnified Parties the defense of any such claim, ac-
tion, suit or proceeding, and if the Acquired Fund elects to assume such de-
fense, the Indemnified Parties shall be entitled to participate in the de-
fense of any such claim, action, suit or proceeding at their expense. The Ac-
quired Fund's obligation under Section 10(a) to indemnify and hold harmless
the Indemnified parties shall constitute a guarantee of payment so that the
Acquired Fund will pay in the first instance any expenses, losses, claims,
damages and liabilities required to be paid by it under this Section 10(a)
without the necessity of the Indemnified Parties' first paying the same.
b. The Acquiring Fund will indemnify and hold harmless, out of the assets of
the Acquiring Fund but no other assets, the trustees and officers of the Si-
erra Trust (for purposes of this subparagraph, the "Indemnified Parties")
against any and all expenses, losses, claims, damages and liabilities at any
time imposed upon or reasonably incurred by any one or more of the Indemni-
fied Parties in connection with, arising out of, or resulting from any claim,
action, suit or proceeding in which any one or more of the Indemnified Par-
ties may be involved or with which any one or more of the Indemnified Parties
may be threatened by reason of any untrue statement or alleged untrue state-
ment of a material fact relating to the Acquiring Fund contained in the Reg-
istration Statement, the Sierra Prospectus, the Acquired Fund Proxy Statement
or any amendment or supplement to any of the foregoing, or arising out of or
based upon, the omission or alleged omission to state in any of the foregoing
a material fact relating to the Sierra Trust or the Acquiring Fund required
to be stated therein or necessary to make the statements relating to the Si-
erra Trust or the Acquiring Fund therein not misleading, including, without
limitation, any amounts paid by any one or more of the Indemnified Parties in
a reasonable compromise or settlement of any such claim, action, suit or pro-
ceeding, or threatened claim, action, suit or proceeding made with the con-
sent of the Sierra
A-13
<PAGE>
Trust or the Acquiring Fund. The Indemnified Parties will notify the Sierra
Trust and the Acquiring Fund in writing within ten days after the receipt by
any one or more of the Indemnified parties of any notice of legal process or
any suit brought against or claim made against such Indemnified Party as to
any matters covered by this Section 10(b). The Acquiring Fund shall be enti-
tled to participate at its own expense in the defense of any claim, action,
suit or proceeding covered by this Section 10(b), or, if it so elects, to as-
sume at its expense by counsel satisfactory to the Indemnified Parties the
defense of any such clam, action, suit or proceeding, and, if the Acquiring
Fund elects to assume such defense, the Indemnified Parties shall be entitled
to participate in the defense of any such claim, action, suit or proceeding
at their own expense. The Acquiring Fund's obligation under this Section
10(b) to indemnify and hold harmless the Indemnified Parties shall constitute
a guarantee of payment so that the Acquiring Fund will pay in the first in-
stance any expenses, losses, claims, damages and liabilities required to be
paid by it under this Section 10(b) without the necessity of the Indemnified
Parties' first paying the same.
11. No Broker, etc. Each of the Acquired Fund and the Acquiring Fund repre-
sents that there is no person who has dealt with it or the Sierra Trust who by
reason of such dealings is entitled to any broker's or finder's or other simi-
lar fee or commission arising out of the transactions contemplated by this
Agreement.
12. Termination. The Acquired Fund and the Acquiring Fund may, by mutual con-
sent of the trustees of the Sierra Trust on behalf of each Fund, terminate
this Agreement, and the Acquired Fund or the Acquiring Fund, after consulta-
tion with counsel and by consent of their respective trustees or an officer
authorized by such trustees, may waive any condition to their respective obli-
gations hereunder. If the transactions contemplated by this Agreement have not
been substantially completed by [ , 1998], this Agreement shall automati-
cally terminate on that date unless a later date is agreed to by the Acquired
Fund and the Acquiring Fund.
13. Rule 145. Pursuant to Rule 145 under the 1933 Act, the Acquiring Fund
will, in connection with the issuance of any of any Merger Shares to any per-
son who at the time of the transaction contemplated hereby is deemed to be an
affiliate of a party to the transaction pursuant to Rule 145(c), cause to be
affixed upon the certificates issued to such person (if any) a legend as fol-
lows:
"THESE SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO THE SHORT
TERM HIGH QUALITY BOND FUND OR ITS PRINCIPAL UNDERWRITER UNLESS (I) A REGIS-
TRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR (II) IN THE OPINION OF COUNSEL REASONABLY SATISFAC-
TORY TO THE FUND SUCH REGISTRATION IS NOT REQUIRED."
and, further, the Acquiring Fund will issue stop transfer instructions to the
Acquiring Fund's transfer agent with respect to such shares. The Acquired Fund
will provide the Acquiring Fund on the Exchange Date with the name of any Ac-
quired Fund shareholder who is to the knowledge of the Acquired Fund an affil-
iate of the Acquired Fund on such date.
14. Covenants, etc. Deemed Material. All covenants, agreements, representa-
tions and warranties made under this Agreement and any certificates delivered
pursuant to this Agreement shall be deemed to have been material and relied
upon by each of the parties, notwithstanding an investigation made by them or
on their behalf.
15. Sole Agreement; Amendments. This Agreement supersedes all previous corre-
spondence and
A-14
<PAGE>
oral communications between the parties regarding the subject matter hereof,
constitutes the only understanding with respect to such subject matter, may
not be changed except by a letter of agreement signed by each party hereto,
and shall be construed in accordance with and governed by the laws of The Com-
monwealth of Massachusetts.
16. Declaration of Trust. A copy of the Declaration of Trust of the Sierra
Trust is on file with the Secretary of State of The Commonwealth of Massachu-
setts, and notice is hereby given that this instrument is executed on behalf
of the trustees of the Sierra Trust on behalf of the Acquired Fund and the on
behalf Acquiring Fund, as trustees and not individually and that the obliga-
tions of this instrument are not binding upon any of the trustees, officers or
shareholders of the Sierra Trust individually but are binding only upon the
assets and property of the Acquired Fund and the Acquiring Fund.
THE SIERRA VARIABLE TRUST,
on behalf of its Short Term
Global Government Fund series
By:
-----------------------------
Name:
Title:
THE SIERRA VARIABLE TRUST,
on behalf of its Short Term
High Quality Bond Fund series
By:
-----------------------------
Name:
Title:
A-15
<PAGE>
APPENDIX B
SHORT TERM HIGH QUALITY BOND FUND
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 informa-
tion, 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 per-
formance 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 re-
versed 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 vola-
tility, 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 in-
vestment-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 invest-
ment performance does not guarantee future performance. The returns for the
Fund assume reinvestment of all dividends/distributions by the shareholder.
B-1
<PAGE>
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 ab-
sence 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>
B-2
<PAGE>
SHORT TERM HIGH QUALITY BOND FUND
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAD A SIG-
NIFICANT 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 per-
formed very well relative to Treasuries. The best performing sector was mort-
gages, largely due to strong price performance and high yields. The Fund's
holdings in this sector increased in both value and overall portfolio weight-
ing.
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 infla-
tion. Potential credit excesses, profit disappointments, and the unpredictabil-
ity 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]
BROAD SECTOR DIVERSIFICATION
<TABLE>
<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.
B-3
<PAGE>
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
06/30/97 12/31/96 12/31/95 12/31/94*
----------- -------- -------- ---------
(UNAUDITED)
<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 al-
lowed by the custodian as required by amended disclosure requirements ef-
fective September 1, 1995.
B-4
<PAGE>
THE SIERRA VARIABLE TRUST
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION
November __, 1997
This Statement of Additional Information (the "SAI") relates to the
proposed merger (the "Merger") of the Short Term Global Government Fund (the
"Acquired Fund"), a series of The Sierra Variable Trust, a Massachusetts
business trust (the "Trust"), into the Short Term High Quality Bond Fund (the
"Acquiring Fund"), a series of the Trust.
This SAI contains information which may be of interest to shareholders but
which is not included in the Prospectus/Proxy Statement dated November __, 1997
(the "Prospectus/Proxy Statement") of the Trust which relates to the Merger. As
described in the Prospectus/Proxy Statement, the Merger would involve the
transfer of all the assets of the Acquired Fund in exchange for shares of the
Acquiring Fund and the assumption of all the liabilities of the Acquired Fund.
The Acquired Fund would distribute the Acquiring Fund shares it receives to its
shareholders in complete liquidation of the Acquired Fund.
This SAI is not a prospectus and should be read in conjunction with the
Prospectus/Proxy Statement. The Prospectus/Proxy Statement has been filed with
the Securities and Exchange Commission and is available upon request and without
charge by writing to the American General Life Insurance Company, Attn: Annuity
Administration, P.O. Box 1401, Houston, Texas 77251-1401, or by calling
1-800-247-6584.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Item Page
- ------ ----
<C> <S> <C>
I. Additional Information about Acquiring and Acquired Funds............
II. Financial Statements.................................................
</TABLE>
<PAGE>
I. Additional Information about Acquiring and Acquired Funds.
This SAI is accompanied by the current Statement of Additional Information
of the Trust, dated May 1, 1997, which provides further information relating to
the Acquired and Acquiring Funds, including information in respect of their
investment objectives, policies and financial history.
The following documents, which have previously been filed with the
Securities and Exchange Commission, have been incorporated by reference into
Part A of this Registration Statement:
(1) Prospectus of the Trust relating to the Acquired and Acquiring Funds dated
May 1, 1997 (filed on April 30, 1997 as part of Post-Effective Amendment
No. 9 to the Trust's Registration Statement in Form N-1A) (Registration
Nos. 033-57732 and 811-07462)
(2) Supplement dated September 1, 1997 to the Prospectus of the Trust dated May
1, 1997 (Filed on September 15, 1997 pursuant to Rule 497 under the
Securities Act of 1933) (Registration Nos. 033-57732 and 811-07462)
(3) Statement of Additional Information of the Trust dated May 1, 1997 (filed
on April 30, 1997 as part of Post-Effective Amendment No. 9 to the Trust's
Registration Statement in Form N-1A) (Registration Nos. 033-57732 and 811-
07462)
(4) Annual Report of the Trust dated December 31, 1996 (filed on February 28,
1997) (Registration Nos. 033-57732 and 811-07462)
(5) Semiannual Report of the Trust dated June 30, 1997 (filed on September 5,
1997) (Registration Nos. 033-57732 and 811-07462)
II. Financial Statements.
This SAI is accompanied by the Annual Report of the Trust for the year
ended December 31, 1996, and the Semiannual Report of the Trust for the six
months ended June 30, 1997, each of which contains historical financial
information regarding the Acquired and Acquiring Funds. Such reports have been
filed with the Securities and Exchange Commission, and the information therein
relating to the Acquired and Acquiring Funds is incorporated herein by
reference.
Pro forma financial statements for the Acquiring Fund are provided on the
following pages.
<PAGE>
THE SIERRA VARIABLE TRUST
- -------------------------
Short Term High Quality Bond Fund
Short Term Global Government Fund
Combined Portfolio of Investments
December 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------------
Short Term Short Term SECURITY Short Term Short Term
High Quality Global DESCRIPTIONS High Quality Global
Bond Government Bond Government
Fund Fund Combined Fund Fund Combined
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOREIGN BONDS AND NOTES - 45.7% #
German Deutsche Mark Bonds - 8.5%
Federal Republic of Germany:
DEM 0 1,500,000 1,500,000 6.625% due 01/20/1998 $0 $1,008,480 $1,008,480
0 1,800,000 1,800,000 6.000% due 02/20/1998 ** 0 1,204,796 1,204,796
0 925,000 925,000 5.250% due 10/20/1998 0 619,913 619,913
--------------------------------------
Total German Deutsche Mark Bonds 0 2,833,189 2,833,189
--------------------------------------
Italian Lira Bonds - 7.6%
Italian Treasury Bonds:
ITL 0 1,560,000,000 1,560,000,000 8.500% due 08/01/1997 0 1,033,281 1,033,281
0 2,220,000,000 2,220,000,000 8.500% due 01/01/1999 0 1,524,293 1,524,293
--------------------------------------
Total Italian Lira Bonds 0 2,557,574 2,557,574
--------------------------------------
New Zealand Dollar Bond - 6.7%
Government of New Zealand:
NZD 0 2,500,000 2,500,000 8.700% due 02/10/1997 ++ 0 1,752,304 1,752,304
725,000 0 725,000 8.138% due 04/09/1997 ++ 502,079 0 502,079
--------------------------------------
502,079 1,752,304 2,254,383
--------------------------------------
Danish Kroner Bond - 5.5%
DKK 0 10,000,000 10,000,000 Kingdom of Denmark,
9.000% due 11/15/1998 ** 0 1,845,945 1,845,945
--------------------------------------
Canadian Dollar Bonds - 4.0%
Government of Canada:
CAD 0 900,000 900,000 6.500% due 09/01/1998 ** 0 682,056 682,056
0 860,000 860,000 6.500% due 08/01/1999 ** 0 656,327 656,327
--------------------------------------
Total Canadian Dollar Bonds 0 1,338,383 1,338,383
--------------------------------------
Great Britain Pound Sterling Note - 3.4%
GBP 0 640,000 640,000 United Kingdom Treasury Note,
8.000% due 12/07/2000 0 1,126,139 1,126,139
--------------------------------------
Spanish Peseta Bonds - 3.0%
Government of Spain:
ESP 0 85,000,000 85,000,000 11.450% due 08/30/1998 0 707,106 707,106
0 35,000,000 35,000,000 10.250% due 11/30/1998 0 291,107 291,107
--------------------------------------
Total Spanish Peseta Bonds 0 998,213 998,213
--------------------------------------
Australian Dollar Bond and Note - 2.6%
AUD 0 595,000 595,000 Commonwealth of Australia,
7.000% due 08/15/1998 0 478,138 478,138
0 500,000 500,000 New South Wales Treasury Note,
7.500% due 02/01/1998 0 402,443 402,443
--------------------------------------
Total Australian Dollar Bond and Note 0 880,581 880,581
--------------------------------------
Netherlands Guilder Bonds - 2.6%
Government of Netherlands,
NLG 0 910,000 910,000 6.250% due 07/15/1998 0 548,865 548,865
0 500,000 500,000 7.500% due 06/15/1999 0 314,598 314,598
--------------------------------------
Total Netherlands Guilder Bonds 0 863,463 863,463
--------------------------------------
Swedish Krona Bond - 1.8%
SEK 0 3,700,000 3,700,000 Kingdom of Sweden,
11.000% due 01/21/1999 ** 0 610,419 610,419
--------------------------------------
------------------------------------------------------------------------------
Total Foreign Bonds and Notes 502,079 14,806,210 15,308,289
------------------------------------------------------------------------------
</TABLE>
<PAGE>
THE SIERRA VARIABLE TRUST
- -------------------------
Short Term High Quality Bond Fund
Short Term Global Government Fund
Combined Portfolio of Investments (Continued)
December 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
Short Term Short Term SECURITY Short Term Short Term
High Quality Global DESCRIPTIONS High Quality Global
Bond Government Bond Government
Fund Fund Combined Fund Fund Combined
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 14.5%
Government National Mortgage Association (GNMA) - 9.8%
<S> <C> <C> <C> <C> <C> <C> <C>
$ 92,309 0 92,309 #121425, Seasoned,
11.000% due 04/15/2015 $104,625 $0 $104,625
126,245 0 126,245 #140834, Seasoned,
11.000% due 12/15/2015 143,088 0 143,088
56,076 0 56,076 #144538, Seasoned,
11.000% due 12/15/2015 63,557 0 63,557
132,108 0 132,108 #151670, Seasoned,
11.000% due 12/15/2015 149,490 0 149,490
0 337,071 337,071 #213862, Seasoned,
10.000% due 09/15/2018 0 371,091 371,091
0 193,942 193,942 #225305, Seasoned,
10.000% due 02/15/2018 0 213,608 213,608
0 41,462 41,462 #234561, Seasoned,
10.000% due 12/15/2017 0 45,666 45,666
63,542 0 63,542 #254937, Seasoned,
10.000% due 06/15/2019 69,955 0 69,955
105,426 0 105,426 #257814, Seasoned,
10.000% due 09/15/2018 116,066 0 116,066
0 296,846 296,846 #264735, Seasoned,
10.000% due 02/15/2019 0 327,086 327,086
0 191,834 191,834 #289333, Seasoned,
10.000% due 05/15/2020 0 211,018 211,018
0 462,227 462,227 #291116, Seasoned,
10.000% due 06/15/2020 0 508,667 508,667
91,755 0 91,755 #293511, Seasoned,
10.000% due 07/15/2020 101,016 0 101,016
263,339 0 263,339 #780081, Seasoned,
10.000% due 02/15/2025** 290,042 0 290,042
69,490 0 69,490 #780121, Seasoned,
10.000% due 04/15/2025 76,439 0 76,439
65,545 0 65,545 #780141, Seasoned,
10.000% due 12/15/2020 72,131 0 72,131
399,245 0 399,245 #780317, Seasoned,
9.000% due 12/15/2020 425,815 0 425,815
--------------------------------------
Total GNMAs 1,612,224 1,677,136 3,289,360
--------------------------------------
Adjustable Rate Mortgage-Backed Securities (ARM) - 2.4%
159,423 0 159,423 Federal Home Loan Mortgage Corporation (FHLMC),
#845988,
7.792% due 11/01/2021+ 166,398 0 166,398
Federal National Mortgage Association (FNMA):
240,024 0 240,024 #82247,
6.125% due 04/01/2019+ 238,899 0 238,899
71,867 0 71,867 #124571,
7.837% due 11/01/2022+ 74,012 0 74,012
85,843 0 85,843 #152205,
7.366% due 01/01/2019+ 88,472 0 88,472
250,000 0 250,000 #313257,
6.132% due 11/01/2035 248,828 0 248,828
------------------------------------
Total ARMs 816,609 0 816,609
------------------------------------
Federal Home Loan Mortgage Corporation (FHLMC) - 1.5%
0 181,948 181,948 #1223,
7.250% due 07/15/2020 0 183,369 183,369
332,772 0 332,772 #G50135, 5 Year Balloon, GOLD,
5.500% due 03/01/1999 324,140 0 324,140
------------------------------------
324,140 183,369 507,509
------------------------------------
Federal National Mortgage Association (FNMA) - 0.8%
0 276,579 276,579 #141461,
7.781% due 11/01/2021 + 0 288,508 288,508
------------------------------------
----------------------------------------------------------------------------------
Total U.S. Government Agency
Mortgage-Backed Securities 2,752,973 2,149,013 4,901,986
-----------------------------------------------------------------------------------
</TABLE>
<PAGE>
THE SIERRA VARIABLE TRUST
- -------------------------
Short Term High Quality Bond Fund
Short Term Global Government Fund
Combined Portfolio of Investments (Continued)
December 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Short Term Short Term SECURITY Short Term Short Term
High Quality Global DESCRIPTIONS High Quality Global
Bond Government Bond Government
Fund Fund Combined Fund Fund Combined
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. TREASURY NOTES - 11.3%
$ 0 500,000 500,000 5.125% due 03/31/1998 $0 $496,655 $496,655
0 2,325,000 2,325,000 6.375% due 01/15/1999 ** 0 2,346,888 2,346,888
300,000 0 300,000 5.625% due 11/30/2000 294,561 0 294,561
600,000 0 600,000 6.500% due 08/31/2001 606,564 0 606,564
-----------------------------------
------------------------------------------------------------------------------------
Total U.S. Treasury Notes 901,125 2,843,543 3,744,668
------------------------------------------------------------------------------------
CORPORATE NOTES - 10.1%
100,000 0 100,000 Colonial Realty, Sr. Note,
7.500% due 07/15/2001 101,500 0 101,500
100,000 0 100,000 ERP Operating LP,
8.500% due 05/15/1999+++ 103,559 0 103,559
General Motors Acceptance Corporation:
300,000 0 300,000 Deb.,
8.625% due 06/15/1999 ** 315,189 0 315,189
200,000 0 200,000 MTN,
7.850% due 11/17/1997 ** 203,410 0 203,410
200,000 0 200,000 Lockheed Martin Corporation,
6.850% due 05/15/2001 202,000 0 202,000
Lyondell Petrochemical Company:
100,000 0 100,000 9.125% due 03/15/2002 108,779 0 108,779
150,000 0 150,000 9.750% due 09/04/2003 +++ 170,952 0 170,952
250,000 0 250,000 Oasis Residential Inc.,
6.750% due 11/15/2001 247,500 0 247,500
250,000 0 250,000 Southern National Corporation, Sub. Note,
7.050% due 05/23/2003 252,265 0 252,265
300,000 300,000 600,000 Sun Communities Inc., Sr. Note,
7.625% due 05/01/2003 306,033 306,033 612,066
100,000 0 100,000 Susa Partnership LP,
7.125% due 11/01/2003 99,750 0 99,750
Taubman Realty Corporation:
100,000 0 100,000 8.000% due 06/15/1999 102,156 0 102,156
100,000 0 100,000 MTN,
7.500% due 06/15/2002 100,785 0 100,785
The Money Store, Inc.:
280,000 0 280,000 9.160% due 09/09/1997+++ 284,942 0 284,942
300,000 0 300,000 7.630% due 04/15/1998+++ 303,198 0 303,198
Time Warner Inc.:
100,000 0 100,000 7.450% due 02/01/1998 101,101 0 101,101
50,000 0 50,000 7.950% due 02/01/2000 51,634 0 51,634
-------------------------------------
------------------------------------------------------------------------------------
Total Corporate Notes 3,054,753 306,033 3,360,786
------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES - 9.0%
132,625 0 132,625 Advanta Mortgage Loan Trust, 1996-2-A1,
6.740% due 11/25/2009 133,155 0 133,155
100,000 0 100,000 Conti-Mortgage Home Equity Loan Trust, 1996-3-A2,
6.950% due 07/15/2011 100,843 0 100,843
250,000 0 250,000 Green Tree Financial Corporation, 1995-1-B2,
9.200% due 06/15/2025 266,405 0 266,405
165,000 0 165,000 Green Tree Home Improvement, 1995-D-B2,
7.450% due 09/15/2025 164,980 0 164,980
96,475 0 96,475 Green Tree NIM, 1994-B, Class A,
7.850% due 07/15/2004 97,560 0 97,560
102,415 0 102,415 Green Tree Recreational, Equipment & Consumer,
1996-A, Class A1,
5.550% due 02/15/2018 100,956 0 100,956
94,402 0 94,402 Green Tree Security Mortgage Trust, 1994-A,
6.900% due 02/15/2004 94,063 0 94,063
100,000 0 100,000 H & T Master Trust,
8.430% due 08/15/2002+++ 98,900 0 98,900
10,000 0 10,000 Household Affinity Credit Card, 1993,
4.950% due 03/15/1999 9,997 0 9,997
</TABLE>
<PAGE>
THE SIERRA VARIABLE TRUST
- -------------------------
Short Term High Quality Bond Fund
Short Term Global Government Fund
Combined Portfolio of Investments (Continued)
December 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Short Term Short Term SECURITY Short Term Short Term
High Quality Global DESCRIPTIONS High Quality Global
Bond Government Bond Government
Fund Fund Combined Fund Fund Combined
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSET BACKED SECURITIES - (Continued)
Merrill Lynch Mortgage Investors, Inc.:
$ 57,243 0 57,243 1991-B-A,
9.200% due 04/15/2011 $58,227 $0 $58,227
78,442 0 78,442 1991-I-A,
7.650% due 01/15/2012 79,447 0 79,447
239,365 0 239,365 1992-B-A4,
7.850% due 04/15/2012 242,579 0 242,579
362,875 0 362,875 Mid-State Trust, Series 4, Class A,
8.330% due 04/01/2030 384,350 0 384,350
141,378 0 141,378 Sec Pac Manufacturing Housing, 95-1, Class A1,
6.500% due 04/10/2020 141,894 0 141,894
10,000 0 10,000 Standard Credit Card Trust, 94-1A,
4.650% due 03/07/1999 9,991 0 9,991
The Money Store, Inc.:
200,000 0 200,000 1996-A-A2,
6.330% due 06/15/2008 200,287 0 200,287
185,142 0 185,142 1996-B-A1,
6.720% due 02/15/2010 186,058 0 186,058
400,000 0 400,000 UCFC Home Equity Loan Trust, 1995-B1,
6.600% due 07/10/2009 ** 401,668 0 401,668
250,000 0 250,000 World Omni Automobile Lease Securitization, 1996-B,
6.850% due 11/15/2002+++ 250,703 0 250,703
-------------------------------------
--------------------------------------------------------------------------------------
Total Asset-Backed Securities 3,022,063 0 3,022,063
--------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 5.2%
Countrywide Funding Corporation:
29,840 0 29,840 1994-1-A3,
6.250% due 03/25/2024 28,553 0 28,553
500,000 0 500,000 1994-2-A8,
6.500% due 02/25/2009 ** 498,590 0 498,590
203,470 0 203,470 Federal Home Loan Mortgage Corporation (FHLMC),
P/O, REMIC, #1719-C,
Zero coupon due 04/15/1999 184,840 0 184,840
156,686 0 156,686 Fund America Investors Corporation, 1991-1-H,
7.950% due 02/20/2020 ** 158,693 0 158,693
140,962 0 140,962 General Electric Capital Mortgage Association,
1994-27-A1, 6.500% due 07/25/2024 ** 140,169 0 140,169
295,168 0 295,168 Norwest Asset Securities Corporation, 1996-5-A13,
7.500% due 11/25/2026 296,644 0 296,644
Prudential Home Mortgage Securities:
77,053 0 77,053 1992-47,
7.500% due 01/25/2023 76,885 0 76,885
274,522 0 274,522 1993-43-A1,
5.400% due 10/25/2023 271,003 0 271,003
83,294 0 83,294 Ryland Acceptance Corporation,
8.950% due 08/20/2019 85,245 0 85,245
-------------------------------------
--------------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations 1,740,622 0 1,740,622
--------------------------------------------------------------------------------------
INDEXED NOTES - 2.0%
J.P. Morgan & Company:
0 436,000 436,000 (Value is directly linked to the Philippine Peso),
9.700% due 01/21/1997 0 440,129 440,129
0 220,000 220,000 (Value is directly linked to the South Korean Won),
9.825% due 02/05/1997 0 215,942 215,942
-------------------------------------
-------------------------------------
-------------------------------------------------
Total Indexed Notes 0 656,071 656,071
--------------------------------------------------------------------------------------
</TABLE>
<PAGE>
THE SIERRA VARIABLE TRUST
- -------------------------
Short Term High Quality Bond Fund
Short Term Global Government Fund
Combined Portfolio of Investments (Continued)
December 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
Short Term Short Term SECURITY Short Term Short Term
High Quality Global DESCRIPTIONS High Quality Global
Bond Government Bond Government
Fund Fund Combined Fund Fund Combined
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMERCIAL PAPER - 1.6%
$ 164,000 366,000 530,000 General Electric Capital Corporation,
7.100% due 01/02/1997 $164,000 $366,000 $530,000
--------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATION - 0.5%
175,000 0 175,000 Federal National Mortgage Association (FNMA),
(Inverse Floater),
9.897% due 12/29/1997 + 180,688 0 180,688
--------------------------------------
Expiration Strike
Date Price
------------------------
OPTIONS PURCHASED - 0.1%
Put Options Purchased on Foreign Currency - 0.1%
DEM 0 1,500,000 1,500,000 German Deutsche Mark Put 03/03/1997 1.567 0 5,550 5,550
AUD 0 1,100,000 1,100,000 Australian Dollar Put 03/07/1997 0.790 0 6,270 6,270
NZD 0 2,500,000 2,500,000 New Zealand Dollar Put 03/13/1997 0.685 0 4,497 4,497
ITL 0 4,000,000,000 4,000,000,000 Italian Lira Put 03/25/1997 1,561.750 0 9,960 9,960
DEM 0 1,000,000 1,000,000 German Deutsche Mark Put 05/23/1997 1.521 0 15,000 15,000
NZD 725,000 0 725,000 New Zealand Dollar Put 04/07/1997 0.685 2,208 0 2,208
--------------------------------------
Total Put Options Purchased on Foreign Currency 2,208 41,277 43,485
--------------------------------------
<CAPTION>
NUMBER OF
CONTRACTS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Call Options Purchased on Foreign Interest Rate Futures - 0.0% ##
21 0 21 Euro Dollar Call 03/14/1997 94.500 1,575 0 1,575
--------------------------------------
------------------------------------------------------------------------------------
Total Options Purchased 3,783 41,277 45,060
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
TOTAL INVESTMENTS $12,322,086 $21,168,147 $33,490,233
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
TOTAL COST $12,228,027 $20,722,662 $33,396,174*
------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CALL OPTIONS WRITTEN ON FOREIGN CURRENCY - (-0.1)%
AUD 0 1,100,000 1,100,000 Australian Dollar Call 03/07/1997 0.808 $0 ($3,960) ($3,960)
NZD 0 2,500,000 2,500,000 New Zealand Dollar Call 03/13/1997 0.707 0 (15,695) (15,695)
ITL 0 4,000,000,000 4,000,000,000 Italian Lira Call 03/25/1997 1,508.150 0 (20,400) (20,400)
NZD 725,000 0 725,000 New Zealand Dollar Call 04/07/1997 0.715 (3,104) 0 (3,104)
--------------------------------------
------------------------------------------------------------------------------------
Total Value of Call Options Written on
Foreign Currency (3,104) (40,055) (43,159)
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Premiums received on Call Options Written on
Foreign Currency 3,552 34,280 43,607*
------------------------------------------------------------------------------------
</TABLE>
* Combined cost represents cost of Sierra Variable Trust Short Term High
Quality Bond Fund and value of Sierra Variable Trust Short Term Global
Government Fund as contemplated by the proposed Agreement and Plan of
Reorganization. See Note 1.
** A portion or all of this security is pledged as collateral for option
contracts.
+ Floating rate security. The interest rate shown reflects the rate
currently in effect.
++ Rate represents annualized yield at date of purchase (unaudited).
+++ 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.
# As reorganized, the Sierra Variable Trust Short Term High Quality Bond
Fund will be limited to their percentages of foreign holdings,
accordingly certain positions will need to be disposed of prior to
consummation of the Plan of Reorganization.
## Amount represents less than 0.1% of total investments.
<PAGE>
THE SIERRA VARIABLE TRUST
- -------------------------
Short Term Global Government Fund
Schedule of Forward Foreign Currency Contracts #
December 31, 1996 (Unaudited)
U.S. Forward Foreign Currency Contracts to Buy
<TABLE>
<CAPTION>
Contracts to Receive
-------------------------------------------------------------------------------------------------------------------
Net Unrealized
Appreciation/
Expiration Local Value in In Exchange for (Depreciation)
Date Currency U.S. $ for U.S. $ of Contracts
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
01/08/1997 CAD 1,125,137 821,755 843,083 ($21,328)
02/12/1997 DKK 2,000,000 340,300 346,999 (6,699)
02/19/1997 DEM 1,000,000 651,965 667,085 (15,120)
03/18/1997 NLG 981,352 570,921 570,000 921
------------------
($42,226)
------------------
<CAPTION>
U.S. Forward Foreign Currency Contracts to Sell
Contracts to Deliver
-------------------------------------------------------------------------------------------------------------------
Net Unrealized
Expiration Local Value in In Exchange for Appreciation
Date Currency U.S. $ for U.S. $ of Contracts
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
01/08/1997 CAD 1,125,137 821,755 846,604 $24,849
01/08/1997 CAD 1,125,137 821,756 842,752 20,996
02/06/1997 CHF 1,558,960 1,169,234 1,320,593 151,359
02/07/1997 FRF 3,376,386 652,232 655,864 3,632
02/12/1997 DKK 12,689,600 2,159,136 2,200,000 40,864
02/19/1997 DEM 2,714,790 1,769,948 1,809,498 39,550
02/24/1997 BEF 17,148,400 542,686 556,495 13,809
02/25/1997 DEM 296,932 193,658 199,417 5,759
02/25/1997 SEK 4,000,000 584,538 607,211 22,673
03/13/1997 CHF 210,652 158,538 160,130 1,592
03/18/1997 NLG 2,967,694 1,726,516 1,774,618 48,102
------------------
$373,185
------------------
Net Unrealized Appreciation of Forward Foreign Currency Contracts $330,959
------------------
</TABLE>
# As reorganized, the Sierra Variable Trust Short Term High Quality Bond
Fund will be limited to their percentages of foreign holdings,
accordingly certain positions will need to be disposed of prior to
consummation of the Plan of Reorganization.
<TABLE>
<CAPTION>
----------------------------------------------------------------
GLOSSARY OF TERMS
<C> <S>
AUD - Australian Dollar
BALLOON - Five- and seven-year mortgages with larger
dollar amounts of payments falling due in the
later years of the obligation
BEF - Belgian Franc
CAD - Canadian Dollar
CHF - Swiss Franc
DEM - German Deutsche Mark
DKK - Danish Kroner
ESP - Spanish Peseta
FRF - French Franc
GBP - Great Britain Pound Sterling
GOLD - Payments are on accelerated 45-day payment
cycle instead of 75-day payment cycle
ITL - Italian Lira
LP - Limited Partnership
MTN - Medium Term Note
NLG - Netherlands Guilder
NZD - New Zealand Dollar
P/O - Principal Only
REMIC - Real Estate Mortgage Investment Conduit
SEK - Swedish Krona
----------------------------------------------------------------
</TABLE>
<PAGE>
The Sierra Variable Trust
Short Term High Quality Bond Fund
Short Term Global Government Fund
Pro Forma Combining Statement of Assets and Liabilities (Unaudited)
December 31, 1996
<TABLE>
<CAPTION>
Short Term Short Term
High Global
Quality Government Adjustments to Pro Forma
Bond Fund Fund Proforma Combined (Note 1)
----------- ----------- ----------- -----------
ASSETS:
<S> <C> <C> <C> <C>
Investments, at value (a) .............................. $12,322,086 $21,168,147 $ -- $33,490,233
Cash and/or foreign currency (b) ....................... 406 563 -- 969
Dividends and/or interest receivable ................... 107,844 499,239 -- 607,083
Receivable for investment securities sold .............. 1,193 -- 1,193
Receivable for Fund shares sold ........................ 2,252 2,854 -- 5,106
Net unrealized appreciation of forward
foreign currency contracts .......................... -- 330,959 -- 330,959
Unamortized organization costs ......................... -- 8,342 (8,342)(d) 0
Receivable from investment advisor ..................... -- -- 8,342 (d) 8,342
Other assets ........................................... 917 1,522 -- 2,439
----------- ----------- ----------- -----------
Total Assets ...................................... 12,434,698 22,011,626 0 34,446,324
----------- ----------- ----------- -----------
LIABILITIES:
Investment advisory fee payable ........................ 6,070 13,937 -- 20,007
Administration fee payable ............................. 1,892 3,345 -- 5,237
Transfer agent fees payable ............................ 293 305 -- 598
Custodian fees payable ................................. 1,079 1,917 -- 2,996
Accrued Trustees' fees and expenses .................... 488 862 -- 1,350
Options written, at value (c) .......................... 3,104 40,055 -- 43,159
Accrued expenses and other payables .................... 19,890 40,820 -- 60,710
----------- ----------- ----------- -----------
Total Liabilities ................................. 32,816 101,241 0 134,057
----------- ----------- ----------- -----------
Net Assets Applicable to Shares Outstanding ............ $12,401,882 $21,910,385 $ 0 $34,312,267
=========== =========== =========== ===========
Net asset value, offering price and redemption price per
share of beneficial interest outstanding ............ $ 2.43 $ 2.48 $ $ 2.43
=========== =========== =========== ===========
Number of Fund shares outstanding ...................... 5,099,390 8,843,198 165,886 14,108,474
=========== =========== =========== ===========
- -------------------------------------------------------
(a) Investments, at cost ............................... $12,228,027 $20,722,662 $ 445,485 $33,396,174*
(b) Cash and/or foreign currency, at cost .............. $ 406 $ 1,516 $ (953) $ 969*
(c) Premiums ........................................... $ 3,552 $ 34,280 $ 5,775 $ 43,607*
</TABLE>
(d) Unamortized organization costs of the acquired fund will be borne by the
investment advisor.
* Combined cost represents cost of Sierra Variable Trust Short Term High
Quality Bond Fund and value of Sierra Variable Trust Short Term Global
Government Fund as contemplated by the proposed Agreement and Plan of
Reorganization. See Note 1.
See Notes to Proforma Financial Statements.
<PAGE>
The Sierra Variable Trust
Short Term High Quality Bond Fund
Short Term Global Government Fund
Pro Forma Statement of Operations (Unaudited)
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Short Term Short Term
High Global
Quality Government Adjustments to Pro Forma
Bond Fund Fund Proforma Combined (Note 1)
------------ ------------ --------------- ------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest ..................................... $ 942,451 $ 1,584,502 $ -- $ 2,526,953
Foreign withholding tax on interest income ... -- (41,650) -- (41,650)
----------- ----------- ----------- ------------
Total investment income ................ 942,451 1,542,852 -- 2,485,303
----------- ----------- ----------- ------------
EXPENSES:
Investment advisory fee ...................... 66,754 166,447 (55,483)(a) 177,718
Administration fee ........................... 24,031 39,947 (63,978)(b) 0
Trustees' fees and expenses .................. 1,989 3,278 -- 5,267
Legal and audit fees ......................... 24,948 46,045 (35,116)(c) 35,877
Transfer agent fees .......................... 2,439 2,668 (2,668)(c) 2,439
Custodian fees ............................... 6,784 10,755 -- 17,539
Amortization of organization costs ........... -- 6,137 (6,137)(d) 0
Other ........................................ 14,872 8,861 -- 23,733
Fees waived by investment advisor ............ (10,732) -- 10,732 (e) 0
----------- ----------- ----------- ------------
Subtotal ............................... 131,085 284,138 (152,650) 262,573
Credits allowed by the custodian ............. (276) (116) -- (392)
----------- ----------- ----------- ------------
Net expenses ........................... 130,809 284,022 (152,650) 262,181
----------- ----------- ----------- ------------
NET INVESTMENT INCOME ........................ 811,642 1,258,830 152,650 2,223,122
----------- ----------- ----------- ------------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS
Realized gain/(loss) from:
Security transactions ..................... (156,023) (128,366) -- (284,389)
Forward foreign currency contracts
and foreign currency transactions ..... (21,340) 144,427 -- 123,087
Futures contracts ......................... (92,454) -- -- (92,454)
Written options ........................... 644 264,338 -- 264,982
Net unrealized appreciation/(depreciation) of:
Securities ................................ (102,420) (222,122) -- (324,542)
Forward foreign currency contracts ........ -- 567,861 -- 567,861
Foreign currency, written options,
futures contracts and other assets
and liabilities ........................ 448 (48,250) -- (47,802)
----------- ----------- ----------- ------------
Net Realized and Unrealized Gain/(Loss) on
Investments ............................... (371,145) 577,888 -- 206,743
----------- ----------- ----------- ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................. $ 440,497 $ 1,836,718 $ 152,650 $ 2,429,865
=========== =========== =========== ============
</TABLE>
(a) Adjustment reflects contractual fee of The Sierra Variable Trust Short Term
High Quality Bond Fund.
(b) Adjustment reflects the effect of the expected transfer of administrative
functions to an affiliate of Composite Research & Management Co.
(c) Adjustment reflects expected savings when the two funds become one.
(d) Organization expense of the acquired fund is not an expense of the combined
fund.
(e) Adjustment reflects the effect of an anticipated management fee
waiver/expense reimbursement for the The Sierra Variable Trust Short Term
High Quality Bond Fund at December 31, 1996.
See Notes to Proforma Financial Statements.
<PAGE>
THE SIERRA VARIABLE TRUST
Short Term High Quality Bond Fund
Short Term Global Government Fund
Notes to Pro Forma Financial Statements (Unaudited)
1. Basis of Combination
Sierra Variable Trust Funds (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. As of December 31, 1996, the Trust offers
fourteen managed investment funds. The unaudited Pro Forma Combining Portfolio
of Investments and Statement of Assets and Liabilities and the Statement of
Operations reflect the accounts of the Short Term High Quality Bond Fund and the
Short Term Global Government Fund for the year ended December 31, 1996. These
statements have been derived from books and records utilized in calculating
daily net asset value at December 31, 1996.
The pro forma statements give effect to the proposed transfer of assets and
stated liabilities of the Short Term Global Government Fund in exchange for
shares of Short Term High Quality Bond Fund. The pro forma statements do not
reflect the expenses of either fund in carrying out its obligations under the
proposed Agreement and Plan of Reorganization.
As described in the Prospectus/Proxy Statement under "Overview of
Merger--Federal Income Tax Consequences," the proposed transaction is expected
to result in the recognition of gain or loss for federal income tax purposes.
Please see the Prospectus/Proxy Statement for more information.
The Pro Forma Combining Portfolio of Investments and Statement of Assets and
Liabilities and the Statement of Operations should be read in conjunction with
the historical financial statements of the funds incorporated by reference in
the Statement of Additional Information.
For the year ended December 31, 1996, the Short Term High Quality Bond Fund's
investment advisory fee was computed based on the annual rates as follows:
<TABLE>
<CAPTION>
Fees on Assets
Exceeding
Fees on Assets $200 million Fees on
Equal To or and Equal To Assets
Less Than or Less Than Exceeding
Name of Fund $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%
=== === ===
</TABLE>
* Sierra Advisors retains only the net amount of the fees after sub-advisory
fees have been paid.
-1-
<PAGE>
THE SIERRA VARIABLE TRUST
Short Term High Quality Bond Fund
Short Term Global Government Fund
Notes to Pro Forma Financial Statements (Unaudited) (Continued)
2. Portfolio Valuation
The securities are valued at market, as determined by the fund, as of December
31, 1996.
3. Capital Shares
The pro forma net asset value per share assumes the issuance of additional
shares of Short Term High Quality Bond Fund which would have been issued at
December 31, 1996 in connection with the proposed reorganization. The pro forma
number of shares outstanding of 14,108,474 consists of 9,009,084 shares assumed
issued in the reorganization plus 5,099,390 shares of Short Term High Quality
Bond Fund at December 31, 1996.
-2-
<PAGE>
THE SIERRA VARIABLE TRUST
- -------------------------
Short Term High Quality Bond Fund
Short Term Global Government Fund
Combined Portfolio of Investments
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Short Term Short Term SECURITY Short Term Short Term
High Quality Global DESCRIPTIONS High Quality Global
Bond Government Bond Government
Fund Fund Combined Fund Fund Combined
- ------------------------------------------------------------------------------------------------------------------------------------
FOREIGN BONDS AND NOTES - 39.7% #
Italian Lira Bonds - 7.2%
<S> <C> <C> <C> <C> <C> <C> <C>
Italian Treasury Bonds:
ITL 0 1,560,000,000 1,560,000,000 8.500% due 08/01/1997 $0 $914,122 $914,122
0 2,220,000,000 2,220,000,000 8.500% due 01/01/1999 0 1,346,836 1,346,836
------------------------------------------------
Total Italian Lira Bonds 0 2,260,958 2,260,958
------------------------------------------------
German Deutsche Mark Bonds - 6.9%
Federal Republic of Germany:
DEM 0 1,500,000 1,500,000 6.625% due 01/20/1998 0 876,201 876,201
0 1,280,000 1,280,000 6.000% due 02/20/1998 ** 0 746,810 746,810
0 925,000 925,000 5.250% due 10/20/1998 0 542,976 542,976
------------------------------------------------
Total German Deutsche Mark Bonds 0 2,165,987 2,165,987
------------------------------------------------
New Zealand Dollar Bond - 5.5%
NZD 0 2,505,000 2,505,000 Federal National Mortgage
Association (FNMA), Global Note,
7.250% due 06/20/2020 0 1,720,238 1,720,238
------------------------------------------------
Danish Kroner Bond - 4.0%
DKK 0 7,735,000 7,735,000 Kingdom of Denmark,
9.000% due 11/15/1998 ** 0 1,243,327 1,243,327
------------------------------------------------
Great Britain Pound Sterling Note - 3.6%
GBP 0 685,000 685,000 United Kingdom Treasury Note,
7.000% due 06/07/2000 0 1,136,454 1,136,454
------------------------------------------------
Canadian Dollar Bonds - 3.1%
CAD 0 860,000 860,000 Government of Canada,
6.500% due 08/01/1999 ** 0 642,128 642,128
0 400,000 400,000 Royal Bank of Canada,
10.900% due 01/15/1999 0 314,624 314,624
------------------------------------------------
Total Canadian Dollar Bonds 0 956,752 956,752
------------------------------------------------
Irish Pound Bond - 2.3%
IEP 0 465,000 465,000 Republic of Ireland,
6.250% due 04/01/1999 0 707,037 707,037
------------------------------------------------
Spanish Peseta Bonds - 2.2%
Government of Spain:
ESP 0 59,000,000 59,000,000 11.450% due 08/30/1998 0 428,075 428,075
0 35,000,000 35,000,000 10.250% due 11/30/1998 0 253,587 253,587
------------------------------------------------
Total Spanish Peseta Bonds 0 681,662 681,662
------------------------------------------------
Australian Dollar Bond - 2.1%
AUD 0 850,000 850,000 International Finance Corporation,
7.750% due 06/24/1999 0 663,528 663,528
------------------------------------------------
Swedish Krona Bond - 1.7%
SEK 0 3,700,000 3,700,000 Kingdom of Sweden,
11.000% due 01/21/1999 ** 0 522,982 522,982
------------------------------------------------
Mexican Peso Bond - 0.8%
MXN 0 2,419,260 2,419,260 Mexican Cetes,
Zero coupon due 06/04/1998 0 252,954 252,954
------------------------------------------------
Argentinian Peso Bond - 0.3%
ARP 0 119,080 119,080 Republic of Argentina,
5.625% due 04/01/2000 + 0 108,526 108,526
------------------------------------------------
----------------------------------------------------------------------------------
Total Foreign Bonds and Notes 0 12,420,405 12,420,405
----------------------------------------------------------------------------------
</TABLE>
<PAGE>
THE SIERRA VARIABLE TRUST
- -------------------------
Short Term High Quality Bond Fund
Short Term Global Government Fund
Combined Portfolio of Investments (Continued)
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Short Term Short Term SECURITY Short Term Short Term
High Quality Global DESCRIPTIONS High Quality Global
Bond Government Bond Government
Fund Fund Combined Fund Fund Combined
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 15.4%
Government National Mortgage Association (GNMA) - 10.7%
<S> <C> <C> <C> <C> <C> <C>
$ 91,320 0 91,320 #121425, Seasoned,
11.000% due 04/15/2015 $102,643 $0 $102,643
108,631 0 108,631 #140834, Seasoned,
11.000% due 12/15/2015 122,100 0 122,100
40,328 0 40,328 #144538, Seasoned,
11.000% due 12/15/2015 45,400 0 45,400
118,579 0 118,579 #151670, Seasoned,
11.000% due 12/15/2015 133,281 0 133,281
0 334,654 334,654 #213862, Seasoned,
10.000% due 09/15/2018 0 367,828 367,828
0 182,815 182,815 #225305, Seasoned,
10.000% due 02/15/2018 0 200,938 200,938
0 36,287 36,287 #234561, Seasoned,
10.000% due 12/15/2017 0 39,954 39,954
37,043 0 37,043 #254937, Seasoned,
10.000% due 06/15/2019 ** 40,715 0 40,715
92,809 0 92,809 #257814, Seasoned,
10.000% due 09/15/2018 102,109 0 102,109
0 294,120 294,120 #264735, Seasoned,
10.000% due 02/15/2019 0 323,276 323,276
0 180,715 180,715 #289333, Seasoned,
10.000% due 05/15/2020 0 199,000 199,000
0 406,571 406,571 #291116, Seasoned,
10.000% due 06/15/2020 0 447,314 447,314
81,996 0 81,996 #293511, Seasoned,
10.000% due 07/15/2020** 90,374 0 90,374
343,233 0 343,233 #400224, Seasoned,
8.000% due 06/15/2009 354,707 0 354,707
234,655 0 234,655 #780081, Seasoned,
10.000% due 02/15/2025** 257,917 0 257,917
60,047 0 60,047 #780121, Seasoned,
10.000% due 04/15/2025** 66,183 0 66,183
57,822 0 57,822 #780141, Seasoned,
10.000% due 12/15/2020** 63,616 0 63,616
365,052 0 365,052 #780317, Seasoned,
9.000% due 12/15/2020** 390,430 0 390,430
---------------------------------------------
Total GNMAs 1,769,475 1,578,310 3,347,785
---------------------------------------------
Adjustable Rate Mortgage-Backed Securities (ARM) - 2.5%
145,346 0 145,346 Federal Home Loan Mortgage Corporation (FHLMC),
#845988,
7.807% due 11/01/2021+ 152,318 0 152,318
Federal National Mortgage Association (FNMA):
237,078 0 237,078 #82247,
6.125% due 04/01/2019+ 234,337 0 234,337
64,565 0 64,565 #124571,
7.847% due 11/01/2022+ 67,662 0 67,662
78,430 0 78,430 #152205,
7.498% due 01/01/2019+ 81,335 0 81,335
233,838 0 233,838 #313257,
6.056% due 11/01/2035 231,135 0 231,135
---------------------------------------------
Total ARMs 766,787 0 766,787
---------------------------------------------
Federal Home Loan Mortgage Corporation (FHLMC) - 1.4%
0 142,555 142,555 #1223,
7.250% due 07/15/2020 0 143,446 143,446
299,843 0 299,843 #G50135, 5 Year Balloon, GOLD,
5.500% due 03/01/1999 296,473 0 296,473
-----------------------------------------------
296,473 143,446 439,919
-----------------------------------------------
Federal National Mortgage Association (FNMA) - 0.8%
0 249,213 249,213 #141461,
7.784% due 11/01/2021 + 0 260,933 260,933
-----------------------------------------------
-----------------------------------------------------------------------------------
Total U.S. Government Agency
Mortgage-Backed Securities 2,832,735 1,982,689 4,815,424
-----------------------------------------------------------------------------------
</TABLE>
<PAGE>
THE SIERRA VARIABLE TRUST
- -------------------------
Short Term High Quality Bond Fund
Short Term Global Government Fund
Combined Portfolio of Investments (Continued)
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------------
Short Term Short Term SECURITY Short Term Short Term
High Quality Global DESCRIPTIONS High Quality Global
Bond Government Bond Government
Fund Fund Combined Fund Fund Combined
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. TREASURY NOTES - 11.4%
$ 0 500,000 500,000 5.125% due 03/31/1998 $0 $498,210 $498,210
0 1,550,000 1,550,000 6.375% due 01/15/1999 ** 0 1,558,537 1,558,537
1,200,000 0 1,200,000 6.375% due 04/30/1999 1,206,372 0 1,206,372
300,000 0 300,000 5.625% due 11/30/2000 293,859 0 293,859
-------------------------------------
----------------------------------------------------------------------------------------
Total U.S. Treasury Notes 1,500,231 2,056,747 3,556,978
----------------------------------------------------------------------------------------
CORPORATE NOTES - 10.0%
100,000 0 100,000 Colonial Realty, Sr. Note,
7.500% due 07/15/2001 100,875 0 100,875
100,000 0 100,000 ERP Operating LP,
8.500% due 05/15/1999++ 103,160 0 103,160
300,000 0 300,000 General Motors Acceptance Corporation, Deb.,
8.625% due 06/15/1999 312,081 0 312,081
200,000 0 200,000 Lockheed Martin Corporation,
6.850% due 05/15/2001 200,500 0 200,500
Lyondell Petrochemical Company:
100,000 0 100,000 9.125% due 03/15/2002 108,668 0 108,668
150,000 0 150,000 9.750% due 09/04/2003 ++ 168,563 0 168,563
250,000 0 250,000 Oasis Residential Inc.,
6.750% due 11/15/2001 246,250 0 246,250
250,000 0 250,000 Southern National Corporation, Sub. Note,
7.050% due 05/23/2003 250,065 0 250,065
300,000 300,000 600,000 Sun Communities Inc., Sr. Note,
7.625% due 05/01/2003 ** 306,474 306,474 612,948
100,000 0 100,000 Susa Partnership LP,
7.125% due 11/01/2003 99,000 0 99,000
Taubman Realty Corporation:
100,000 0 100,000 8.000% due 06/15/1999 101,983 0 101,983
100,000 0 100,000 MTN,
7.500% due 06/15/2002 101,663 0 101,663
The Money Store, Inc.:
280,000 0 280,000 9.160% due 09/09/1997++ 281,120 0 281,120
300,000 0 300,000 7.630% due 04/15/1998++ 302,229 0 302,229
Time Warner Inc.:
100,000 0 100,000 7.450% due 02/01/1998 100,596 0 100,596
50,000 0 50,000 7.950% due 02/01/2000 51,405 0 51,405
---------------------------------------
----------------------------------------------------------------------------------------
Total Corporate Notes 2,834,632 306,474 3,141,106
----------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES - 8.7%
77,621 0 77,621 Advanta Mortgage Loan Trust, 1996-2-A1,
6.740% due 11/25/2009 77,784 0 77,784
Green Tree Financial Corporation:
250,000 0 250,000 1995-1-B2,
9.200% due 06/15/2025 270,703 0 270,703
200,000 0 200,000 1995-6-B1,
7.700% due 09/15/2026 203,000 0 203,000
100,000 0 100,000 Green Tree Home Equity Loan Trust, 1997-B-A5,
7.150% due 04/15/2027 100,563 0 100,563
165,000 0 165,000 Green Tree Home Improvement, 1995-D-B2,
7.450% due 09/15/2025 164,071 0 164,071
80,253 0 80,253 Green Tree NIM, 1994-B, Class A,
7.850% due 07/15/2004 80,678 0 80,678
79,571 0 79,571 Green Tree Recreational, Equipment & Consumer,
1996-A, Class A1,
5.550% due 02/15/2018 78,682 0 78,682
85,972 0 85,972 Green Tree Security Mortgage Trust, 1994-A,
6.900% due 02/15/2004 85,811 0 85,811
100,000 0 100,000 H & T Master Trust,
8.430% due 08/15/2002++ 100,140 0 100,140
</TABLE>
<PAGE>
THE SIERRA VARIABLE TRUST
- -------------------------
Short Term High Quality Bond Fund
Short Term Global Government Fund
Combined Portfolio of Investments (Continued)
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Short Term Short Term SECURITY Short Term Short Term
High Quality Global DESCRIPTIONS High Quality Global
Bond Government Bond Government
Fund Fund Combined Fund Fund Combined
- ------------------------------------------------------------------------------------------------------------------------------------
ASSET BACKED SECURITIES - (Continued)
<C> <C> <C> <C> <S> <C> <C> <C>
Merrill Lynch Mortgage Investors, Inc.:
$ 37,744 0 37,744 1991-B-A,
9.200% due 04/15/2011 $38,240 $0 $38,240
64,718 0 64,718 1991-I-A,
7.650% due 01/15/2012 65,547 0 65,547
179,878 0 179,878 1992-B-A4,
7.850% due 04/15/2012 181,677 0 181,677
350,697 0 350,697 Mid-State Trust, Series 4, Class A,
8.330% due 04/01/2030 367,472 0 367,472
106,282 0 106,282 Sec Pac Manufacturing Housing, 95-1, Class A1,
6.500% due 04/10/2020 106,524 0 106,524
The Money Store, Inc.:
162,405 0 162,405 1996-A-A2,
6.330% due 06/15/2008 162,186 0 162,186
105,143 0 105,143 1996-B-A1,
6.720% due 02/15/2010 105,389 0 105,389
283,966 0 283,966 UCFC Home Equity Loan Trust, 1995-B1,
6.600% due 07/10/2009 285,499 0 285,499
250,000 0 250,000 World Omni Automobile Lease Securitization, 1996-B,
6.850% due 11/15/2002++ 249,453 0 249,453
----------------------------------
-----------------------------------------------------------------------------------
Total Asset-Backed Securities 2,723,419 0 2,723,419
-----------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 4.9%
Countrywide Funding Corporation:
28,589 0 28,589 1994-1-A3,
6.250% due 03/25/2024 27,311 0 27,311
500,000 0 500,000 1994-2-A8,
6.500% due 02/25/2009 500,000 0 500,000
185,234 0 185,234 Federal Home Loan Mortgage Corporation (FHLMC),
P/O, REMIC, #1719-C,
Zero coupon due 04/15/1999 171,863 0 171,863
77,276 0 77,276 Fund America Investors Corporation, 1991-1-H,
7.950% due 02/20/2020 78,048 0 78,048
120,349 0 120,349 General Electric Capital Mortgage Association, 1994-27-A1,
6.500% due 07/25/2024 119,858 0 119,858
280,281 0 280,281 Norwest Asset Securities Corporation, 1996-5-A13,
7.500% due 11/25/2026 282,777 0 282,777
Prudential Home Mortgage Securities:
55,321 0 55,321 1992-47,
7.500% due 01/25/2023 55,200 0 55,200
233,734 0 233,734 1993-43-A1,
5.400% due 10/25/2023 230,813 0 230,813
61,742 0 61,742 Ryland Acceptance Corporation,
8.950% due 08/20/2019 62,764 0 62,764
----------------------------------
-----------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations 1,528,634 0 1,528,634
-----------------------------------------------------------------------------------
TIME DEPOSITS - 3.0%
GRD 0 106,086,208 106,086,208 Bankers Trust Corporation,
9.020% due 08/14/1997 0 386,133 386,133
EGP 0 300,000 300,000 Citibank,
9.000% due 07/07/1997 0 300,000 300,000
ZAR 0 1,159,888 1,159,888 J.P. Morgan & Company,
15.750% due 09/11/1997 0 255,651 255,651
----------------------------------
-----------------------------------------------------------------------------------
Total Time Deposits 0 941,784 941,784
-----------------------------------------------------------------------------------
</TABLE>
<PAGE>
THE SIERRA VARIABLE TRUST
- -------------------------
Short Term High Quality Bond Fund
Short Term Global Government Fund
Combined Portfolio of Investments (Continued)
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Short Term Short Term SECURITY Short Term Short Term
High Quality Global DESCRIPTIONS High Quality Global
Bond Government Bond Government
Fund Fund Combined Fund Fund Combined
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INDEXED NOTES - 2.5%
$ 0 250,000 250,000 Citibank,
(Value is directly linked to the Morrocan Dirham),
8.000% due 12/01/1997 $0 $246,625 $246,625
J.P. Morgan & Company:
0 302,750 302,750 (Value is directly linked to the Indonesia Rupiah),
11.200% due 08/11/1997 0 302,210 302,210
0 240,000 240,000 (Value is directly linked to the Philippine Peso),
10.450% due 07/29/1997 0 239,696 239,696
-------------------------------
-------------------------------
--------------------------------------------------------------------------
Total Indexed Notes 0 788,531 788,531
--------------------------------------------------------------------------
COMMERCIAL PAPER - 3.6%
505,000 613,000 1,118,000 General Electric Capital Corporation,
6.100% due 07/01/1997 505,000 613,000 1,118,000
-------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATION - 0.6%
175,000 0 175,000 Federal National Mortgage Association (FNMA),
(Inverse Floater),
9.781% due 12/29/1997 + 178,063 0 178,063
-------------------------------------
<CAPTION>
Expiration Strike
Date Price
--------------------------
PUT OPTIONS PURCHASED ON FOREIGN CURRENCY - 0.2%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AUD 0 880,000 880,000 Australian Dollar Put 07/16/1997 0.762 0 8,643 8,643
CAD 0 1,343,500 1,343,500 Canadian Dollar Put 08/01/1997 1.396 0 1,293 1,293
NZD 0 2,500,000 2,500,000 New Zealand Dollar Put 09/15/1997 0.686 0 28,500 28,500
DEM 0 2,000,000 2,000,000 German Deutsche Mark Put 11/26/1997 1.700 0 34,427 34,427
------------------------------------------
-----------------------------------------------------------------------------------------------
Total Put Options Purchased on Foreign Currency 0 72,863 72,863
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $12,102,714 $19,182,493 $31,285,207
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
TOTAL COST $12,014,856 $19,809,397 $31,197,349*
-----------------------------------------------------------------------------------------------
CALL OPTIONS WRITTEN ON FOREIGN CURRENCY - (0.0)%
AUD 0 880,000 880,000 Australian Dollar Call 07/16/1997 0.777 $0 ($338) ($338)
CAD 0 1,343,500 1,343,500 Canadian Dollar Call 08/01/1997 1.366 0 (2,352) (2,352)
GBP 0 680,000 680,000 Great Britain Pound Sterling Call 08/07/1997 1.637 0 (22,002) (22,002)
NZD 0 2,500,000 2,500,000 New Zealand Dollar Call 09/15/1997 0.692 0 (8,250) (8,250)
-------------------------------------------
-----------------------------------------------------------------------------------------------
Total Value of Call Options Written on Foreign Currency 0 (32,942) (32,942)
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Premium received on Call Options Written on Foreign Currency 0 45,615 32,942*
-----------------------------------------------------------------------------------------------
</TABLE>
* Combined cost represents cost of Sierra Variable Trust Short Term High
Quality Bond Fund and value of Sierra Variable Trust Short Term Global
Government Fund as contemplated by the proposed Agreement and Plan of
Reorganization. See Note 1.
** A portion or all of this security is pledged as collateral for futures
and options contracts.
+ Floating 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.
# As reorganized, the Sierra Variable Trust Short Term High Quality Bond
Fund will be limited to their percentages of foreign holdings,
accordingly certain positions will need to be disposed of prior to
consummation of the Plan of Reorganization.
<TABLE>
<CAPTION>
NUMBER OF UNREALIZED
CONTRACTS DEPRECIATION
--------- ------------
FUTURES CONTRACTS - SHORT POSITION
<S> <C> <C> <C> <C> <C> <C>
13 0 13 U.S. Treasury Note, Five Year, September 1997 ($7,031) $0 ($7,031)
-----------------------------------------
</TABLE>
<PAGE>
THE SIERRA VARIABLE TRUST
- -------------------------
Short Term Global Government Fund
Schedule of Forward Foreign Currency Contracts #
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
U.S. Forward Foreign Currency Contracts to Buy
Contracts to Receive
-----------------------------------------------------------------------------------------------------------------------
Net Unrealized
Appreciation/
Expiration Local Value in In Exchange for (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)
----------------
<CAPTION>
U.S. Forward Foreign Currency Contracts to Sell
Contracts to Deliver
-----------------------------------------------------------------------------------------------------------------------
Net Unrealized
Appreciation/
Expiration Local Value in In Exchange for (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>
# As reorganized, the Sierra Variable Trust Short Term High Quality Bond Fund
will be limited to their percentages of foreign holdings, accordingly certain
positions will need to be disposed of prior to consummation of the Plan of
Reorganization.
-----------------------------------------------------------------
GLOSSARY OF TERMS
ARP - Argentinian Peso
AUD - Australian Dollar
BALLOON - Five- and seven-year mortgages with larger
dollar amounts of payments falling due in the
later years of the obligation
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
GOLD - Payments are on accelerated 45-day payment
cycle instead of 75-day payment cycle
GRD - Greek Drakma
IEP - Irish Pound
ITL - Italian Lira
LP - Limited Partnership
MTN - Medium Term Note
MXN - Mexican Peso
NLG - Netherlands Guilder
NZD - New Zealand Dollar
P/O - Principal Only
REMIC - Real Estate Mortgage Investment Conduit
SEK - Swedish Krona
ZAR - South African Rand
-----------------------------------------------------------------
<PAGE>
The Sierra Variable Trust
Short Term High Quality Bond Fund
Short Term Global Government Fund
Pro Forma Combining Statement of Assets and Liabilities (Unaudited)
June 30, 1997
<TABLE>
<CAPTION>
Short Term Short Term
High Global
Quality Government Adjustments to Pro Forma
Bond Fund Fund Proforma Combined (Note 1)
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value (a) .............................. $12,102,714 $19,182,493 $ -- $31,285,207
Cash and/or foreign currency (b) ....................... 8,710 55,348 -- 64,058
Dividends and/or interest receivable ................... 99,449 411,581 -- 511,030
Receivable for investment securities sold .............. 3,406 -- -- 3,406
Net unrealized appreciation of forward
foreign currency contracts .......................... -- 176,523 -- 176,523
Unamortized organization costs ......................... -- 5,273 (5,273)(d) 0
Receivable from investment advisor ..................... -- -- 5,273 (d) 5,273
Variation Margin ....................................... 3,250 -- -- 3,250
Other assets ........................................... 1,026 1,727 -- 2,753
----------- ----------- ------------ -----------
Total Assets ...................................... 12,218,555 19,832,945 0 32,051,500
----------- ----------- ------------ -----------
LIABILITIES:
Payable for Fund shares redeemed ....................... 2,008 2,191 -- 4,199
Investment advisory fee payable ........................ 3,761 12,291 -- 16,052
Administration fee payable ............................. 1,805 2,950 -- 4,755
Transfer agent fees payable ............................ 417 417 -- 834
Custodian fees payable ................................. 651 858 -- 1,509
Accrued Trustees' fees and expenses .................... 304 495 -- 799
Options written, at value (c) .......................... -- 32,942 -- 32,942
Accrued expenses and other payables .................... 19,366 22,264 -- 41,630
----------- ----------- ------------ -----------
Total Liabilities ................................. 28,312 74,408 0 102,720
----------- ----------- ------------ -----------
Net Assets Applicable to Shares Outstanding ............ $12,190,243 $19,758,537 $ 0 $31,948,780
=========== =========== ============ ===========
Net asset value, offering price and redemption price per
share of beneficial interest outstanding ............ $ 2.42 $ 2.42 $ $ 2.42
=========== ============ ===========
Number of Fund shares outstanding ...................... 5,033,452 8,150,482 13,183,934
=========== ============ ===========
- --------------------------------------------------------
(a) Investments, at cost ............................... $12,014,856 $19,809,397 $ (626,904) $31,197,349*
(b) Cash and/or foreign currency, at cost .............. $ 8,710 $ 54,881 $ 467 $ 64,058*
(c) Premiums ........................................... $ 0 $ 45,615 $ (12,673) $ 32,942*
</TABLE>
(d) Unamortized organization costs of the acquired fund will be borne by the
investment advisor.
* Combined cost represents cost of Sierra Variable Trust Short Term High
Quality Bond Fund and value of Sierra Variable Trust Short Term Global
Government Fund as contemplated by the proposed Agreement and Plan of
Reorganization. See Note 1.
See Notes to Proforma Financial Statements.
<PAGE>
The Sierra Variable Trust
Short Term High Quality Bond Fund
Short Term Global Government Fund
Pro Forma Statement of Operations (Unaudited)
For the Six Months Ended June 30, 1997
<TABLE>
<CAPTION>
Short Term Short Term
High Global
Quality Government Adjustments to Pro Forma
Bond Fund Fund Proforma Combined (Note 1)
----------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest ..................................... $ 431,307 $ 755,585 $ - $ 1,186,892
Foreign withholding tax on interest income ... - (10,224) - (10,224)
----------- ---------------- ---------------- -----------------
Total investment income ................ 431,307 745,361 - 1,176,668
----------- ---------------- ---------------- -----------------
EXPENSES:
Investment advisory fee ...................... 30,451 77,203 (25,734)(a) 81,920
Administration fee ........................... 10,962 18,529 (29,491)(b) 0
Trustees' fees and expenses .................. 679 1,089 - 1,768
Legal and audit fees ......................... 8,524 18,858 (17,400)(c) 9,982
Transfer agent fees .......................... 2,083 2,083 (2,083)(c) 2,083
Custodian fees ............................... 4,475 6,885 - 11,360
Amortization of organization costs ........... - 3,069 (3,069)(d) 0
Other ........................................ 9,668 1,986 - 11,654
Fees waived by investment advisor ............ (5,750) - 5,750 (e) 0
----------- ---------------- ---------------- -----------------
Subtotal ............................... 61,092 129,702 (72,027) 118,767
Credits allowed by the custodian ............. (248) (237) - (485)
----------- ---------------- ---------------- -----------------
Net expenses ........................... 60,844 129,465 (72,027) 118,282
----------- ---------------- ---------------- -----------------
NET INVESTMENT INCOME ........................ 370,463 615,896 72,027 1,058,386
----------- ---------------- ---------------- -----------------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS
Realized gain/(loss) from:
Security transactions ..................... (42,692) (212,718) - (255,410)
Forward foreign currency contracts
and foreign currency transactions ..... (3,142) 1,161,003 - 1,157,861
Futures contracts ......................... (16,575) - - (16,575)
Written options ........................... 6,383 120,253 - 126,636
Net unrealized appreciation/(depreciation) of:
Securities ................................ (6,201) (1,072,389) - (1,078,590)
Forward foreign currency contracts ........ - (154,436) - (154,436)
Foreign currency, written options,
futures contracts and other assets
and liabilities ........................ (7,479) 12,142 - 4,663
----------- ---------------- ---------------- -----------------
Net Realized and Unrealized Loss on
Investments ............................... (69,706) (146,145) - (215,851)
----------- ---------------- ---------------- -----------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................. $ 300,757 $ 469,751 $ 72,027 $ 842,535
=========== ================ ================ =================
</TABLE>
(a) Adjustment reflects contractual fee of The Sierra Variable Trust Short Term
High Quality Bond Fund.
(b) Adjustment reflects the effect of the expected transfer of administrative
functions to an affiliate of Composite Research & Management Co.
(c) Adjustment reflects expected savings when the two funds become one.
(d) Organization expense of the acquired fund is not an expense of the combined
fund.
(e) Adjustment reflects the effect of an anticipated management fee
waiver/expense reimbursement for the The Sierra Variable Trust Short Term
High Quality Bond Fund at June 30, 1997.
See Notes to Proforma Financial Statements.
<PAGE>
THE SIERRA VARIABLE TRUST
Short Term High Quality Bond Fund
Short Term Global Government Fund
Notes to Pro Forma Financial Statements (Unaudited)
1. Basis of Combination
Sierra Variable Trust Funds (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. As of June 30, 1997, the Trust offers
fourteen managed investment funds. The unaudited Pro Forma Combining Portfolio
of Investments and Statement of Assets and Liabilities and the Statement of
Operations reflect the accounts of the Short Term High Quality Bond Fund and the
Short Term Global Government Fund for the six months ended June 30, 1997. These
statements have been derived from books and records utilized in calculating
daily net asset value at June 30, 1997.
The pro forma statements give effect to the proposed transfer of assets and
stated liabilities of the Short Term Global Government Fund in exchange for
shares of Short Term High Quality Bond Fund. The pro forma statements do not
reflect the expenses of either fund in carrying out its obligations under the
proposed Agreement and Plan of Reorganization.
As described in the Prospectus/Proxy Statement under "Overview of
Merger--Federal Income Tax Consequences," the proposed transaction is expected
to result in the recognition of gain or loss for federal income tax purposes.
Please see the Prospectus/Proxy Statement for more information.
The Pro Forma Combining Portfolio of Investments and Statement of Assets and
Liabilities and the Statement of Operations should be read in conjunction with
the historical financial statements of the funds incorporated by reference in
the Statement of Additional Information.
For the six months ended June 30, 1997, the Short Term High Quality Bond Fund's
investment advisory fee was computed based on the annual rates as follows:
<TABLE>
<CAPTION>
Fees on Assets
Exceeding
Fees on Assets $200 million Fees on
Equal To or and Equal To Assets
Less Than or Less Than Exceeding
Name of Fund $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%
=== === ===
</TABLE>
* Sierra Advisors retains only the net amount of the fees after sub-advisory
fees have been paid.
-1-
<PAGE>
THE SIERRA VARIABLE TRUST
Short Term High Quality Bond Fund
Short Term Global Government Fund
Notes to Pro Forma Financial Statements (Unaudited) (Continued)
2. Portfolio Valuation
The securities are valued at market, as determined by the fund, as of June 30,
1997.
3. Capital Shares
The pro forma net asset value per share assumes the issuance of additional
shares of Short Term High Quality Bond Fund which would have been issued at
June 30, 1997 in connection with the proposed reorganization. The pro forma
number of shares outstanding of 13,183,934 consists of 8,150,482 shares assumed
issued in the reorganization plus 5,033,452 shares of Short Term High Quality
Bond Fund at June 30, 1997.
-2-
<PAGE>
THE SIERRA VARIABLE TRUST
FORM N-14
PART C. Other Information
-----------------
Item 15. Indemnification
---------------
Under Section 6.4 of Registrant's Master Trust Agreement, as amended, any
past or present Trustee or officer of Registrant (including persons who serve at
Registrant's request as directors, officers or trustees of another organization
in which Registrant has any interest as a shareholder, creditor or otherwise
(hereinafter referred to as a "Covered Person")), is indemnified to the fullest
extent permitted by law against liability and all expenses reasonably incurred
by him in connection with any action, suit or proceeding to which he may be a
party or otherwise involved by reason of his being or having been a Covered
Person. This provision does not authorize indemnification when it is
determined, in the manner specified in the Master Trust Agreement, that a
Covered Person has not acted in good faith in the reasonable belief that his
actions were in or not opposed to the best interests of Registrant. Moreover,
this provision does not authorize indemnification when it is determined, in the
manner specified in the Master Trust Agreement, that the Covered Person would
otherwise be liable to Registrant or its shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of his duties.
Expenses may be paid by Registrant in advance of the final disposition of any
action, suit or proceeding upon receipt of an undertaking by a Covered Person to
repay those expenses to Registrant in the event that it is ultimately determined
that indemnification of the expenses is not authorized under the Master Trust
Agreement and the Covered Person either provides security for such undertaking
or insures Registrant against losses from such advances or the disinterested
Trustees or independent legal counsel determines, in the manner specified in the
Master Trust Agreement, that there is reason to believe the Covered Person will
be found to be entitled to indemnification.
Insofar as indemnification for liability arising under the Securities Act
of 1933, as amended (the "1933 Act"), may be permitted to Trustees, officers and
controlling persons of Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will by governed by the final adjudication of such issue.
<PAGE>
Item 16. Exhibits
--------
1(a) Agreement and Declaration of Trust, dated January 29, 1993 is
incorporated by reference to Post-Effective Amendment No. 7 to
the Registrant's Registration Statement on Form N-1A (File
Nos. 033-57732 and 811-07462), filed on February 28, 1997.
1(b)-1 Amendment No. 1 to the Trust's Agreement and Declaration of
Trust, dated April 27, 1993 is incorporated by reference to
Post-Effective Amendment No. 7 to the Registrant's
Registration Statement on Form N-1A (File Nos. 033-57732 and
811-07462), filed on February 28, 1997.
1(b)-2 Amendment No. 2 to the Trust's Agreement and Declaration of
Trust, dated September 22, 1993 is incorporated by reference
to Post-Effective Amendment No. 7 to the Registrant's
Registration Statement on Form N-1A (File Nos. 033-57732 and
811-07462), filed on February 28, 1997.
1(c)-1 Establishment and Designation of Series of Shares of
Beneficial Interest, dated April 27, 1993, with respect to the
Global Money, Short Term Global Government, U.S. Government,
Corporate Income, Growth and International Growth Funds is
incorporated by reference to Post-Effective Amendment No. 7 to
the Registrant's Registration Statement on Form N-1A (File
Nos. 033-57732 and 811-07462), filed on February 28, 1997.
1(c)-2 Establishment and Designation of Series of Shares of
Beneficial Interest, dated February 3, 1995, with respect to
the Short Term High Quality Bond, Growth and Income and
Emerging Growth Funds is incorporated by reference to Post-
Effective Amendment No. 7 to the Registrant's Registration
Statement on Form N-1A (File Nos. 033-57732 and 811-07462),
filed on February 28, 1997.
1(c)-3 Establishment and Designation of Series of Shares of
Beneficial Interest, dated January 23, 1997, with respect to
the Income, Value, Balanced, Growth and Capital Growth
Portfolios is incorporated by reference to Post-Effective
Amendment No. 7 to the Registrant's Registration Statement on
Form N-1A (File Nos. 033-57732 and 811-07462), filed on
February 28, 1997.
2 By-Laws of the Trust are incorporated by reference to Post-
Effective Amendment No. 7 to the Registrant's Registration
Statement on Form N-1A (File Nos. 033-57732 and 811-07462),
filed on February 28, 1997.
3 Not Applicable.
4 Form of Agreement and Plan of Reorganization is filed herewith
as Appendix A to the Prospectus/Proxy Statement set forth as
Part A hereof.
5 Article V, Shareholders' Voting Powers and Meetings, of the
Master Trust Agreement, as amended, is incorporated by
reference to Exhibits 1(a) through 1(c)-3 above. Article 11,
Shareholders' Voting Powers and Meetings, is incorporated by
reference to Exhibit 2 above.
-2-
<PAGE>
6(a) Management Agreement, dated January 1, 1994, between the Trust
and Sierra Investment Advisors Corporation ("Sierra
Advisors"), with respect to the Short Term High Quality Bond
Fund, is incorporated by reference to Post-Effective Amendment
No. 7 to the Registrant's Registration Statement on Form N-1A
(File Nos. 033-57732 and 811-07462), filed on February 28,
1997.
6(b) Sub-Adviser Agreement, dated as of January 1, 1994, between
Sierra Advisors and Scudder, Stevens & Clark, Inc. with
respect to the Short Term High Quality Bond Fund is
incorporated by reference to Post-Effective Amendment No. 7 to
the Registrant's Registration Statement on Form N-1A (File
Nos. 033-57732 and 811-07462), filed on February 28, 1997.
6(c) Form of Management Agreement between the Trust, with respect
to the Short Term High Quality Bond Fund, and Composite
Research & Management Co. is filed herewith.
7(a) Distribution Agreement, dated April 19, 1993, between the
Trust and Sierra Investment Services Corporation ("Sierra
Services") is incorporated by reference to Post-Effective
Amendment No. 7 to the Registrant's Registration Statement on
Form N-1A (File Nos. 033-57732 and 811-07462), filed on
February 28, 1997.
7(b)-1 Participation Agreement, regarding Sierra Advantage among the
Trust, Sierra Advisors, Sierra Services, American General Life
Insurance Company ("American General") and American General
Securities Incorporated ("American General Securities"), dated
as of May 3, 1993, is incorporated by reference to Exhibit
6(b) of Post-Effective No. 7 to the Registrant's Registration
Statement on Form N-1A (File Nos. 033-57732 and 811-07462),
filed on February 28, 1997.
7(b)-2 Form of First Amendment to Participation Agreement dated as of
May 3, 1993, is incorporated by reference to Post-Effective
Amendment No. 9 to the Registrant's Registration Statement on
Form N-1A (File Nos. 033-57732 and 811-07462), filed on April
30, 1997.
8 Not Applicable.
9(a)-1 Custody Agreement, dated as of January 1, 1996, between the
Trust and Boston Safe Deposit & Trust Company is incorporated
by reference to Exhibit 8(a) of Post-Effective Amendment No. 7
to the Registrant's Registration Statement on Form N-1A (File
Nos. 033-57732 and 811-07462), filed on February 28, 1997.
9(a)-2 Schedules A and C, as amended and supplemented May 1, 1997, to
Custody Agreement (Exhibit 9(a)-1 above) dated January 1,
1996, are incorporated by reference to Post-Effective
Amendment No. 9 to the Registrant's Registration Statement on
Form N-1A (File Nos. 033-57732 and 811-07462), filed on April
30, 1997.
10 Not Applicable
11 Opinion and Consent of Counsel is filed herewith.
12 Not Applicable
-3-
<PAGE>
13 Not Applicable.
14 Consent of Independent Accountants is filed herewith.
15 Not Applicable.
16 Not Applicable
17 Copy of Registrant's Rule 24f-2 declaration is incorporated by
reference to the Registrant's initial Registration Statement
on Form N-1A (File Nos. 033-57732 and 811-07462), filed on
February 2, 1993.
Item 17. Undertakings
------------
(1) The registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus
which is a part of this registration statement by any person
or party who is deemed to be an underwriter within the meaning
of Rule 145(c) of the Securities Act of 1933, the reoffering
prospectus will contain the information called for by the
applicable registration form for reofferings by persons who
may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(2) The registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an
amendment to the registration statement and will not be used
until the amendment is effective, and that, in determining any
liability under the Securities Act of 1933, each post-
effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering
of the securities at that time shall be deemed to be the
initial bona fide offering of them.
-4-
<PAGE>
SIGNATURES
----------
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the Registrant, in the City of Northridge and State of
California on the 30th day of September, 1997.
THE SIERRA VARIABLE TRUST
By: /s/ James H. Overholt
----------------------------
James H. Overholt, President
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacity on the dates indicated.
Signature Title(s) Date
- --------- -------- ----
/s/ James H. Overholt President September 30, 1997
- ----------------------------------
James H. Overholt (Principal
Executive Officer)
/s/ Keith B. Pipes Executive Vice September 30, 1997
- ---------------------------------- President, Treasurer
Keith B. Pipes and Secretary
(Principal Financial and
Accounting Officer)
/s/ David E. Anderson Trustee September 30, 1997
- ----------------------------------
David E. Anderson
Chairman of the
- ---------------------------------- Board and Trustee
Arthur H. Bernstein, Esq.
/s/ Edmond R. Davis Trustee September 30, 1997
- ----------------------------------
Edmond R. Davis, Esq.
/s/ John W. English Trustee September 30, 1997
- ----------------------------------
John W. English
/s/ Alfred E. Osborne, Jr. Trustee September 30, 1997
- ----------------------------------
Alfred E. Osborne, Jr.
-5-
<PAGE>
Exhibit Index
Exhibit
No. Description
- ------- -----------
6(c) Form of Management Agreement between the Trust, with respect to
the Short Term High Quality Bond Fund, and Composite Research &
Management Co.
11 Opinion and Consent of Counsel
14 Consent of Independent Accountants
-6-
<PAGE>
Sierra Variable Trust
INVESTMENT MANAGEMENT AGREEMENT
-------------------------------
INVESTMENT MANAGEMENT AGREEMENT (this "Agreement"), dated ______________,
1997, between the Sierra Variable Trust, a Massachusetts business trust, (the
"Trust"), on behalf of each of its series which are listed on the signature page
of this Agreement (each referred to herein as a "Fund") and Composite Research &
Management Co., a Washington corporation (the "Manager").
WITNESSETH
----------
WHEREAS, the Trust is a diversified, open-end series management investment
company, registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, each Fund, as a separate series of the Trust, desires to retain
the Manager to render investment management services to the Fund, and the
Manager is willing to render such services;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereto agree as follows:
Appointment. The Fund hereby appoints the Manager to act as investment
-----------
manager to the Fund for the period and on the terms set forth in this Agreement.
The Manager accepts such appointment and agrees to render the services herein
described, for the compensation herein provided.
Management. Subject to the supervision of the Board of Trustees of the
----------
Trust, the Manager shall manage the investment operations of the Fund and the
composition of the Fund's portfolio, including the purchase, retention and
disposition of securities therefor, in accordance with the Fund's investment
objectives, policies and restrictions as stated in the Prospectus and Statement
of Additional Information (as such terms are hereinafter defined) and
resolutions of the Trust's Board of Trustees and subject to the following
understandings:
The Manager shall provide supervision of the Fund's
investments, furnish a continuous investment program for the Fund's
portfolio and determine from time to time what securities will be
purchased, retained, or sold by the Fund, and what portion of the
assets will be invested or held as cash.
the Manager, in the performance of its duties and obligations
under this
<PAGE>
Agreement, shall act in conformity with the Declaration of Trust (as hereinafter
defined) of the Trust and the investment policies of the Fund as determined by
the Board of Trustees of the Trust.
The Manager shall determine the securities to be purchased or sold by the
Fund and shall place orders for the purchase and sale of portfolio securities
pursuant to its determinations with brokers or dealers selected by the Manager.
In executing portfolio transactions and selecting brokers or dealers, the
Manager shall use its best efforts to seek on behalf of the Fund the best
overall terms available. In assessing the best overall terms available for any
transaction, the Manager may consider all factors it deems relevant, including
the breadth of the market in the security, the price of the security, the size
of the transaction, the timing of the transaction, the reputation, financial
condition, experience, and execution capability of a broker or dealer, the
amount of commission, and the value of any brokerage and research services (as
those terms are defined in Section 28(e) of the Securities Exchange Act of 1934,
as amended) provided by a broker or dealer. The Manager is authorized to pay to
a broker or dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for the Fund which is in excess
of the amount of commission another broker or dealer would have charged for
effecting the transaction if the Manager determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of that particular
transaction or in terms of the overall responsibilities of the Manager to the
Fund and/or other accounts over which the Manager exercises investment
discretion.
On occasions when the Manager deems the purchase or sale of a security to
be in the best interest of the Fund as well as other fiduciary accounts for
which it has investment responsibility, the Manager, to the extent permitted by
applicable laws and regulations, may aggregate the securities to be so sold or
purchased in order to obtain the execution, most favorable net price or lower
brokerage commissions.
Subject to the provisions of the Agreement and Declaration of Trust of the
Trust and the Investment Company Act of 1940, as amended (the "1940") Act"), the
Manager, at its expense, may select and contract with one or more investment
advisers (the "Subadviser") for the Fund to perform some or all of the services
for which it is responsible pursuant to this Section 2. The Manager shall be
solely responsible for the compensation of any Subadviser of the Fund for its
services to the Fund. The Manager may terminate the services of any Subadviser
at any time
2
<PAGE>
in its sole discretion, and shall at such time assume the responsibilities
of such Subadviser unless and until a successor Subadviser is selected. To
the extent that more than one Subadviser is selected, the Manager shall, in
its sole discretion, determine the amount of the Fund's assets allocated
to each such Subadviser.
Services Not Exclusive. The investment management services rendered by the
----------------------
Manager hereunder to the Fund are not to be deemed exclusive, and the Manager
shall have the right to render similar services to others, including, without
limitation, other investment companies.
Expenses. During the term of this Agreement, the Manager shall pay all
--------
expenses incurred by it in connection with its activities under this Agreement
including the salaries and expenses of any of the officers or employees of the
Manager who acts as officers, Trustees or employees of the Trust but excluding
the cost of securities purchased for the Fund and the amount of any brokerage
fees and commissions incurred in executing portfolio transactions for the Fund,
and shall provide the Fund with suitable office space. Other expenses to be
incurred in the operation of the Fund (other than those borne by any third
party), including without limitation, taxes, interest, brokerage fees and
commissions, fees of Trustees who are not officers, directors, or employees of
the Manager, federal registration fees and state Blue Sky qualification fees,
administration fees, bookkeeping, charges of custodians, transfer and dividend
disbursing agents' fees, certain insurance premiums, industry association fees,
outside auditing and legal expenses, costs of maintaining the Fund's of the
Trust's existence, costs of independent pricing services, costs attributable to
investor services (including, without limitation, telephone and personnel
expenses), costs of preparing, printing and distributing prospectuses to
existing shareholders, costs of stockholders' reports and meetings of
shareholders and Trustees of the Fund or the Trust, as applicable, and any
extraordinary expenses will be borne by the Fund.
Compensation. For the services provided pursuant to this Agreement, each
------------
Fund shall pay to the Manager as full compensation therefor a monthly fee
computed on the average daily net assets of the Fund as stated in Schedule A
attached hereto. The Fund acknowledges that the Manager, as agent for the Fund,
will allocate a portion of the fee equal to the sub-advisory fee payable to the
sub-advisor, if any, under its sub-advisory agreement to the sub-advisor for
sub-advisory services. The Fund acknowledges that the Manager, as agent for the
Fund, will allocate a portion of the fee to Murphey Favre Securities Services,
Inc. for administrative services, portfolio accounting and regulatory compliance
systems and a portion of the fee to Composite Funds Distributor, Inc. for
facilitating distribution of the Fund.
Limitation of Liability. The Manager shall not be liable for any error of
-----------------------
judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith
3
<PAGE>
or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under this Agreement.
Delivery of Documents. The Trust has heretofore delivered to the Manager
---------------------
true and complete copies of each of the following documents and shall promptly
deliver to it all future amendments and supplements thereto, if any:
Agreement and Declaration of Trust (such Agreement and Declaration as
presently in effect and as amended from time to time, the "Declaration of
Trust");
Bylaws of the Trust;
Registration Statement under the Securities Act of 1933 and under the
1940 Act of the Trust on Form N-1A, and all amendments thereto, as filed
with the Securities and Exchange Commission (the "Registration Statement")
relating to the Fund and the shares of the Fund;
Notification of Registration of the Trust under the 1940 Act on Form
N-8A;
Prospectuses of the Fund (such prospectuses as presently in effect
and/or as amended or supplemented from time to time, the "Prospectus"); and
Statement of Additional Information of the Fund (such statement as
presently in effect and/or as amended or supplemented from time to time,
the "Statement of Additional Information").
Duration and Termination. This Agreement shall become effective as of the
------------------------
date first above-written for an initial period of two years and shall continue
thereafter so long as such continuance is specifically approved at least
annually (a) by the vote of the Board of Trustees including a majority of those
members of the Trust's Board of Trustees who are not parties to this Agreement
or "interested persons" of any such party, cast in person at a meeting called
for that purposes, or by vote of a majority of the outstanding voting securities
of the Fund. Notwithstanding the foregoing, (a) this Agreement may be terminated
at any time, without the payment of any penalty, by either the Fund (by vote of
the Trust's Board of Trustees or by vote of a majority of the outstanding voting
securities of the Fund) or the Manager, on sixty (60) days prior written notice
to the other and (b) shall automatically terminate in the event of its
assignment. As used in this
4
<PAGE>
Agreement, the terms "majority of the outstanding voting securities, "interested
persons" and "assignment" shall have the meanings assigned to such terms in the
1940 Act.
Amendments. No provision of this Agreement may be amended, modified, waived
----------
or supplemented except by a written instrument signed by the party against which
enforcement is sought. No amendment of this Agreement shall be effective until
approved in accordance with any applicable provisions of the 1940 Act.
Use of Name and Logo. The Fund agrees that it shall furnish to the Manager,
--------------------
prior to any use or distribution thereof, copies of all prospectuses, statements
of additional information, proxy statements, reports to stockholders, sales
literature, advertisements, and other material prepared for distribution to
stockholders of the Fund or to the public, which in any way refer to or describe
the Manager or which include any trade names, trademarks or logos of the Manager
or of any affiliate of the Manager. The Fund further agrees that it shall not
use or distribute any such material if the Manager reasonably objects in writing
to such use or distribution within five (5) business days after the date such
material is furnished to the Manager.
The manager and/or its affiliates own the name "Sierra", "Composite" and
any other names which may be listed from time to time on a Schedule B to be
attached hereto that may develop for use in connection with the Fund, which
names may be used by the Fund or the Trust only with the consent of the Manager
and/or its affiliates. The Manager, on behalf of itself and/or its affiliates,
consents to the use by the Trust and by the Fund of such names or any other
names embodying such names, but only on condition and so long as (i) this
Agreement shall remain in full force, (ii) the Fund and the Trust shall fully
perform, fulfill and comply with all provisions of this Agreement expressed
herein to be performed, fulfilled or complied with by it, and (iii) the Manager
is the manager of the Fund and the Trust. No such name shall be used by the Fund
or the Trust at any time or in any place or for any purposes or under any
conditions except as provided in this section. The foregoing authorization by
the Manager, on behalf of itself and/or its affiliates, to the Fund and the
Trust to use such names as part of a business or name is not exclusive of the
right of the Manager and/or its affiliates themselves to use, or to authorize
others to use, the same; the Fund and the Trust acknowledge and agree that as
between the Manager and/or its affiliates and the Fund or the Trust, the Manager
and/or its affiliates have the exclusive right so to use, or authorize others to
use, such names, and the Fund and the Trust agree to take such action as may
reasonably be requested by the Manager, on behalf of itself and/or its
affiliates, to give full effect to the provisions of this section (including,
without limitation, consenting to such use of such names). Without limiting the
generality of the foregoing, the Fund and the Trust agree that, upon (i) any
violation of the provisions of this Agreement by the Fund or the Trust or (ii)
any termination of this Agreement, by either party or otherwise, the Fund and
the Trust will, at the request of the Manager, on behalf of itself and/or its
affiliates, made within six months after such violation or termination, use its
best efforts to change the name of the Fund and the Trust
5
<PAGE>
so as to eliminate all reference, if any, to such names and will not thereafter
transact any business in a name containing such names in any form or combination
whatsoever, or designate itself as the same entity as or successor to an entity
of such names, or otherwise use such names or any other reference to the Manager
and/or its affiliates, except as may be required by law. Such covenants on the
part of the Fund and the Trust shall be binding upon it, its Trustees, officers,
shareholders, creditors and all other persons claiming under or through it.
The provisions of this section shall survive termination of this Agreement.
Notices. Any notice or other communication required to be given pursuant to
-------
this Agreement shall be deemed duly given if delivered or mailed by registered
mail, postage prepaid, if to the Fund: 601 W. Main Ave., Suite 300, Spokane,
Washington 99201; or if to the Manager: 1201 Third Avenue, Suite 1220, Seattle,
Washington 98101; or to either party at such other address as such party shall
designate to the other by a notice given in accordance with the provisions of
this section.
Miscellaneous.
-------------
Except as otherwise expressly provided herein or authorized by the
Board of Trustees of the Trust from time to time, the Manager for all
purposes herein shall be deemed to be an independent contractor and shall
have no authority to act for or represent the Fund in any way or otherwise
be deemed an agent of the Fund.
The Trust shall furnish or otherwise make available to the Manager
such information relating to the business affairs of the Fund as the
Manager at any time or form time to time reasonably requests in order to
discharge its obligations hereunder.
This Agreement shall be governed by and construed in accordance with
the laws of The Commonwealth of Massachusetts and shall inure to the
benefit of the parties hereto and their respective successors.
If any provision of this Agreement shall be held or made invalid or by
any court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
Declaration of Trust and Limitation of Liability. A copy of the Declaration
------------------------------------------------
of Trust of the Trust is on file with the Secretary of State of The Commonwealth
of
6
<PAGE>
Massachusetts, and notice is hereby given that this Agreement is executed by an
officer of the Trust on behalf of the Trustees of the Trust, as trustees and not
individually, on further behalf of the Fund, and that the obligations of this
Agreement shall be binding upon the assets and properties of any other series of
the Trust or upon any of the Trustees, officers, employees, agents or
shareholders of the Fund or the Trust individually.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first above-written.
SIERRA VARIABLE TRUST, on behalf of its
series SHORT TERM HIGH QUALITY BOND
FUND,
GROWTH FUND,
EMERGING GROWTH FUND and
INTERNATIONAL GROWTH FUND
By:
---------------------------------
Name:
Title:
Attest:
By:
----------------------------
Name:
Title:
COMPOSITE RESEARCH &
MANAGEMENT CO.
By:
---------------------------------
Attest:
By:
---------------------------
Sharon L. Howells
Secretary
7
<PAGE>
SCHEDULE A
Composite Research & Management Co.
Advisory Fees
The fees to be charged to Sierra Variable Trust Funds for advisory services
(including any sub-advisory fees) are as follows:
Up to Over
$500m $500m
----- -----
Short Term High Quality Bond Fund 0.500% 0.400%
8
<PAGE>
October 8, 1997
The Sierra Variable Trust
9301 Corbin Avenue
Northridge, California 91324
Re: Shares of Beneficial Interest of the The Sierra Variable Trust
--------------------------------------------------------------
(File Nos. 33-57732 and 811-07462)
----------------------------------
Dear Ladies and Gentlemen:
The Sierra Variable Trust (the "Trust") is a business trust organized under the
laws of the Commonwealth of Massachusetts with its principal executive offices
in Northridge, California. The Trust is an open-end management investment
company with diversified and nondiversified series registered with the
Securities and Exchange Commission (the "Commission") under the Investment
Company Act of 1940, as amended (the "1940 Act"). We refer to the Registration
Statement on Form N-14 (SEC File No. 33-57732) (the "Registration Statement") of
the Trust relating to the registration of shares of beneficial interest of the
Trust's Short Term High Quality Bond Fund (the "Shares").
We have been requested by the Trust to furnish this opinion as Exhibit 11 to the
Registration Statement.
We have examined such records, documents, instruments, certificates of public
officials and of the Trust, made such inquiries of the Trust, and examined such
questions of law as we have deemed necessary for the purpose of rendering the
opinion set forth herein. We have assumed the genuineness of all signatures and
the authenticity of all items submitted to us as originals and the conformity
with originals of all items submitted to us as copies.
Based upon and subject to the foregoing, we are of the opinion that:
The issuance and sale of the Shares by the Trust have been duly and validly
authorized by all appropriate action and, upon delivery thereof and payment
therefor in accordance with the Registration Statement, the Shares will be
duly authorized, validly issued, fully paid and nonassessable by the Trust.
This opinion is intended only for your use in connection with the offering of
Shares and may not be relied upon by any other person.
We hereby consent to the inclusion of this opinion as an exhibit to the Trust's
Registration Statement to be filed with the Securities and Exchange Commission.
<PAGE>
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus/Proxy
Statement and Statement of Additional Information constituting parts of this
registration statement on Form N-14 (the "Registration Statement") of our report
dated February 14, 1997, relating to the financial statements and financial
highlights of Short Term Global Government Fund and Short Term High Quality Bond
Fund, each a portfolio constituting part of The Sierra Variable Trust, which are
also incorporated by reference in the Registration Statement. We also consent
to the references to us under the headings "Financial Highlights" and
"Independent Accountants" relating to Short Term Global Government Fund and
Short Term High Quality Bond Fund included in the Prospectus of the Sierra
Variable Trust, dated May 1, 1997, which accompanies the Registration Statement
and under the headings "Counsel and Auditor" and "Financial Statements" relating
to Short Term Global Government Fund and Short Term High Quality Bond Fund
included in the Statement of Additional Information of the Sierra Variable Trust
dated May 1, 1997, which is incorporated by reference into the Registration
Statement.
PRICE WATERHOUSE LLP
Boston, Massachusetts
October 9, 1997
