<PAGE>
AMERICAN GENERAL LIFE
INSURANCE COMPANY
November 13, 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-four (44) 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; and
. 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 A POSTAGE-PAID RETURN ENVELOPE.
We encourage you to review each of these items thoroughly. Once you have 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,
Steven A. Glover, Assistant
Secretary
<PAGE>
AMERICAN GENERAL LIFEINSURANCE COMPANY
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF THE SIERRA VARIABLE TRUST
SHORT TERM GLOBAL GOVERNMENT FUND
To be held on December 23, 1997
Dear American General Life Client:
The net purchase payments made under your American General Life Insurance
Company ("AGL") variable annuity contract (the "Contract") have been allocated
at your direction to the investment divisions (the "Divisions") 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 of record at the close of business on November 3, 1997,
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 Tuesday,
December 23, 1997 at 11:00 a.m. Pacific Time, at the offices of Sierra Fund
Administration Corporation, 9301 Corbin Avenue, Suite 333, Northridge,
California 91324, 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 transact such other business as may properly come before the meet-
ing.
Attached to this notice are an Information Statement of AGL and a
Prospectus/Proxy Statement of the Trust, each relating to the Special Meeting.
You are urged to read both of these statements before completing your ballot.
Steven A. Glover, Assistant Secretary
November 13, 1997
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
<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 13, 1997
GENERAL
This information statement is being furnished by American General Life In-
surance Company ("AGL"), a Texas stock life insurance company, to owners of
its variable annuity contracts ("Contractowners") who had net purchase pay-
ments allocated to the Short Term Global Government Fund investment division
of AGL's Separate Account D (the "Separate Account") as of November 3, 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 thereof (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 13, 1997.
HOW TO INSTRUCT AGL
To instruct AGL as to how to vote the shares of beneficial interest of the
Fund (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.
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.
<PAGE>
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 Administration
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 Attributable to Contractowners for which AGL receives voting instruc-
tions. Shares attributable to amounts retained by AGL in the Division will be
voted in the same proportion as votes cast by Contractowners of all Sharehold-
ers 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 23, 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 Tuesday, December 23, 1997 at 11:00 a.m.
Pacific Time, at the offices of Sierra Fund Administration Corporation, 9301
Corbin Avenue, Suite 333, Northridge, California 91324, to consider the fol-
lowing:
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
Fund.
3. To transact such other business as may properly come before the meeting.
The Trustees have fixed the close of business on November 3, 1997 as the rec-
ord 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, President
November 13, 1997
<PAGE>
THE SIERRA VARIABLE TRUST
SIERRA SHORT TERM GLOBAL GOVERNMENT FUND
PROSPECTUS/PROXY STATEMENT
November 13, 1997
This Prospectus/Proxy Statement relates to (i) the election of Trustees of
The Sierra Variable Trust (the "Trust"), 9301 Corbin Avenue, Suite 333, North-
ridge, California 91324, and (ii) the proposed merger (the "Merger") of the
Short Term Global Government Fund, a series of the Trust (the "Global
Government Fund"), into the Short Term High Quality Bond Fund, also a series
of the Trust (the "High Quality Bond Fund" and, together with the Global Gov-
ernment Fund, the "Funds"). 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 liabilities of the Global Government Fund, followed by the distri-
bution 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
transaction, each shareholder 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 net purchase payments received under the Contracts
are initially invested. The Separate Account, in turn, purchases Trust shares,
which are divided into fourteen series, five of which are asset allocation
portfolios (the "Asset Allocation Portfolios") that invest in various combina-
tions of the other nine series, including both the Global Government Fund and
the High Quality Bond Fund. Consequently, as used herein, the term "sharehold-
er" refers to AGL and the Asset Allocation Portfolios of the Trust which have
invested in the Global Government Fund. AGL offers certain contractowners (the
"Global Government Contractowners") the right to give AGL instructions as to
how those shares of the Global Government Fund attributable to their Contract
should be voted, although owners of Contracts whose net purchase payments are
invested in Asset Allocation Portfolios which have invested in the Global Gov-
ernment Fund 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 23, 1997 and at any adjournment thereof (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 received from Global Government Contractowners and in
accordance with voting procedures established by the Trust. Shares of the
Global Government Fund attributable to Contracts for which no voting instruc-
tions 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 November 3, 1997 (the "Record Date") have the right to
give voting instructions with respect to the Special Meeting or any adjourn-
ment thereof.
This Prospectus/Proxy Statement is being mailed to shareholders on or about
November 13, 1997. Instructions executed by Global Government Contractowners
may be revoked at any time before they are exercised by a written revocation
received by the Vice-President--Annuity Administration of AGL at P.O. Box 1401
Houston, Texas 77251-1401, 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
2
<PAGE>
to the Global Government Contractowners by AGL on or about November 13, 1997
in order to obtain voting instructions from such 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 con-
sistent with prudent investment management and stability of principal. It will
pursue this objective by investing primarily in high quality short-term bonds
and other debt instruments.
THIS PROSPECTUS/PROXY STATEMENT EXPLAINS CONCISELY WHAT YOU SHOULD KNOW BE-
FORE INVESTING 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, dated May 1, 1997 (as amended or supplemented from time to time,
the "Prospectus"). The information regarding the Funds contained in such Pro-
spectus is incorporated into this Prospectus/Proxy Statement by reference.
The following documents have been filed with the Securities and Exchange Com-
mission (the "SEC") and are also incorporated into this Prospectus/Proxy
Statement by reference: (i) the Report of Independent Accountants and finan-
cial statements in respect of each Fund contained in the Trust's Annual Report
to Shareholders for the year ended December 31, 1996 (the "Annual Report");
(ii) the financial statements in respect of each Fund contained in the Trust's
Semi-Annual Report to Shareholders for the six months ended June 30, 1997 (the
"Semi-Annual Report"); (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 13,
1997 relating to the transaction described in this Prospectus/Proxy Statement
(the "Merger SAI").
For a free copy of any or all of the SAI, Merger SAI, Annual Report 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: Annuity Admin-
istration, 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.
- -------------------------------------------------------------------------------
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. Sierra is an indirect subsidiary of Washington
Mutual as a result of the merger, which took place on July 1, 1997, of Sier-
ra'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 compatible investment poli-
cies and the substitution of CRM for Sierra as investment manager/adviser for
most of the Composite/Sierra Mutual Funds. The result of the restructuring
will be a single, 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 Merger Shares of the High Quality Bond Fund equal in value to the value of
the net assets of the Global Government Fund being transferred. Following the
transfer, (i) the Global Government Fund will distribute to each of its share-
holders a number of full and fractional Merger Shares of the High Quality Bond
Fund equal in value to the aggregate value of such shareholder's Global Gov-
ernment Fund shares, and (ii) the Global Government Fund will be liquidated.
Shares of both the Global Government Fund and the High Quality Bond Fund are
sold without a front-end sales charge and are not subject to a contingent de-
ferred 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 Govern-
ment 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" and "Background and Reasons for the Proposed Merger" be-
low.
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 Sierra Fund Administration Corporation ("Sierra Adminis-
tration"), an affiliate of Sierra, at an annual rate of .18% 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 management fee rate for the
Global Government Fund. Also, effective on or about the time of the Merger, it
is proposed that (i) CRM become the investment manager of the High Quality
Bond Fund at the same management fee rate as is presently paid to Sierra and
(ii) Murphey Favre Securities Services, Inc. ("MFSS"), an affiliate of CRM,
become the administrator at the same administrative fee rate as is currently
paid to Sierra Administration, such changes being part of the general restruc-
turing described above. As a result of expected economies of scale and lower
management fees, it is expected that aggregate operating expenses of the High
Quality Bond Fund will be lower than the corresponding expenses of the Global
Government Fund. There can be no assurance that the Merger will result in ex-
pense savings for shareholders. However, CRM and MFSS have voluntarily under-
taken at least through December 31, 1998 to waive the management and/or admin-
istration fees payable by the High Quality Bond Fund to the extent necessary
to prevent the overall expense ratio of the Fund from exceeding the annual
rate of 1.00%. The table below summarizes expenses (i) that the Global Govern-
ment Fund incurred in the first six months of its current fiscal year as well
as its fiscal year ended December 31, 1996, (ii) that the High Quality Bond
Fund incurred in the first six months of its current fiscal year as well as
its fiscal year ended 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 ended 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 fiscal 1996. The table is provided to help explain an in-
vestor's share of the operating expenses which each Fund incurs and does not
reflect any Contract level expenses.
4
<PAGE>
<TABLE>
<CAPTION>
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) DECEMBER 31, 1996) DECEMBER 31, 1996)
------------------------- ------------------------- -------------------------
<S> <C> <C> <C>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of
average net assets)
- ------------------------------------------------------------------------------------------------------
Management Fees......... .75% .50% .50%
12b-1 Fees.............. None None None
Other Expenses.......... .53% .56% .42%
Total Fund Operating
Expenses............... 1.28% 1.06%(1) .92%
- ------------------------------------------------------------------------------------------------------
<CAPTION>
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) JUNE 30, 1997) JUNE 30, 1997)
------------------------- ------------------------- -------------------------
<S> <C> <C> <C>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of
average net assets)
- ------------------------------------------------------------------------------------------------------
Management Fees......... .75% .50% .50%
12b-1 Fees.............. None None None
Other Expenses.......... .51% .60% .40%
Total Fund Operating
Expenses............... 1.26% 1.10%(1) .90%
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Without giving effect to the undertaking by the Fund's current investment
manager and administrator to waive their fees and/or bear certain expenses
to the extent necessary to limit Total Fund Operating Expenses to the an-
nual rates of 1.00% during the six-month period ended June 30, 1997 and
0.98% during the fiscal year ended December 31, 1998.
Waivers of fees and reimbursement of expenses have the effect of increasing
yield or improving total return for the period when such waivers and reim-
bursements are in effect. These fee waivers and agreements to reimburse ex-
penses are voluntary and may be discontinued at any time. For more informa-
tion, see the Annual Report and the Semi-Annual Report.
5
<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. Based largely on the significant realignment of the Global Gov-
ernment Fund's portfolio that is expected to occur in connection with the
Merger, the Global Government Fund is expected to recognize gain or loss on
the disposition of its portfolio securities in the realignment and on the sale
of its assets to the High Quality Bond Fund, and Global Government Fund share-
holders (but not owners of Contracts) are expected to recognize taxable gain
or loss on receipt of the Merger Shares equal to the difference between the
net asset value of the High Quality Bond Fund shares received and the share-
holder'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 fair market value of such se-
curity at the time of the Merger (rather than 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 (which in-
cludes net short-term capital gains) and net realized capital gains to its
shareholders, including gains recognized in connection with the Merger. The
federal income tax treatment of the Merger is not clear, and the Internal Rev-
enue Service may assert that it is a tax-free reorganization. There can be no
assurance that the Internal Revenue Service will not prevail in this asser-
tion.
- -------------------------------------------------------------------------------
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The High Quality Bond Fund has investment objectives that are substantially
similar to that of the Global Government Fund. The investment objectives, pol-
icies 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 accompanying Prospectus, as well as the SAI and the Merger SAI.
The total returns for the High Quality Bond Fund and the Global Government
Fund are set forth in the chart below. Because of the different management
styles, however, the relative contributions of the two components of total re-
turn (i.e., current income and capital appreciation) varied between the High
Quality Bond Fund and the Global Government Fund. The yield (calculated in ac-
cordance with SEC regulations) of the High Quality Bond Fund was 6.03% versus
5.05% for the Global Government Fund during the 30-day period ended September
30, 1997, and averaged 5.87% and 4.64%, respectively, over the 12-month period
ended September 30, 1997.
TOTAL RETURN COMPARISON
AS OF 9/30/97*
<TABLE>
<CAPTION>
SINCE
3 YEARS 1/12/94
1 YEAR ANNUALIZED ANNUALIZED
------ ---------- ----------
<S> <C> <C> <C>
High Quality Bond Fund............................ 6.33% 5.45% 4.24%
Global Government Fund............................ 7.05% 6.06% 4.71%
</TABLE>
* Fund performance data is after all expenses and sales charges. During the
periods noted, the adviser and the administrator of the Funds waived a por-
tion of these fees and reimbursed certain other expenses. In the absence of
the expense waivers/reimbursements, total return would have been lower. Per-
formance information is shown since January 12, 1994, when the High Quality
Bond Fund commenced operations. The total return for the Global Government
Fund for the period May 12, 1993, when it commenced operations, to September
30, 1997 was 4.04%. For further information about the High Quality Bond
Fund's performance, see Appendix B and the Prospectus.
The Funds have substantially similar investment objectives and compatible in-
vestment policies. The High Quality Bond Fund attempts to provide as high a
level of current income as is consistent with prudent investment management
and stability of principal. The Global Government Fund attempts to provide
high current income consistent with protection of principal. The Global Gov-
ernment Fund, which is a non-diversified fund, generally invests a substantial
portion of its assets in foreign securities and has greater flexibility to in-
vest in lower-rated securities. The High Quality Bond Fund is a diversified
fund, and may invest only in securities that, at the time of purchase, are in-
vestment grade bonds.
The Global Government Fund seeks to maintain greater price stability than
longer-term bond funds. Both Funds seek to maintain a dollar-weighted average
portfolio maturity of three years or less, but may hold individual securities
with remaining maturities of more than three years. However, under no circum-
stances will the High Quality Bond Fund have a dollar-weighted average portfo-
lio maturity in excess of five years.
Under normal market conditions, the Global Government Fund will invest at
least 65% of its total
6
<PAGE>
assets in short-term bonds and money market instruments issued or guaranteed
by foreign governments or the U.S. Government or their agencies, instrumental-
ities or political subdivisions (including securities which are majority owned
by such government, agency, instrumentality or political subdivision) that are
rated within the three 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 quality. These securities may be denominated in foreign cur-
rencies, multinational currency units or the U.S. dollar. Under normal market
conditions, the Fund will invest 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, corporations and other issuers, or mortgage-related secu-
rities rated in one of the two highest categories by a nationally recognized
statistical rating organization ("NRSRO"). No more than 10% of its assets may
be invested in foreign securities. 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."
Both 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 from banks for tem-
porary or emergency purposes, purchase securities on a "when-issued" or "de-
layed-delivery" basis, invest up to 10% of assets in securities of unaffili-
ated mutual funds and lend securities in an amount up to 20% of the Fund's to-
tal 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 (iii) up to 10% of total assets in
asset-backed securities. See "Risk Factors--Credit Risk."
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 issued or guaranteed by domestic or foreign governments or their agen-
cies or instrumentalities; (iii) high-grade corporate debt obligations, such
as bonds, debentures, notes, equipment lease and truck certificates; (iv) col-
lateralized mortgage obligations; (v) up to 25% of total assets in asset-
backed securities; and (vi) in certain illiquid investments such as privately
placed obligations including restricted securities, and may enter into reverse
repurchase agreements or dollar roll transactions in the aggregate up to 33
1/3% of total assets (but
7
<PAGE>
currently intends to limit such activity to 10% of total assets). See "Risk
Factors--Prepayment Risk," "--Repurchase Agreements," "--Dollar Rolls" and "--
Reverse Repurchase Agreements and Borrowings."
In addition to the investment restrictions described above, the Global Gov-
ernment Fund will not purchase any additional securities whenever borrowings,
including reverse repurchase agreements, 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 the global and international fixed-income
investing of Scudder, Stevens & Clark, Inc. ("Scudder"), is primarily respon-
sible for the management of the Global Government Fund. The day-to-day manage-
ment of the High Quality Bond Fund's portfolio has been the responsibility of
Thomas M. Poor, Managing Director of Scudder.
As discussed above, it is expected that, subject to the approval of share-
holders of the High Quality Bond Fund, CRM will, at or prior to the time of
the Merger, become the investment adviser to the High Quality Bond Fund, re-
placing Sierra, and will thereafter be responsible for management of the Si-
erra High Quality Bond Fund. CRM would manage the Fund itself, without the use
of a subadviser. Gary J. Pokrzywinski, CFA, Vice President and Senior Portfo-
lio Manager of CRM, would be primarily responsible for the management of the
Fund. CRM does not intend to effect any changes to the investment practices
followed by Scudder with respect to this Fund, as outlined above. The approval
of CRM as adviser to the High Quality Bond Fund is not a condition to the
Merger. Thus, depending on whether shareholders at the High Quality 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 the Separate Ac-
count and to the Asset Allocation Portfolios to fund Contracts. Net purchase
payments under the Contracts are placed in one or more of the investment divi-
sions (the "Divisions") of the Separate Account and are invested in the shares
of the Trust's portfolios, including the Funds, corresponding to such Divi-
sions. Shares of the Funds are purchased and redeemed at net asset value with-
out 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.
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 Investment Company Act of 1940 (the "1940 Act") for any period during
which the New York Stock Exchange (the "NYSE") is closed or during which trad-
ing 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"), net purchase payments are
allocated to Divisions of the Separate Account investing in the Asset Alloca-
tion 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 Investment Services Corporation ("Sierra Services") and, as part of the
restructuring, CRM will take over the responsibilities of Sierra Services with
respect to the Asset Allocation Portfolios. Sierra 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
8
<PAGE>
by the Asset Allocation Portfolios as recommended by their investment advis-
er(s). These transactions will affect the Primary Funds, since those that ex-
perience 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 man-
agement to the extent that the Primary Funds, including the Funds, may be re-
quired to sell securities or invest cash at times when they would not other-
wise do so. These transactions could also increase transaction costs. The in-
vestment advisors to the Primary Funds are committed to minimizing the impact
of Asset Allocation Portfolio transactions on the Primary Funds and the in-
vestment advisor to the Asset Allocation 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 conflicts in fulfilling their respective responsibili-
ties because they are affiliates and employ some of the same investment pro-
fessionals.
- -------------------------------------------------------------------------------
RISK FACTORS
Certain risks associated with an investment in the High Quality Bond Fund are
summarized below. Because both Funds 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 Fund vary from time to time in response to a wide variety of market fac-
tors. Consequently, 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
9
<PAGE>
prepayments may increase the effective maturities of these securities. Prepay-
ments 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 prevail-
ing interest rates but also to the rate of principal payments (including pre-
payments) on the underlying assets. Because of the foregoing characteristics,
mortgage-backed securities may be more volatile than other fixed income secu-
rities.
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 (such as dollar rolls, as
described below) subject the High Quality Bond Fund to the risk that changes
in the value of the Fund's 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.
DOLLAR ROLLS. Each of the Funds may incur risks from investing in dollar
rolls--specifically, increasing the market exposure and potential volatility
of the Fund. The obligation to repurchase securities on a specified future
date involves the risk that the market value of the securities that the Fund
is obligated to repurchase may decline below the repurchase price. See "Re-
verse Repurchase Agreements and Borrowings" above.
ILLIQUID SECURITIES. The Funds share similar risks for investment in illiquid
securities--specifically, higher transaction costs and the risk that the Fund
will be unable to close out a position when it would be most advantageous to
do so.
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. Each of the Funds may enter into options and futures
contracts for hedging purposes or as a part of its investment strategies, and
may engage in swap agreements. Use of derivative instruments may involve cer-
tain 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 illiquid mar-
ket, 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 unexpected
changes in interest rates or other market movements may adversely affect the
value of the Fund's investments in particular derivative instruments.
MARKET RISK. In the case of securities owned by the Funds, there can be no
assurance of capital appreciation, and there is a risk of market decline.
SPECIAL MEETING OF SHAREHOLDERS
This Prospectus/Proxy Statement is being furnished in connection with a Spe-
cial Meeting of Global Government Fund shareholders to be held on December 23,
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 (Proposal 1) and the proposed Merger of the Global Gov-
ernment 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
(Proposal 2). This Prospectus/Proxy Statement
10
<PAGE>
and the enclosed form of proxy are being mailed to shareholders on or about
November 13, 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.
- -------------------------------------------------------------------------------
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
Fund's separate existence would be terminated and its shareholders would be-
come 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 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 share-
holders. Approval of this Proposal will result in a combined Board of Trustees
consisting of five current Trustees of the Trust and the current Directors of
the Composite Funds.
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.
11
<PAGE>
INFORMATION REGARDING NOMINEES AND EXECUTIVE OFFICERS
The following information is provided for each Nominee and each executive of-
ficer of the Trust. It includes his or her name, position with the Trust, if
so held, tenure in office, age, principal occupations or employment during the
past five years, directorships/trusteeships with other companies which file
reports periodically with the SEC, number of trustee positions with the regis-
tered investment companies which hold themselves out to investors as related
companies for purposes of investment and investor services to which Sierra or
an affiliated person of Sierra provides investment advisory or administration
services, which include the Sierra Trust Funds, SAM Portfolios, Sierra Prime
Income Fund and the Composite Funds (collectively, the "Fund Complex"). As of
the Record Date, no Nominee, Trustee or executive officer of the Trust benefi-
cially owned any shares of any series of the Trust, since they are offered ex-
clusively to the Separate Account and the Asset Allocation Portfolios, and no
Nominee, Trustee, or executive officer of the Trust owned any Contracts.
<TABLE>
<CAPTION>
NAME, AGE AND POSITION ADDRESS AND BUSINESS EXPERIENCE 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.
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. Director, Times Mirror
Company, 1980 to present; Director, United
States Filter Corporation, 1991 to present;
Director, Nordstrom, Inc., 1987 to present;
Director, Greyhound Lines, Inc., 1994 to
present. Trustee of 4 trusts in the Fund
Complex.
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
(accounting services). Director of 7 funds in
the Fund Complex.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND POSITION ADDRESS AND BUSINESS EXPERIENCE DURING THE PAST
WITH THE FUND FIVE YEARS (INCLUDING ALL DIRECTORSHIPS)
---------------------- -----------------------------------------------
<C> <S>
*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 (holding company). 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, CRM and Murphey Favre Securities
Services, Inc.; Executive Vice President and Director,
Composite Funds Distributor, Inc.; 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
(accounting and consulting). 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
(public relations). 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. (broker/dealer
and investment advisor). Director of 7 funds in the Fund
Complex.
Keith B. Pipes (41) 9301 Corbin Avenue
President and Chief Suite 333
Executive Officer Northridge, CA 91324.
Senior Vice President, Chief Financial Officer and
Secretary, Sierra Capital Management Corporation, 1988 to
1997; Chief Financial Officer, Secretary and Treasurer,
Sierra Fund Administration Corporation, 1988 to 1997;
Executive Vice President and Secretary, Sierra, 1988 to
1997; Senior Vice President, Chief Financial Officer and
Secretary, Sierra Services, 1992 to 1997.
Michael D. Goth (52) 9301 Corbin Avenue
Senior Vice President Suite 333
Northridge, CA 91324.
Chief Operating Officer, Sierra, 1991 to present.
Stephen C. Scott (52) 9301 Corbin Avenue
Senior Vice President Suite 333
Northridge, CA 91324
President and Chief Investment Officer, Sierra, 1988 to
present; Senior Vice President and Chief Investment
Officer, Sierra Services, 1996 to present.
Craig M. Miller (38) 9301 Corbin Avenue
Treasurer and Chief Suite 333
Financial Officer Northridge, CA 9132.
Vice President and Controller, Sierra Capital Management
Corporation, Sierra Fund Administration Corporation and
Sierra Services, 1993 to present; Audit Manager, Coopers
& Lybrand, L.L.P., 1987 to 1993.
Richard W. Grant (52) 2000 One Logan Square
Secretary Philadelphia, PA 19103.
Partner, Morgan, Lewis & Bockius LLP, 1989 to present.
</TABLE>
*Denotes an individual who is an "interested person" of the Funds as defined in
the 1940 Act.
13
<PAGE>
COMPENSATION OF TRUSTEES
Each Trustee who is not an "interested person" of the Trust receives an ag-
gregate annual fee (plus reimbursement for reasonable out-of-pocket expenses
incurred in connection with his or her attendance at Board and committee meet-
ings) 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 em-
ployee of Washington Mutual, Inc., Sierra Services, Sierra, the sub-advisors
to the Trust or First Data Investor Services Group, Inc., or any of their af-
filiates, $5,000 per annum plus $1,250 per board meeting attended, $1,000 per
Audit and/or Nominating Committee meeting attended and reimbursement for
travel and out-of-pocket expenses. Since December 1996, Mr. Bernstein, the
Chairman, has received one and a half times the Trustee's compensation de-
scribed above. The Chairman of the Audit Committee receives $1,500 per Audit
Committee meeting attended. Officers of the Trust receive no direct remunera-
tion 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 the Plan are funded and any payments
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>
- -------------------------------------------------------------------------------
* Sierra reimbursed the Trust for the cost, including trustee fees, of all
special meetings held with regard to contemplation of the sale of Sierra
Capital Management Corporation, as well as the Washington Mutual/Great
Western Merger.
** Mr. Bernstein defers all compensation received from the Trust pursuant to
the deferred compensation plan.
+ Includes $1,500 paid to Mr. Bernstein for serving as Chairman of the Audit
Committee of the Trust.
++ Dr. Osborne was appointed a Trustee of the Trust, Sierra Trust Funds, Si-
erra Prime Income Fund and Sierra Asset Management Portfolios on July 1,
1996
14
<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 the results of the audit engagement and
matters having a material effect on the Fund's financial operations with the
independent accountants. The members of the Audit Committee during the fiscal
year ended December 31, 1996, were Messrs. Bernstein (Chairman), Anderson, Da-
vis, 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 27-28, 1997.
BOARD APPROVAL OF THE ELECTION OF TRUSTEES
At a meeting of the Board of Trustees held October 27-28, 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, the Board took into account the fact that each Nom-
inee 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 the 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 Government Fund and the High Quality
Bond Fund (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.
15
<PAGE>
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 "Declaration of Trust") to demand payment for or an appraisal
of its Global Government Fund shares if the Merger is consummated over its ob-
jection. Global Government Contractowners may, however, be able to exercise
exchange rights under their Contracts to reallocate net purchase payments to
Divisions of the Separate Account investing in other series of the Trust.
BACKGROUND AND REASONS FOR THE PROPOSED MERGER
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 each Fund, and that the interests of
each Fund's shareholders would not be diluted as a result of effecting the
Merger. At a meeting held on October 27-28, 1997, the Trustees unanimously ap-
proved the proposed Merger and recommended its approval by shareholders. Be-
fore reaching its conclusions, the Trust's Board of Trustees conducted an ex-
tensive "due diligence" review. Among other things, the Board received reports
from counsel and independent experts hired to evaluate the Merger.
The principal reasons why the Trustees are recommending the Merger, and the
overall restructuring of the Composite/Sierra Mutual Funds as discussed on
page 4, are as follows:
(i) DECREASED OR UNCHANGED OVERALL EXPENSES. The Merger is expected to re-
sult in aggregate operating expenses that, absent any waiver of management
fees, would be lower than those currently borne by the Global Government
Fund, as described more fully in the Overview under "Operating Expenses."
Furthermore, CRM has voluntarily undertaken to waive a portion of its manage-
ment fee, if necessary, to limit the expenses of the High Quality Bond Fund
at least through the end of 1998, as described more fully in the Overview un-
der "Operating Expenses." Of course, there can be no assurance that the
Merger will continue to result in savings in operating expenses to sharehold-
ers.
(ii) APPROPRIATE INVESTMENT OBJECTIVES, DIVERSIFICATION, ETC. The investment
objectives, policies and restrictions of the High Quality Bond Fund are com-
patible with 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 af-
forded by the Global Government Fund, with the potential for greater diversi-
fication of risk because of the opportunities for additional portfolio in-
vestments offered by 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 26, 1997 or such other date as may be
agreed upon by the Funds). The following description of the Agreement is qual-
ified 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.
16
<PAGE>
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. As a result of the proposed transaction, each shareholder of
the Global Government Fund will receive a number of Merger Shares equal in ag-
gregate value at the Exchange Date to the value of the shares of the Global
Government Fund held by such shareholder. This distribution will be accom-
plished by the establishment of accounts on the share records 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. 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. The Agreement provides that the Merger need not be consummated if the
Trustees of the Trust shall have concluded in good faith, prior to the Ex-
change Date, that the Merger would not be in the best interests of the Global
Government Fund's shareholders.
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 its affiliates. Notwithstanding the
foregoing, expenses will in any event be paid by the party directly incurring
such expenses if and to the extent that the payment by any other party of such
expenses would result in the disqualification of the first party as a "regu-
lated 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 loads and other distribution
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 Global
Government 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 Declaration of Trust disclaims shareholder
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 agreement,
undertaking or obligation entered into or executed by the Trust, the High
Quality Bond Fund or the Trust's Trustees. The Declaration of Trust provides
for indemnification out of the High Quality Bond Fund's property for all loss
and expense of any shareholder held personally liable for the obligations of
the High Quality Bond Fund. Thus, the risk of a shareholder's incurring finan-
cial 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 shareholder liabil-
ity under Massachusetts law and the Declaration of Trust.
The Declaration of Trust provides that Trustees may be removed by two-thirds
vote of the Trustees or by vote of shareholders holding at least two-thirds of
the outstanding shares of the Trust. In addition, the 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 Declaration of Trust provides that the liquidation of any fund, including
the Global Government Fund and the High Quality Bond Fund, requires the ap-
proval not only of a majority of the Trustees, but
17
<PAGE>
also of a "majority of the outstanding voting securities" of the fund, as de-
fined 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 out-
standing shares of the fund are present or represented by proxy, or (B) more
than 50% of the outstanding shares of the fund. The Declaration of Trust pro-
vides 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 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, 1996 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 number of shares held will increase.
Because the Agreement provides that the High Quality Bond Fund will be the
surviving Fund following the Merger and because the High Quality Bond Fund's
investment objective and policies will remain unchanged, the pro forma finan-
cial 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 FUNDS
Other information regarding the Global Government Fund and the High Quality
Bond Fund, including information with respect to their investment objectives,
policies and restrictions and financial history may be found in the accompany-
ing Prospectus, as well as in the SAI, the Merger SAI, the Annual Report and
the Semi-Annual Report, which are available upon request by calling 1-800-247-
6584. To the extent 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 information contained in this Prospectus/Proxy Statement, this
Prospectus/Proxy Statement should be deemed to supersede such other document.
Certain recent financial information and certain information and commentary
from the Semi-Annual Re-
port relating to the High Quality Bond Fund's recent investment performance is
set forth in Appendix B to this Prospectus/Proxy Statement.
Proxy reports, proxy materials 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 SEC 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 obtained from the Public Reference Branch,
Office of Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20549, at prescribed rates.
18
<PAGE>
- -------------------------------------------------------------------------------
VOTING INFORMATION
RECORD DATE, QUORUM AND METHOD OF TABULATION. Shareholders of record of the
Global Government Fund at the close of business on the Record Date will be en-
titled to notice of and to vote at the Meeting or any adjournment thereof. The
holders of a majority of the shares of the Global Government 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 of 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 7,493,675.0632
shares of beneficial interest of the Global Government Fund.
As of the Record Date, to the best of the knowledge of the Trust, no person,
other than AGL, which owns of record all shares of both Funds, and Saul and
Rose Geller, 3995 Overland Ave #315, Culver City, CA 90232, who own 262,617.07
shares (5.31%) of the High Quality Bond Fund, owned of record or beneficially
5% or more of the outstanding shares of the Funds.
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 its affili-
ates. See "Information About the Merger."
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
77251-1401) or by executing superseding instructions. All properly executed
instructions received in time for the Meeting will be voted as specified in
the instructions, or if no specification is made, FOR the election of all of
the Nominees to the Trust's Board of Trustees (set forth in Proposal 1 of the
Notice of Meeting) and FOR the proposal (set forth in Proposal 2 of the Notice
of Meeting) to implement the Merger with respect to the High Quality Bond
Fund.
SHAREHOLDER PROPOSALS AT FUTURE MEETINGS OF SHAREHOLDERS. The Declaration 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 subsequent
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 either proposal are not received
by the time scheduled for the Meeting, the persons named as proxies may pro-
pose one or more adjournments of the Meeting to permit further solicitation of
proxies. 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.
November 13, 1997
19
<PAGE>
APPENDIX A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as of No-
vember , 1997 in , , by and between The Sierra Variable Trust, a Massa-
chusetts 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").
(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 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 Agreement.
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 June 30, 1997 have been fur-
nished 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 covered thereby in conformity with generally accepted accounting
principles.
A-1
<PAGE>
d. The current prospectus and statement of additional information of the Si-
erra Trust, each dated May 1, 1997 (collectively, as from time to time amend-
ed, the "Sierra Prospectus"), which has previously been furnished to the Ac-
quired 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
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 in-
surance, securities 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.
A-2
<PAGE>
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. 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 ap-
plicable 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 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 December 31,
1996 and as of and for the six months ended June 30, 1997 have been furnished
to the Acquiring Fund. Such statement of assets and liabilities 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 cov-
ered thereby, in conformity with generally accepted accounting 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.
A-3
<PAGE>
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 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 Ac-
quired Fund have been adequately provided for on its books, and no tax defi-
ciency 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 Reve-
nue 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 insurance, 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 will remain a "diversified company" within the meaning of
A-4
<PAGE>
Section 5(b)(1) of the 1940 Act and in compliance with such other mandatory
investment restrictions as are set forth in the Sierra Prospectus, as amended
through the Exchange 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), in exchange for that number of shares
of beneficial interest of the Acquiring Fund provided for in Section 4 and
the assumption by the Acquiring Fund of all of the liabilities of the Ac-
quired Fund, whether accrued or contingent, existing at the Valuation Time
(as defined below) except for the Acquired Fund's liabilities, if any, aris-
ing in connection with this Agreement. Pursuant to this Agreement, the Ac-
quired Fund will, as soon as practicable after the Exchange Date, distribute
all of the Merger Shares received by it to the shareholders 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 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 Acquired 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.
A-5
<PAGE>
d. The Acquired Fund shall distribute the Merger Shares to the shareholders
of the Acquired Fund by furnishing written instructions to the Acquiring
Fund's transfer agent, which will as soon as practicable set up open accounts
for each Acquired Fund shareholder in accordance with such written instruc-
tions.
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. ("CRM") and Sierra
Investment Advisors Corporation and their affiliates; and that in connection
therewith the costs of all such transactions are being borne by CRM and/or
its affiliates. Notwithstanding any of the foregoing, expenses will in any
event be paid by the party directly incurring such expenses if and to the ex-
tent that the payment by the other party of such expenses would result in the
disqualification of such party as a "regulated investment company" within the
meaning of Section 851 of the Code.
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 Boston, Massa-
chusetts, as of December 26, 1997, or at such other date agreed to by the Ac-
quiring 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 informa-
A-6
<PAGE>
tion furnished by the Acquired Fund, filed the Registration Statement with
the Commission. Each of the Acquired Fund and the Acquiring Fund will cooper-
ate with the other, and each will furnish to the other the information relat-
ing 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 Registration State-
ment.
8. Conditions to the Acquiring Fund's Obligations. The obligations of the Ac-
quiring 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 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
properties 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 reporting on the re-
sults of applying certain procedures agreed upon by the Acquiring Fund and
described in such letter, which limited procedures relate to the schedules of
the tax provisions and qualifying tests for regulated investment companies as
prepared for the fiscal year ended December 31, 1996 and the period January
1, 1997 to the Exchange Date (the latter period being based upon unaudited
data).
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 Morgan, Lewis &
Bockius LLP, 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 Massachusetts business trust duly formed and is validly ex-
isting 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 conduct-
ed; (ii) this Agreement has been duly authorized, executed and delivered by
the Sierra Trust on behalf of the Acquired Fund and, assuming that the Regis-
tration Statement, the Sierra Prospectus and the Acquired Fund Proxy State-
ment 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 Si-
erra 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 contem-
plated hereby in accordance with the terms of this Agreement, the Acquired
Fund will have duly sold, assigned, conveyed, transferred and delivered such
assets to the Acquiring Fund; (iv) the execution and delivery of this Agree-
ment did not, and the consummation of the transactions contemplated hereby
will not, violate 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, ap-
proval, authorization or order of any court or governmental authority is re-
quired for the consummation by the Sierra Trust on behalf of the Acquired
Fund of the transactions contemplated hereby, except such as have been ob-
tained under
A-7
<PAGE>
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 regu-
latory authority such order or orders as are reasonably necessary or desir-
able under the 1933 Act, the 1934 Act, the 1940 Act, and any applicable state
securities 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) in each case for its taxable
years ending on or after December 31, 1996 and on or prior to the Exchange
Date, and (iii) all of the Acquired Fund's net capital gain realized (after
reduction for any capital loss carryover), in each case for the taxable year
ending on December 31, 1996 and all subsequent taxable periods ending on or
prior to the Exchange 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.
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 what-
A-8
<PAGE>
soever 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 reporting on the results
of applying 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), which limited procedures relate as of the valu-
ation time to the procedures customarily utilized by the Acquired Fund in
valuing its assets and issuing its shares.
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 performed or satisfied at or prior to
each of such dates; and that Sierra shall have furnished to the Acquired Fund
a statement, dated the Exchange Date, signed by an officer of Sierra certify-
ing that as of the Valuation Time and as of the Exchange Date, to the best of
Sierra's knowledge, after due inquiry, all representations and warranties of
the Acquiring Fund made in this Agreement are true and correct in all mate-
rial respects as if made at and as of such date.
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 Morgan, Lewis &
Bockius LLP, 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 Massachusetts business trust duly formed and is validly ex-
isting 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 conduct-
ed; (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 val-
idly 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 preemp-
tive right to subscription or purchase in respect thereof; (iii) this Agree-
ment has been duly authorized, 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, exe-
cution 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 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 Acquir-
ing Fund is a party or by which it is bound; (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 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
A-9
<PAGE>
order suspending the effectiveness of the Registration Statement has been is-
sued and no proceedings for that purpose have been instituted or are pending
or contemplated under the 1933 Act. In addition, such counsel shall also
state that they have participated in conferences with officers and other rep-
resentatives of the Acquiring Fund at which the contents of the Acquired Fund
Proxy Statement and related matters were discussed, and, although they are
not passing upon and do not assume any responsibility for the accuracy, com-
pleteness or fairness of the statements contained in the Acquired Fund Proxy
Statement, on the basis of the foregoing (relying as to materiality to a
large extent upon the opinions of officers and other representatives of the
Acquiring Fund), no facts have come to their attention that lead them to be-
lieve that the portions of the Acquired Fund Proxy Statement relevant to the
transfer of assets contemplated by this Agreement as of its date, as of the
date of the Acquired Fund shareholders' meeting, or as of the Exchange Date,
contained an untrue statement of a material fact regarding the Acquiring Fund
or omitted to state a material fact required to be stated therein or neces-
sary to make the statements therein regarding the Acquiring Fund, in light of
the circumstances under which they were made, not misleading. Such opinion
may state that such counsel does not express any opinion or belief as to the
financial statements or other financial data, or as to the information relat-
ing to the Acquired Fund, contained in the Acquired Fund Proxy Statement or
the Registration Statement, and may contain other customary or appropriate
qualifications.
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.
j. The Board of Trustees of the Sierra Trust shall not have concluded in the
good faith exercise of its fiduciary duty that the transactions contemplated
hereby would not be in the best interests of the shareholders of the Acquired
Fund.
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 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 reasona-
bly incurred by any one or more of the Indemnified 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 Parties 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 statement of a material fact relat-
ing to the Sierra Trust or the Acquired Fund contained in the Registration
Statement or 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 ma-
terial 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 misleading, including, without limita-
tion, 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 Trust or the Acquired Fund. The Indemnified Parties will
notify the Sierra Trust and the Acquired Fund in writing within ten days af-
ter 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
A-10
<PAGE>
Indemnified Party as to any matters covered by this Section 10(a). The Ac-
quired Fund shall be entitled to participate at its own expense in the de-
fense 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, action, suit or proceed-
ing, and if the Acquired 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 expense. The Acquired 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 re-
quired 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 Trust or the Acquiring Fund. The Indemnified Parties will
notify the Sierra Trust and the Acquiring Fund in writing within ten days af-
ter 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 In-
demnified Party as to any matters covered by this Section 10(b). The Acquir-
ing 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(b), or,
if it so elects, to assume at its expense by counsel satisfactory to the In-
demnified 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 obliga-
tion 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 instance any expenses, losses, claims, damages and lia-
bilities required to be paid by it under this Section 10(b) without the ne-
cessity 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 February 28, 1998, this Agreement shall auto-
matically terminate on that date unless a later date is agreed to by the Ac-
quired 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:
A-11
<PAGE>
"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 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 Commonwealth 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-12
<PAGE>
APPENDIX B
EXCERPTS FROM THE SIERRAVARIABLE TRUST SEMI-ANNUAL REPORT
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.
- --------------------------------------------------------------------------------
[LING GRAPH APPEARS HERE]
Growth of a $10,000 investment
<TABLE>
<CAPTION>
Lehman Brothers Mutual Fund Short (1-5)
Date Fund Investment Grade Debt Index*
- ---- ---- ---------------------------------------
<S> <C> <C>
1/12/94 10,000 10,000
1/94 10,000 10,000
2/94 9,960 9,898
3/94 9,920 9,785
4/94 9,880 9,726
5/94 9,880 9,743
6/94 9,880 9,770
7/94 9,961 9,898
8/94 10,001 9,942
9/94 9,953 9,887
10/94 9,994 9,899
11/94 9,994 9,843
12/94 9,838 9,864
1/95 9,838 10,027
2/95 9,921 10,227
3/95 9,999 10,291
4/95 10,081 10,412
5/95 10,288 10,680
6/95 10,329 10,750
7/95 10,329 10,778
8/95 10,413 10,871
9/95 10,455 10,942
10/95 10,583 11,049
11/95 10,668 11,182
12/95 10,753 11,288
1/96 10,839 11,405
2/96 10,753 11,323
3/96 10,710 11,279
4/96 10,710 11,269
5/96 10,719 11,278
6/96 10,797 11,384
7/96 10,841 11,427
8/96 10,886 11,450
9/96 10,975 11,596
10/96 11,065 11,775
11/96 11,156 11,905
12/96 11,156 11,863
1/97 11,201 11,924
2/97 11,247 11,955
3/97 11,247 11,901
4/97 11,293 12,025
5/97 11,386 12,121
6/97 11,433 12,227
</TABLE>
The above line graph does not reflect administrative fees or other expenses
charged by American General Life Insurance Comapny Separate Account D through
which shares of the Fund are purchased.
* Index total returns were calculated from 1/31/94 to 6/30/97. The Lehman
Brothers Mutual Fund Short (1-5) Investment Grade Debt Index includes all
investment-grade corporate debt securities with maturities of one to five years,
assumes reinvestment of all dividend/distributions, and does not reflect any
asset-based charges for investment management or other expenses. Past investment
performance does not guarantee future performance. The returns for the Fund
assume reinvestment of all dividends/distributions by the shareholder.
During the period noted, the Advisor (Sierra Investment Advisors Corporation)
and Administrator (Sierra Fund Administration Corporation) waived a portion of
their management fees, and credits were allowed by the Custodian. In the absence
of the waivers or Custodian credits, yield and total return would have been
lower.
<TABLE>
<CAPTION>
Average Annual Total Returns as of 6/30/97 6 Month 1 Year Since Inception
------- ------ ---------------
(January 12, 1994)
<S> <C> <C> <C>
=== Fund 2.49% 5.89% 3.94%
- - - Lehman Brothers Mutual Fund Short (1-5)
Investment Grade Debt Index* 3.07% 7.41% 6.06%
</TABLE>
B-1
<PAGE>
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.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
There were no major shifts in portfolio holdings that significantly impacted
performance. However, we should note the performance of various sectors.
Corporates, mortgages, and asset-backed securities were important components
of the Fund's portfolio construction. Over the past 12 months, these sectors
performed very well relative to Treasuries. The best performing sector was
mortgages, largely due to strong price performance and high yields. The Fund's
holdings in this sector increased in both value and overall portfolio 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 in-
flation. Potential credit excesses, profit disappointments, and the unpredict-
ability 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 GRAPH APPEARS HERE]
<TABLE>
<S> <C>
A 9.90%
BBB 23.06%
AAA 67.04%
</TABLE>
Allocation percentages are based on total investment value of
the portfolio as of 6/30/97.
B-2
<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-3
<PAGE>
THE SIERRA VARIABLE TRUST
PROSPECTUS/PROXY STATEMENT
NOVEMBER 13, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
OVERVIEW OF MERGER............................................................. 4
RISK FACTORS................................................................... 9
SPECIAL MEETING OF SHAREHOLDERS................................................ 10
PROPOSAL 1: ELECTION OF TRUSTEES............................................... 11
PROPOSAL 2: APPROVAL OR DISAPPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION.... 15
INFORMATION ABOUT THE FUNDS.................................................... 18
VOTING INFORMATION............................................................. 19
APPENDIX A: FORM OF AGREEMENT AND PLAN OF REORGANIZATION....................... A-1
APPENDIX B: EXCERPTS FROM THE SIERRA VARIABLE TRUST SEMI-ANNUAL REPORT......... B-1
</TABLE>
PR05
<PAGE>
THE SIERRA VARIABLE TRUST
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION
November 13, 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 13, 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 (e) 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.
(e) See Note 3.
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
Trustees' fees and expenses .................. 1,989 3,278 -- 5,267
Legal and audit fees ......................... 24,948 46,045 (35,116)(b) 35,877
Transfer agent fees .......................... 2,439 2,668 (2,668)(b) 2,439
Custodian fees ............................... 6,784 10,755 -- 17,539
Amortization of organization costs ........... -- 6,137 (6,137)(c) 0
Other ........................................ 14,872 8,861 -- 23,733
Fees waived by investment advisor ............ (10,732) -- 10,732 (d) 0
----------- ----------- ----------- ------------
Subtotal ............................... 131,085 284,138 ( 88,672) 326,551
Credits allowed by the custodian ............. (276) (116) -- (392)
----------- ----------- ----------- ------------
Net expenses ........................... 130,809 284,022 ( 88,672) 326,159
----------- ----------- ----------- ------------
NET INVESTMENT INCOME ........................ 811,642 1,258,830 88,672 2,159,144
----------- ----------- ----------- ------------
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 $ 88,672 $ 2,365,887
=========== =========== =========== ============
</TABLE>
(a) Adjustment reflects contractual fee of The Sierra Variable Trust Short Term
High Quality Bond Fund.
(b) Adjustment reflects expected savings when the two funds become one.
(c) Organization expense of the acquired fund is not an expense of the combined
fund.
(d) 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 nine
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.
Based largely on the significant realignment of the Global Government Fund's
portfolio that is expected to occur in connection with the Merger, the Global
Government Fund is expected to recognize gain or loss on the sale of its
portfolio securities in the realignment and on the sale of its assets to the
High Quality Bond Fund, and shareholders of the Global Government Fund (but not
owners of Annuity Contracts) are expected to recognize taxable gain or loss on
receipt of the Merger Shares 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. 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, including gains recognized
in connection with the Merger. The High Quality Bond Fund's cost basis for each
security acquired from the Global Government Fund in the Merger will be the fair
market value of such security at the time of the Merger (rather than the Global
Government Fund's cost basis), and as a result of the Merger the Global
Government Fund's net unrealized losses and capital loss carryforwards will not
be available for use by either Fund.
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.
# Security expected to be sold in connection with the 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>
# Security expected to be sold in connection with the 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 (Note 3).............. 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
Trustees' fees and expenses .................. 679 1,089 - 1,768
Legal and audit fees ......................... 8,524 18,858 (17,400)(b) 9,982
Transfer agent fees .......................... 2,083 2,083 (2,083)(b) 2,083
Custodian fees ............................... 4,475 6,885 - 11,360
Amortization of organization costs ........... - 3,069 (3,069)(c) 0
Other ........................................ 9,668 1,986 - 11,654
Fees waived by investment advisor ............ (5,750) - 5,750 (d) 0
----------- ---------------- ---------------- -----------------
Subtotal ............................... 61,092 129,702 (42,536) 148,258
Credits allowed by the custodian ............. (248) (237) - (485)
----------- ---------------- ---------------- -----------------
Net expenses ........................... 60,844 129,465 (42,536) 147,773
----------- ---------------- ---------------- -----------------
NET INVESTMENT INCOME ........................ 370,463 615,896 42,536 1,028,895
----------- ---------------- ---------------- -----------------
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 $ 42,536 $ 813,044
=========== ================ ================ =================
</TABLE>
(a) Adjustment reflects contractual fee of The Sierra Variable Trust Short Term
High Quality Bond Fund.
(b) Adjustment reflects expected savings when the two funds become one.
(c) Organization expense of the acquired fund is not an expense of the combined
fund.
(d) 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.
Based largely on the significant realignment of the Global Government Fund's
portfolio that is expected to occur in connection with the Merger, the Global
Government Fund is expected to recognize gain or loss on the sale of its
portfolio securities in the realignment and on the sale of its assets to the
High Quality Bond Fund, and shareholders of the Global Government Fund (but not
owners of Annuity Contracts) are expected to recognize taxable gain or loss on
receipt of the Merger Shares 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. 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, including gains recognized
in connection with the Merger. The High Quality Bond Fund's cost basis for each
security acquired from the Global Government Fund in the Merger will be the fair
market value of such security at the time of the Merger (rather than the Global
Government Fund's cost basis), and as a result of the Merger the Global
Government Fund's net unrealized losses and capital loss carryforwards will not
be available for use by either Fund.
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. As the net asset values of the Short Term High
Quality Bond Fund and Short Term Global Government Fund are the same, no
proforma adjustment to the shares outstanding is required.
-2-
<PAGE>
THE SIERRA VARIABLE TRUST
SHORT TERM GLOBAL GOVERNMENT FUND
BALLOT
These Voting instructions are solicited on behalf
of the Trustees of The Sierra Variable Trust
AMERICAN GENERAL LIFE The undersigned hereby instructs American General Life
P.O. BOX 1931 Insurance Company Separate Account D ("Separate Account
HOUSTON, TX 77251 D") to vote shares of the Short Term Global Government
Fund (the "Fund") of the Sierra Variable Trust (the
"Trust") attributable to their variable annuity contract
for which the undersigned is entitled to give
instructions of the Special Meeting of Shareholders of
the Trust to be held at 11:00 a.m. Pacific Time, on
December 23, 1997 and at any adjournment thereof, upon
the proposal(s) below and as set forth in the Notice
[NAME AND ADDRESS of Special Meeting. The undersigned acknowledges receipt
HERE] of the Notice of Special Meeting of Shareholders, The
American General Life Information statement and the
Trust's Prospectus/Proxy statement accompanying this
ballot and revokes any instructions previously given.
With respect to those shares for which instructions have
not been received by Separate Account D before the
Special Meeting. Separate Account D will vote those
shares in the affirmative, in the negative, or in
absention, in the same proportion as those shares for
which instructions have been received.
This ballot, when properly executed, will be voted in the
manner directed herein by the undersigned. If no
direction is made, this ballot will be voted in favor of
the proposal.
By signing and dating below you instruct American General Life
Insurance Company Separate Account D to vote shares of the
Fund attributable to your variable annuity contract at the
Special Meeting of Shareholders of The Trust or at any and all
adjournments of the Special Meeting. It shall vote as
recommended by the trustees, except as otherwise indicated above
and in its discretion upon such other matters as may properly
come before the Special Meeting.
Note: Please sign your name(s) and printed above.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
$EVT$ PLEASE KEEP THIS PORTION FOR YOUR RECORDS
- --------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED
- --------------------------------------------------------------------------------
SIERRA VARIABLE TRUST SHORT TERM GLOBAL GOVERNMENT FUND
Vote On Trustees
1. To consider and act upon a proposal to elect
a Board of Trustees. 01) Arthur H. Bernstein,
02) Anne V. Farrell, 03) Daniel L. Pavelich,
04) Wayne L. Attwood, 05) John W. English,
06) Jay Rockey, 07) David E. Anderson,
08) Michael K. Murphy, 09) Richard C. Yancey,
10) Kristianne Blake, 11) Alfred E. Osborne, Jr.,
12) Edmond R. Davis, 13) William G. Papesh
For Withhold For All To withhold authority to vote, mark "For All
All All Except Except" and write the nominee's number
on the line below
[_] [_] [_]
---------------------------------------------
Vote On Proposals
2. To approve or disapprove an agreement and plan of reorganization providing
for the transfer of all for 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 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 Fund.
3. To transact such other business as may properly come before the meeting.
-----------------------------------------------------------
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Signature (PLEASE SIGN WITHIN BOX) Date
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Signature (Joint Owners) Date
