<PAGE>
The Sierra
Variable Trust
Annual Report
For the Year Ended December 31, 1996
SIERRA
ADVANTAGE
A Tax-Deferred Variable Annuity
<PAGE>
CONTENTS
1 Message From The President
2 1996 Year-in-Review. 1997 Outlook
6 Individual Fund Reviews
24 Statements of Assets & Liabilities
26 Statements of Operations
28 Statements of Changes in Net Assets
30 Statements of Changes in Net Assets -
Capital Stock Activity
32 Financial Highlights
41 Portfolio of Investments
60 Notes to Financial Statements
72 Report of Independent Accountants
<PAGE>
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MESSAGE FROM THE PRESIDENT
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DEAR CONTRACT OWNER:
We are pleased to provide you with The Sierra Variable Trust Annual Report for
the 12-month period ended December 31, 1996.
The past year was another excellent one for the U.S. stock market, with both
large- and small-cap stocks posting double-digit gains. From the beginning of
1995 to the end of 1996, the U.S. stock market provided investors with a
cumulative total return of more than 68%, as measured by the Standard & Poor's
Composite Index of 500 Stocks (S&P 500). Over the past year, investors also
continued to invest new assets into variable annuities, with a large portion of
assets going into domestic and international mutual funds. According to the
National Association for Variable Annuities, new investments into variable
annuities totaled over $70 billion in 1996, an all-time high.
The past year was also favorable for The Sierra Variable Trust, and our
commitment to professional portfolio management continued to successfully serve
our long-term investors As of December 31, 1996, The Sierra Variable Trust had
over $500 billion in total assets under management. As detailed in the
Individual Fund Reviews section of this report, a number of The Sierra Variable
Trust Funds rewarded Contract Owners with significant, double-digit returns for
the 12 months ended December 31, 1996, including the Growth and Income Fund,
Growth Fund, and Emerging Growth Fund.
Aside from favorable economic fundamentals, a driving force in the stock market
has been the growing awareness among individuals of the need to build assets for
retirement. In 1996, members of the 70-million strong baby boomer generation
began turning 50, typically the beginning of peak earning years. Some analysts
predict that the income of this generation will rise by as much as 90% in coming
years, which could mean an enormous surge in retirement savings for the stock
market.
The importance of personal retirement savings has also been underscored by
recent tax legislation included in the Small Business Protection Act of 1996.
One important change is an increase in the contributions single-earner couples
can make to tax-deferred individual retirement accounts, effective with the 1997
tax year. In addition, a Federal advisory panel has recommended that the U.S.
Government considers investing a portion of its Social Security revenues in the
stock market to ensure the solvency of the Federal program. This could prove a
boon to the stock market by funneling billions of dollars into equities.
---------
We believe that the most effective investment approach is to plan and invest for
the long term.
---------
The Dow Jones Industrial Average's record-breaking surge past 6,000 captured
public attention and most likely contributed to record inflows in 1996. Measured
from its low in 1982, the current bull market has averaged a 19% return
annually. This remarkable performance, however, has led to perhaps overconfident
expectations of the stock market among many investors. Yet, these expectations
may not take into account that since 1992, the market's 10-year returns have
been among the highest in 200 years. Additionally, since 1919, there have been
47 years in which the market has fallen 10% or more from the prior year's
high./1/
Rather than focusing on the market's current strengths or potential weaknesses,
we at The Sierra Variable Trust believe that the most effective investment
approach is to plan and invest for the long term. Developing a long-term
investment strategy and following that strategy consistently over time are
critical to achieving your financial goals in today's quickly changing
environment. In addition, it is important to set realistic expectations and to
prepare for the market's normal ups and downs by diversifying your portfolio to
manage risk.
With the complexities of today's global markets, building a properly diversified
portfolio is increasingly difficult. To provide investors with a diverse array
of diversification opportunities, the Sierra Advantage Variable Annuity offers
nine variable investment options (The Sierra Variable Trust Funds), three
guaranteed fixed options, and the Sierra Asset Management (SAM) Program, an
actively managed asset allocation program that helps investors manage risk and
achieve specific investment objectives. By investing in the SAM Strategies,
investors receive triple diversification - among asset classes, individual
securities, and some of the nation's most successful portfolio managers.
As you plan and invest for the long term, we encourage you to meet at least
annually with your Investment Representative. Regular communications with your
Investment Representative will help ensure that your portfolio remains
appropriately diversified and positioned to attain your long-term financial
goals.
Thank you for selecting the Sierra Advantage Variable Annuity with investments
in The Sierra Variable Trust. We appreciate the opportunity to serve your
investment needs and remain committed to providing quality investments and
services for your financial future.
Sincerely,
/s/ F. Brian Cerini
F. Brian Cerini
Chairman and President
The Sierra Variable Trust
/1/ Source: Standard & Poor's. Based on S&P 500.
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1996 YEAR-IN-REVIEW . 1997 OUTLOOK
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The U.S. economy continued to grow at a moderate pace in 1996, setting the stage
for continued growth in corporate earnings and higher stock prices through the
year. For most of 1996, it seemed as if it was "all systems go" - employment
growth, income growth, high consumer confidence, political resolution, budget
deficits in retreat, steady monetary policy, new records in stock prices, record
earnings - all with benign inflation.
Despite these seemingly positive indicators, however, a dichotomy existed in the
domestic economy throughout the second half of 1996. While there was evidence of
growth in areas such as manufacturing and overall employment, the rate of growth
was slowing, and weakness existed in areas such as consumer spending. This
dichotomy incited some volatility in the financial markets, although year-end
results were decidedly positive.
MARKET HIGHLIGHTS
While the past year resulted in greater price movements than in recent years,
1996 marked the sixth year of the U.S. stock market's current bull run. Large-
capitalization stocks posted double-digit gains, with the Standard & Poor's
Composite Index of 500 Stocks up 23.07%./1/
What's behind this year's gains in the stock market? Low inflation, moderate
economic growth, and positive corporate earnings growth were favorable
fundamentals. Inflation, the rising costs of goods and services as measured by
the Consumer Price Index, was 3.3% in 1996, well below its 20-year average.
STOCKS POST ALL-TIME HIGHS
Economic stability created a positive setting in the equity markets, especially
for the larger-capitalized companies represented by the S&P 500 and the Dow
Jones Industrial Average. While both the S&P 500 and the broader based NASDAQ
stock market repeatedly posted all time highs in 1996, equity investors had to
maintain a longer-term perspective through some volatile periods during the
summer months.
Early in the third quarter, sharp declines in small-cap stocks dropped the
Russell 2000 Index more than 15% through mid-July from its June peak. The S&P
500 also fell, declining about 8% from its high on May 24. This increased
volatility resulted from stronger GDP growth in the first half of 1996, and
sharp declines in the unemployment rate (to a low of 5.1% in August) raised
concerns that the Federal Reserve would increase short-term interest rates. At
the same time, several large technology companies reported lower than expected
earnings. By the end of August, however, many large-cap stocks had recovered,
while small-cap stocks took the remainder of 1996 to regain lost ground, never
reaching previous highs.
ELECTION RESULTS
The stock market reacted positively in November to the 1996 election results,
reflecting a view that the balance of power distributed among the administration
and Congress will lead to a moderate course in government programs and fiscal
policies. Democratic and Republican leaders alike, expressed hope that a budget
agreement will be reached in 1997, setting the stage for a balanced budget early
in the 21st century. Market observers will be looking for constructive budget
negotiations in the first half of 1997, with an agreement by the third quarter.
A breakdown in negotiations similar to what occurred in 1995 and early 1996
would likely have a negative impact on both stocks and bonds.
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THE DOW REACHED NEW HIGHS IN 1996
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12/31/95 - 12/31/96
[LINE GRAPH APPEARS HERE]
A visual chart depicts performance of the Dow Jones Industrial Average from Dec.
'95 to Dec. '96.
The Dow is represented by the Dow Jones Industrial Average, a price-weighted
average of 30 blue-chip stocks that are generally leaders in their industry and
are listed on the New York Stock Exchange.
Source: Bloomberg Business News
/1/Source: Ibbotson Associates. Past performance does not guarantee future
results. The S&P 500 is an unmanaged index representative of the U.S. stock
market. Individuals cannot invest directly in any index.
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1996 RETURNS FOR MAJOR ASSET CLASSES
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[BAR GRAPH APPEARS HERE]
<TABLE>
<S> <C>
Large Co. Stocks 23.07%
Small Co. Stocks 17.62%
Intl. Stocks 6.36%
T-Bills 5.28%
IT Bonds 4.06%
LT Bonds 0.14%
</TABLE>
Source: Ibbotson Associates. T-bills represent 90-day U.S. Treasury bills.
Intermediate-Term (IT) Bonds are represented by Lehman Brothers Intermediate-
Term Government and Corporate Bond Index. Long-Term (LT) Bonds are represented
by Lehman Brothers Long-Term Government and Corporate Bond Index. Large Company
Stocks are represented by S&P 500 Composite Index. Small Company Stocks are
represented by Ibbotson Small Company Index. International Stocks are
represented by MSCI EAFE Index. Indexes represent unmanaged performance.
T-bills are generally considered the safest securities because they are short-
term and offer a fixed yield at maturity, which is guaranteed by the U.S.
Government. Government bonds are riskier than T-bills because of the longer
maturities, yet they are generally subject to less credit risk, because the
interest payments and return of principal are also backed by the U.S.
Government, if held to maturity. An investor would typically purchase stocks for
long-term growth of capital. However, stocks are often subject to significant
price fluctuations and therefore an investor may have a gain or loss in
principal when the shares are sold.
BONDS POST MIXED RESULTS
Fixed-income investors who may have hoped for a repeat of 1995, were
disappointed by lower average returns on many bond investments. The U.S. fixed-
income market experienced volatility in 1996, as economic growth raised concerns
that price pressure (inflation) would surely follow. This resulted in higher
interest rates (as rates rise, bond prices fall), with the yield on the 30-year
Treasury Bond rising to a high of 7.19% in July 1996, up from 5.95% at the end
of 1995. Inflationary pressures never surfaced, and yields came down and
remained in the 6.40%-6.80% range for remainder of the year. With moderate
inflation (3.3% for the year), the yield on the benchmark 30-year government
bond finished at 6.64%./2/
The U.S. bond markets experienced higher volatility in 1996 due to uncertainty
over potential rate adjustments by the Federal Reserve. The central bank cut
short-term interest rates early in the year by 25 basis points (one-quarter of
one percentage point), but then stayed on the sidelines for the remainder of the
year. Long-term bonds were more negatively impacted by the uncertainty (Lehman
Brothers Long-Term Government and Corporate Bond Index posted a 0.14% return for
the 12 months ended 12/31/96), while intermediate- and short-term issues fared
better. Treasury bonds maturing in the five to seven year range returned 2.82%
for the year and mortgage-backed issues returned 5.35% for the same time
period./3/
CATALYSTS FOR CHANGE IN THE GLOBAL ECONOMY
Fueled by declining interest rates in the industrial nations, all of the major
world regions are experiencing positive economic growth. Foreign markets gained
an average of 11.30% in local currency terms in 1996, as measured by Morgan
Stanley Capital International Europe, Australia & Far East (EAFE) Index.
However, a strengthening U.S. Dollar during the course of the year reduced those
gains to 6.05% in U.S. Dollar terms./4/
In Europe, efforts to reduce budget deficits to meet targets set by the European
Monetary Union pushed interest rates lower, supporting moderate economic growth.
The Maastricht Treaty sets a 3% deficit-to-budget target ratio, and attempts
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1996 AVERAGE STOCK GAINS IN KEY FOREIGN MARKETS
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[BAR GRAPH APPEARS HERE]
<TABLE>
<S> <C>
Spain 40.05%
Sweden 37.21%
Finland 33.94%
Hong Kong 33.08%
France 21.21%
Germany 13.58%
Japan -15.50%
</TABLE>
Source: Morgan Stanley Capital International. Currencies have been converted to
U.S. dollars. Investments outside the U.S. are subject to special risks,
including currency fluctuations, the volatility and potential for political
unrest in many international markets, as well as regulations and corporate
responsibility to shareholders. Returns shown do not reflect any asset-based
charges for management or other expenses.
/2/ Source: Bloomberg Business News.
/3/ Source: Lehman Brothers indexes. Past performance is no guarantee of future
results. Government bonds are guaranteed as to principal and interest,
although funds that invest in them are not.
/4/ International investors are subject to higher taxation and risks including
political and currency risks. Past performance is no guarantee of future
results.
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THE POWER OF DIVERSIFICATION
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January 1, 1987 - December 31, 1996
[POINT GRAPH APPEARS HERE]
Risk
Return (Standard Deviation)
------------------------------------
T-Bills 5.74% 0.52%
Intermediate-term Bonds 7.91% 3.77%
Long-term Bonds 9.50% 8.77%
Diversified Portfolio 11.73% 8.75%
Stocks 15.28% 16.61%
Source: Ibbotson Associates. Stocks are represented by the Standard & Poor's
Index of 500 stocks (S&P 500). Long-term bonds and intermediate-term bonds are
represented by the Lehman Brothers Long-Term Government and Corporate Bond Index
and the Lehman Brothers Intermediate-Term Government and Corporate Bond Index,
respectively. T-bills are represented by 30-day U.S. Treasury bills. Diversified
Portfolio represents a portfolio consisting of 40% stocks, 40% long-term bonds,
and 20% intermediate-term bonds. Past performance of these indices is not a
guarantee of future results, and this chart is not intended to reflect the past
or future performance of any SIERRA fund. T-bills are generally considered the
safest securities because they are short-term and offer a fixed yield at
maturity, which is guaranteed by the U.S. Government. Government bonds are
risker than T-bills because of the longer maturities, yet they are generally
subject to less credit risk, because the interest payments and return of
principal are also backed by the U.S. Government, if held to maturity. An
investor would typically purchase stocks for long-term growth of capital.
However, stocks are often subject to significant price fluctuations and
therefore an investor may have a gain or loss in principal when the shares are
sold.
to meet these targets resulted in a more stable currency environment in 1996.
Many European markets posted double-digit gains in U.S. Dollar terms, led by
Spain (40.05%), Sweden (37.21%), and Finland (33.94%).
Many emerging markets in Latin America and Asia also showed strong performances
in 1996. Japan, however, is a recent area of concern. The world's second-largest
economy enjoyed stronger economic growth early in the year along with a rising
stock market. As growth momentum sputtered in the second half of the year,
however, the Japanese government gave notice that it would allow market forces
greater freedom, through deregulation and cuts in government spending on
programs supporting certain industries. This announcement, combined with a
gloomy government forecast of 1.9% GDP growth for next year, sent Japanese
stocks skidding some 16% from the end of November, 1996 through early January,
1997.
OUTLOOK FOR 1997
Looking ahead, we believe the economy is poised for continued moderate growth in
the 2%-2.5% range, although speculation regarding the direction of the economy
will likely fuel heightened volatility in the capital markets over short-term
periods. We are slightly more optimistic in our corporate earnings outlook for
the first half of 1997, in spite of relatively weak consumer spending. Strength
in such areas as manufacturing, inventory restocking, business investment, and
export growth should continue to drive the economy forward.
Our interest rate outlook anticipates slightly higher long-term rates in the
first half of the year, with the Federal Reserve continuing to monitor inflation
indicators to help determine monetary policy. The yield spread between long-term
bonds and underlying inflation finished the year at 3.4% (high by historical
standards). Consequently, at this stage of the economic cycle, investors are not
convinced that inflation will remain contained, in spite of all evidence
pointing to benign price pressures. Although price inflation has not surfaced,
the costs of labor and oil have risen, which adds to the concerns for future
inflation. A positive offset to these pressures, however, appears to be the
unwillingness of consumers to pay up for goods and services.
Given today's environment of low core inflation, high levels of employment and
consumer confidence, and a positive outlook for U.S. export growth, the economy
is well positioned for continued growth with little evidence of any widespread
inflation. This scenario combined with the current interest rate environment
should have a positive impact on both equity and fixed-income market
performance, though some volatility is likely.
In summary, our 1997 outlook calls for:
. Continued growth with higher expectations during the first half of 1997
. Inflation rising over 1996, but still at a manageable level
. The Federal Reserve's monetary policy holding steady, but with the potential
for a slightly more restrictive posture should GDP growth trend much beyond
3.5%
. International growth expanding (excluding Japan, which is still contending
with long-term structural problems)
. Corporate profits expanding but at slower rates than 1996
. Domestic stock prices (although highly valued) poised for another positive
year, yet vulnerable to slight adjustments in earnings estimates
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4
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<PAGE>
LOOK TO SOUND STRATEGIES TO STEER YOUR COURSE IN 1997
Gains in many of the world's financial markets, despite ups and downs along the
way, have helped buoy investor confidence in the virtues of staying invested
through periods of market turbulence. Nevertheless, investors should not become
overconfident that the markets will continue to provide the above-average
returns that many have offered in recent years.
BE PREPARED FOR MARKET VOLATILITY
Even in a bull market, it's wise to be prepared for market volatility. Since
investment risk and reward go hand in hand, it is essential that you take steps
to protect your assets while striving to meet your long-term goals.
Asset allocation helps to minimize risk through diversification. Investing in
different asset classes, such as stocks, bonds and cash-equivalents, helps
minimize the effect a downturn in one market sector may have on your entire
portfolio.
While creating a well-diversified portfolio through asset allocation can help
smooth out the effects of market swings on your overall portfolio, it is
essential that you review your investment mix on a regular basis. Over time, if
one asset class grows faster than the others, your portfolio mix may not reflect
your original asset allocation plan. Allowing your portfolio to become too
heavily weighted in one class can reduce diversification and expose you to
unnecessary risk.
THE SIERRA ASSET MANAGEMENT (SAM) SOLUTION
The Sierra Asset Management (SAM) Program in the Sierra Advantage Variable
Annuity provides asset allocation strategies designed to help you control risk
and reach your long-term financial objectives. SAM offers actively managed
diversification, with a focus on regular portfolio monitoring and periodic
reallocations to capture market opportunities.
If you are like most Sierra Advantage Contract Owners, it is becoming
increasingly difficult to keep track of today's complex markets and still find
time to actively manage your variable annuity portfolio. The SAM Program might
offer the right solution for you:
. An investment approach that balances your risk tolerance with your long-term
financial goals
. Diversified variable account portfolios that offer potentially less risk and
higher returns than single investments
. Timely investments to match your financial needs
. Regular portfolio monitoring & periodic adjustments to take advantage of
market trends and economic activity
MEET WITH YOUR INVESTMENT REPRESENTATIVE
To keep your variable annuity investment portfolio on track in 1997, stay
focused on your investment objectives and time frame. To keep your portfolio
properly diversified and in line with your goals, meet with your Investment
Representative at least once this year. Your Investment Representative can help
you re-evaluate your financial objectives and ensure that your portfolio remains
on track to meet your long-term goals.
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THE SAM STRATEGY FOR ANY INVESTMENT GOAL
------------------------------------------------
<TABLE>
<CAPTION>
SAM Strategy Return Goal* Objective
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<S> <C> <C>
Capital Growth Strategy Exceed S&P 500 High Growth
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Growth Strategy Inflation + 7% Growth
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Balanced Strategy Inflation + 5% Growth & Relative
Stability of Principal
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Value Strategy Inflation + 4% Preserve Principal
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Fixed Strategy Inflation + 3% Preserve Principal
- ------------------------------------------------------------------------
</TABLE>
*Each Strategy's goals assume investment over a period of six years or longer.
The stated goals of the Strategy may or may not be met. They are not intended
to reflect past or future performance of any of The Variable Trust Funds or SAM
Strategy, and are in no way guaranteed.
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INDIVIDUAL FUND REVIEWS
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================================================================================
To Our Contract Owners:
We are pleased to provide you with an overview of the Funds in The Sierra
Variable Trust family (except the Global Money Fund) for the 12-month period
ended December 31, 1996. To help you better understand the high quality
investment management available to you as a Sierra Advantage Contract Owner,
we have also included biographies highlighting the individuals managing the
Funds.
================================================================================
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THE FUNDS OF THE SIERRA VARIABLE TRUST MAY NOT BE PURCHASED DIRECTLY BUT ARE
CURRENTLY AVAILABLE ONLY THROUGH THE PURCHASE OF SIERRA ADVANTAGE, A TAX-
DEFERRED VARIABLE ANNUITY ISSUED BY AMERICAN GENERAL LIFE INSURANCE COMPANY.
ANNUITY CONTRACT OWNER VALUES WILL DEPEND NOT ONLY ON THE PERFORMANCE OF THE
FUNDS, BUT ALSO ON THE MORTALITY AND EXPENSE RISK CHARGES AND THE ADMINISTRATIVE
CHARGES UNDER THE SIERRA ADVANTAGE VARIABLE ANNUITY CONTRACT.
6
<PAGE>
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INDIVIDUAL FUND REVIEWS
- --------------------------------------------------------------------------------
Sierra Investment Advisors Corporation
Sierra Investment Advisors Corporation ("Sierra Advisors"), a registered
investment advisor, is the investment advisor to The Sierra Variable Trust, and
has general oversight responsibility for the advisory services provided to the
Funds. These services include formulating the Funds' investment policies,
analyzing economic trends affecting the Funds, and directing and evaluating the
invest-ment services provided by the Sub-Advisors and the individual Portfolio
Managers of each Fund. Sierra Advisors supervises the individual Portfolio
Manager's day-to-day management of the Funds in The Sierra Variable Trust Family
to ensure that the policies and guidelines are met, and to determine appropriate
investment performance measures.
Stephen C. Scott
President & Chief Investment Officer
Mr. Scott received his B.A. and M.B.A. from California State University, Long
Beach. He joined the firm in 1988, and is responsible for providing economic
analysis, as well as conducting investment analysis and management for the
Sierra Asset Management (SAM) Program. Prior to joining Sierra Advisors, Mr.
Scott was President & Chairman of his own firm, SDS Investment Advisors, after
serving nine years as Senior Pension Investment Manager with the Group Pension
and Investment Division of The Equitable Life Assurance Society of the United
States.
Michael D. Goth
Chief Operating Officer
Mr. Goth received his B.S. and M.S. degrees from Rensselaer Polytechnic
Institute of New York, and M.B.A. from Harvard Business School. He joined the
firm in 1991 and is responsible for the supervision of The Sierra Variable
Trust's Portfolio Managers. Previously, he served as Vice President of The
Boston Company Advisors, Inc. He also served as Executive Vice President of the
GIT Mutual Fund Group for over ten years.
Understanding the Enclosed Charts
In order to help you understand The Sierra Variable Trust's investment
performance, we have included the following discussions along with graphs that
compare the Funds' performance with certain market indices. Descriptions of
these indices are provided next to the individual graphs on the following pages.
Generally, an index represents the market value of an unmanaged group of
securities, regarded by investors as representative of a particular market. An
index does not reflect any asset-based charges for investment management or
other expenses. The total returns shown for the Funds are not an estimate or
guarantee of future performance and do not take into account charges at the
annuity and separate account level.
The total returns of the Funds reflect Sierra Advisors' and Sierra Fund
Administration Corporation's ("Sierra Administration") voluntary waiver of fees,
Sierra Advisors' absorption of certain expenses, and the Custodian's reduction
of fees by credits. Total returns would have been lower if these fees and
expenses had not been waived, absorbed, or reduced by credits.
Both the Funds' performance results and the market indices reflect total
reinvestment of income, dividends, and capital gains. The unit values of these
variable options will fluctuate with market conditions.
Yield indicates the investment income per share as a percentage of the offering
price, whereas total return includes both net investment income and changes in
the value of the shares as a percentage of the initial investment. The 30-day
SEC yield is the yield calculated pursuant to a standard formula required by the
Securities and Exchange Commission ("SEC") for performance advertisement
purposes, and does not imply any endorsement or recommendation by the SEC.
7
<PAGE>
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SHORT TERM HIGH QUALITY BOND FUND
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Portfolio Manager:
Scudder, Stevens & Clark, Inc.
[PHOTOGRAPH OF THOMAS M. POOR APPEARS HERE]
Mr. Poor, Managing Director of Scudder, is the portfolio manager for the Short
Term High Quality Bond Fund. He is a Chartered Financial Analyst and has been
with Scudder since 1970. Mr. Poor has had primary investment management
responsibility for the Fund since its inception.
Performance Review:
From the Fund's inception (January 12, 1994) through December 31, 1996, the
Short Term High Quality Bond Fund's average annual total return advanced 3.75%.
For the 12-month period ended December 31, 1996, the Fund's total return was
3.74%. The Fund's 30-day SEC yield as of December 31, 1996, was 5.85%. For
additional information, see the accompanying chart.
What were the most significant factors contributing to the Fund's performance
over the 12-month period ended December 31, 1996?
Going into 1996, bond investors faced what appeared to be a very favorable
environment featuring weak growth prospects and minimal inflation pressures.
However, the factors supporting a strong bond market quickly changed. Budget
talks in Washington stalled; commodity prices rose in sharp fashion, which led
to increases in headline inflation measures; and the Federal Reserve cut
interest rates in January 1996. However, signs of renewed economic strength,
such as strong gains in employment and retail sales, put further easing into
question. By mid-year, U.S. Treasury yields had risen 95 to 110 basis points.
The second half of 1996 was positive for U.S. bonds, as economic growth
moderated from the second quarter's torrid pace and bond yields declined. Slower
growth both domestically and abroad, combined with low inflation, dispelled
investor fears and led to lower interest rates. Yields on maturities of two
years and longer fell roughly 25 basis points. For the year, interest rates
rose approximately 70 to 85 basis points for maturities two years and longer.
The rise in interest rates and ensuing decline in bond prices were the primary
factors affecting the Fund's performance in 1996. On a more positive note, the
Fund benefited from holdings in mortgages, asset-backed issues, and corporate
bonds as incremental income was the primary component of returns for 1996.
What market conditions affected the Fund's performance during the period, and
what investment techniques were used to address those conditions?
Bond investors experienced a challenging year as interest rates gyrated in the
face of changing expectations for economic growth. To compensate for volatile
interest rates, the Fund's duration, or sensitivity to changes in interest
rates, was actively managed throughout the period.
Growth of a $10,000 investment
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
VARIABLE-V-HI-QUAL BOND
<S> <C> <C>
Inception* 1/12/94 10,000 10,000
10,000 10,000
9,960 9,898
Mar 9,920 9,785
9,880 9,726
9,880 9,743
Jun 9,880 9,770
9,961 9,898
10,001 9,942
Sep 9,953 9,887
9,994 9,899
9,994 9,843
Dec 94 9,838 9,864
9,838 10,027
9,921 10,227
Mar 9,999 10,291
10,081 10,412
10,288 10,680
Jun 10,329 10,750
10,329 10,778
10,413 10,871
Sep 10,455 10,942
10,583 11,049
10,668 11,182
Dec 95 10,753 11,288
10,839 11,405
10,753 11,323
Mar 10,710 11,279
10,710 11,269
10,710 11,278
Jun 10,797 11,384
10,841 11,427
10,886 11,451
Sep 10,975 11,596
11,065 11,776
11,156 11,907
Dec 96 11,155 11,865
</TABLE>
The above line graph does not reflect administrative fees or other expenses
charged by American General Life Insurance Company Separate Account D through
which shares of the Fund are purchased.
*Index total returns were calculated from 1/31/94 to 12/31/96. The Lehman
Brothers Mutual Fund Short (1-5) Investment Grade Debt Index includes all
investment-grade corporate debt securities with maturities of one to five years,
assumes reinvestment of all dividends/distributions, and does not reflect any
asset-based charges for investment management or other expenses. Past investment
performance does not guarantee future performance. The returns for the Fund
assume reinvestment of all dividends/distributions by the shareholder.
During the period noted, the Advisor (Sierra Investment Advisors Corporation)
and Administrator (Sierra Fund Administration Corporation) waived a portion of
their management fees, and the Custodian reduced fees by credits. In the absence
of the waivers or fees reduced by credits, yield and total return would have
been lower.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/96 6 Month 1 Year Since Inception
------- ------ ---------------
(January 12, 1994)
<S> <C> <C> <C>
Fund 3.32% 3.74% 3.75%
Lehman Brothers Mutual Fund Short (1-5)
Investment Grade Debt Index* 4.23% 5.12% 6.04%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
- --------------------------------------------------------------------------------
SHORT TERM HIGH QUALITY BOND FUND
- --------------------------------------------------------------------------------
The Fund began the year with a duration of 2.45 years. With interest rates
falling early in the year and reaching a low point in mid-February, the Fund
performed well due to this duration positioning. As economic indicators began to
challenge our positive view, the Fund's duration was reduced to 2.3 years by the
end of February. In response to signs of stronger economic growth, interest rate
exposure was further reduced to 1.7 years in April and 1.3 years in May,
reflecting our view that economic growth was accelerating and the risk of higher
interest rates had increased. As real interest rates rose to attractive levels
in late August, portfolio duration was extended to 1.65 years. Later in the
fourth quarter, as economic indicators and core inflation measures remained
steady, the Fund's duration was moved to 2.25 years. This action reflected our
view that the risks to the bond market had moderated.
Were there any shifts in the Fund's portfolio holdings/sectors that had a
significant impact on Fund performance?
The Fund's exposure to the various sectors of the bond market were managed
actively during the year given relative value opportunities. The Fund benefited
from investments in higher-yielding U.S. Treasury alternatives including
mortgages, asset-backed issues, and corporate notes. In the mortgage sector, the
Fund's holdings in seasoned premium mortgages did particularly well as the
uncertain interest rate environment rewarded investors who focused on issues
that had greater prepayment protection and more predictable cash flow.
The Fund's asset-backed holdings were strong performers as investors flocked to
high credit quality bonds offering incremental yield. Issues backed by home
equity loans and manufactured housing performed particularly well.
The Fund also benefited from corporate bond holdings in issuers including
Taubman Realty Corporation, The Money Store, Inc. and Lyondell Petrochemical
Company as credit spreads narrowed in response to strong investor demand for
corporate bonds.
What is our intermediate- and long-term outlook for the Fund?
As we look out into 1997, we believe the outlook for the U.S. fixed income
market is favorable. This outlook reflects our belief that the U.S. economy may
be reaching the end of an unusually long period of sustained economic growth.
The high level of consumer debt, the rise in long-term interest rates and
weakness abroad are all factors that could slow growth in 1997. We anticipate
inflation to remain subdued as secular trends such as increased use of
technology, aging demographics, and deregulation act to contain price pressures.
We also expect to see continued interest rate volatility as investors weigh
these often conflicting economic indicators and secular trends.
Given our outlook, we believe interest rates will trend lower over the
intermediate and long term. Bond investors should also benefit from a general
decline in inflation expectations. In this favorable environment, we expect
investors with a long-term outlook to be rewarded with attractive returns in the
U.S. fixed income market and The Sierra Variable Trust Short Term High Quality
Bond Fund.
------------------------------------------
Broad Sector Diversification
------------------------------------------
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
AAA 67.20%
BBB 21.29%
A 11.48%
NR 0.03%
</TABLE>
Allocation percentages are based on total investment value of the portfolio as
of 12/31/96.
9
<PAGE>
- --------------------------------------------------------------------------------
SHORT TERM GLOBAL GOVERNMENT FUND
- --------------------------------------------------------------------------------
Portfolio Manager:
Scudder, Stevens & Clark, Inc.
[PHOTOGRAPH OF ADAM M. GRESHIN APPEARS HERE]
Mr. Greshin is the lead portfolio manager for the Short Term Global Government
Fund. Mr. Greshin joined Scudder in 1986 as an international bond analyst.
Currently, he is Product Leader for Scudder's global and international fixed-
income investing. He was involved in the original design of the Fund and has
served as a member of the Fund's portfolio management team since 1993. Mr.
Greshin assumed responsibility for the Fund's day-to-day management and
investment strategies effective November 1995.
Performance Review:
From the Fund's inception (May 12, 1993) through December 31, 1996, the Short
Term Global Government Fund's average annual total return was 3.96%. For the 12-
month period ended December 31, 1996, the Fund's total return was 8.61%. The
Fund's 30-day SEC yield as of December 31, 1996, was 4.44%. For additional
information, see the accompanying chart.
What were the most significant factors contributing to the Fund's performance
over the 12-month period ended December 31, 1996?
In the U.S., the first quarter of 1996 was marked by a shift in sentiment from a
bond-friendly environment with expectations for further rate cuts to one where
inflation became a concern. An unexpected rise in U.S. payroll numbers and
retail sales suggested that the bottom had been reached in the U.S. interest
rate cycle, causing unease for investors worldwide. However, during the second
and third quarters, the Federal Reserve's decision to leave short-term interest
rates unchanged reassured fixed income investors that a tighter monetary policy
was not on the near-term horizon.
In Europe, further cuts in short-term interest rates by the German Bundesbank
and other European central banks fueled a rally in fixed income assets. The
higher yielding bond markets continued to benefit from a combination of higher
global liquidity, moderate growth, and low inflation. In addition, tighter
fiscal budgets across Europe convinced investors that the member states were
determined to implement European Monetary Union (EMU), thus increasing the
attractiveness of the peripheral European markets of Italy, Spain and Sweden.
The markets of Australia, New Zealand and Canada, referred to collectively as
the "dollar-bloc" because of their close correlation with the bond and currency
of the United States, performed very well for the Fund. The dollar-bloc was
aided by relatively high coupons compared to those of equivalent maturities for
U.S. Treasuries and by relatively stable currencies versus the U.S. dollar.
What market conditions affected the Fund's performance during the period, and
what investment techniques were used to address those conditions?
The Fund was well diversified during the past year, with an emphasis in Europe,
the U.S., and the dollar-bloc.
Growth of a $10,000 investment
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
VARIABLE-V-GLOB
<S> <C> <C>
Inception* 5/12/93 10,000 10,000
9,972 9,941
Sep 9,932 9,884
9,932 10,089
9,892 10,197
Dec 93 9,932 10,170
9,932 10,078
10,012 10,139
Mar 10,052 10,247
10,012 10,213
9,972 10,259
Jun 9,972 10,288
9,972 10,273
9,972 10,386
Sep 9,972 10,469
9,931 10,483
9,972 10,572
Dec 94 10,013 10,729
10,053 10,555
9,809 10,571
Mar 9,767 10,772
9,767 10,964
9,809 11,301
Jun 9,893 11,440
10,059 11,643
10,059 11,745
Sep 10,143 11,872
10,226 11,680
10,352 11,886
Dec 95 10,435 12,018
10,519 12,084
10,602 12,236
Mar 10,645 12,175
10,645 12,208
10,687 12,195
Jun 10,856 12,305
10,900 12,494
11,030 12,557
Sep 11,116 12,588
11,294 12,783
11,427 12,871
Dec 96 11,515 12,873
</TABLE>
The above line graph does not reflect administrative fees or other expenses
charged by American General Life Insurance Company Separate Account D through
which shares of the Fund are purchased.
* Index total returns were calculated from 5/31/93 to 12/31/96. The Lehman
Brothers Mutual Fund Short World Multi-Market Index includes all debt
instruments of the United States and 12 Lehman major countries denominated in
dollars with maturities of one to five years, assumes reinvestment of all
dividends/distributions, and does not reflect any asset-based charges for
investment management or other expenses. Past investment performance does not
guarantee future performance. The returns for the Fund assume reinvestment of
all dividends/distributions by the shareholder.
During the period noted, the Advisor (Sierra Investment Advisors Corporation)
and Administrator (Sierra Fund Administration Corporation) waived a portion of
their management fees and the Advisor absorbed other expenses, and the Custodian
reduced fees by credits. In the absence of the waivers and absorption of other
expenses or fees reduced by credits, yield and total return would have been
lower.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/96 6 Month 1 Year Since Inception
------- ------ ---------------
(May 12, 1993)
<S> <C> <C> <C>
Fund 6.07% 8.61% 3.96%
Lehman Brothers Mutual Fund Short World Multi-Market Index* 4.62% 5.21% 7.30%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
- --------------------------------------------------------------------------------
SHORT TERM GLOBAL GOVERNMENT FUND
- --------------------------------------------------------------------------------
With inflation under control, the period was characterized by an increasing
appetite for risk as investors searched the world for yield and incremental
return. The main beneficiaries of the rally in global bond markets were the
dollar-bloc and the higher yielding markets in Europe, including Italy, Sweden
and Spain. The move toward a single European currency and a single central bank
also contributed to the stronger performance of the peripheral European markets
relative to the "core" countries, a pattern that has remained unchallenged for
the last 18 months. Our positions in the higher yielding European issues of
Italy, Sweden and Spain were major contributors to the Fund's yield and total
return.
Another major theme for 1996 was the strong U.S. Dollar, which posted strong
gains against major reserve currencies including the Japanese Yen and German
Deutsche Mark. The U.S. Dollar was aided by a booming U.S. equity market,
increasing overseas demand for U.S. assets, and interest rate cuts in Europe and
the dollar-bloc. With a hedging strategy of minimal foreign currency exposure,
the Fund was able to participate in the prolonged rally in overseas fixed income
instruments, while being insulated from the depreciation of their respective
currencies.
Were there any shifts in the Fund's portfolio holdings/sectors that had a
significant impact on Fund performance?
During 1996, the dollar-bloc markets of Canada, Australia and New Zealand
provided the Fund with additional yield over equivalent U.S. Treasury
securities. These markets provided attractive currencies and relatively high
real rates of return (yields adjusted for inflation). As a result, we steadily
increased the Fund's weighting in the dollar-bloc throughout the year and
partially hedged some of the underlying currency exposure.
Our European exposure was reduced during the year with the sale of some
positions in Denmark, and more significantly, Sweden, where we found the premium
over the benchmark German issues narrowed significantly. Some of these assets
were shifted to the U.S., and a small percentage allocated to Southeast Asia in
the form of short-term, high yielding instruments. We believe these Southeast
Asian issues offer an appropriate combination of excellent income potential and
manageable volatility. Similar instruments have been employed successfully in
the past, and their opportunistic use remains a part of our global approach to
investing.
What is our intermediate- and long-term outlook for the Fund?
In light of the significant tightening of fiscal policy undertaken by most
countries, European growth should remain sluggish for most of 1997. Inflation
worldwide should remain subdued, although a slight rise may be anticipated.
Global bonds are greatly influenced by the U.S. bond market where the outlook
for growth continues to be somewhat clouded. The situation in Japan, where the
economy has been in recession for much of the 1990s, is similarly uncertain.
With interest rates at historical lows in Germany and Japan, any significant
cuts in interest rates appear unlikely. The direction of interest rates in the
U.S. will depend on how the outlook for growth develops.
Global yields have fallen dramatically in the past 12 months. For example, the
average yield of the Salomon Non-U.S. Government Bond Index fell almost 80 basis
points from 5.39% to 4.61%. The changes have been even more dramatic in the
markets in which we have traditionally invested, including Spain, Italy, and
Sweden. With Spanish 3-year bond yields below U.S. Treasuries and Italian yields
merely 50 basis points above, the Fund will have difficulty finding attractive
yield opportunities in its traditional markets. However, by keeping currency
risk under tight control and taking advantage of the capital gains resulting
from falling yields, the Fund is expected to continue providing reasonable
returns over short-term U.S. Dollar investments.
--------------------------------------------------------
Diversification by Region
--------------------------------------------------------
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Europe 51.33%
America 33.08%
Australia/New Zealand 12.49%
Asia 3.10%
</TABLE>
Allocation percentages are based on total investment value of the portfolio as
of 12/31/96.
11
<PAGE>
- --------------------------------------------------------------------------------
U.S. GOVERNMENT FUND
- --------------------------------------------------------------------------------
Portfolio Manager:
BlackRock Financial
Management, Inc.
[PHOTOGRAPH OF KEITH ANDERSON APPEARS HERE]
[PHOTOGRAPH OF ANDREW J. PHILLIPS APPEARS HERE]
The day-to-day management of the U.S. Government Fund's portfolio is the
responsibility of a committee composed of individuals who are officers of
BlackRock. This committee has managed the Fund since December, 1994, and is
supervised by Keith Anderson and Andrew J. Phillips. Mr. Anderson, a Managing
Director of BlackRock, has been co-head of the Portfolio Management Group since
1988. Mr. Phillips has been a portfolio manager of BlackRock since 1991 and a
Principal of BlackRock since 1996.
Performance Review:
From the Fund's inception (May 6, 1993) through December 31, 1996, the U.S.
Government Fund's average annual total return was 4.87%. For the 12-month period
ended December 31, 1996, the Fund's total return was 3.69%. The Fund's 30-day
SEC yield as of December 31, 1996, was 6.04%. For additional information, see
the accompanying chart.
What were the most significant factors contributing to the Fund's performance
over the 12-month period ended December 31, 1996?
While 1996 featured several major shifts in sentiment and some dramatically
sharp market moves, there was only a modest change in yields for the year. U.S.
Treasury yields rose throughout the first half of the year in response to data
indicating accelerating economic growth, including a sharp rise in commodity
prices. The possibility of a stronger U.S. economy prompted speculation that the
Federal Reserve ("Fed") could initiate a more restrictive monetary policy.
However, in response to softer economic data and continued moderation in the
broad inflation measures during the third and fourth quarters, the Fed left
short-term interest rates unchanged at its most recent policy meetings.
Additionally, a stronger dollar, large foreign buying of U.S. Treasuries, and
balanced budget hopes following the November elections also supported the
market. On December 4, 1996, the U.S. Treasury market was rattled when Federal
Reserve Chairman Alan Greenspan referred to an "irrational exuberance" in the
financial markets, sparking a month-long rise in rates. A resilient housing
market and strong consumer confidence also contributed to the market decline in
late December.
The mortgage-backed securities ("MBS") market significantly outperformed U.S.
Treasuries during 1996 as lower volatility and benign prepayments prompted
strong investor demand. Supply and demand technical conditions remained positive
throughout the period. In addition, strong demand from
Growth of a $10,000 investment
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
VARIABLE-V-USGOVT
<S> <C> <C> <C>
Inception/*/ 5/6/93 10,000 10,000 10,000
10,093 10,222 10,076
Jun 10,153 10,284 10,116
10,283 10,514 10,164
10,294 10,554 10,173
Sep 10,305 10,594 10,202
10,163 10,477 10,182
10,227 10,518 10,265
Dec 93 10,359 10,662 10,366
10,176 10,436 10,294
9,921 10,201 10,026
Mar 9,829 10,121 9,852
9,808 10,108 9,992
9,792 10,084 9,970
Jun 9,928 10,270 10,169
9,928 10,272 10,202
9,824 10,127 10,057
Sep 9,803 10,120 10,051
9,760 10,102 10,020
9,813 10,163 10,100
Dec 94 10,017 10,316 10,352
10,265 10,579 10,575
10,329 10,629 10,642
Mar 10,460 10,779 10,781
10,821 11,119 11,216
10,876 11,182 11,302
Jun 10,876 11,182 11,302
10,853 11,260 11,201
10,976 11,392 11,318
Sep 11,031 11,501 11,418
11,211 11,676 11,519
11,403 11,858 11,650
Dec 95 11,471 12,027 11,796
11,574 12,100 11,885
11,379 11,853 11,786
Mar 11,333 11,755 11,743
11,263 11,679 11,711
11,193 11,660 11,677
Jun 11,320 11,810 11,838
11,298 11,840 11,882
11,298 11,813 11,882
Sep 11,486 12,010 12,080
11,750 12,274 12,317
11,954 12,487 12,493
Dec 96 11,894 12,361 12,428
</TABLE>
The above line graph does not reflect administrative fees or other expenses
charged by American General Life Insurance Company Separate Account D through
which shares of the Fund are purchased.
* Index total returns were calculated from 5/31/93 to 12/31/96. The Lehman
Brothers Mutual Fund U.S. General Government Index represents all U.S.
Government agency and Treasury securities. The Lehman Brothers Mutual Fund U.S.
Mortgage Index includes all agency mortgage-backed securities. The indices
assume reinvestment of all dividends/distributions and do not reflect any asset-
based charges for investment management or other expenses. Past investment
performance does not guarantee future performance. The returns for the Fund
assume reinvestment of all dividends/distributions by the shareholder.
During the period noted, the Advisor (Sierra Investment Advisors Corporation)
and Administrator (Sierra Fund Administration Corporation) waived a portion of
their management fees, the Advisor absorbed other expenses, and the Custodian
reduced fees by credits. In the absence of the waivers and absorption of other
expenses or fees reduced by credits, yield and total return would have been
lower.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/96 6 Month 1 Year Since Inception
------- ------ ---------------
(May 6, 1993)
<S> <C> <C> <C>
Fund 5.06% 3.69% 4.87%
Lehman Brothers Mutual Fund U.S. General Government Index* 4.65% 2.77% 6.09%
Lehman Brothers Mutual Fund U.S. Mortgage Index* 4.98% 5.35% 6.25%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
- --------------------------------------------------------------------------------
U.S. GOVERNMENT FUND
- --------------------------------------------------------------------------------
the mortgage agencies (Fannie Mae and Freddie Mac) in the third and fourth
quarters helped support MBS prices even as mortgage rates fell and refinancing
activity increased. For the year, the MBS market as measured by the Lehman
Brothers Mortgage Index posted a 5.35% total return versus the 3.61% return of
the Lehman Brothers Aggregate Index.
What market conditions affected the Fund's performance during the period, and
what investment techniques were used to address those conditions?
The Fund's performance was primarily affected by two major factors: MBS exposure
and duration positioning. Through the first six months of 1996, the Fund
maintained approximately 25% of its portfolio assets in mortgage pass-through
securities bonds backed by mortgages and owned by investors who receive income
from the interest and principal on the underlying mortgages. Despite relatively
strong performance during the third quarter, we adopted a less favorable view of
that market due to tight yield spreads compared to U.S. Treasuries and concern
over accelerating prepayments, or early payment of mortgages by homeowners, if
interest rates declined significantly. However, the Fund's allocation to this
sector was significantly increased during the fourth quarter, ending the year at
approximately 50% of portfolio assets.
Additionally, the Fund's duration, or price sensitivity to interest rate
movements, was adjusted to reflect our market outlook. After maintaining a
mostly neutral stance versus the duration benchmark, the Merrill Lynch 5-7 Year
Treasury Index, for much of the first half of 1996, the Fund adopted a more
aggressive stance later in the year, due to our positive views on domestic
interest rates. The Fund's duration was significantly shortened in the weeks
prior to Federal Reserve Chairman Alan Greenspan's December 4, 1996 speech, and
subsequently lengthened after the pronounced bond market decline. At the end of
the fourth quarter, the Fund's duration is positioned in excess of its
benchmark, as we anticipate a favorable environment for bonds in 1997.
Were there any shifts in the Fund's portfolio holdings/sectors that had a
significant impact on Fund performance?
As stated above, the Fund significantly altered its mortgage pass-through
exposure throughout the period, nearly doubling its holdings from June 30, 1996,
through year-end. The Fund maintained its focus on seasoned mortgages, which
have weathered several refinancing cycles and are expected to provide more
stable prepayment characteristics than newly issued mortgages. In addition, the
Fund significantly reduced its adjustable-rate mortgage (ARM) and collateralized
mortgage obligation (CMO) holdings, as the Fund took advantage of the strong
price performance of short maturity mortgages.
What is our intermediate- and long-term outlook for the Fund?
Although the bond market closed 1996 on a weak note and is susceptible to
further near-term weakness should economic activity increase, the Fund expects
to maintain its modestly aggressive duration positioning. Low inflation,
moderate economic growth, and continued strong international participation in
the U.S. fixed income market are anticipated to provide strong support for
domestic bonds in 1997. With respect to individual sectors, we expect to
maintain the Fund's emphasis on seasoned mortgage pass-throughs, while seeking
to find other value opportunities within the mortgage market.
---------------------------------------------------
Portfolio Composition
---------------------------------------------------
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
GNMA 25.53%
FHLMC 24.10%
U.S. Treasury Obligations 22.22%
CMO 17.82%
ARM 3.95%
FNMA 2.85%
SBA 2.26%
Residential Funding Mortgage Security 1.27%
</TABLE>
Allocation percentages are based on total investment value of the portfolio as
of 12/31/96.
13
<PAGE>
- --------------------------------------------------------------------------------
CORPORATE INCOME FUND
- --------------------------------------------------------------------------------
Portfolio Manager:
TCW Funds Management, Inc.
[PHOTOGRAPH OF JAMES M. GOLDBERG APPEARS HERE]
Mr. Goldberg, a Chartered Financial Analyst and Chartered Investment Counselor,
has been Managing Director of TCW Management since 1989 and Managing Director of
the Trust Company of the West, the parent corporation of TCW Management, since
1984. He has had primary portfolio management responsibility for the Corporate
Income Fund since its inception.
Performance Review:
From the Fund's inception (May 7, 1993) through December 31, 1996, the Corporate
Income Fund's average annual total return was 5.58%. For the 12-month period
ended December 31, 1996, the Fund advanced 0.43% on a total return basis. The
Corporate Income Fund's 30-day SEC yield as of December 31, 1996, was 6.65%. For
additional information, see the accompanying chart.
What were the most significant factors contributing to the Fund's performance
over the 12-month period ended December 31, 1996?
The two factors that had the most impact on Fund performance over the past year
ended December 31, 1996 were: (1) the Fund's longer duration relative to its
benchmark index, and (2) the improving credit quality of corporate bond issues
held in the Fund.
The Fund returned 0.43% compared to a return of 3.28% for the Lehman Brothers
Mutual Fund Corporate Debt BBB-Rated Index. Results for the fiscal year are
primarily attributable to the portfolio's longer maturity during a period of
rising interest rates. However, the credit fundamentals of corporate bonds held
in the Fund strengthened during the period due to the efficiency and
competitiveness of U.S. manufacturers and the continued resiliency of the
domestic economy.
What market conditions affected the Fund's performance during the period, and
what investment techniques were used to address those conditions?
A period of rising interest rates coupled with fears of accelerating inflation
in the domestic economy early in the year affected the Fund's performance. Due
to the long-term nature of the Fund's investment objectives, we made only modest
changes to average maturity and duration during this period. The average
maturity of the Fund was shortened during the past twelve months, declining from
19.6 years at December 31, 1995, to 17.8 years at December 31, 1996. The
effective duration of the Fund at December 31, 1996, was 6.9 years, down from
7.3 years at December 31, 1995. As a defensive measure, continuing efforts were
directed to upgrading the credit quality of the corporate bonds held in the
Fund. The Fund continues to be fully invested in quality securities that we
believe can achieve a high level of current income consistent with preservation
of capital.
<TABLE>
<CAPTION>
Growth of a $10,000 investment
VARIABLE-V-CORP
<S> <C> <C>
Inception/*/ 5/7/93 10,000 10,000
10,224 10,243
Sep 10,284 10,317
10,595 10,574
10,590 10,599
Dec 93 10,661 10,652
10,489 10,521
10,562 10,583
Mar 10,766 10,788
10,429 10,534
10,010 10,210
Jun 9,844 10,112
9,782 10,075
9,735 10,050
Sep 9,999 10,304
9,957 10,315
9,735 10,123
Dec 94 9,693 10,100
9,693 10,084
9,703 10,168
Mar 9,917 10,383
10,207 10,682
10,271 10,770
June 10,414 10,952
11,097 11,468
11,141 11,571
Sep 11,006 11,520
11,275 11,706
11,432 11,844
Dec 95 11,671 11,998
11,887 12,227
12,138 12,429
Mar 12,127 12,509
11,687 12,212
11,559 12,108
Jun 11,559 12,162
11,583 12,185
11,487 12,147
Sep 11,739 12,405
12,092 12,743
12,324 13,016
Dec 96 12,190 12,836
</TABLE>
The above line graph does not reflect administrative fees or other expenses
charged by American General Life Insurance Company Separate Account D through
which shares of the Fund are purchased.
* Index total returns were calculated from 5/31/93 to 12/31/96. The Lehman
Brothers Mutual Fund Corporate Debt BBB-Rated Index represents all investment-
grade corporate debt securities, assumes reinvestment of all
dividends/distributions, and does not reflect any asset-based charges for
investment management or other expenses. Past investment performance does not
guarantee future performance. The returns for the Fund assume reinvestment of
all dividends/distributions by the shareholder.
During the period noted, the Advisor (Sierra Investment Advisors Corporation)
and Administrator (Sierra Fund Administration Corporation) waived a portion of
their management fees and the Advisor absorbed other expenses, and the Custodian
reduced fees by credits. In the absence of the waivers and absorption of other
expenses or fees reduced by credits, yield and total return would have been
lower.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/96 6 Month 1 Year Since Inception
------- ------ ---------------
(May 7, 1993)
<S> <C> <C> <C>
Fund 5.46% 0.43% 5.58%
Lehman Brothers Mutual Fund Corporate Debt BBB-Rated Index* 5.55% 3.28% 7.22%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
- --------------------------------------------------------------------------------
CORPORATE INCOME FUND
- --------------------------------------------------------------------------------
A cornerstone of the Fund's investment strategy remains diversification. At
December 31, 1996, the Fund held the securities of approximately 55 different
issuers with an average credit quality rating of A2 by Moody's Investors Service
and A- by Standard & Poor's. We focus our purchase decisions on companies which
are experiencing improving fundamentals and favorable positions within the
business cycle of their industries.
Were there any shifts in the Fund's portfolio holdings/sectors that had a
significant impact on Fund performance?
The Fund's exposure to manufacturing issues remained essentially unchanged
during the year, reflecting the purchase of Lockheed Martin Corporation as well
as sales of Laidlaw Inc. and Northrop Grumman Corporation. The Fund's allocation
to financial issues decreased slightly during the period, with the most
significant change being the sale of Mellon Bank Corporation and the purchase of
Dean Witter Discover & Company. The Fund's weighting in utility issues also
declined during the period.
In the services sector, the Fund purchased News America Holdings and sold
Dayton-Hudson Corporation due to deteriorating credit fundamentals. The moves
led to a decrease in the Fund's percentage of holdings in that sector. The
foreign component of the portfolio, which is comprised of U.S. Dollar-
denominated issues, increased due to our purchase of Northern Telecom Capital, a
Canadian provider of cellular telephone service. Holdings of U.S. Treasury and
U.S. Government Agency issues increased slightly, while cash declined modestly
during the period.
What is our intermediate- and long-term outlook for the Fund?
Our outlook for the Fund is positive as we see no reason for the Federal Reserve
to raise interest rates in the foreseeable future. In fact, our portfolio
managers believe at some point a modest reduction in rates is possible for 1997.
We also expect corporate profitability to be reasonably maintained in 1997.
At year-end 1996, the U.S. economy achieved a state of equilibrium which few
market participants thought possible. Our present forecast calls for a
continuation of this trend with real GDP growth for 1997 estimated to average
between 2.0-2.5%, and inflation, as measured by the Consumer Price Index, at
approximately 3.0%. With a positive environment for both interest rates,
inflation, and economic growth, we expect the Fund to continue to perform well
in terms of both yield and price appreciation.
-----------------------------------------------
Broad Sector Diversification
-----------------------------------------------
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Manufacturing 15.36%
Financial 14.65%
U.S. Government Mortgage Backed-Securities 10.08%
Transportation 8.63%
Industrial 8.03%
Forest Products 7.64%
Yankee 4.67%
Commercial Paper 4.84%
Energy 4.53%
Media 4.47%
Electric 4.22%
Regional Banks 3.25%
Gas 3.24%
Retail 2.71%
U.S. Treasury Bond 2.32%
Investment Company Security 1.36%
</TABLE>
Allocation percentages are based on total investment
value of the portfolio as of 12/31/96.
15
<PAGE>
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
Portfolio Manager:
J.P. Morgan Investment
Management Inc.
[PHOTOGRAPH OF HENRY D. CAVANNA APPEARS HERE]
[PHOTOGRAPH OF WILLIAM M. RIEGEL APPEARS HERE]
Mr. Cavanna is a Senior Portfolio Manager in the J.P. Morgan Equity and Balanced
Accounts Group, and has been with J.P. Morgan since 1971.
Mr. Riegel is a Senior Equity Portfolio Manager in the Equity and Balanced
Accounts Group, and has been with J.P. Morgan since 1979. Mr. Cavanna and Mr.
Riegel have had primary portfolio management responsibility for the Growth and
Income Fund since January 1994.
Performance Review:
From the Fund's inception (January 12, 1994) through December 31, 1996, the
Growth and Income Fund advanced 16.80% on an average annual total return basis.
For the 12-month period ended December 31, 1996, the Fund's total return was
21.81%. For additional information, see the accompanying chart.
What were the most significant factors contributing to the Fund's performance
over the 12-month period ended December 31, 1996?
For the first quarter 1996, stock picking provided the backdrop for positive
performance as we outperformed the S&P 500 in 14 of 17 economic sectors.
Overall, the Fund slightly outperformed both the S&P 500 and the Lipper Growth &
Income Fund Average during this period. The most significant factors
contributing to the Fund's performance were stock selection and solid corporate
earnings growth. Sectors that were strongest during the quarter were also among
the biggest underperforming sectors in 1995.
In the second and third quarter 1996, stock prices reached new highs as market
participants rotated into defensive growth stocks. This was due to concern about
a potential Federal Reserve tightening as a result of positive economic data.
This flight to quality was also partly driven by a concern over the
sustainability of corporate profits. As a result, investors concentrated on the
stocks with the highest earnings stability which were the largest 50 stocks in
the S&P 500. Our approach to investing, which avoids dependence on the strength
of a few stocks or industry sectors, can underperform the broader market when
buying is heavily focused on certain subsets of the market. Therefore, the Fund
underperformed the S&P 500 during this portion of 1996.
In the fourth quarter, the Fund outperformed the S&P 500 as well as the Lipper
Growth and Income Average. The biggest contributions to performance came from
stock selection in the energy, basic industry, and transportation sectors while
the technology, consumer stable, and services sectors detracted from
performance. Market leadership was confined and overvalued stocks were
Growth of a $10,000 investment
[LINE GRAPH APPEARS HERE]
VARIABLE-V-G&I
<TABLE>
<S> <C> <C>
Inception* 1/12/94 10,000 10,000
9,970 9,729
Mar 9,670 9,305
9,860 9,424
9,900 9,578
Jun 9,660 9,344
9,950 9,650
10,250 10,045
Sep 10,040 9,799
10,140 10,019
9,670 9,655
Dec 94 9,830 9,798
10,040 10,052
10,440 10,443
Mar 10,820 10,751
11,030 11,068
11,440 11,511
Jun 11,646 11,778
12,072 12,052
12,123 12,082
Sep 12,437 12,592
12,123 12,546
12,792 13,097
Dec 95 13,016 13,477
13,442 13,935
13,726 14,065
Mar 13,949 14,200
14,253 14,408
14,415 14,780
Jun 14,212 14,836
13,469 14,181
13,925 14,480
Sep 14,557 15,295
14,734 15,717
15,944 16,904
Dec 96 15,855 16,568
</TABLE>
The above line graph does not reflect administrative fees or other expenses
charged by American General Life Insurance Company Separate Account D through
which shares of the Fund are purchased.
* Index total returns were calculated from 1/31/94 to 12/31/96. The Standard &
Poor's Composite Index of 500 Stocks (S&P 500) represents an unmanaged weighted
index of 500 industrial, transportation, utility and financial companies widely
regarded by investors as representative of the stock market, assumes
reinvestment of all dividends/ distributions, and does not reflect any asset-
based charges for investment management or other expenses. Past investment
performance does not guarantee future performance. The returns for the Fund
assume reinvestment of all dividends/distributions by the shareholder.
During the period noted, the Advisor (Sierra Investment Advisors Corporation)
and Administrator (Sierra Fund Administration Corporation) waived a portion of
their management fees, and the Custodian reduced fees by credits. In the absence
of the waivers or fees reduced by credits, yield and total return would have
been lower.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/96 6 Month 1 Year Since Inception
------- ------ ---------------
(January 12, 1994)
<S> <C> <C> <C>
Fund 11.55% 21.81% 16.80%
Standard & Poor's Composite Index of 500 Stocks* 11.68% 22.95% 18.90%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
recognized, driving previous market trailers to outperform. Our investment
valuation process had the portfolio positioned well as breadth returned to the
market.
What market conditions affected the Fund's performance during the period, and
what investment techniques were used to address those conditions?
During the first half of 1996, a calming of inflation and interest rate fears
drove stock prices to new highs with a S&P 500 record high of 661.5 on February
12. Volatility in the stock market also increased dramatically during this
period. In the first half of 1996, the Fund's shareholders benefited overall
from the continued gains in the stock market. The rally was fueled by a
combination of declining interest rates, expanding corporate earnings and
profitability, continuing prospects for benign inflation, and increasing flows
of money into domestic stock funds.
The stock market continued its record setting pace in the second half of 1996,
despite a veiled warning from Alan Greenspan, Chairman of the Federal Reserve.
Positive market influences included: weaker economic data which alleviated
concerns about inflationary pressures, profit announcements which exceeded
expectations, and the election results. The S&P 500 climbed 7.6% in November,
its strongest one-month advance in five years, and 23.0% for the 12-month
period. The larger-capitalization and defensive growth stocks that have led the
market the past two years continued their outperformance. As evidence of a
slowing economy emerged, the strong market performance attracted further
interest in these "momentum" stocks. Searching for turnaround candidates was
rewarded in only a few sectors with traditional value factors such as price-to-
book ratios providing less overall benefit. This is evidenced by the fact that
growth stocks outperformed value stocks by 400 basis points over the past year.
Were there any shifts in the Fund's portfolio holdings/sectors that had a
significant impact on Fund performance?
Over the past 12 months, our investment strategy involved maintaining our sector
neutral approach coupled with a continued focus on individual stock selection.
In addition, we continue to emphasize the importance of holding a highly
diversified selection of value stocks.
During 1996, the biggest contributions to performance came from stock selection
in the finance and energy sectors. Individual holdings such as NationsBank
Corporation and Cooper Cameron Corporation positively impacted performance
during the year. Stock picking in computer software & services and healthcare
lagged for the year. Humana Inc. and Learning Company, Inc. are two examples of
stocks from those sectors that negatively impacted performance.
What is our intermediate- and long-term outlook for the Fund?
Our approach to investing focuses on finding attractive stocks, maintaining a
low median market capitalization, and avoiding the risky practice of market
timing. Therefore, the portfolio continues to be fully invested in a diversified
collection of stocks. This diversified approach and aversion to overvalued
stocks should be beneficial as the large blue-chip stocks, which have scored
impressive gains as of late, turn out of favor as breadth continues to return to
the market.
----------------------------
Sector Diversification
----------------------------
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Financial Services 12.59%
Health Care 11.37%
Energy 10.54%
Materials & Processing 9.45%
Producer Durables 8.17%
Technology 8.09%
Consumer Discretionary 7.68%
Consumer Staples 7.45%
Telecommunications 6.41%
Autos & Transportation 5.41%
Retail 5.18%
Other 2.80%
Utilities 2.25%
Computer Software & Services 1.98%
U.S. Treasury Bills 0.63%
</TABLE>
Allocation percentages are based on total investment value of the portfolio as
of 12/31/96.
17
<PAGE>
- --------------------------------------------------------------------------------
GROWTH FUND
- --------------------------------------------------------------------------------
Portfolio Manager:
Janus Capital Corporation
[PHOTOGRAPH OF WARREN B. LAMMERT APPEARS HERE]
Mr. Lammert is a graduate of Yale University and the London School of Economics.
He first joined Janus in January 1987 and has been portfolio manager for the
Growth Fund since its inception. He is a Chartered Financial Analyst.
Performance Review:
From the Fund's inception (May 7, 1993) through December 31, 1996, the Growth
Fund advanced 18.07% on an average annual total return basis, outperforming the
S&P 500* benchmark's 17.88% return for the same period. For the 12-month period
ended December 31, 1996, the Fund's total return was 16.15%. For additional
information, see the accompanying chart.
What were the most significant factors contributing to the Fund's performance
over the 12-month period ended December 31, 1996?
Domestic equity markets experienced another solid year, as the S&P 500 Index
posted gains of 22.95%. In 1996, The Sierra Variable Trust Growth Fund gained
16.15%. Despite impressive gains for the year, stocks experienced renewed
volatility, as the markets experienced a drop of roughly 10% in July -- a
significant decline by the standards of the 1990s. Stocks would recover and
rally in the second half of the year, led by larger, more well-established
companies. The market's narrow focus in the fourth quarter accounted for much of
the difference in performance for the portfolio. Almost across the board, the
fourth quarter rally was a flight to size. Not only did large stocks outperform
smaller stocks by a wide margin, but the largest stocks in each capitalization
category -- small, mid, and large -- performed better than their smaller
siblings. According to a study published in the December 30, 1996, issue of
Barron's, the 100 largest stocks (as measured by market capitalization) in the
S&P 500 Index gained a healthy 30.9% on the year -- while the bottom 20% were up
just 9%. The largest 30 stocks in the S&P 500 did better still, up 35.5%.
Results in the small-cap arena were even more dramatic. The top 20% of stocks in
the S&P 600 SmallCap Index gained 46% on the year, but the bottom 20% were
actually down 4.8%. This large-cap market leadership occurred during the second
half of the year, after the July decline, when large stocks recovered quickly
and moved higher, while smaller stocks, which had been severely battered in the
summer sell-off, continued to languish.
What market conditions affected the Fund's performance during the period, and
what investment techniques were used to address those conditions?
While there is no definitive explanation for the market's current infatuation,
large stocks often come into favor when investors are nervous about earnings and
market valuations. Corporate earnings growth slowed in 1996 and appears to be
slowing further in 1997, at least com-
Growth of a $ 10,000 investment
[LINE GRAPH APPEARS HERE]
VARIABLE-V-GROWTH
<TABLE>
<S> <C> <C>
Inception * 5/7/93 10,000 10,000
10,410 10,033
Sep 10,810 10,290
10,980 10,498
10,900 10,400
Dec 93 11,190 l0,528
11,730 10,886
11,680 10,591
Mar 11,390 10,129
11,320 10,259
10,970 10,427
Jun 10,560 10,171
10,910 10,505
11,541 10,935
Sep 11,571 10,667
11,831 10,907
11,451 10,510
Dec 94 11,491 10,665
11,611 10,942
11,971 11,368
Mar 12,232 11,704
12,662 12,048
13,162 12,530
Jun 13,934 12,821
14,838 13,119
14,928 13,152
Sep 15,420 13,707
14,988 13,657
15,721 14,257
Dec 95 15,781 14,665
16,083 15,163
16,835 15,304
Mar 16,956 15,451
17,809 15,678
18,160 16,083
Jun 17,392 16,144
16,120 15,430
17,208 15,756
Sep 18,387 16,643
17,769 17,102
18,331 18,394
Dec 96 18,330 18,032
</TABLE>
The above line graph does not reflect administrative fees or other expenses
charged by American General Life Insurance Company Separate Account D through
which shares of the Fund are purchased.
* Index total returns were calculated from 5/31/93 to 12/31/96. The Standard &
Poor's Composite Index of 500 Stocks (S&P 500) represents an unmanaged weighted
index of 500 industrial, transportation, utility and financial companies widely
regarded by investors as representative of the stock market, assumes
reinvestment of all dividends/distributions, and does not reflect any
asset-based charges for investment management or other expenses. Past investment
performance does not guarantee future performance. The returns for the Fund
assume reinvestment of all dividends/distributions by the shareholder.
During the period noted, the Advisor (Sierra Investment Advisors Corporation)
and Administrator (Sierra Fund Administration Corporation) waived a portion of
their management fees and the Advisor absorbed other expenses, and the Custodian
reduced fees by credits. In the absence of the waivers and absorption of other
expenses or fees reduced by credits, yield and total return would have been
lower.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/96
6 Month 1 Year Since Inception
------- ------ ---------------
(May 7, 1993)
<S> <C> <C> <C>
Fund 5.40% 16.15% 18.07%
Standard & Poor's Composite Index of 500
Stocks* 11.68% 22.95% 17.88%
- --------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
- --------------------------------------------------------------------------------
GROWTH FUND
- --------------------------------------------------------------------------------
pared to the record gains of 1992-1995. Meanwhile, the broad market proceeded
higher, supported by nearly ideal economic conditions: moderate growth, mild
inflation, and low interest rates. The combination of uncertain earnings growth
and dramatic market advances put the squeeze on stock valuations, and sent
investors scurrying for a safe haven in the fourth quarter. The bad news in this
scenario is that "safe" stocks were bid up to "unsafe" levels. The good news is
that many of the stocks the current rally ignored have fallen to attractive
valuations. As a result, small capitalization stocks now have significantly more
potential for appreciation, and significantly less potential for depreciation,
than the high-flying behemoths.
Were there any shifts in the Fund's portfolio holdings/ sectors that had a
significant impact on Fund performance?
At Janus, portfolios are constructed on an individual stock-by-stock basis. Each
issue is selected according to its own merits as determined by fundamental,
bottom-up research. As such, assets are not allocated to particular sectors, but
they are accumulated as a result of the portfolio's overall stock selection.
Additionally, certain themes may develop as our research locates a number of
companies capitalizing on a high growth area within the same or even differing
fields.
That said, recent market conditions were tough on those of us who choose stocks
based on their individual merits. Although our large stocks performed reasonably
well, small- and mid-cap holdings inhibited portfolio performance, and many
business services or outsourcing stocks also came under profit taking after
posting substantial gains earlier. Examples of these companies are: National
Processing, Inc., First USA Paymentech, Inc., which processes credit card
transactions, and TeleTech Holdings Inc., a provider of customer phone
representatives. TeleTech retrenched significantly during the fourth quarter for
no fundamental reason, so we are holding the position. However, we took losses
in stocks where the fundamentals had deteriorated. These included Itron Inc.,
which produces equipment for automated utility meter readings and Black & Decker
Corporation, the power tools manufacturer. We also reduced holdings in drug
manufacturer Centocor, Inc.
JDA Software Group Inc., which produces integrated business software
applications, was sold at a profit after reaching full valuation. Other
positions that did well recently, but still have further to go, include the
insurer UNUM Corporation, MFS Communication Company, Inc., which was just
acquired by WorldCom, Inc. (another portfolio holding), Cincinnati Bell, Inc.,
Pittway Corporation, and Warner-Lambert Company.
Several prominent additions included Parametric Technology Company, which
develops design and manufacturing software, Lamar Advertising Company, a
billboard advertising company, and Monsanto Company, which is rapidly changing
itself from a chemical company to a global manufacturer of agricultural and
pharmaceutical products.
What is our intermediate- and long-term outlook for the Fund?
As we enter 1997, our approach to portfolio management remains consistent. We
rely on intensive, fundamental research to locate individual companies that have
exceptional fundamentals. Additionally, we intend to execute our strategy
opportunistically, because we expect stock prices to be volatile this year. By
being more selective, we hope to enhance portfolio returns by using market
fluctuations to obtain better prices on both the buy and sell side.
----------------------------
Sector Diversification
----------------------------
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Technology 18.84%
Telecommunications 16.69%
Financial Services 13.82%
Computer Software & Services 13.06%
Consumer Discretionay 12.03%
Health Care 11.76%
Commercial Paper 4.76%
Materials & Processing 3.77%
Retail 2.08%
Energy 1.26%
Autos & Transportation 0.78%
Other 0.60%
Restaurants 0.28%
Consumer Staples 0.27%
</TABLE>
Allocation percentages are based on total investment value of the portfolio as
of 12/31/96.
19
<PAGE>
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Portfolio Manager:
Janus Capital Corporation
[PHOTOGRAPH OF JAMES P. GOFF APPEARS HERE]
James P. Goff
Mr. Goff has a degree from Yale University, and is a Chartered Financial
Analyst. He has been with Janus since 1988, and has had primary portfolio
management responsibility for the Emerging Growth Fund since its inception.
Performance Review:
From the Fund's inception (January 12, 1994) through December 31, 1996, the
Emerging Growth Fund advanced 15.09% on an average annual total return basis.
For the 12-month period ended December 31, 1996, the Fund's total return was
10.04%. For additional information, see the accompanying chart.
What were the most significant factors contributing to the Fund's performance
over the 12-month period ended December 31, 1996?
The markets produced substantial gains in 1996, despite a considerable amount of
volatility. While small capitalization issues made dramatic gains early in the
year, they eventually encountered tremendous volatility. In some market areas,
such as technology and other high P/E stocks, the action was brutal in the third
quarter, marked in many cases by indiscriminate selling. However, equities
proved resilient, and stocks produced very respectable gains in the last half of
the year, as a number of indices ended the year at or near record levels. For
the year, the S&P 500 Index gained 22.95%, and the Standard & Poor's MidCap 400
Index was up 19.20%. During this period, the Sierra Emerging Growth Fund was up
10.04%, underperforming the S&P 400 Index.
According to a study published in the December 30, 1996, issue of Barron's, the
100 largest stocks (measured by total market value) in the S&P 500 Index gained
a healthy 30.9% on the year, while the bottom 20% were up just 9%. The largest
30 stocks in the S&P 500 did better still, up 35.5%. Results in the small-cap
sector were even more dramatic. The top 20% of stocks in the S&P 600 SmallCap
Index gained 46% on the year, but the bottom 20% (again, as measured by market
value) were actually down 4.8%. In short, performance within the indices was
highly segmented, with the most liquid issues far outpacing everything else.
Much of this large-cap market leadership occurred during the second half of the
year, after the July decline, when large stocks rebounded quickly and smaller
stocks, which had been severely battered in the summer sell-off, recovered only
moderately.
Typically, larger, more well-established companies tend to draw a premium when
investors become nervous about earnings and/or market valuations. Earnings
slowed in 1996, and appear to be slowing further in 1997 (at least compared to
the record gains of 1992-1995). Meanwhile, stock prices have surged, supported
by excellent economic conditions: moderate growth, mild inflation, and low
interest rates. During the fourth quarter, the combination of slower earnings
growth and dramatic market advances put a squeeze on valuations, and sent
investors scurrying for a safe haven. Unfortunately, "safe" stocks were bid up
to "unsafe" levels. On the plus side, however, many stocks that the rally
ignored fell to attractive valuations, so many smaller companies now have
significantly more potential for apprecia-
* Index total returns were calculated from 1/31/94 to 12/31/96. The Standard &
Poor's Composite Index of 500 Stocks (S&P 500) represents an unmanaged weighted
index of 500 industrial, transportation, utility and financial companies widely
regarded by investors as representative of the stock market, assumes
reinvestment of all dividends/distributions, and does not reflect any asset-
based charges for investment management or other expenses. Past investment
performance does not guarantee future performance. The returns for the Fund
assume reinvestment of all dividends/distributions by the shareholder.
During the period noted, the Advisor (Sierra Investment Advisors Corporation)
and Administrator (Sierra Fund Administration Corporation) waived a portion of
their management fees, and the Custodian reduced fees by credits. In the absence
of the waivers or fees reduced by credits, yield and total return would have
been lower.
Growth of a $10,000 investment
[LINE GRAPH APPEARS HERE]
VARIABLE-V-EMERG
<TABLE>
<CAPTION>
<S> <C> <C>
Inception* 1/12/94 10,000 10,000
10,160 9,729
Mar 9,950 9,305
9,720 9,424
9,800 9,578
Jun 9,530 9,344
9,880 9,650
10,350 10,045
Sep 10,520 9,799
11,010 10,019
10,240 9,655
Dec 94 10,530 9,798
10,530 10,052
10,830 10,443
Mar 10,790 10,751
10,630 11,068
10,630 11,511
Jun 11,454 11,778
12,267 12,052
12,659 12,082
Sep 13,261 12,592
12,789 12,546
13,010 13,097
Dec 95 13,793 13,477
13,592 13,935
14,375 14,065
Mar 15,319 14,200
15,771 14,408
16,423 14,780
Jun 15,807 14,836
13,835 14,181
14,950 14,480
Sep 15,539 15,295
15,095 15,717
15,240 16,904
Dec 96 15,177 16,568
</TABLE>
The above line graph does not reflect administrative fees or other expenses
charged by American General Life Insurance Company Separate Account D through
which shares of the Fund are purchased.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/96 6 Month 1 Year Since Inception
-------- ------- ----------------
(January 12, 1994)
<S> <C> <C> <C>
Fund -4.11% 10.04% 15.09%
Standard & Poor's Composite Index of 500 Stocks* 11.68% 22.95% 18.90%
- ----------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
EMERGING GROWTH FUND
tion, and significantly less potential for depreciation, than their larger,
high-flying siblings.
What market conditions affected the Fund's performance during the period, and
what investment techniques were used to address those conditions?
The portfolio lagged the index in part due to several individual
disappointments, especially in the wireless communications area, but also
because broad market advances had an unusually narrow focus the last three
months. Almost across the board, the fourth-quarter rally was a flight to
liquidity -- that is, investors put money almost exclusively into companies with
larger market capitalizations. Not only did large stocks continue to outperform
smaller stocks, but the largest stocks in each capitalization category --
small-, mid-, and large-cap -- performed better than their smaller siblings.
We cannot predict when market conditions will change. But we do know the market
will eventually abandon its fixation on size -- probably sooner rather than
later -- and once again start rewarding companies for exceptional individual
fundamentals. Historically, the record shows the fourth quarter was an anomaly
in the equities markets.
Were there any shifts in the Fund's portfolio holdings/sectors that had a
significant impact on Fund performance?
A number of our holdings either came under profit-taking, or were out of sync
with market psychology, even though their long-term fundamentals have not
changed or have even improved. Many of our wireless communications holdings
declined during the fourth quarter, which include Paging Network Inc., Millicom
International Cellular SA, PriCellular Corporation, and Omnipoint Corporation.
Paging Network's new Voice Now pager product was delayed; Millicom had some
unforeseen development expenses; and the infrastructure of Omnipoint's New York
system was not completed as soon as had been expected. Insignia Financial Group
Inc., the largest administrator of real estate partnerships in the U.S.,
suffered a setback when a major acquisition was abandoned, and Viking Office
Products, Inc., where the fundamentals are very much intact, declined on
concerns about the pace of domestic revenue growth. HFS, Inc. has been off from
its recent peaks, but continues to make sound strategic acquisitions, although
the market has been concerned about the general pace of these acquisitions. We
believe that HFS has a highly competent management team and should be able to
successfully integrate these recent acquisitions, producing continued synergies
while generating considerable revenue growth. Fastenal Company is a compelling
story that unfortunately came under price pressure early in the fourth quarter
after missing earnings estimates. Fortunately, the stock has come back off its
lows and remains a top position. The company has strong earnings prospects as it
continues to expand while leveraging its existing distribution network with new
products. Fastenal is currently in a transition period as it prepares for these
new product lines. New products require additional personnel, and these costs
have negatively impacted current earnings. However, this should only have a
negligible effect as these product lines should strengthen earnings in a
relatively short period of time. Though the setbacks were real, they should
prove temporary because the long-term outlook for these companies continues to
be very positive.
Among the portfolio's more recent gainers were Trigen Energy Corporation, an
independent supplier of utilities to large commercial buildings and
institutions; Barnett Inc., a distributor of plumbing, hardware, and electrical
supplies, whose rate of earnings growth continues to improve; and longtime
holding Wisconsin Central Transportation Corporation.
What is our intermediate- and long-term outlook for the Fund?
We remain committed to our investment philosophy: intensive, fundamental
analysis. We apply a number of screens to discover small- to medium-sized
companies that meet our investment criteria. Primarily, we look for companies
with rapid growth prospects and currently, we are looking at a minimum rate of
20%. At the same time, we want a low-risk company that is not only insulated
from the general economy, but which also has a dominant market position.
Finally, we look for stocks that are under-followed. Although this may seem like
a difficult combination to find, we feel that the Fund's current holdings
reflect this investment philosophy.
Sector Diversification
[PIE CHART APPEARS HERE]
Telecommunications 10.21% Other 3.11%
Commercial Paper 6.79% Autos & Transportation 5.47%
Retail 19.48% Health Care 5.08%
Producer Durables 2.92% Warrant 0.56%
Restaurants 10.51% Consumer Staples 2.75%
Computer Software & Services 0.29% Financial Services 7.37%
Technology 3.41% Consumer Discretionary 14.67%
Materials & Processing 7.38%
Allocation percentages are based on total investment value of the portfolio as
of 12/31/96.
21
<PAGE>
INTERNATIONAL GROWTH FUND
Portfolio Manager:
Warburg, Pincus Counsellors, Inc.
The following people have been primarily responsible for managing the
International Growth Fund since April 8, 1996. Richard H. King, Senior Managing
Director, joined the firm to found the department and has 28 years of investment
experience. Prior to joining Warburg, Mr. King was chief investment officer and
a director of Fiduciary Trust Company International S.A. in London from 1984 to
1988. P. Nicholas Edwards, Senior Vice President, has 12 years of investment
experience. Prior to joining Warburg, Mr. Edwards was a director and senior
analyst at Jardine Fleming Investment Advisers in Tokyo from 1991 to 1995.
Harold W. Ehrlich, CFA, CIC, Senior Vice President, has 13 years of investment
experience. Prior to joining Warburg, Mr. Ehrlich was a senior vice president,
portfolio manager and analyst at Templeton Investment Counsel Inc. Nicholas P.W.
Horsley, Senior Vice President, has 15 years of investment experience. Prior to
joining Warburg, Mr. Horsley was a director, portfolio manager and analyst at
Barclays de Zoete Wedd in New York. Vincent J. McBride, Vice President, has 9
years of investment experience. Prior to joining Warburg, Mr. McBride was an
inter-national equity analyst at Smith Barney Inc. from 1993 to 1994. He was an
international equity analyst at General Electric Investments from 1992 to 1993
and a portfolio manager/analyst at United Jersey Bank from 1989 to 1992.
Performance Review:
From the Fund's inception (May 7, 1993) through December 31, 1996, the
International Growth Fund's average annual total return was 8.34%. For the 12-
month period ended December 31, 1996, the Fund's total return was 9.04%. For
additional information, see the accompanying chart.
What were the most significant factors contributing to the Fund's performance
over the 12-month period ended December 31, 1996?
As of April 8, 1996, Warburg, Pincus assumed responsibility as sub-advisor for
the International Growth Fund. Since then, many different factors contributed to
the Fund's performance. The second quarter was dedicated to realigning the
portfolio. The portfolio managers scaled the holdings to between 125 and 150
securities and increased the country weightings to between 22 to 27 countries,
to bring the portfolio in line with Warburg, Pincus' International Equity
discipline. In the third quarter, the Fund saw strong performance from many of
its European holdings, but much of these gains were negated by weakness in Japan
and South Korea. Although there is a possibility for near-term weakness, we
continue to view the prospects of both these Asian markets favorably. The fourth
quarter produced strong results for most of the foreign stock markets. By
region, the largest gains once again belonged to Europe, whose markets continued
to benefit from falling interest rates and optimism regarding the prospects for
monetary union. Asian markets generally rose, though several (Japan, South Korea
and Thailand) did suffer declines.
What market conditions affected the Fund's performance during the period, and
what investment techniques were used to address those conditions?
Much of the performance during the period can be attributed to the individual
geographic region or country performance. In the third quarter, many European
markets showed solid gains, supported by an easing of monetary poli-
* Index total returns were calculated from 5/31/93 to 12/31/96. The Morgan
Stanley Capital International EAFE Index ("EAFE") includes 1,050 companies
representing the stock markets of Europe, Australia, New Zealand and the Far
East weighted by capitalization. EAFE is a broad-based index of equity markets
representing 18 countries, assumes reinvestment of all dividends/distributions,
and does not reflect any asset-based charges for investment management or other
expenses. Past investment performance does not guarantee future performance. The
returns for the Fund assume reinvestment of all dividends/distributions by the
shareholder.
During the period noted, the Advisor (Sierra Investment Advisor Corporation) and
Administrator (Sierra Fund Administration Corporation) waived a portion of their
management fees and the Advisor absorbed other expenses, and the Custodian
reduced fees by credits. In the absence of the waivers and absorption of other
expenses or fees reduced by credits, yield and total return would have been
lower.
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
VARIABLE-V-INT-GROWTH
<S> <C> <C>
Inception/*/ 5/7/93 10,000 10,000
10,120 9,844
Sep 11,080 10,497
11,430 10,820
10,820 9,875
Dec 93 11,310 10,588
11,800 11,482
11,890 11,450
Mar 11,470 11,482
11,840 11,421
11,890 11,356
Jun 11,784 11,516
12,065 11,627
12,246 11,902
Sep 11,864 11,527
12,115 11,911
11,643 11,324
Dec 94 11,523 11,381
11,021 10,944
10,901 10,912
Mar 11,142 11,593
11,473 12,029
11,543 11,886
Jun 11,392 11,707
11,980 12,420
11,787 11,850
Sep 11,868 12,147
11,676 11,967
11,777 12,284
Dec 95 12,284 12,690
12,680 12,742
12,639 12,785
Mar 12,771 13,056
12,954 13,436
12,933 13,192
Jun 13,044 13,249
12,459 12,667
12,604 12,813
Sep 12,913 13,127
12,809 12,975
13,416 13,474
Dec 96 13,394 13,457
</TABLE>
The above line graph does not reflect administrative fees or other expenses
charged by American General Life Insurance Company Separate Account D through
which shares of the Fund are purchased.
<TABLE>
<CAPTION>
Average Annual Total Returns as of 12/31/96 6 Month 1 Year Since Inception
------- ------ ---------------
(May 7, 1993)
<S> <C> <C> <C>
Fund 2.69% 9.04% 8.34%
Morgan Stanley Capital International EAFE Index* 0.15% 4.67% 8.24%
</TABLE>
22
<PAGE>
INTERNATIONAL GROWTH FUND
cy by several of the region's central banks. Asian-Pacific markets generally
fell; Latin American markets were varied. Brazil, Mexico and Venezuela advanced,
while Argentina and Chile lagged.
In the fourth quarter, European holdings provided much of the strength in
overall portfolio performance. British companies have enjoyed strong profit
growth in recent quarters, and are much closer to hitting a peak in their
earnings cycle than are companies elsewhere in Europe. In addition, the Fund's
Spanish stocks contributed positively to its performance during the fourth
quarter, continuing to benefit from the decline in Spanish bond yields. We
continue to avoid the Italian stock market, which significantly underperformed
most other European markets in local currency terms in 1996. On the other hand,
the French market has been a disappointment due to several recent moves by the
French Government.
In Asia and the Pacific, the Fund continues to get value from its holdings in
Hong Kong, which largely represents plays on economic growth in China. The
center-right coalition government that has emerged from October elections in New
Zealand appears likely to maintain most of the country's existing economic
policies, which is clearly favorable for the stock market. In South Korea, the
market continued to fall in the fourth quarter due to concerns over slower
economic growth and widening current account and trade deficits. The equity
market in Japan underperformed in the fourth quarter, largely due to worries
over a slowdown in economic growth. Our techniques do not change from quarter
to quarter; we use a consistent bottom-up process with a top-down view and look
for value on a longer-term basis.
Were there any shifts in the Fund's portfolio holdings/ sectors that had a
significant impact on Fund performance?
The Fund has benefited from a reduction in Japanese holdings during the second
half of 1996 as the Japanese equity market declined considerably during the
fourth quarter. The Fund has increased holdings over the past six months in
markets such as Sweden, Korea, and Israel.
Some individual securities that have been recently added to the portfolio are
Korea Electric Power Corporation, GEA AG Corporation, and Eaux (Cie Generale
Des). Korea Electric Power is a large, blue-chip company selling at extremely
low multiples, reflecting the general weakness in the South Korean market. At
its current level, the stock is one of the cheapest electric-utility companies
in the world. GEA is a German engineering company with strong global market
share in three areas: food processing, air treatment and refrigeration, and
thermal and power technology. Our conservative estimate is that the company can
generate annual earnings-per-share growth of nearly 15% through the year 2000.
Eaux (Cie Generale Des) is a large, French, multi-industry company that
historically has earned most of its revenues from water management and
construction. The company has made a large number of acquisitions, including the
expansion of its emphasis on cellular communications. This stands to be an
extremely profitable area going forward and should help the company grow its
overall earnings far faster than the French market as a whole.
What is our intermediate- and long-term outlook for the Fund?
Most of our buying in Europe is outside the U.K. where the potential for
earnings is proportionately greater. The major risk to the Italian stock market
is that the country fails to meet the criteria for a single European currency.
If this happens, Italian bond yields could rise significantly. This would take a
heavy toll on the stock market; hence we remain wary of making any major new
commitments. We continue to view the prospects for the Spanish market favorably.
The Fund's Spanish holdings include Banco Santander, one of the country's
largest banks; Iberdrola SA, an electric utility; and Repsol SA, ADR, an oil and
gas company. In France, we think that the potential exists for stronger economic
growth in 1997, given the continued low level of interest rates, which would
provide broad benefit to French companies.
Our positive outlook on Australian stocks is due to tangible signs of recovery
in corporate earnings (after two years of generally poor results) and the
potential for further cuts in short-term interest rates from the Bank of
Australia. Positive signs for the New Zealand market can be seen in the recent
modification of the Reserve Bank Act. This has allowed New Zealand's central
bank to lower short-term interest, with likely further easing. In Hong Kong, we
remain confident that the territory's pending change from British to Chinese
hands will result in little disruption of its financial markets, and are also
encouraged by the earnings outlook for many Hong Kong companies in 1997.
It seems reasonable to expect a better year for Japanese equities in 1997 than
in 1996; thus we have maintained Japan's representation in the Fund. We continue
to hedge a portion of the Fund's Yen exposure as a defensive measure, and have
implemented a Nikkei Index hedge.
Diversification by Region
[PIE CHART APPEARS HERE]
Europe 29.93%
Americas 22.92%
Australia/New Zealand 9.48%
Asia 37.67%
Allocation percentages are based on total investment value of the portfolio as
of 12/31/96.
23
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
THE SIERRA VARIABLE TRUST
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL HIGH
MONEY QUALITY BOND
FUND FUND
----------- ------------
<S> <C> <C>
ASSETS:
Investments, at value (Note 2)
See portfolios of investments (a).................... $24,072,917 $12,322,086
Cash and/or foreign currency (b)...................... 3,099 406
Dividends and/or interest receivable.................. 64,851 107,844
Receivable for investment securities sold............. -- 1,193
Receivable for Fund shares sold....................... -- 2,252
Net unrealized appreciation of forward foreign
currency contracts (Note 2)
See portfolios of investments........................ -- --
Unamortized organization costs (Note 7)............... 8,307 --
Variation Margin (Note 2)............................. -- --
Other assets.......................................... 1,248 917
----------- -----------
Total Assets.......................................... 24,150,422 12,434,698
----------- -----------
LIABILITIES:
Net unrealized depreciation of forward foreign
currency contracts (Note 2)
See portfolios of investments........................ -- --
Payable for investment securities purchased........... 849,014 --
Payable for Fund shares redeemed...................... 3,917 --
Investment advisory fee payable (Note 3).............. 6,962 6,070
Administration fee payable (Note 3)................... 3,513 1,892
Transfer agent fees payable (Note 3).................. 307 293
Custodian fees payable (Note 3)....................... 893 1,079
Accrued Trustees' fees and expenses (Note 4).......... 905 488
Reverse repurchase agreements (Notes 2 and 5)......... -- --
Payable for dollar roll transactions (Notes 2 and 5).. -- --
Deferred income for dollar roll transactions (Notes 2
and 5)............................................... -- --
Options written, at value ( Premium received of $3,552
and $34,280 for the Short Term High Quality Bond Fund
and the Short Term Global Government Fund,
respectively) (Notes 2 and 5)
See portfolios of investments........................ -- 3,104
Accrued expenses and other payables................... 19,394 19,890
----------- -----------
Total Liabilities..................................... 884,905 32,816
----------- -----------
NET ASSETS............................................ $23,265,517 $12,401,882
=========== ===========
NET ASSETS CONSIST OF:
Undistributed net investment income/(distributions in
excess of net investment income)..................... $ 15,877 $ 3,803
Accumulated net realized gain/(loss) from security
transactions, futures contracts, forward foreign
currency contracts, foreign currency transactions and
written options...................................... -- (395,266)
Net unrealized appreciation/(depreciation) of
securities, futures contracts, forward foreign
currency contracts, foreign currency, written options
and other assets and liabilities..................... -- 94,507
Paid-in capital....................................... 23,249,640 12,698,838
----------- -----------
Total Net Assets...................................... $23,265,517 $12,401,882
=========== ===========
NET ASSET VALUE, offering price and redemption price
per share of beneficial interest outstanding......... $ 1.00 $ 2.43
=========== ===========
Number of Fund shares outstanding..................... 23,261,642 5,099,390
=========== ===========
- ------------
(a)INVESTMENTS, AT COST (NOTE 2)...................... $24,072,917 $12,228,027
(b)CASH AND/OR FOREIGN CURRENCY, AT COST (NOTE 2)..... $ 3,099 $ 406
</TABLE>
See Notes to Financial Statements.
24
<PAGE>
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL U.S. CORPORATE GROWTH AND EMERGING INTERNATIONAL
GOVERNMENT GOVERNMENT INCOME INCOME GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND FUND FUND
----------- ----------- ----------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
$21,168,147 $79,659,257 $61,919,260 $62,480,412 $115,509,002 $55,936,702 $61,410,425
563 501,624 199 2,219 18,865 74,618 322,848
499,239 598,177 1,116,742 106,138 21,411 14,039 131,294
-- -- -- -- 778,944 340,757 302,195
2,854 2,140 -- 17,592 -- 46,192 --
330,959 -- -- -- -- -- 355,607
8,342 8,241 8,257 -- 8,257 -- 8,257
-- 141,250 -- -- -- -- --
1,522 3,804 3,874 3,338 6,706 3,356 3,488
----------- ----------- ----------- ----------- ------------ ----------- -----------
22,011,626 80,914,493 63,048,332 62,609,699 116,343,185 56,415,664 62,534,114
----------- ----------- ----------- ----------- ------------ ----------- -----------
-- -- -- -- 1,081 160,109 --
-- 401,694 -- 75,601 79,520 283,529 56,457
-- -- 9,731 -- 35,648 -- 13,976
13,937 33,917 33,154 42,191 87,212 40,889 48,578
3,345 10,175 9,181 9,493 17,614 8,435 9,390
305 361 353 356 422 347 355
1,917 1,714 1,435 2,736 6,754 2,798 5,318
862 2,621 2,365 2,446 4,538 2,173 2,419
-- 5,087,250 -- -- -- -- --
-- 8,764,931 3,070,465 -- -- -- --
-- 2,538 2,188 -- -- -- --
40,055 -- -- -- -- -- --
40,820 45,997 36,260 32,341 46,612 29,895 43,105
----------- ----------- ----------- ----------- ------------ ----------- -----------
101,241 14,351,198 3,165,132 165,164 279,401 528,175 179,598
----------- ----------- ----------- ----------- ------------ ----------- -----------
$21,910,385 $66,563,295 $59,883,200 $62,444,535 $116,063,784 $55,887,489 $62,354,516
=========== =========== =========== =========== ============ =========== ===========
$ (208,526) $ 25,240 $ 55,812 $ 497,122 $ 145,343 $ 160,114 $ 619,142
(182,141) (2,332,406) (2,243,323) 6,583,394 14,913,903 2,592,824 1,053,707
765,716 1,356,940 463,804 7,659,468 13,688,100 9,863,003 3,886,937
21,535,336 67,513,521 61,606,907 47,704,551 87,316,438 43,271,548 56,794,730
----------- ----------- ----------- ----------- ------------ ----------- -----------
$21,910,385 $66,563,295 $59,883,200 $62,444,535 $116,063,784 $55,887,489 $62,354,516
=========== =========== =========== =========== ============ =========== ===========
$ 2.48 $ 9.77 $ 9.82 $ 14.29 $ 16.01 $ 14.70 $ 13.02
=========== =========== =========== =========== ============ =========== ===========
8,843,198 6,815,332 6,095,560 4,370,788 7,247,908 3,801,138 4,790,516
=========== =========== =========== =========== ============ =========== ===========
$20,722,662 $78,514,903 $61,455,456 $54,820,944 $101,820,608 $45,915,281 $57,881,532
$ 1,516 $ 501,624 $ 199 $ 2,219 $ 23,066 $ 74,624 $ 323,943
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
STATEMENTS OF OPERATIONS
THE SIERRA VARIABLE TRUST
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL HIGH
MONEY QUALITY BOND
FUND FUND
---------- ------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends.............................................. $ -- $ --
Foreign withholding tax on dividend income............. -- --
Interest............................................... 1,108,964 942,451
Foreign withholding tax on interest income............. -- --
Fee income (Note 5).................................... -- --
---------- ---------
Total Investment Income............................... 1,108,964 942,451
---------- ---------
EXPENSES:
Investment advisory fee (Note 3)....................... 102,014 66,754
Administration fee (Note 3)............................ 36,725 24,031
Trustees' fees and expenses (Note 4)................... 3,098 1,989
Legal and audit fees................................... 21,815 24,948
Transfer agent fees (Note 3)........................... 1,722 2,439
Custodian fees (Note 3)................................ 4,389 6,784
Amortization of organization costs (Note 7)............ 6,137 --
Other.................................................. 4,439 14,872
---------- ---------
Expenses before waiver of fees......................... 180,339 141,817
Fees waived by investment advisor (Note 3)............. (61,700) (10,732)
Fees reduced by credits allowed by the custodian (Note
3).................................................... (303) (276)
---------- ---------
Total expenses before interest expense................ 118,336 130,809
---------- ---------
Interest expense (Note 5).............................. -- --
---------- ---------
Total Expenses........................................ 118,336 130,809
---------- ---------
NET INVESTMENT INCOME/(LOSS)........................... 990,628 811,642
---------- ---------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
(NOTES 2 AND 5):
Realized gain/(loss) from:
Security transactions................................. 544 (156,023)
Forward foreign currency contracts and foreign
currency transactions................................ -- (21,340)
Futures contracts..................................... -- (92,454)
Written options....................................... -- 644
Net unrealized appreciation/(depreciation) of:
Securities............................................ -- (102,420)
Forward foreign currency contracts.................... -- --
Foreign currency, written options, futures contracts
and other assets and liabilities..................... -- 448
---------- ---------
Net Realized and Unrealized Gain/(Loss) on
Investments........................................... 544 (371,145)
---------- ---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS... $ 991,172 $ 440,497
========== =========
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL U.S. CORPORATE GROWTH AND EMERGING INTERNATIONAL
GOVERNMENT GOVERNMENT INCOME INCOME GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND FUND FUND
- ---------- ----------- ----------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ 1,027,283 $ 680,492 $ 109,279 $1,073,683
-- -- -- -- (30,207) (10,337) (113,480)
1,584,502 4,274,470 4,598,536 99,669 670,538 100,110 130,674
(41,650) -- -- -- -- -- (299)
-- 116,700 42,589 -- -- -- --
- ---------- ----------- ----------- ----------- ----------- ---------- ----------
1,542,852 4,391,170 4,641,125 1,126,952 1,320,823 199,052 1,090,578
- ---------- ----------- ----------- ----------- ----------- ---------- ----------
166,447 363,268 381,643 436,358 961,131 461,791 524,048
39,947 108,980 105,686 98,181 193,861 95,144 100,408
3,278 9,487 8,805 8,467 16,168 8,017 8,829
46,045 40,876 38,479 36,084 54,374 35,091 58,927
2,668 1,902 1,860 1,924 2,094 1,889 1,915
10,755 8,394 8,244 18,439 44,573 19,711 39,438
6,137 6,137 6,137 -- 6,137 -- 6,137
8,861 31,126 25,038 18,420 35,012 16,346 37,122
- ---------- ----------- ----------- ----------- ----------- ---------- ----------
284,138 570,170 575,892 617,873 1,313,350 637,989 776,824
-- -- -- -- -- -- --
(116) (2,185) (91) (567) (4,277) (3,564) (1,384)
- ---------- ----------- ----------- ----------- ----------- ---------- ----------
284,022 567,985 575,801 617,306 1,309,073 634,425 775,440
- ---------- ----------- ----------- ----------- ----------- ---------- ----------
-- 83,013 -- -- -- -- --
- ---------- ----------- ----------- ----------- ----------- ---------- ----------
284,022 650,998 575,801 617,306 1,309,073 634,425 775,440
- ---------- ----------- ----------- ----------- ----------- ---------- ----------
1,258,830 3,740,172 4,065,324 509,646 11,750 (435,373) 315,138
- ---------- ----------- ----------- ----------- ----------- ---------- ----------
(128,366) 184,928 (162,448) 6,622,266 14,083,349 3,398,476 1,611,935
144,427 -- (14) -- 117,321 (158,295) 351,966
-- (500,943) -- -- 1,191,291 -- --
264,338 -- -- -- -- -- --
(222,122) (1,159,804) (3,654,962) 3,780,341 15,013 1,960,749 2,030,511
567,861 -- -- -- 128,018 (149,738) 325,554
(48,250) 259,329 14 -- (18,956) 1,568 8,628
- ---------- ----------- ----------- ----------- ----------- ---------- ----------
577,888 (1,216,490) (3,817,410) 10,402,607 15,516,036 5,052,760 4,328,594
- ---------- ----------- ----------- ----------- ----------- ---------- ----------
$1,836,718 $ 2,523,682 $ 247,914 $10,912,253 $15,527,786 $4,617,387 $4,643,732
========== =========== =========== =========== =========== ========== ==========
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
THE SIERRA VARIABLE TRUST
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL HIGH
MONEY QUALITY BOND
FUND FUND
----------- ------------
<S> <C> <C>
Net investment income/(loss)......................... $ 990,628 $ 811,642
Net realized gain/(loss) from security transactions,
forward foreign currency contracts, foreign currency
transactions, futures contracts and written options
during the year..................................... 544 (269,173)
Net unrealized appreciation/(depreciation) of
securities, forward foreign currency contracts,
foreign currency, written options, futures contracts
and other assets and liabilities during the year.... -- (101,972)
----------- -----------
Net increase in net assets resulting from
operations.......................................... 991,172 440,497
Distributions to shareholders from:
Net investment income............................... (986,806) (798,432)
Distributions in excess of net investment income.... -- --
Net realized gains on investments................... (3,822) --
Net increase/(decrease) in net assets from Fund share
transactions........................................ 2,892,099 395,121
----------- -----------
Net increase/(decrease) in net assets................ 2,892,643 37,186
NET ASSETS:
Beginning of year.................................... 20,372,874 12,364,696
----------- -----------
End of year.......................................... $23,265,517 $12,401,882
=========== ===========
Undistributed net investment income/(distributions in
excess of net investment income) at end of year..... $ 15,877 $ 3,803
=========== ===========
</TABLE>
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL HIGH
MONEY QUALITY BOND
FUND FUND
----------- ------------
<S> <C> <C>
Net investment income/(loss)........................ $ 602,900 $ 864,781
Net realized gain/(loss) from security transactions,
forward foreign currency contracts, foreign
currency transactions, futures contracts and
written options during the year.................... 3,309 (254,466)
Net unrealized appreciation/(depreciation) of
securities, forward foreign currency contracts,
foreign currency, written options, futures
contracts and other assets and liabilities during
the year........................................... -- 630,236
----------- ------------
Net increase in net assets resulting from
operations......................................... 606,209 1,240,551
Distributions to shareholders from:
Net investment income.............................. (602,900) (652,464)
Net realized gains on investments.................. -- --
Net increase/(decrease) in net assets from Fund
share transactions................................. 14,210,664 (3,770,768)
----------- ------------
Net increase/(decrease) in net assets............... 14,213,973 (3,182,681)
NET ASSETS:
Beginning of year................................... 6,158,901 15,547,377
----------- ------------
End of year......................................... $20,372,874 $ 12,364,696
=========== ============
Undistributed net investment income at end of year.. $ 8,764 $ 26,628
=========== ============
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL U.S. CORPORATE GROWTH AND EMERGING INTERNATIONAL
GOVERNMENT GOVERNMENT INCOME INCOME GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND FUND FUND
---------- ----------- ----------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,258,830 $ 3,740,172 $ 4,065,324 $ 509,646 $ 11,750 $ (435,373) $ 315,138
280,399 (316,015) (162,462) 6,622,266 15,391,961 3,240,181 1,963,901
297,489 (900,475) (3,654,948) 3,780,341 124,075 1,812,579 2,364,693
----------- ----------- ----------- ----------- ------------ ----------- -----------
1,836,718 2,523,682 247,914 10,912,253 15,527,786 4,617,387 4,643,732
(1,307,469) (3,671,725) (4,024,172) (449,287) -- -- (741,545)
(639,891) -- -- -- -- -- --
-- -- -- (4,043,586) (13,385,659) (1,615,533) --
(1,783,567) 15,407,844 2,983,208 9,663,313 14,222,744 6,827,235 12,543,471
----------- ----------- ----------- ----------- ------------ ----------- -----------
(1,894,209) 14,259,801 (793,050) 16,082,693 16,364,871 9,829,089 16,445,658
23,804,594 52,303,494 60,676,250 46,361,842 99,698,913 46,058,400 45,908,858
----------- ----------- ----------- ----------- ------------ ----------- -----------
$21,910,385 $66,563,295 $59,883,200 $62,444,535 $116,063,784 $55,887,489 $62,354,516
=========== =========== =========== =========== ============ =========== ===========
$ (208,526) $ 25,240 $ 55,812 $ 497,122 $ 145,343 $ 160,114 $ 619,142
=========== =========== =========== =========== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL U.S. CORPORATE GROWTH AND EMERGING INTERNATIONAL
GOVERNMENT GOVERNMENT INCOME INCOME GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND FUND FUND
---------- ----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,692,902 $ 3,150,907 $ 3,952,227 $ 440,113 $ 233,207 $ (107,721) $ 393,734
(990,886) (1,055,040) (644,235) 4,042,494 13,163,281 2,215,290 (123,145)
1,264,750 5,154,571 9,369,643 4,545,904 11,252,480 6,817,899 2,505,368
----------- ----------- ----------- ----------- ----------- ----------- -----------
1,966,766 7,250,438 12,677,635 9,028,511 24,648,968 8,925,468 2,775,957
(375,446) (3,097,100) (4,433,630) (178,328) (231,062) (106,321) (3,103)
-- -- -- (277,094) (2,321) (1,520) (440,869)
(7,590,616) 4,568,328 (2,273,206) 12,883,369 12,520,757 17,356,044 (2,952,058)
----------- ----------- ----------- ----------- ----------- ----------- -----------
(5,999,296) 8,721,666 5,970,799 21,456,458 36,936,342 26,173,671 (620,073)
29,803,890 43,581,828 54,705,451 24,905,384 62,762,571 19,884,729 46,528,931
----------- ----------- ----------- ----------- ----------- ----------- -----------
$23,804,594 $52,303,494 $60,676,250 $46,361,842 $99,698,913 $46,058,400 $45,908,858
=========== =========== =========== =========== =========== =========== ===========
$ 323,195 $ 20,383 $ 29,513 $ 436,763 $ 12,981 $ 6,696 $ 702,004
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS -- CAPITAL STOCK ACTIVITY
THE SIERRA VARIABLE TRUST
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL HIGH
MONEY QUALITY BOND
FUND FUND
------------ ------------
<S> <C> <C>
AMOUNT
Sold............................................... $ 12,763,701 $ 6,588,666
Issued as reinvestment of dividends................ 990,628 798,432
Redeemed........................................... (10,862,230) (6,991,977)
------------ -----------
Net increase/(decrease)............................ $ 2,892,099 $ 395,121
============ ===========
SHARES
Sold............................................... 12,763,701 2,668,840
Issued as reinvestment of dividends................ 990,628 327,884
Redeemed........................................... (10,862,230) (2,854,666)
------------ -----------
Net increase/(decrease)............................ 2,892,099 142,058
============ ===========
</TABLE>
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL HIGH
MONEY QUALITY BOND
FUND FUND
------------ ------------
<S> <C> <C>
AMOUNT
Sold............................................... $ 19,730,400 $ 4,517,274
Issued as reinvestment of dividends................ 602,900 652,464
Redeemed........................................... (6,122,636) (8,940,506)
------------ -----------
Net increase/(decrease)............................ $ 14,210,664 $(3,770,768)
============ ===========
SHARES
Sold............................................... 19,730,400 1,815,328
Issued as reinvestment of dividends................ 602,900 276,815
Redeemed........................................... (6,122,636) (3,648,620)
------------ -----------
Net increase/(decrease)............................ 14,210,664 (1,556,477)
============ ===========
</TABLE>
See Notes to Financial Statements.
30
<PAGE>
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL U.S. CORPORATE GROWTH AND EMERGING INTERNATIONAL
GOVERNMENT GOVERNMENT INCOME INCOME GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND FUND FUND
- ------------ ----------- ------------ ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 445,892 $15,386,265 $ 3,740,610 $12,265,763 $ 12,305,832 $13,195,027 $14,020,583
1,947,360 3,671,725 4,024,172 4,492,873 13,385,659 1,615,533 741,545
(4,176,819) (3,650,146) (4,781,574) (7,095,323) (11,468,747) (7,983,325) (2,218,657)
- ------------ ----------- ------------ ----------- ------------ ----------- -----------
$ (1,783,567) $15,407,844 $ 2,983,208 $ 9,663,313 $ 14,222,744 $ 6,827,235 $12,543,471
============ =========== ============ =========== ============ =========== ===========
175,234 1,582,359 376,148 910,887 740,880 893,632 1,119,133
780,860 379,773 413,947 350,732 881,215 105,384 58,435
(1,649,684) (376,308) (486,535) (503,372) (716,599) (548,857) (177,556)
- ------------ ----------- ------------ ----------- ------------ ----------- -----------
(693,590) 1,585,824 303,560 758,247 905,496 450,159 1,000,012
============ =========== ============ =========== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SHORT TERM
GLOBAL U.S. CORPORATE GROWTH AND EMERGING INTERNATIONAL
GOVERNMENT GOVERNMENT INCOME INCOME GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND FUND FUND
- ------------ ----------- ------------ ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 3,934,613 $ 6,842,404 $ 4,901,259 $14,462,238 $ 15,968,914 $17,893,152 $ 4,982,206
375,446 3,097,100 4,433,630 455,422 233,383 107,841 443,972
(11,900,675) (5,371,176) (11,608,095) (2,034,291) (3,681,540) (644,949) (8,378,236)
- ------------ ----------- ------------ ----------- ------------ ----------- -----------
$ (7,590,616) $ 4,568,328 $ (2,273,206) $12,883,369 $ 12,520,757 $17,356,044 $(2,952,058)
============ =========== ============ =========== ============ =========== ===========
1,661,187 699,076 489,186 1,230,772 1,131,853 1,510,732 430,784
150,178 317,046 449,642 39,671 16,814 9,451 39,534
(4,943,164) (559,408) (1,183,596) (192,119) (271,654) (57,838) (734,961)
- ------------ ----------- ------------ ----------- ------------ ----------- -----------
(3,131,799) 456,714 (244,768) 1,078,324 877,013 1,462,345 (264,643)
============ =========== ============ =========== ============ =========== ===========
</TABLE>
See Notes to Financial Statements.
31
<PAGE>
FINANCIAL HIGHLIGHTS
GLOBAL MONEY FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
12/31/96 12/31/95 12/31/94 12/31/93*
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of
year............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............. 0.049 0.053 0.037 0.016
------- ------- ------- -------
Total from investment operations.. 0.049 0.053 0.037 0.016
LESS DISTRIBUTIONS:
Dividends from net investment
income........................... (0.049) (0.053) (0.037) (0.016)
Distributions from net realized
capital gains.................... (0.000)# -- -- --
------- ------- ------- -------
Total distributions............... (0.049) (0.053) (0.037) (0.016)
------- ------- ------- -------
Net asset value, end of year...... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= =======
TOTAL RETURN+ 4.97% 5.46% 3.69% 1.59%
======= ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in
000's)........................... $23,266 $20,373 $ 6,159 $ 1,488
Ratio of operating expenses to
average net assets............... 0.58% 0.50% 0.49% 0.39%**
Ratio of net investment income to
average net assets............... 4.86% 5.30% 3.84% 2.54%**
Ratio of operating expenses to
average net assets without fees
reduced by credits allowed by the
custodian........................ 0.58%(a) 0.51%(a) N/A N/A
Ratio of operating expenses to
average net assets without fee
waivers, expenses absorbed and/or
fees reduced by credits allowed
by the custodian................. 0.88%(a) 1.01%(a) 1.25% 6.42%**
Net investment income/(loss) per
share without fee waivers and/or
expenses absorbed and/or fees
reduced by credits allowed by the
custodian........................ $ 0.046 $ 0.048 $ 0.030 $(0.022)
</TABLE>
- ------------
* The Fund commenced operations on May 10, 1993.
** Annualized.
+ Total return represents aggregate total return for the periods indicated.
The total return would have been lower if certain fees had not been waived
by the investment advisor and administrator and if certain expenses had not
been absorbed by the investment advisor or if fees had not been reduced by
credits allowed by the custodian.
# Amount represents less than $0.001 per share.
(a) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
32
<PAGE>
FINANCIAL HIGHLIGHTS
SHORT TERM HIGH QUALITY BOND FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/96 12/31/95 12/31/94*
-------- -------- ---------
<S> <C> <C> <C>
Net asset value,
beginning of year...... $ 2.49 $ 2.39 $ 2.50
------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.15 0.12 0.08
Net realized and
unrealized gain/(loss)
on investments......... (0.06) 0.10 (0.12)
------- ------- -------
Total from investment
operations............. 0.09 0.22 (0.04)
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (0.15) (0.12) (0.07)
------- ------- -------
Total distributions..... (0.15) (0.12) (0.07)
------- ------- -------
Net asset value, end of
year................... $ 2.43 $ 2.49 $ 2.39
======= ======= =======
TOTAL RETURN+ 3.74% 9.30% (1.62)%
======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in 000's)............. $12,402 $12,365 $15,547
Ratio of operating
expenses to average net
assets................. 0.98% 0.85% 0.77%**
Ratio of net investment
income to average net
assets................. 6.08% 6.14% 5.63%**
Portfolio turnover
rate................... 125% 188% 80%
Ratio of operating
expenses to average net
assets without fees
reduced by credits
allowed by the
custodian.............. 0.98%(a) 0.87%(a) N/A
Ratio of operating
expenses to average net
assets without fee
waivers and/or fees
reduced by credits
allowed by the
custodian.............. 1.06%(a) 1.01%(a) 1.10%**
Net investment income
per share without fee
waivers and/or fees
reduced by credits
allowed by the
custodian.............. $ 0.15 $ 0.11 $ 0.07
</TABLE>
- ------------
* The Fund commenced operations on January 12, 1994.
** Annualized.
+ Total return represents aggregate total return for the periods indicated.
The total return would have been lower if certain fees had not been waived
by the investment advisor and administrator or if fees had not been reduced
by credits allowed by the custodian.
(a) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
33
<PAGE>
FINANCIAL HIGHLIGHTS
SHORT TERM GLOBAL GOVERNMENT FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
12/31/96++ 12/31/95 12/31/94 12/31/93*
---------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of
year........................... $ 2.50 $ 2.35 $ 2.49 $ 2.50
------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........... 0.14 0.07 0.05 0.01
Net realized and unrealized
gain/(loss) on investments..... 0.07 0.12 (0.10) (0.01)
------- ------- ------- -------
Total from investment
operations..................... 0.21 0.19 (0.05) 0.00
LESS DISTRIBUTIONS:
Dividends from net investment
income......................... (0.15) (0.04) (0.05) (0.01)
Distributions in excess of net
investment income.............. (0.08) -- -- --
Distributions from capital (Note
2)............................. -- -- (0.04) --
------- ------- ------- -------
Total distributions............. (0.23) (0.04) (0.09) (0.01)
------- ------- ------- -------
Net asset value, end of year.... $ 2.48 $ 2.50 $ 2.35 $ 2.49
======= ======= ======= =======
TOTAL RETURN+ 8.61% 8.09% (2.03)% 0.12%
======= ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in
000's)......................... $21,910 $23,805 $29,804 $19,147
Ratio of operating expenses to
average net assets............. 1.28% 1.25% 0.92% 0.52%**
Ratio of net investment income
to average net assets.......... 5.67% 6.22% 5.84% 4.06%**
Portfolio turnover rate......... 77% 195% 286% 164%
Ratio of operating expenses to
average net assets without fees
reduced by credits allowed by
the custodian.................. 1.28%(a) 1.25%(a) N/A N/A
Ratio of operating expenses to
average net assets without fee
waivers, expenses absorbed
and/or fees reduced by credits
allowed by the custodian....... 1.28%(a) 1.26%(a) 1.28% 1.92%**
Net investment income per share
without fee waivers and/or
expenses absorbed and/or fees
reduced by credits allowed by
the custodian.................. $ 0.14 $ 0.07 $ 0.05 $ 0.01
</TABLE>
- ------------
* The Fund commenced operations on May 12, 1993.
** Annualized.
+ Total return represents aggregate total return for the periods indicated.
The total return would have been lower if certain fees had not been waived
by the investment advisor and administrator and if certain expenses had not
been absorbed by the investment advisor or if fees had not been reduced by
credits allowed by the custodian.
++ Per share numbers have been calculated using the average shares method,
which more appropriately presents the per share data for the year since the
use of the undistributed income method did not accord with results of
operations.
(a) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
See notes to financial statements.
34
<PAGE>
FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
12/31/96 12/31/95 12/31/94 12/31/93*
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of
year........................... $ 10.00 $ 9.13 $ 10.04 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........... 0.58 0.64 0.50 0.19
Net realized and unrealized
gain/(loss) on investments..... (0.23) 0.87## (0.90)## 0.04##
------- ------- ------- -------
Total from investment
operations..................... 0.35 1.51 (0.40) 0.23
LESS DISTRIBUTIONS:
Dividends from net investment
income......................... (0.58) (0.64) (0.50) (0.19)
Distributions from net realized
gains.......................... -- -- (0.01) --
------- ------- ------- -------
Total distributions............. (0.58) (0.64) (0.51) (0.19)
------- ------- ------- -------
Net asset value, end of year.... $ 9.77 $ 10.00 $ 9.13 $ 10.04
======= ======= ======= =======
TOTAL RETURN+ 3.69% 16.89% (4.04)% 2.27%
======= ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in
000's)......................... $66,563 $52,303 $43,582 $25,069
Ratio of operating expenses to
average net assets............. 0.94% 1.00% 0.85% 0.44%**
Ratio of net investment income
to average net assets.......... 6.18% 6.68% 5.75% 5.37%**
Portfolio turnover rate......... 282% 273% 74% 131%
Ratio of operating expenses to
average net assets without fees
reduced by credits allowed by
the custodian.................. 0.94%(a) 1.02%(a) N/A N/A
Ratio of operating expenses to
average net assets without fee
waivers, expenses absorbed
and/or fees reduced by credits
allowed by the custodian....... 0.94%(a) 1.03%(a) 1.02% 1.47%**
Ratio of operating expenses to
average net assets including
interest expense............... 1.08% 1.76% 0.86% 0.44%**
Net investment income per share
without fee waivers and/or
expenses absorbed and/or fees
reduced by credits allowed by
the custodian.................. $ 0.58 $ 0.63 $ 0.49 $ 0.15
</TABLE>
- ------------
* The Fund commenced operations on May 6, 1993.
** Annualized.
+ Total return represents aggregate total return for the periods indicated.
The total return would have been lower if certain fees had not been waived
by the investment advisor and administrator and if certain expenses had not
been absorbed by the investment advisor or if fees had not been reduced by
credits allowed by the custodian.
## The amount shown may not accord with the change in the aggregate gains and
losses of portfolio securities due to timing of sales and redemptions of
Fund shares.
(a) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
35
<PAGE>
FINANCIAL HIGHLIGHTS
CORPORATE INCOME FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
12/31/96 12/31/95 12/31/94 12/31/93*
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of
year............................. $ 10.48 $ 9.06 $ 10.34 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............. 0.68 0.70 0.47 0.23
Net realized and unrealized
gain/(loss) on investments....... (0.66) 1.50 (1.30) 0.33##
------- ------- ------- -------
Total from investment operations.. 0.02 2.20 (0.83) 0.56
LESS DISTRIBUTIONS:
Dividends from net investment
income........................... (0.68) (0.78) (0.40) (0.22)
Distributions from net realized
gains............................ -- -- (0.05) --
------- ------- ------- -------
Total distributions............... (0.68) (0.78) (0.45) (0.22)
------- ------- ------- -------
Net asset value, end of year...... $ 9.82 $ 10.48 $ 9.06 $ 10.34
======= ======= ======= =======
TOTAL RETURN+ 0.43% 25.09% (8.13)% 5.62%
======= ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in
000's)........................... $59,883 $60,676 $54,705 $28,732
Ratio of operating expenses to
average net assets............... 0.98% 0.99% 0.93% 0.54%**
Ratio of net investment income to
average net assets............... 6.92% 7.00% 7.28% 6.37%**
Portfolio turnover rate........... 30% 42% 23% 26%
Ratio of operating expenses to
average net assets without fees
reduced by credits allowed by the
custodian........................ 0.98%(a) 0.99%(a) N/A N/A
Ratio of operating expenses to
average net assets without fee
waivers, expenses absorbed and/or
fees reduced by credits allowed
by the custodian................. 0.98%(a) 0.99%(a) 1.07% 1.50%**
Ratio of operating expenses to
average net assets including
interest expense................. -- 0.99% -- --
Net investment income per share
without fee waivers and/or
expenses absorbed and/or fees
reduced by credits allowed by the
custodian........................ $ 0.68 $ 0.70 $ 0.47 $ 0.19
</TABLE>
- ------------
* The Fund commenced operations on May 7, 1993.
** Annualized.
+ Total return represents aggregate total return for the periods indicated.
The total return would have been lower if certain fees had not been waived
by the investment advisor and administrator and if certain expenses had not
been absorbed by the investment advisor or if fees had not been reduced by
credits allowed by the custodian.
## The amount shown may not accord with the change in the aggregate gains and
losses of portfolio securities due to the timing of sales and redemptions of
Fund shares.
(a) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
36
<PAGE>
FINANCIAL HIGHLIGHTS
GROWTH AND INCOME FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/96++ 12/31/95 12/31/94*
---------- -------- ---------
<S> <C> <C> <C>
Net asset value, beginning of year........ $ 12.83 $ 9.83 $ 10.00
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................... 0.12 0.12 0.07
Net realized and unrealized gain/(loss) on
investments.............................. 2.54 3.05 (0.24)
------- ------- -------
Total from investment operations.......... 2.66 3.17 (0.17)
LESS DISTRIBUTIONS:
Dividends from net investment income...... (0.12) (0.07) --
Distributions from net realized gains..... (1.08) (0.10) --
------- ------- -------
Total distributions....................... (1.20) (0.17) --
------- ------- -------
Net asset value, end of year.............. $ 14.29 $ 12.83 $ 9.83
======= ======= =======
TOTAL RETURN+ 21.81% 32.41% (1.70)%
======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year (in 000's)........ $62,445 $46,362 $24,905
Ratio of operating expenses to average net
assets................................... 1.13% 1.06% 1.20%**
Ratio of net investment income to average
net assets............................... 0.93% 1.31% 1.63%**
Portfolio turnover rate................... 83% 70% 44%
Ratio of operating expenses to average net
assets without fees reduced by credits
allowed by the custodian................. 1.13%(a) 1.06%(a) N/A
Ratio of operating expenses to average net
assets without fee waivers and/or fees
reduced by credits allowed by the
custodian................................ 1.13%(a) 1.16%(a) 1.55%**
Net investment income per share without
fee waivers and/or fees reduced by
credits allowed by the custodian......... $ 0.12 $ 0.11 $ 0.05
Average commission rate paid (b).......... $0.0533 N/A N/A
</TABLE>
- ------------
* The Fund commenced operations on January 12, 1994.
** Annualized.
+ Total return represents aggregate total return for the periods indicated.
The total return would have been lower if certain fees had not been waived
by the investment advisor and administrator or if fees had not been reduced
by credits allowed by the custodian.
++ Per share numbers have been calculated using the average shares method,
which more appropriately presents the per share data for the year since the
use of the undistributed income method did not accord with results of
operations.
(a) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund as required by amended disclosure requirements effective for
fiscal years beginning on or after September 1, 1995.
37
<PAGE>
FINANCIAL HIGHLIGHTS
GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
12/31/96++ 12/31/95++ 12/31/94 12/31/93*
---------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of
year.......................... $ 15.72 $ 11.48 $ 11.19 $ 10.00
-------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.......... 0.00# 0.04 0.04 0.02
Net realized and unrealized
gain on investments........... 2.42 4.24 0.26 1.17
-------- ------- ------- -------
Total from investment
operations.................... 2.42 4.28 0.30 1.19
LESS DISTRIBUTIONS:
Dividends from net investment
income........................ -- (0.04) (0.01) --
Distributions from net realized
gains......................... (2.13) (0.00)# -- --
-------- ------- ------- -------
Total distributions............ (2.13) (0.04) (0.01) --
-------- ------- ------- -------
Net asset value, end of year... $ 16.01 $ 15.72 $ 11.48 $ 11.19
======== ======= ======= =======
TOTAL RETURN+ 16.15% 37.34% 2.69% 11.90%
======== ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in
000's)........................ $116,064 $99,699 $62,763 $22,795
Ratio of operating expenses to
average net assets............ 1.22% 1.24% 1.26% 0.78%**
Ratio of net investment income
to average net assets......... 0.01% 0.29% 0.74% 0.70%**
Portfolio turnover rate........ 169% 187% 257% 86%
Ratio of operating expenses to
average net assets without
fees reduced by credits
allowed by the custodian...... 1.22%(a) 1.24%(a) N/A N/A
Ratio of operating expenses to
average net assets without fee
waivers, expenses absorbed
and/or fees reduced by credits
allowed by the custodian...... 1.22%(a) 1.24%(a) 1.32% 1.92%**
Net investment income/(loss)
per share without fee waivers
and/or expenses absorbed
and/or fees reduced by credits
allowed by the custodian...... $ 0.00# $ 0.04 $ 0.04 $ (0.01)
Average commission rate paid
(b)........................... $ 0.0460 N/A N/A N/A
</TABLE>
- ------------
* The Fund commenced operations on May 7, 1993.
** Annualized.
+ Total return represents aggregate total return for the periods indicated.
The total return would have been lower if certain fees had not been waived
by the investment advisor and administrator and if certain expenses had not
been absorbed by the investment advisor or if fees had not been reduced by
credits allowed by the custodian.
++ Per share numbers have been calculated using the average shares method,
which more appropriately presents the per share data for the year since the
use of the undistributed income method did not accord with results of
operations.
# Amount represents less than $0.01 per share.
(a) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund as required by amended disclosure requirements effective for
fiscal years beginning on or after September 1, 1995.
38
<PAGE>
FINANCIAL HIGHLIGHTS
EMERGING GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/96++ 12/31/95 12/31/94*
---------- -------- ---------
<S> <C> <C> <C>
Net asset value, beginning of year....... $ 13.74 $ 10.53 $ 10.00
-------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income/(loss)............. (0.12) (0.01) 0.06
Net realized and unrealized gain on
investments............................. 1.52 3.26 0.47
-------- ------- -------
Total from investment operations......... 1.40 3.25 0.53
LESS DISTRIBUTIONS:
Dividends from net investment income..... -- (0.04) --
Distributions from net realized gains.... (0.44) (0.00)# --
-------- ------- -------
Total distributions...................... (0.44) (0.04) --
-------- ------- -------
Net asset value, end of year............. $ 14.70 $ 13.74 $ 10.53
======== ======= =======
TOTAL RETURN+ 10.04% 30.99% 5.30%
======== ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year (in 000's)....... $ 55,887 $46,058 $19,885
Ratio of operating expenses to average
net assets.............................. 1.20% 1.20% 1.23%**
Ratio of net investment income/(loss) to
average net assets...................... (0.82)% (0.35)% 1.03%**
Portfolio turnover rate.................. 97% 135% 192%
Ratio of operating expenses to average
net assets without fees reduced by
credits allowed by the custodian........ 1.21%(a) 1.21%(a) N/A
Ratio of operating expenses to average
net assets without fee waivers and/or
fees reduced by credits allowed by the
custodian............................... 1.21%(a) 1.28%(a) 1.38%**
Net investment income/(loss) per share
without fee waivers and/or fees reduced
by credits allowed by the custodian..... $ (0.12) $ (0.01) $ 0.05
Average commission rate paid (b)......... $ 0.0319 N/A N/A
</TABLE>
- ------------
* The Fund commenced operations on January 12, 1994.
** Annualized.
+ Total return represents aggregate total return for the periods indicated.
The total return would have been lower if certain fees had not been waived
by the investment advisor and administrator or if fees had not been reduced
by credits allowed by the custodian.
++ Per share numbers have been calculated using the average shares method,
which more appropriately presents the per share data for the year since the
use of the undistributed income method did not accord with the results of
operations.
# Amount represents less than $0.01 per share.
(a) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund as required by amended disclosure requirements effective for
fiscal years beginning on or after September 1, 1995.
39
<PAGE>
FINANCIAL HIGHLIGHTS
INTERNATIONAL GROWTH FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
12/31/96++ 12/31/95 12/31/94 12/31/93*
---------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net asset value,
beginning of year...... $ 12.11 $ 11.47 $ 11.31 $ 10.00
-------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.07 0.18 0.01 0.02
Net realized and
unrealized gain on
investments............ 1.01 0.58 0.19## 1.29
-------- -------- -------- --------
Total from investment
operations............. 1.08 0.76 0.20 1.31
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (0.17) (0.00)# (0.03) --
Distributions from net
realized gains......... -- (0.12) (0.01) --
-------- -------- -------- --------
Total distributions..... (0.17) (0.12) (0.04) --
-------- -------- -------- --------
Net asset value, end of
year................... $ 13.02 $ 12.11 $ 11.47 $ 11.31
======== ======== ======== ========
TOTAL RETURN+ 9.04% 6.61% 1.88% 13.10%
======== ======== ======== ========
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in 000's)............. $ 62,355 $ 45,909 $ 46,529 $ 10,638
Ratio of operating
expenses to average net
assets................. 1.39% 1.47% 1.34% 0.83%**
Ratio of net investment
income to average net
assets................. 0.56% 0.91% 0.83% 0.61%**
Portfolio turnover
rate................... 98% 72% 51% 24%
Ratio of operating
expenses to average net
assets without fees
reduced by credits
allowed by the
custodian.............. 1.39%(a) 1.47%(a) N/A N/A
Ratio of operating
expenses to average net
assets without fee
waivers, expenses
absorbed and/or fees
reduced by credits
allowed by the
custodian.............. 1.39%(a) 1.48%(a) 1.50% 2.85%**
Net investment
income/(loss) per share
without fee waivers
and/or expenses
absorbed and/or fees
reduced by credits
allowed by the
custodian.............. $ 0.07 $ 0.17 $ 0.01 $ (0.06)
Average commission rate
paid (b)............... $ 0.0253 N/A N/A N/A
</TABLE>
- ------------
* The Fund commenced operations on May 7, 1993.
** Annualized.
+ Total return represents aggregate total return for the periods indicated.
The total return would have been lower if certain fees had not been waived
by the investment advisor and administrator and if certain expenses had not
been absorbed by the investment advisor or if fees had not been reduced by
credits allowed by the custodian.
++ Per share numbers have been calculated using the average shares method,
which more appropriately presents the per share data for the year since the
use of the undistributed income method did not accord with the results of
operations.
# Amount represents less than $0.01 per share.
## The amount shown may not accord with the change in the aggregate gains and
losses of portfolio securities due to timing of sales and redemptions of
Fund shares.
(a) The ratio includes custodian fees before reduction by credits allowed by
the custodian as required by amended disclosure requirements effective
September 1, 1995.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund as required by amended disclosure requirements effective for
fiscal years beginning on or after September 1, 1995.
40
<PAGE>
PORTFOLIO OF INVESTMENTS
GLOBAL MONEY FUND
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
COMMERCIAL PAPER -- (FOREIGN) -- 34.3%
$1,000,000 Asea Brown Boveri Capital Corporation, 7.100% due
01/03/1997++........................................ $ 999,606
1,000,000 Barclays U.S. Funding Corporation,
5.812% due 01/03/1997++............................. 999,682
1,000,000 Bayerische Vereinsbank, 5.400% due 01/06/1997++...... 999,250
1,000,000 Caisse,
5.330% due 02/06/1997++............................. 994,670
1,000,000 Cregem North America,
5.452% due 02/12/1997++............................. 993,805
1,000,000 Deutsche Bank,
5.700% due 01/02/1997++............................. 999,842
1,000,000 Korea Development Bank, 5.320% due 03/05/1997++...... 990,690
1,000,000 Societe Generale,
5.380% due 01/17/1997++............................. 1,000,000
-----------
Total Commercial Paper--(Foreign) (Cost $7,977,545).. 7,977,545
-----------
CERTIFICATES OF DEPOSIT -- (YANKEE) -- 21.5%
1,000,000 Bank of Tokyo, Ltd.,
5.580% due 03/17/1997............................... 1,000,000
1,000,000 Canadian Imperial Bank of Commerce, 5.460% due
02/19/1997.......................................... 1,000,014
1,000,000 Industrial Bank of Japan, 5.470% due 02/10/1997...... 999,893
1,000,000 Landesbank Hessen-Thueringen, 6.010% due 07/18/1997.. 1,001,542
1,000,000 Sanwa Bank Ltd.,
5.680% due 01/13/1997............................... 1,000,003
-----------
Total Certificates of Deposit--(Yankee)
(Cost $5,001,452)................................... 5,001,452
-----------
U.S. GOVERNMENT AGENCY DISCOUNT NOTE -- 18.4% (Cost $4,274,228)
4,275,000 Federal Home Loan Bank (FHLB),
6.500% due 01/02/1997++............................. 4,274,228
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
COMMERCIAL PAPER -- (DOMESTIC) -- 17.1%
$1,000,000 AIG Funding Corporation, 5.950% due 01/02/1997++..... $ 999,835
1,000,000 Coca-Cola Company, 5.920% due 01/09/1997++........... 998,684
1,000,000 General Electric Capital Corporation, 5.390% due
01/06/1997++........................................ 999,251
1,000,000 Penney (J.C.) Funding Corporation,
5.420% due 02/10/1997++............................. 993,978
-----------
Total Commercial Paper --(Domestic)
(Cost $3,991,748)................................... 3,991,748
-----------
U.S. TREASURY OBLIGATIONS -- 6.4%
U.S. TREASURY NOTES -- 4.3%
500,000 6.000% due 08/31/1997................................ 499,879
500,000 5.375% due 11/30/1997................................ 499,279
-----------
Total U.S. Treasury Notes (Cost $999,158)............ 999,158
-----------
U.S. TREASURY BILL -- 2.1% (Cost $480,121)
500,000 5.805% due 09/18/1997++.............................. 480,121
-----------
Total U.S. Treasury Obligations (Cost $1,479,279).... 1,479,279
-----------
MEDIUM-TERM NOTES -- 5.8%
850,000 Federal National Mortgage Association
(FNMA),
5.480% due 01/02/1998............................... 849,014
500,000 PNC Bank N.A.,
9.000% due 12/11/1997+.............................. 499,651
-----------
Total Medium-Term Notes
(Cost $1,348,665)................................... 1,348,665
-----------
</TABLE>
<TABLE>
<S> <C> <C> <C>
TOTAL INVESTMENTS
(COST $24,072,917*)... 103.5% 24,072,917
OTHER ASSETS AND
LIABILITIES (NET)..... (3.5) (807,400)
----- -----------
NET ASSETS............. 100.0% $23,265,517
===== ===========
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
+ Variable rate security. The interest rate shown reflects the rate currently
in effect.
++ Rate represents annualized yield at date of purchase (unaudited).
See Notes to Financial Statements.
41
<PAGE>
PORTFOLIO OF INVESTMENTS
SHORT TERM HIGH QUALITY BOND FUND
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
CORPORATE NOTES -- 24.6%
$100,000 Colonial Realty, Sr. Note, 7.500% due 07/15/2001...... $ 101,500
100,000 ERP Operating LP, 8.500% due 05/15/1999+++............ 103,559
General Motors Acceptance Corporation:
300,000 Deb.,
8.625% due 06/15/1999** .............................. 315,189
200,000 MTN,
7.850% due 11/17/1997** .............................. 203,410
200,000 Lockheed Martin Corporation, 6.850% due 05/15/2001.... 202,000
Lyondell Petrochemical Company:
100,000 9.125% due 03/15/2002................................. 108,779
150,000 9.750% due 09/04/2003+++.............................. 170,952
250,000 Oasis Residential Inc., 6.750% due 11/15/2001......... 247,500
250,000 Southern National Corporation, Sub. Note, 7.050% due
05/23/2003........................................... 252,265
300,000 Sun Communities Inc., Sr. Note,
7.625% due 05/01/2003................................ 306,033
100,000 Susa Partnership LP,
7.125% due 11/01/2003................................ 99,750
Taubman Realty Corporation:
100,000 8.000% due 06/15/1999................................. 102,156
100,000 MTN,
7.500% due 06/15/2002................................. 100,785
The Money Store, Inc.:
280,000 9.160% due 09/09/1997+++.............................. 284,942
300,000 7.630% due 04/15/1998+++.............................. 303,198
Time Warner Inc.:
100,000 7.450% due 02/01/1998................................. 101,101
50,000 7.950% due 02/01/2000................................. 51,634
-----------
Total Corporate Notes (Cost $3,119,524)............... 3,054,753
-----------
ASSET-BACKED SECURITIES -- 24.4%
132,625 Advanta Mortgage Loan Trust, 1996-2-A1,
6.740% due 11/25/2009................................ 133,155
100,000 Conti-Mortgage Home Equity Loan Trust, 1996-3-A2,
6.950% due 07/15/2011................................ 100,843
250,000 Green Tree Financial Corporation,
1995-1-B2,
9.200% due 06/15/2025................................ 266,405
165,000 Green Tree Home Improvement, 1995-DB2, 7.450% due
09/15/2025........................................... 164,980
96,475 Green Tree NIM, 1994-B, Class A,
7.850% due 07/15/2004................................ 97,560
102,415 Green Tree Recreational, Equipment & Consumer, 1996-A,
Class A1,
5.550% due 02/15/2018................................ 100,956
94,402 Green Tree Security Mortgage Trust, 1994-A, 6.900% due
02/15/2004........................................... 94,063
100,000 H & T Master Trust,
8.430% due 08/15/2002+++............................. 98,900
10,000 Household Affinity Credit Card, 1993, 4.950% due
03/15/1999........................................... 9,997
Merrill Lynch Mortgage Investors, Inc.:
57,243 1991-B-A,
9.200% due 04/15/2011................................. 58,227
78,442 1991-I-A,
7.650% due 01/15/2012................................. 79,447
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
$239,365 1992-B-A4,
7.850% due 04/15/2012................................. $ 242,579
362,875 Mid-State Trust, Series 4, Class A,
8.330% due 04/01/2030................................ 384,350
141,378 Sec Pac Manufacturing Housing, 95-1, Class A1, 6.500% due
04/10/2020........................................... 141,894
10,000 Standard Credit Card Trust, 94-1A,
4.650% due 03/07/1999................................ 9,991
The Money Store, Inc.:
200,000 1996-A-A2,
6.330% due 06/15/2008................................. 200,287
185,142 1996-B-A1,
6.720% due 02/15/2010................................. 186,058
400,000 UCFC Home Equity Loan Trust, 1995-B1, 6.600% due
07/10/2009** .. 401,668
250,000 World Omni Automobile Lease Securitization, 1996-B,
6.850% due 11/15/2002+++............................. 250,703
---------
Total Asset-Backed Securities (Cost $2,894,827)....... 3,022,063
---------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES -- 22.2%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) -- 13.0%
92,309 #121425, Seasoned,
11.000% due 04/15/2015............................... 104,625
126,245 #140834, Seasoned,
11.000% due 12/15/2015............................... 143,088
56,076 #144538, Seasoned,
11.000% due 12/15/2015............................... 63,557
132,108 #151670, Seasoned,
11.000% due 12/15/2015............................... 149,490
63,542 #254937, Seasoned,
10.000% due 06/15/2019............................... 69,955
105,426 #257814, Seasoned,
10.000% due 09/15/2018............................... 116,066
91,755 #293511, Seasoned,
10.000% due 07/15/2020............................... 101,016
263,339 #780081, Seasoned,
10.000% due 02/15/2025** ............................ 290,042
69,490 #780121, Seasoned,
10.000% due 04/15/2025............................... 76,439
65,545 #780141, Seasoned,
10.000% due 12/15/2020............................... 72,131
399,245 #780317, Seasoned,
9.000% due 12/15/2020................................ 425,815
---------
Total GNMAs (Cost $1,585,156)......................... 1,612,224
---------
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES (ARM) -- 6.6%
159,423 Federal Home Loan Mortgage Corporation (FHLMC),
#845988,
7.792% due 11/01/2021+............................... 166,398
Federal National Mortgage Association (FNMA):
240,024 #82247,
6.125% due 04/01/2019+............................... 238,899
71,867 #124571,
7.837% due 11/01/2022+............................... 74,012
85,843 #152205,
7.366% due 01/01/2019+............................... 88,472
250,000 #313257,
6.132% due 11/01/2035................................ 248,828
---------
Total ARMs (Cost $811,075)............................ 816,609
---------
</TABLE>
See Notes to Financial Statements.
42
<PAGE>
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
SHORT TERM HIGH QUALITY BOND FUND
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES -- (CONTINUED)
FEDERAL HOME LOAN MORTGAGE CORPORATION
(FHLMC) -- 2.6% (Cost $331,540)
$ 332,772 5 Year Balloon, GOLD, #G50135,
5.500% due 03/01/1999................................ $ 324,140
---------
Total U.S. Government Agency Mortgage-Backed
Securities (Cost $2,727,771)......................... 2,752,973
---------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 14.0%
Countrywide Funding Corporation:
29,840 1994-1-A3,
6.250% due 03/25/2024................................. 28,553
500,000 1994-2-A8,
6.500% due 02/25/2009** .............................. 498,590
203,470 Federal Home Loan Mortgage Corporation (FHLMC), (P/O),
REMIC, #1719-C, Zero coupon due 04/15/1999........... 184,840
156,686 Fund America Investors Corporation,
1991-1-H,
7.950% due 02/20/2020** ............................. 158,693
140,962 General Electric Capital Mortgage Association, 1994-
27-A1,
6.500% due 07/25/2024** ............................. 140,169
295,168 Norwest Asset Securities Corporation,
1996-5-A13,
7.500% due 11/25/2026 ............................... 296,644
Prudential Home Mortgage Securities:
77,053 1992-47,
7.500% due 01/25/2023................................ 76,885
274,522 1993-43-A1,
5.400% due 10/25/2023................................ 271,003
83,294 Ryland Acceptance Corporation,
8.950% due 08/20/2019................................ 85,245
---------
Total Collateralized Mortgage Obligations (Cost
$1,736,711).......................................... 1,740,622
---------
U.S. TREASURY NOTES -- 7.3%
300,000 5.625% due 11/30/2000................................. 294,561
600,000 6.500% due 08/31/2001................................. 606,564
---------
Total U.S. Treasury Notes (Cost $896,274)............. 901,125
---------
FOREIGN BOND -- 4.0% (Cost $500,555)
NZD 725,000 Government of New Zealand,
8.138% due 04/09/1997++.............................. 502,079
---------
U.S. GOVERNMENT AGENCY OBLIGATION -- 1.5%
(Cost $177,738)
$ 175,000 Federal National Mortgage Association (FNMA), (Inverse
Floater),
9.897% due 12/29/1997+............................... 180,688
---------
COMMERCIAL PAPER -- 1.3% (Cost $164,000)
164,000 General Electric Capital Corporation,
7.100% due 01/02/1997................................ 164,000
---------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL EXPIRATION STRIKE VALUE
AMOUNT DATE PRICE (NOTE 2)
--------- ---------- ------ -----------
<C> <S> <C> <C> <C>
OPTIONS PURCHASED -- 0.0%#
PUT OPTION PURCHASED ON FOREIGN CURRENCY -- 0.00%#
(Cost $3,552)
NZD 725,000 New Zealand Dollar Put....... 04/07/1997 $0.685 $ 2,208
-----------
<CAPTION>
NUMBER OF
CONTRACTS
---------------
<C> <S> <C> <C> <C>
CALL OPTION PURCHASED ON FOREIGN INTEREST RATE
FUTURES -- 0.0%# (Cost $7,075)
21 Euro Dollar Call............. 03/14/1997 94.500 1,575
-----------
Total Options Purchased
(Cost $10,627).......................... 3,783
-----------
TOTAL INVESTMENTS (COST $12,228,027*)..................... 99.3% 12,322,086
-----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<C> <S> <C> <C> <C>
CALL OPTION WRITTEN ON FOREIGN CURRENCY -- (0.0)%#
(Premium received $3,552)
NZD 725,000 New Zealand Dollar Call...... 04/07/1997 $0.715 (3,104)
-----------
OTHER ASSETS AND LIABILITIES (NET)........................ 0.7 82,900
------ -----------
NET ASSETS................................................ 100.0% $12,401,882
====== ===========
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
** A portion or all of this security is pledged as collateral for option
contracts.
+ Variable rate security. The interest rate shown reflects the rate currently
in effect.
++ 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.
# Amount represents less than 0.1% of net assets.
GLOSSARY OF TERMS
BALLOON--Five- and seven-year mortgages with larger dollar amounts of payments
falling due in the later years of the obligation
GOLD --Payments are on accelerated 45-day payment cycle instead of 75-day
payment cycle
MTN --Medium Term Note
NZD --New Zealand Dollar
P/O --Principal Only
REMIC --Real Estate Mortgage Investment Conduit
See Notes to Financial Statements.
43
<PAGE>
PORTFOLIO OF INVESTMENTS
SHORT TERM GLOBAL GOVERNMENT FUND
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
FOREIGN BONDS AND NOTES -- 67.6%
GERMAN DEUTSCHE MARK BONDS -- 12.9%
Federal Republic of Germany:
DEM 1,500,000 6.625% due 01/20/1998 ....................... $ 1,008,480
1,800,000 6.000% due 02/20/1998** ..................... 1,204,796
925,000 5.250% due 10/20/1998 ....................... 619,913
-----------
Total German Deutsche Mark Bonds (Cost
$2,813,140).................................. 2,833,189
-----------
ITALIAN LIRA BONDS -- 11.7%
Italian Treasury Bonds:
ITL 1,560,000,000 8.500% due 08/01/1997........................ 1,033,281
2,220,000,000 8.500% due 01/01/1999........................ 1,524,293
-----------
Total Italian Lira Bonds
(Cost $2,309,556)............................ 2,557,574
-----------
DANISH KRONER BOND -- 8.4% (Cost $1,881,943)
DKK 10,000,000 Kingdom of Denmark,
9.000% due 11/15/1998** ..................... 1,845,945
-----------
NEW ZEALAND DOLLAR BOND -- 8.0% (Cost $1,756,678)
NZD 2,500,000 Government of New Zealand,
8.700% due 02/10/1997++ ..................... 1,752,304
-----------
CANADIAN DOLLAR BONDS -- 6.1%
Government of Canada:
CAD 900,000 6.500% due 09/01/1998** ..................... 682,056
860,000 6.500% due 08/01/1999** ..................... 656,327
-----------
Total Canadian Dollar Bonds
(Cost $1,289,258)............................ 1,338,383
-----------
GREAT BRITAIN POUND STERLING NOTE -- 5.1%
(Cost $1,043,346)
GBP 640,000 United Kingdom Treasury Note, 8.000% due
12/07/2000................................... 1,126,139
-----------
SPANISH PESETA BONDS -- 4.6%
Government of Spain:
ESP 85,000,000 11.450% due 08/30/1998 ...................... 707,106
35,000,000 10.250% due 11/30/1998 ...................... 291,107
-----------
Total Spanish Peseta Bonds
(Cost $998,192).............................. 998,213
-----------
AUSTRALIAN DOLLAR BOND AND NOTE -- 4.0%
AUD 595,000 Commonwealth of Australia,
7.000% due 08/15/1998 ....................... 478,138
500,000 New South Wales Treasury Note, 7.500% due
02/01/1998 .................................. 402,443
-----------
Total Australian Dollar Bond and Note (Cost
$854,080) ................................... 880,581
-----------
NETHERLANDS GUILDER BONDS -- 4.0%
Government of Netherlands:
NLG 910,000 6.250% due 07/15/1998 ........................ 548,865
500,000 7.500% due 06/15/1999 ........................ 314,598
-----------
Total Netherlands Guilder Bonds (Cost
$914,750) ................................... 863,463
-----------
SWEDISH KRONA BOND -- 2.8% (Cost $513,551)
SEK 3,700,000 Kingdom of Sweden,
11.000% due 01/21/1999** .................... 610,419
-----------
Total Foreign Bonds and Notes
(Cost $14,374,494)........................... 14,806,210
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
U.S. TREASURY NOTES -- 13.0%
$ 500,000 5.125% due 03/31/1998................................ $ 496,655
2,325,000 6.375% due 01/15/1999** ............................. 2,346,888
-----------
Total U.S. Treasury Notes
(Cost $2,852,238)................................... 2,843,543
-----------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 9.8%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) -- 7.7%
(Cost $1,653,684)
1,523,382 Pass-through certificates,
10.000% due 12/15/2017-06/15/2020................... 1,677,136
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 1.3%
(Cost $282,011)
276,579 #141461,
7.781% due 11/01/2021+.............................. 288,508
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 0.8% (Cost $182,974)
181,948 #1223,
7.250% due 07/15/2020............................... 183,369
-----------
Total U.S. Government Agency Mortgage-Backed
Securities (Cost $2,118,669)........................ 2,149,013
-----------
INDEXED NOTES -- 3.0%
J.P. Morgan & Company:
436,000 (Value is directly linked to the
Philippine Peso)
9.700% due 01/21/1997........................... 440,129
220,000 (Value is directly linked to the South Korean Won)
9.825% due 02/05/1997........................... 215,942
-----------
Total Indexed Notes (Cost $656,000).................. 656,071
-----------
CORPORATE NOTE -- 1.4% (Cost $299,156)
300,000 Sun Communities Inc., Sr. Note,
7.625% due 05/01/2003............................... 306,033
-----------
COMMERCIAL PAPER -- 1.6% (Cost $366,000)
366,000 General Electric Capital Corporation,
7.100% due 01/02/1997............................... 366,000
-----------
</TABLE>
<TABLE>
<CAPTION>
EXPIRATION STRIKE
DATE PRICE
---------- ------
<C> <S> <C> <C> <C>
PUT OPTIONS PURCHASED ON FOREIGN CURRENCY -- 0.2%
DEM 1,500,000 German Deutsche Mark
Put.................... 03/03/1997 $ 1.567 5,550
AUD 1,100,000 Australian Dollar Put... 03/07/1997 0.790 6,270
NZD 2,500,000 New Zealand Dollar Put.. 03/13/1997 0.685 4,497
ITL 4,000,000,000 Italian Lira Put........ 03/25/1997 1,561.750 9,960
DEM 1,000,000 German Deutsche Mark
Put.................... 05/23/1997 1.521 15,000
----------
Total Put Options Purchased on Foreign
Currency (Cost $56,105)...................... 41,277
----------
TOTAL INVESTMENTS (COST $20,722,662*).................... 96.6% 21,168,147
----------
</TABLE>
See Notes to Financial Statements.
44
<PAGE>
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
SHORT TERM GLOBAL GOVERNMENT FUND
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL EXPIRATION STRIKE VALUE
AMOUNT DATE PRICE (NOTE 2)
--------- ---------- ------ --------
<C> <S> <C> <C> <C>
CALL OPTIONS WRITTEN ON FOREIGN CURRENCY -- (0.2)%
AUD 1,100,000 Australian Dollar
Call.................. 03/07/1997 $ 0.808 $ (3,960)
NZD 2,500,000 New Zealand Dollar
Call.................. 03/13/1997 0.707 (15,695)
ITL 4,000,000,000 Italian Lira Call...... 03/25/1997 1,508.150 (20,400)
-----------
Total Call Options Written on Foreign
Currency
(Premiums received $34,280).................. (40,055)
-----------
OTHER ASSETS AND LIABILITIES (NET)........................ 3.6% 782,293
---------- -----------
NET ASSETS................................................ 100.0% $21,910,385
========== ===========
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
** A portion or all of this security is pledged as collateral for option
contracts.
+ Variable rate security. The interest rate shown reflects the rate currently
in effect.
++ Rate represents annualized yield at date of purchase (unaudited).
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO BUY
<TABLE>
<CAPTION>
CONTRACTS TO RECEIVE UNREALIZED
------------------------------------------------------- APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (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)
--------
</TABLE>
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
<TABLE>
<CAPTION>
CONTRACTS TO DELIVER
--------------------------------------------------------- UNREALIZED
EXPIRATION LOCAL VALUE IN IN EXCHANGE 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>
GLOSSARY OF TERMS
AUD--Australian Dollar
BEF--Belgian Franc
CAD--Canadian Dollar
CHF--Swiss Franc
DEM--German Deutsche Mark
DKK--Danish Kroner
ESP--Spanish Peseta
FRF--French Franc
GBP--Great Britain Pound
Sterling
ITL--Italian Lira
NLG--Netherlands Guilder
NZD--New Zealand Dollar
SEK--Swedish Krona
See Notes to Financial Statements.
45
<PAGE>
PORTFOLIO OF INVESTMENTS
U.S. GOVERNMENT FUND
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 69.1%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) -- 30.6%
$9,627,743 7.000% due 02/15/2011-04/15/2026**................... $ 9,588,876
9,067,058 7.500% due 01/15/2023-11/15/2023**................... 9,108,544
1,515,000 8.000% due 07/15/2026-12/15/2026**................... 1,545,300
86,465 9.000% due 08/15/2021**.............................. 92,166
------------
Total GNMAs (Cost $20,316,480)....................... 20,334,886
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 28.9%
1,255,138 GOLD, 5.500% due 12/01/2008**........................ 1,189,633
5,337,623 GOLD, 6.500% due 09/01/2025-06/01/2026**............. 5,111,403
2,479,933 GOLD, 8.500% due 08/01/2026**........................ 2,572,136
1,178,583 GOLD, 8.750% due 01/01/2013**........................ 1,229,876
377,797 GOLD, 9.000% due 09/01/2020**........................ 402,588
3,500,000 Commitment to Purchase, GOLD,
7.000% due 03/01/2025............................... 3,500,000
5,000,000 Commitment to Purchase, GOLD,
8.500% due 05/13/2026............................... 5,189,063
------------
Total FHLMCs (Cost $19,055,002)...................... 19,194,699
------------
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES (ARM) -- 4.7%
Government National Mortgage Association II:
349,088 7.125% due 07/20/2018+**............................. 356,614
884,484 7.125% due 08/20/2020+**............................. 903,969
893,892 7.125% due 09/20/2020+**............................. 913,727
955,208 7.125% due 06/20/2023+**............................. 973,119
------------
Total ARMs (Cost $3,137,491)......................... 3,147,429
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 3.4%
757,505 8.000% due 05/01/2022**.............................. 787,199
418,213 8.500% due 02/01/2023**.............................. 437,685
946,481 10.000% due 07/01/2020**............................. 1,041,716
------------
Total FNMAs (Cost $2,230,769)........................ 2,266,600
------------
RESIDENTIAL FUNDING MORTGAGE SECURITY -- 1.5%
(Cost $963,750)
1,000,000 Trust 92-539, Class S39-A8,
7.500% due 11/25/2007**............................. 1,013,120
------------
Total U.S. Government Agency
Mortgage-Backed Securities
(Cost $45,703,492).................................. 45,956,734
------------
U.S. TREASURY OBLIGATIONS -- 26.6%
U.S TREASURY BONDS -- 16.9%
3,850,000 6.750% due 08/15/2026**.............................. 3,878,875
7,500,000 6.500% due 11/15/2026***............................. 7,360,575
------------
Total U.S. Treasury Bonds
(Cost $11,283,461).................................. 11,239,450
------------
U.S. TREASURY NOTES -- 9.7%
1,130,000 6.250% due 06/30/1998**.............................. 1,137,594
1,600,000 6.000% due 09/30/1998**.............................. 1,604,000
3,700,000 6.500% due 10/15/2006**.............................. 3,720,239
------------
Total U.S. Treasury Notes
(Cost $6,445,182)................................... 6,461,833
------------
Total U.S. Treasury Obligations
(Cost $17,728,643).................................. 17,701,283
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -- 21.3%
Federal National Mortgage Association (FNMA), REMIC,
Pass-through certificates:
$1,261,988 Trust 89-90, Class E,
8.700% due 12/25/2019**............................. $ 1,311,672
4,323,487 Trust 92-55, Class DZ,
8.000% due 04/25/2022**............................. 4,430,190
5,476,023 Trust 92-83, Class X,
7.000% due 02/25/2022**............................. 5,003,716
1,646,891 Trust 93-159, Class PA, (P/O),
Zero coupon due 01/25/2021**........................ 1,473,968
1,995,069 Trust 93-161, Class E, (P/O),
Zero coupon due 02/25/2023**........................ 1,327,345
906,983 Trust 94-57, Class C, (P/O),
Zero coupon due 01/25/2024**........................ 649,908
------------
Total Collateralized Mortgage Obligations (Cost
$13,305,771)....................................... 14,196,799
------------
SMALL BUSINESS ADMINISTRATION (SBA) -- 2.7%
284,000 8.500% due 01/01/2015**............................. 303,703
484,655 6.950% due 09/01/2015**............................. 482,534
986,154 7.600% due 05/01/2016**............................. 1,018,204
------------
Total SBAs (Cost $1,776,997)........................ 1,804,441
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(COST
$78,514,903*)... 119.7% 79,659,257
OTHER ASSETS AND
LIABILITIES
(NET)........... (19.7) (13,095,962)
----- ------------
NET ASSETS....... 100.0% $ 66,563,295
===== ============
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
** A portion or all of the securities are pledged as collateral for futures
contracts and dollar roll transactions.
*** A portion or all of the security is pledged as collateral for reverse
repurchase agreements (Note 4).
+ Variable rate security. The interest rate shown reflects the rate currently
in effect.
<TABLE>
<CAPTION>
NUMBER OF UNREALIZED
CONTRACTS APPRECIATION
--------- ------------
<C> <S> <C>
FUTURES CONTRACTS--SHORT POSITION
113 U.S. Treasury Bond, Thirty Year, March 1997........... $212,586
========
</TABLE>
GLOSSARY OF TERMS
GOLD --Payments are on an accelerated 45-day payment cycle instead of 75-day
payment cycle
P/O --Principal Only
REMIC--Real Estate Mortgage
Investment Conduit
See Notes to Financial Statements.
46
<PAGE>
PORTFOLIO OF INVESTMENTS
CORPORATE INCOME FUND
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- 84.2%
MANUFACTURING -- 15.9%
$1,000,000 Boeing Company, Deb.,
8.750% due 08/15/2021............................... $ 1,177,500
1,500,000 Caterpillar Inc., Sinking Fund Deb.,
9.750% due 06/01/2019............................... 1,663,125
Ford Motor Company, Deb.:
250,000 8.875% due 01/15/2022............................... 288,437
600,000 8.875% due 11/15/2022............................... 648,000
1,000,000 General Motors Corporation, Deb.,
9.400% due 07/15/2021............................... 1,202,500
1,500,000 Lockheed Martin Corporation,
7.250% due 05/15/2006............................... 1,531,875
2,550,000 Tyco Laboratories, Inc., Deb.,
9.500% due 05/01/2022............................... 2,999,438
-----------
9,510,875
-----------
FINANCIAL -- 15.1%
1,000,000 Abbey National Plc, Global Note,
6.690% due 10/17/2005............................... 983,750
500,000 American General Corporation,
Sinking Fund Deb.,
7.500% due 07/15/2025............................... 501,250
1,000,000 Barclays North American Capital Corporation, Capital
Note,
9.750% due 05/15/2021**............................. 1,166,250
50,000 Chase Manhattan Corporation, Sub. Note,
8.000% due 06/15/1999............................... 52,000
230,000 Citicorp, Sub. Note,
8.625% due 12/01/2002............................... 252,425
1,550,000 Dean Witter, Discover & Company, Note,
6.300% due 01/15/2006 .............................. 1,474,437
First Chicago Corporation, Sub. Note:
600,000 11.250% due 02/20/2001............................... 698,250
100,000 9.250% due 11/15/2001................................ 110,500
1,000,000 First Tennessee National Corporation,
Sub. Capital Note,
10.375% due 06/01/1999.............................. 1,086,250
1,040,000 Fleet/Norstar Financial Group Inc.,
Sub. Note,
9.900% due 06/15/2001............................... 1,164,800
400,000 Ford Holdings, Inc., Deb.,
9.375% due 03/01/2020............................... 479,500
500,000 General Motors Acceptance Corporation, MTN,
7.550% due 01/14/1997............................... 500,255
516,000 Security Pacific Corporation, Sub. Note,
11.500% due 11/15/2000.............................. 601,140
-----------
9,070,807
-----------
TRANSPORTATION -- 8.9%
1,750,000 Carnival Corporation, Deb.,
7.200% due 10/01/2023............................... 1,677,812
2,000,000 Southwest Airlines Company, Pass-through
certificates, 94-A, Class A-4,
9.150% due 07/01/2016............................... 2,237,500
1,300,000 United Air Lines Inc.,
Pass-through certificates,
9.560% due 10/19/2018 .............................. 1,426,750
-----------
5,342,062
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
INDUSTRIAL -- 8.3%
$ 520,000 AMAX Inc., Note,
9.875% due 06/13/2001............................... $ 579,800
1,000,000 Circus Circus Enterprises Inc., Sr. Note,
6.450% due 02/01/2006............................... 948,750
1,000,000 Conrail Inc., Deb.,
9.750% due 06/15/2020 .............................. 1,252,500
200,000 Ogden Corporation, Deb.,
9.250% due 03/01/2022 .............................. 228,750
1,800,000 Praxair, Inc., Deb.,
8.700% due 07/15/2022............................... 1,962,000
-----------
4,971,800
-----------
FOREST PRODUCTS -- 7.9%
1,200,000 Boise Cascade Corporation, Deb.,
9.450% due 11/01/2009............................... 1,387,500
Georgia-Pacific Corporation, Deb.:
1,000,000 9.500% due 05/15/2022............................... 1,096,250
300,000 8.125% due 06/15/2023............................... 295,500
700,000 International Paper Company, Deb.,
6.875% due 11/01/2023............................... 646,625
1,400,000 Mead Corporation, Deb.,
7.125% due 08/01/2025............................... 1,302,000
-----------
4,727,875
-----------
YANKEE (U.S. DOLLAR DENOMINATED) -- 4.8%
1,700,000 Northern Telecom Capital, Sub. Note,
7.400% due 06/15/2006............................... 1,755,250
500,000 Petro-Canada, Deb.,
9.250% due 10/15/2021............................... 606,875
500,000 Trans-Canada Pipeline Corporation, Deb.,
8.500% due 03/20/2023............................... 529,375
-----------
2,891,500
-----------
ENERGY -- 4.7%
1,300,000 Occidental Petroleum Corporation, Sr. Deb.,
11.125% due 08/01/2010 ............................. 1,701,375
1,000,000 Phillips Petroleum Company, Deb.,
9.180% due 09/15/2021 .............................. 1,103,750
-----------
2,805,125
-----------
MEDIA -- 4.6%
1,200,000 News America Holdings,
8.000% due 10/17/2016............................... 1,201,500
Tele-Communications, Inc.:
1,035,000 Sr. Deb.,
9.250% due 01/15/2023............................... 1,029,825
200,000 Sr. Note,
9.250% due 04/15/2002 .............................. 213,250
300,000 Time Warner Inc., Deb.,
9.150% due 02/01/2023............................... 325,875
-----------
2,770,450
-----------
ELECTRIC -- 4.4%
200,000 Duke Power Company,
First and Refundable Mortgage,
6.875% due 08/01/2023............................... 185,250
700,000 Florida Power & Light Company,
First Mortgage,
7.050% due 12/01/2026**............................. 665,875
100,000 Philadelphia Electric Company, First and Refundable
Mortgage,
8.250% due 09/01/2022............................... 103,250
</TABLE>
See Notes to Financial Statements.
47
<PAGE>
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
CORPORATE INCOME FUND
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
ELECTRIC -- (CONTINUED)
Texas Utilities Electric Company:
$ 150,000 First and Collateral Mortgage,
8.500% due 08/01/2024................................ $ 157,875
1,500,000 First Mortgage,
7.875% due 04/01/2024................................ 1,498,125
-----------
2,610,375
-----------
REGIONAL BANKS -- 3.4%
400,000 Banc One Corporation, Sub. Note,
10.000% due 08/15/2010............................... 497,500
82,000 Barnett Banks, Florida, Inc., Sub. Note,
10.875% due 03/15/2003............................... 98,605
40,000 First Interstate Bancorp, MTN,
9.375% due 11/15/1998 ............................... 42,250
NCNB Corporation, Sub. Note:
1,100,000 9.375% due 09/15/2009................................. 1,299,375
60,000 10.200% due 07/15/2015................................ 76,050
-----------
2,013,780
-----------
GAS -- 3.4%
1,200,000 ANR Pipeline Company, Deb.,
9.625% due 11/01/2021................................ 1,480,500
500,000 Panhandle Eastern Pipe Line Company, Deb.,
8.625% due 04/15/2025................................ 526,250
-----------
2,006,750
-----------
RETAIL -- 2.8%
May Department Stores Company, Deb.:
1,000,000 8.375% due 10/01/2022................................. 1,046,250
600,000 8.375% due 08/01/2024................................. 632,250
-----------
1,678,500
-----------
Total Corporate Bonds and Notes (Cost $49,993,710).... 50,399,899
-----------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 10.4%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) -- 4.4%
1,035,205 #386671,
9.000% due 02/15/2025................................ 1,090,847
1,597,241 #421737,
7.000% due 06/15/2026................................ 1,562,801
-----------
Total GNMAs (Cost $2,588,576)......................... 2,653,648
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 4.3%
$ 510,586 #C00385, GOLD,
9.000% due 01/01/2025............................... $ 539,626
2,000,000 Commitment to Purchase,
8.000% due 01/01/2027............................... 2,035,000
-----------
Total FHLMCs (Cost $2,572,765)....................... 2,574,626
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 1.7%
(Cost $1,014,063)
1,000,000 Commitment to Purchase,
7.500% due 01/01/2012 .............................. 1,014,375
-----------
Total U.S. Government Agency Mortgage-Backed
Securities (Cost $6,175,404)........................ 6,242,649
-----------
U.S. TREASURY BOND -- 2.4% (Cost $1,448,750)
1,000,000 13.750% due 08/15/2004**............................. 1,439,120
-----------
COMMERCIAL PAPER -- 5.0%
2,000,000 Associates Corporation of North America,
5.350% due 01/14/1997++............................. 1,996,136
1,000,000 Prudential Funding,
5.420% due 01/16/1997++............................. 997,742
-----------
Total Commercial Paper (Cost $2,993,878)............. 2,993,878
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
------
<C> <S> <C> <C>
INVESTMENT COMPANY
SECURITY -- 1.4%
(Cost $843,714)
843,714 Lehman
Provident
Tempfund.... 843,714
-----------
TOTAL
INVESTMENTS
(COST
$61,455,456*).. 103.4% 61,919,260
OTHER ASSETS AND
LIABILITIES
(NET).......... (3.4) (2,036,060)
------ -----------
NET ASSETS...... 100.0% $59,883,200
====== ===========
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
** A portion or all of this security is pledged as collateral for dollar roll
transactions.
++ Rate represents annualized yield at date of purchase (unaudited).
GLOSSARY OF TERMS
GOLD --Payments are on an accelerated 45-day payment cycle instead of
75-day payment cycle
MTN --Medium Term Note
See Notes to Financial Statements.
48
<PAGE>
PORTFOLIO OF INVESTMENTS
GROWTH AND INCOME FUND
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
COMMON STOCKS -- 98.0%
FINANCIAL SERVICES -- 12.6%
12,600 AMBAC Inc................................................. $ 837,900
14,300 Boatmen's Bancshares, Inc................................. 922,350
10,100 Dean Witter, Discover & Company........................... 669,125
18,300 First Chicago NBD Corporation............................. 983,625
9,200 First Hawaiian Inc........................................ 322,000
18,400 First USA, Inc............................................ 637,100
13,100 Firstar Corporation....................................... 687,750
20,000 Fleet Financial Group Inc. (New).......................... 997,500
3,200 NationsBank Corporation................................... 312,800
18,700 Providian Corporation..................................... 960,713
11,300 Salomon, Inc.............................................. 532,513
-----------
7,863,376
-----------
HEALTH CARE -- 11.4%
25,500 ALZA Corporation+......................................... 659,812
11,600 Bausch & Lomb Inc. ....................................... 411,800
4,000 Bristol-Myers Squibb Company.............................. 435,000
19,650 Columbia/HCA Healthcare Corporation....................... 800,737
24,300 Forest Labs Inc.+......................................... 795,825
8,300 Gensia, Inc.+............................................. 38,388
46,600 Humana Inc.+.............................................. 891,225
4,600 Schering-Plough Corporation............................... 297,850
8,800 SmithKline Beecham, ADR................................... 598,400
24,000 United Healthcare Corporation............................. 1,080,000
14,600 Warner-Lambert Company.................................... 1,095,000
-----------
7,104,037
-----------
ENERGY -- 10.5%
9,400 Anadarko Petroleum Corporation............................ 608,650
6,997 Cooper Cameron Corporation+............................... 535,270
13,200 Enron Corporation......................................... 569,250
21,600 Exxon Corporation......................................... 2,116,800
5,200 Royal Dutch Petroleum Company, ADR........................ 887,900
6,000 Texaco Inc................................................ 588,750
9,600 Tosco Corporation......................................... 759,600
16,524 Ultramar Diamond Shamrock Corporation..................... 522,572
-----------
6,588,792
-----------
MATERIALS & PROCESSING -- 9.4%
800 Albemarle Corporation..................................... 14,500
61,500 Allegheny Teledyne Inc.................................... 1,414,500
11,800 Allied Signal Inc......................................... 790,600
19,100 Aluminum Company of America............................... 1,217,625
6,500 du Pont (E.I.) de Nemours & Company....................... 613,437
5,000 Temple-Inland, Inc........................................ 270,625
23,500 Union Carbide Corporation................................. 960,563
18,200 USG Corporation+.......................................... 616,525
-----------
5,898,375
-----------
PRODUCER DURABLES -- 8.2%
19,500 Anixter International Inc.+............................... 314,437
9,700 Boeing Company............................................ 1,031,837
16,900 Coltec Industries, Inc.+.................................. 318,987
43,800 General Instrument Corporation+........................... 947,175
11,800 Grainger (W.W.) Inc....................................... 946,950
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
8,000 MagneTek Inc.+............................................ $ 103,000
3,800 Rohr Inc.+................................................ 85,975
41,500 WMX Technologies, Inc..................................... 1,353,938
-----------
5,102,299
-----------
TECHNOLOGY -- 8.1%
22,200 Advanced Micro Devices Inc.+.............................. 571,650
11,600 Bay Networks Inc.+........................................ 242,150
37,400 EMC Corporation+.......................................... 1,238,875
18,800 Input/Output, Inc.+....................................... 347,800
2,600 Intel Corporation......................................... 340,438
5,400 International Business Machines Corporation............... 815,400
9,700 Perkin Elmer Corporation.................................. 571,088
20,400 Quantum Corporation+...................................... 583,950
5,000 Read-Rite Corporation+.................................... 126,250
13,000 Sensormatic Electronics Corporation....................... 217,750
-----------
5,055,351
-----------
CONSUMER DISCRETIONARY -- 7.7%
9,100 International Flavors & Fragrances Inc. .................. 409,500
14,400 Procter & Gamble Company.................................. 1,548,000
26,900 TCI Satellite Entertainment, Inc., Class A+............... 265,638
94,200 Tele-Communications Inc., TCI Group,
Class A+................................................. 1,230,488
35,800 Time Warner, Inc.......................................... 1,342,500
-----------
4,796,126
-----------
CONSUMER STAPLES -- 7.5%
3,300 CPC International Inc..................................... 255,750
8,000 Kellogg Company........................................... 525,000
19,300 PepsiCo Inc............................................... 564,525
16,800 Philip Morris Companies Inc............................... 1,906,800
11,000 Ralston Purina Company.................................... 807,125
3,400 Unilever NV............................................... 595,850
-----------
4,655,050
-----------
TELECOMMUNICATIONS -- 6.4%
16,500 AT&T Corporation.......................................... 717,750
8,900 Bell Atlantic Corporation................................. 576,275
12,200 GTE Corporation........................................... 555,100
30,000 MCI Communications Corporation............................ 980,625
27,100 U.S. West Inc. ........................................... 873,975
11,600 WorldCom, Inc.+........................................... 302,325
-----------
4,006,050
-----------
AUTOS & TRANSPORTATION -- 5.4%
9,700 Consolidated Freightways Corporation+..................... 86,087
19,400 Consolidated Freightways Inc.............................. 431,650
28,700 Cooper Tire & Rubber Company.............................. 566,825
27,200 General Motors Corporation................................ 1,516,400
13,000 Union Pacific Corporation................................. 781,625
-----------
3,382,587
-----------
RETAIL -- 5.2%
23,900 Circuit City Stores Inc................................... 719,987
8,900 Federated Department Stores, Inc.+........................ 303,712
28,100 Toys R Us Inc.+........................................... 843,000
60,000 Wal-Mart Stores Inc....................................... 1,372,500
-----------
3,239,199
-----------
</TABLE>
See Notes to Financial Statements.
49
<PAGE>
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
GROWTH AND INCOME FUND
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
COMMON STOCKS -- (CONTINUED)
UTILITIES -- 2.3%
13,300 Duke Power Company.................................... $ 618,450
25,800 Pacific Gas & Electric Company........................ 541,800
7,800 Pinnacle West Capital Corporation..................... 247,650
-----------
1,407,900
-----------
COMPUTER SOFTWARE & SERVICES -- 2.0%
10,300 Autodesk Inc.......................................... 288,400
5,200 Broderbund Software Corporation+...................... 154,700
13,600 First Data Corporation................................ 496,400
20,900 Learning Company, Inc.+............................... 300,438
-----------
1,239,938
-----------
OTHER -- 1.3%
19,600 Cooper Industries, Inc................................ 825,650
-----------
Total Common Stocks (Cost $53,657,158)................ 61,164,730
-----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<C> <S> <C>
CONVERTIBLE NOTES -- 0.9%
$300,000 Berkshire Hathaway, Conv. Sr. Note,
1.000% due 12/03/2001................................ 280,125
125,000 Rohr Inc., Conv. Sub. Note,
7.750% due 05/15/2004................................ 266,406
-----------
Total Convertible Notes (Cost $421,538)............... 546,531
-----------
U.S. TREASURY BILLS -- 0.6%
56,000 4.985% due 01/23/1997++............................... 55,836
341,000 4.860% due 03/06/1997++............................... 337,940
-----------
Total U.S. Treasury Bills (Cost $393,886)............. 393,776
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
CONVERTIBLE PREFERRED STOCK -- 0.6%
(Cost $348,362)
6,600 Owens-Corning, Conv. Pfd.+++............................... $ 375,375
----------
</TABLE>
<TABLE>
<S> <C> <C> <C>
TOTAL INVESTMENTS
(COST
$54,820,944*)... 100.1% 62,480,412
OTHER ASSETS AND
LIABILITIES
(NET)........... (0.1) (35,877)
----- -----------
NET ASSETS....... 100.0% $62,444,535
===== ===========
</TABLE>
- ------------
* Aggregate cost for federal tax purposes is $54,838,399.
+ Non-income producing security.
++ 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.
GLOSSARY OF TERMS
ADR -- American Depositary Receipt
See Notes to Financial Statements.
50
<PAGE>
PORTFOLIO OF INVESTMENTS
GROWTH FUND
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
COMMON STOCKS -- 94.8%
TECHNOLOGY -- 18.7%
3,675 Advanced Micro Devices Inc.+............................ $ 94,631
138,175 Analog Devices Inc.+.................................... 4,680,678
67,300 Cisco Systems, Inc.+.................................... 4,281,963
19,300 Danka Business Systems, ADR............................. 682,738
6,075 Dell Computer Corporation+.............................. 322,734
2,900 Etec Systems, Inc.+..................................... 110,925
64,275 HBO & Company .......................................... 3,816,328
12,250 Intel Corporation....................................... 1,603,984
12,625 International Business Machines Corporation............. 1,906,375
34,850 Pittway Corporation, Class A............................ 1,864,475
38,700 Sun Microsystems, Inc.+................................. 994,106
5,850 Technology Solutions Company+........................... 242,775
41,050 Xylan Corporation+...................................... 1,159,663
-----------
21,761,375
-----------
TELECOMMUNICATIONS -- 16.6%
23,650 Ascend Communications Inc.+............................. 1,469,256
54,375 Cincinnati Bell, Inc.................................... 3,337,266
11,975 CommNet Cellular Inc.+.................................. 333,803
9,200 Lucent Technologies, Inc................................ 425,500
96,777 MFS Communication Company, Inc.+........................ 5,274,347
23,700 Millicom International Cellular SA+..................... 761,363
30,429 NetCom Systems AB, Class B+............................. 493,083
18,350 Nokia Corporation, Class A, Sponsored ADR............... 1,055,125
43,225 Paging Network Inc.+.................................... 659,181
26,575 Palmer Wireless Inc., Class A+.......................... 279,038
1,025 Premiere Technologies, Inc.+............................ 25,625
7,400 Telebras, Sponsored ADR................................. 566,100
249,811 Telecom Italia Mobile Spa............................... 631,526
10,875 U.S. Robotics Corporation+.............................. 783,000
2,550 West TeleServices Corporation+.......................... 58,013
119,925 WorldCom, Inc.+......................................... 3,125,545
-----------
19,277,771
-----------
FINANCIAL SERVICES -- 13.7%
27,150 Associates 1st Capital Corporation, Class A+............ 1,197,994
36,900 BA Merchant Services, Inc.+............................. 659,587
9,321 Banca Popolare Di Bergamo............................... 153,609
13,750 Bank of New York Company, Inc........................... 464,062
40,947 Barclays Bank Plc, Ord.................................. 701,568
3,700 Charles Schwab Corporation.............................. 118,400
13,125 Chase Manhattan Corporation............................. 1,171,406
9,799 Grupo Financiero Inbursa, Series B...................... 33,485
17,700 SunAmerica Inc.......................................... 785,438
36,725 UNUM Corporation........................................ 2,653,381
29,741 Wells Fargo & Company................................... 8,022,635
-----------
15,961,565
-----------
COMPUTER SOFTWARE & SERVICES -- 13.0%
11,225 Aspen Technology Inc.+.................................. 900,806
1,875 Baan Company, NV+....................................... 65,156
3,725 Black Box Corporation+.................................. 153,656
13,875 Concord EFS, Inc.+...................................... 391,969
4,100 Documentum, Inc.+....................................... 138,375
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C> <C>
72,125 First Data Corporation..................... $ 2,632,563
24,300 First USA Paymentech, Inc.+................ 823,163
25,750 HNC Software, Inc.+........................ 804,687
29,600 Indus Group Inc.+.......................... 762,200
4,025 Intelligroup, Inc.+........................ 44,275
25,275 JDA Software Group Inc.+................... 720,337
29,450 Keane Inc.+................................ 935,037
7,400 Microsoft Corporation+..................... 611,425
22,425 Netscape Communications Corporation+....... 1,275,422
6,500 Oracle Corporation+........................ 271,375
38,150 Parametric Technology Company+............. 1,959,956
44,025 Peoplesoft Inc.+........................... 2,110,448
3,325 Sapient Corporation+....................... 140,066
11,575 VeriFone Inc.+............................. 341,463
-----------
15,082,379
-----------
CONSUMER DISCRETIONARY -- 12.0%
29,575 Alco Standard Corporation.................. 1,526,809
1,650 Cambridge Technology Partners, Inc.+....... 55,378
22,025 Doubletree Corporation+.................... 991,125
7,600 Extended Stay America, Inc.+............... 152,950
34,125 Gucci Group+............................... 2,179,734
36,700 HFS, Inc.+................................. 2,192,825
26,325 IntelliQuest Information Group, Inc.+...... 598,894
21,325 Lamar Advertising Company+................. 517,131
7,350 META Group, Inc.+.......................... 198,450
25,950 National Processing, Inc.+................. 415,200
27,850 Nike Inc., Class B......................... 1,664,038
22,100 Outdoor Systems, Inc.+..................... 621,563
375 Quintiles Transnational Corporation+....... 24,844
152,948 Rentokil Group Plc......................... 1,149,843
48,625 TeleTech Holdings Inc.+.................... 1,264,250
5,450 Tommy Hilfiger Corporation+................ 261,600
3,650 Universal Outdoor Holdings, Inc.+.......... 85,775
-----------
13,900,409
-----------
HEALTH CARE -- 11.7%
9,150 Bristol-Myers Squibb Company............... 995,062
90,525 Centocor, Inc.+............................ 3,236,269
26,025 CompDent Corporation+...................... 917,381
29,200 Eli Lilly & Company........................ 2,131,600
16,675 Fresenius Medical Care, ADR+............... 468,984
10,225 Glaxo Wellcome Plc, ADR.................... 324,644
9,896 Glaxo Wellcome Plc, Ord.................... 160,656
48,675 Omnicare Inc............................... 1,563,684
19,525 Pharmaceutical Product Development, Inc.+.. 493,006
18,525 SmithKline Beecham, ADR.................... 1,259,700
29,550 Target Therapeutics Inc.+.................. 1,241,100
10,550 Warner-Lambert Company..................... 791,250
-----------
13,583,336
-----------
MATERIALS & PROCESSING -- 3.7%
20,755 Metra AB, Series B, Ord.................... 1,155,061
34,850 Monsanto Company........................... 1,354,794
13,515 Potash Corporation of Saskatchewan......... 1,148,775
59,125 Rofin-Sinar Technologies Inc.+............. 694,719
-----------
4,353,349
-----------
</TABLE>
See Notes to Financial Statements.
51
<PAGE>
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
GROWTH FUND
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
COMMON STOCKS -- (CONTINUED)
RETAIL -- 2.1%
70,600 Abercrombie & Fitch Company, Class A+..................... $ 1,164,900
3,725 Fastenal Company.......................................... 170,419
12,225 Galoob Toys, Inc.+........................................ 171,150
11,925 Linens 'N Things, Inc.+................................... 234,028
5,575 Nordstrom, Inc............................................ 197,564
32,300 Renters Choice Inc.+...................................... 468,350
-----------
2,406,411
-----------
ENERGY -- 1.3%
30,100 Triton Energy Ltd.+....................................... 1,459,850
-----------
AUTOS & TRANSPORTATION -- 0.8%
22,875 Wisconsin Central Transportation Corporation+............. 906,422
-----------
OTHER -- 0.6%
24,997 Kinnevik Investment, Series B............................. 689,153
-----------
RESTAURANTS -- 0.3%
4,162 Papa John's International Inc.+........................... 140,468
9,200 Planet Hollywood International, Inc.+..................... 181,700
-----------
322,168
-----------
CONSUMER STAPLES -- 0.3%
5,627 Cultor OY, Series 1....................................... 305,815
-----------
Total Common Stocks (Cost $96,321,609).................... 110,010,003
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
<C> <S> <C>
COMMERCIAL PAPER -- 4.7% (Cost $5,498,999)
$5,500,000 American Express Company,
6.550% due 01/02/1997............................... $ 5,498,999
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (COST $101,820,608*)..................... 99.5% 115,509,002
OTHER ASSETS AND LIABILITIES (NET)......................... 0.5 554,782
----- ------------
NET ASSETS................................................. 100.0% $116,063,784
===== ============
</TABLE>
- ------------
* Aggregate cost for federal tax purposes is $102,230,041.
+ Non-income producing security.
See Notes to Financial Statements.
52
<PAGE>
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
GROWTH FUND
DECEMBER 31, 1996
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO BUY
<TABLE>
<CAPTION>
CONTRACTS TO RECEIVE UNREALIZED
--------------------------------------------------- APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- --------------------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
01/27/1997 ITL 500,000,000 329,089 325,330 $ 3,759
02/10/1997 DEM 832,000 542,137 550,665 (8,528)
02/12/1997 DEM 400,000 260,675 264,778 (4,103)
02/12/1997 DEM 143,000 93,191 94,771 (1,580)
03/11/1997 DEM 830,000 541,814 550,471 (8,657)
04/22/1997 SEK 2,500,000 368,459 366,660 1,799
04/22/1997 SEK 1,000,000 147,383 146,141 1,242
04/22/1997 SEK 750,000 110,538 109,958 580
04/22/1997 SEK 2,000,000 294,768 294,942 (174)
--------
$(15,662)
--------
<CAPTION>
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
CONTRACTS TO DELIVER UNREALIZED
--------------------------------------------------- APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- --------------------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
01/02/1997 GBP 4,265 7,304 7,140 $ (164)
01/02/1997 SEK 274,619 40,272 39,930 (342)
01/02/1997 SEK 894,006 131,103 129,990 (1,113)
01/03/1997 GBP 8,998 15,410 15,055 (355)
01/07/1997 GBP 21,760 37,262 36,792 (470)
01/07/1997 SEK 975,378 143,052 141,642 (1,410)
01/07/1997 SEK 488,727 71,678 70,972 (706)
01/16/1997 GBP 475,000 813,192 741,000 (72,192)
01/27/1997 ITL 770,000,000 506,797 501,874 (4,923)
01/27/1997 SEK 3,300,000 484,493 503,225 18,732
02/10/1997 DEM 832,000 542,137 567,918 25,781
02/10/1997 ITL 205,000,000 134,838 133,429 (1,409)
02/12/1997 DEM 543,000 353,866 370,648 16,782
03/11/1997 DEM 830,000 541,814 560,811 18,997
03/11/1997 FIM 2,000,000 436,799 432,302 (4,497)
03/12/1997 ITL 10,000,000 6,569 6,542 (27)
04/22/1997 FIM 400,000 87,602 87,796 194
04/22/1997 GBP 70,000 119,537 110,950 (8,587)
04/22/1997 SEK 7,000,000 1,031,686 1,057,721 26,035
05/12/1997 ITL 150,000,000 98,348 98,193 (155)
05/27/1997 FIM 3,200,000 702,499 714,046 11,547
05/27/1997 GBP 200,000 341,176 335,960 (5,216)
05/27/1997 ITL 450,000,000 294,935 297,599 2,664
06/04/1997 GBP 200,000 341,091 334,960 (6,131)
06/04/1997 SEK 2,969,000 438,469 440,015 1,546
--------
$ 14,581
--------
Net Unrealized Depreciation of Forward
Foreign Currency Contracts................ $ (1,081)
========
</TABLE>
GLOSSARY OF TERMS
ADR --American Depositary Receipt
DEM --German Deutsche Mark
FIM --Finnish Markka
GBP --Great Britain Pound Sterling
ITL --Italian Lira
SEK --Swedish Krona
See Notes to Financial Statements.
53
<PAGE>
PORTFOLIO OF INVESTMENTS
EMERGING GROWTH FUND
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ -----------
<C> <S> <C>
COMMON STOCKS -- 92.7%
RETAIL -- 19.5%
21,325 Barnett Inc.+........................................... $ 581,106
8,960 Eurobike AG+............................................ 273,659
61,950 Fastenal Company........................................ 2,834,213
40,350 Global DirectMail Corporation+.......................... 1,760,269
2,009 Grand Optical - Photoservices........................... 325,637
14,325 MSC Industrial Direct Company, Class A+................. 530,025
25,500 O'Reilly Automotive Inc.+............................... 816,000
100,000 Petco Animal Supplies Inc.+............................. 2,075,000
36,900 Renters Choice Inc.+.................................... 535,050
14,075 Stage Stores, Inc.+..................................... 256,869
19,350 Viking Office Products, Inc.+........................... 516,403
14,075 Wilmar Industries, Inc.+................................ 390,581
-----------
10,894,812
-----------
CONSUMER DISCRETIONARY -- 14.7%
6,300 American Residential Services, Inc.+.................... 170,887
9,725 Apollo Group, Inc., Class A+............................ 325,180
48,225 Family Golf Centers Inc.+............................... 1,452,778
1,486 Fotolabo SA............................................. 577,303
6,525 Heritage Media Corporation, Class A+.................... 73,406
13,500 HFS, Inc.+.............................................. 806,625
10,725 National Processing, Inc.+.............................. 171,600
40,050 Premier Parks Inc.+..................................... 1,286,606
32,150 Profit Recovery Group International, Inc. .............. 514,400
3,450 Regal Cinemas, Inc.+.................................... 106,088
220,551 Rentokil Group Plc ..................................... 1,658,074
19,675 TeleTech Holdings Inc.+................................. 511,550
14,850 Univision Communications Inc.+.......................... 549,450
-----------
8,203,947
-----------
RESTAURANTS -- 10.5%
149,205 J. D. Wetherspoon Plc Ord. ............................. 2,989,507
51,825 Papa John's International Inc.+......................... 1,749,094
115,859 PizzaExpress Plc........................................ 1,046,604
5,125 PJ America Inc.+........................................ 92,250
-----------
5,877,455
-----------
TELECOMMUNICATIONS -- 10.2%
47,375 CommNet Cellular Inc.+.................................. 1,320,578
14,925 Millicom International Cellular SA+..................... 479,466
34,250 Omnipoint Corporation+.................................. 659,312
135,750 Paging Network Inc.+.................................... 2,070,187
15,575 Premiere Technologies, Inc.+............................ 389,375
69,121 PriCellular Corporation, Class A+....................... 794,892
-----------
5,713,810
-----------
MATERIALS & PROCESSING -- 7.4%
27,300 Minerals Technologies Inc. ............................. 1,119,300
22,200 Sealed Air Corporation+................................. 924,075
72,550 Trigen Energy Corporation............................... 2,085,813
-----------
4,129,188
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ -----------
<C> <S> <C>
FINANCIAL SERVICES -- 7.4%
100,000 Insignia Financial Group Inc., Class A+................. $ 2,250,000
23,875 Medallion Financial Corporation......................... 364,094
14,775 Protective Life Corporation............................. 589,153
28,275 UICI+................................................... 918,938
-----------
4,122,185
-----------
AUTOS & TRANSPORTATION -- 5.5%
53,450 APS Holding Corporation, Class A+....................... 828,475
56,300 Wisconsin Central Transportation Corporation+........... 2,230,888
-----------
3,059,363
-----------
HEALTH CARE -- 5.1%
50,325 DepoTech Corporation+................................... 824,072
9,250 Karrington Health, Inc.+................................ 115,625
6,500 Omnicare Inc. .......................................... 208,812
2,875 Steris Corporation+..................................... 125,062
14,600 Sunrise Assisted Living, Inc.+.......................... 406,975
27,650 Target Therapeutics, Inc.+.............................. 1,161,300
-----------
2,841,846
-----------
TECHNOLOGY -- 3.4%
29,175 Safeguard Scientifics, Inc.+............................ 926,306
14,125 Technology Solutions Company+........................... 586,188
13,750 XLConnect Solutions Inc.+............................... 395,312
-----------
1,907,806
-----------
OTHER -- 3.1%
46,500 Central Parking Corporation............................. 1,557,750
6,675 Rental Service Corporation+............................. 183,562
-----------
1,741,312
-----------
PRODUCER DURABLES -- 2.9%
29,900 Culligan Water Technologies, Inc.+...................... 1,210,950
8,650 Littelfuse Inc.+........................................ 419,525
-----------
1,630,475
-----------
CONSUMER STAPLES -- 2.7%
55,250 JP Foodservice Inc.+.................................... 1,540,094
-----------
COMPUTER SOFTWARE & SERVICES -- 0.3%
4,175 First USA Paymentech, Inc.+............................. 141,428
2,918 Sanchez Computer Associates, Inc.+...................... 22,979
-----------
164,407
-----------
Total Common Stocks (Cost $41,970,218).................. 51,826,700
-----------
WARRANT -- 0.6% (Cost $149,086)
7,950 Littelfuse Inc., Series A, expires 12/27/2001+.......... 314,025
-----------
</TABLE>
See Notes to Financial Statements.
54
<PAGE>
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
EMERGING GROWTH FUND
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- -----------
<C> <S> <C>
COMMERCIAL PAPER -- 6.8%
$2,600,000 American Express Company,
6.550% due 01/02/1997................................ $ 2,599,527
1,000,000 Coca-Cola Company,
5.500% due 01/24/1997................................ 996,486
200,000 Household Finance Corporation,
6.500% due 01/02/1997................................ 199,964
-----------
Total Commercial Paper (Cost $3,795,977).............. 3,795,977
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (COST $45,915,281*)....................... 100.1% 55,936,702
OTHER ASSETS AND LIABILITIES (NET).......................... (0.1) (49,213)
----- -----------
NET ASSETS.................................................. 100.0% $55,887,489
===== ===========
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
+ Non-income producing security.
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
U.S. FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
<TABLE>
<CAPTION>
CONTRACTS TO DELIVER UNREALIZED
------------------------------------------------- APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- ------------------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
01/02/1997 DEM 68,093 44,250 43,745 $ (505)
01/02/1997 GBP 3,537 6,057 5,921 (136)
01/03/1997 GBP 7,462 12,779 12,484 (295)
01/03/1997 THB 1,499,850 58,481 58,487 6
01/07/1997 DEM 67,590 43,931 43,449 (482)
01/07/1997 GBP 18,046 30,902 30,513 (389)
01/16/1997 GBP 700,000 1,198,388 1,092,000 (106,388)
01/24/1997 GBP 150,000 256,751 232,545 (24,206)
03/11/1997 GBP 136,000 232,513 223,604 (8,909)
05/27/1997 GBP 620,000 1,057,645 1,041,476 (16,169)
06/04/1997 GBP 75,000 127,909 125,273 (2,636)
---------
Net Unrealized Depreciation of Forward
Foreign Currency Contracts.............. $(160,109)
=========
</TABLE>
GLOSSARY OF TERMS
DEM--German Deutsche Mark
GBP--Great Britain Pound Sterling
THB--Thai Baht
See Notes to Financial Statements.
55
<PAGE>
PORTFOLIO OF INVESTMENTS
INTERNATIONAL GROWTH FUND
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
COMMON STOCKS -- 92.1%
JAPAN -- 25.1%
10,000 Advantest Corporation................................ $ 468,871
40,000 Anritsu Corporation.................................. 431,742
25,000 Canon Inc. .......................................... 552,629
25,000 Daiwa Securities Company............................. 222,347
92 DDI Corporation...................................... 608,514
35,000 Denki Kogyo Company Ltd. ............................ 262,931
70 East Japan Railway Company........................... 314,912
50,000 Fujikura Ltd. ....................................... 400,656
27,000 Hankyu Realty........................................ 198,169
55,000 Hitachi Ltd. ........................................ 512,909
28,000 Honda Motor Company.................................. 800,276
125,000 Isuzu Motors Ltd. ................................... 555,867
25,000 JUSCO Company........................................ 848,372
102,000 Kawasaki Heavy Industries............................ 421,881
15,000 Matsushita Electric Industrial Company............... 244,798
53,000 Mitsubishi Estate Company............................ 544,599
68,000 Mitsubishi Heavy Industrials Ltd. ................... 540,195
25,000 Mycal Corporation.................................... 362,663
2,000 Net One Systems Company.............................. 171,833
2,000 Nitta Corporation.................................... 25,904
190,000 NKK Corporation+..................................... 428,201
20,000 Nomura Securities Company Ltd. ...................... 300,492
8,000 Noritsu Koki Company Ltd. ........................... 376,479
5,000 North Pacific Bank................................... 26,768
11 NTT Data Communication Systems Corporation........... 321,993
13,000 Orix Corporation..................................... 541,059
36,000 Pioneer Electric Corporation......................... 686,987
6,000 Rohm Company......................................... 393,748
35,000 Sharp Corporation.................................... 498,662
3,400 Shin Nippon Air Technologies......................... 37,872
11,000 Sony Corporation..................................... 720,922
110,000 Sumitomo Metal Industries............................ 270,702
12,000 Takashimaya Company Ltd. ............................ 144,029
12,000 TDK Corporation...................................... 782,316
75,000 Toray Industries Inc. ............................... 463,043
19,000 Toyota Motor Corporation............................. 546,326
100 West Japan Railway Company........................... 323,806
34,000 Yokagawa Electric Corporation........................ 293,584
-----------
15,647,057
-----------
UNITED STATES -- 19.1%
6,100 Alcan Aluminum Ltd. ................................. 205,112
16,969 Asia Cement, GDS..................................... 311,553
17,400 Banco de Edwards, ADR................................ 311,025
71,000 Biacore International AB,
Sponsored ADR+...................................... 1,562,000
48,200 Blue Square-Israel Ltd., ADR+........................ 686,850
32,450 Commercial International Bank of
Egypt, GDR+ ++...................................... 460,141
23,200 ECI Telecommunications Ltd., ADR..................... 493,000
16,500 Enersis SA, ADR...................................... 457,875
31,500 Groupe AB SA, ADR+................................... 452,812
22,500 Guangshen Railway Ltd., ADR+......................... 464,063
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
6,500 Hansol Paper Company, GDS+........................... $ 82,875
369,858 Hong Kong Land Holdings.............................. 1,028,205
10,200 Hyundai Motor Company Ltd., GDR+..................... 73,950
39,821 Jardine Matheson Holdings............................ 262,819
21,200 Kookmin Bank, Sponsored GDR++........................ 395,804
10,700 Korea Electric Power Corporation,
Sponsored ADR....................................... 219,350
9,100 Millicom International Cellular SA+.................. 292,338
12,000 Panamerican Beverages, Class A....................... 562,500
7,000 Portugal Telecommunications, ADR..................... 197,750
7,900 PT Indosat, ADR...................................... 216,263
20,000 Qantas Airways, ADR++................................ 333,900
57,000 Reliance Industries Ltd., GDS........................ 699,675
5,000 Repsol SA, ADR....................................... 190,625
7,814 Samsung Electronics Company Ltd., GDS................ 144,163
25,000 State Bank of India, GDR+ ++......................... 440,000
25,000 Telefonica de Argentina, ADR......................... 646,875
29,000 YPF Sociedad Anonima, Sponsored ADR.................. 732,250
-----------
11,923,773
-----------
UNITED KINGDOM -- 7.4%
77,428 British Airport Authority............................ 645,076
154,791 Cookson Group Plc.................................... 625,587
142,200 General Electric Company Plc Ord. ................... 930,236
170,000 Pace Micro Technology+ ++............................ 671,043
127,500 Rolls Royce Plc...................................... 562,235
13,000 RTZ Corporation...................................... 208,488
111,000 Thistle Hotels Plc+.................................. 345,009
158,720 Vodafone Group ...................................... 670,006
-----------
4,657,680
-----------
NEW ZEALAND -- 5.7%
587,800 Fletcher Challenge -- Building Division.............. 1,807,622
642,200 Fletcher Challenge -- Forest Division................ 1,075,988
793,000 Wrightson Ltd. ...................................... 689,552
-----------
3,573,162
-----------
FRANCE -- 4.7%
7,000 Assurance Generale de France......................... 225,981
5,000 AXA Company.......................................... 318,011
5,700 Changeurs International+............................. 282,336
6,400 Compagnie Bancaire SA................................ 757,367
3,600 Eaux (Cie Generale Des).............................. 446,141
26,457 La Gardere Groupe.................................... 726,121
12,698 Usinor Sacilor....................................... 184,774
-----------
2,940,731
-----------
AUSTRALIA -- 3.6%
228,800 Boral Ltd. .......................................... 651,065
38,700 CSR Ltd. ............................................ 135,347
30,900 Lend Lease Corporation .............................. 599,285
18,800 National Australia Bank Ltd. ....................... 221,159
318,800 Oil Search Ltd. ..................................... 620,826
12,552 Qantas Airways Ltd. ................................. 20,952
-----------
2,248,634
-----------
</TABLE>
See Notes to Financial Statements.
56
<PAGE>
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
INTERNATIONAL GROWTH FUND
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
COMMON STOCKS -- (CONTINUED)
GERMANY -- 3.2%
200 Ava Allgemeine Handels Der
Verbr AG+......................................... $ 57,575
5,500 BASF AG............................................ 211,873
700 Bayerische Motoren Werke AG........................ 488,092
400 G.E.A. AG.......................................... 122,429
2,300 SGL Carbon AG...................................... 289,957
13,800 Veba AG............................................ 798,128
-----------
1,968,054
-----------
HONG KONG -- 3.1%
147,000 Cheung Kong Infrastructure Holdings+............... 389,618
61,000 Henderson China.................................... 138,807
45,500 Hong Kong Electric Holdings........................ 151,186
102,000 Hong Kong Telecommunications....................... 164,186
7,600 HSBC Holdings Ord. ................................ 162,622
18,000 Hutchison Whampoa Ltd. ............................ 141,380
14,000 New World Development Company...................... 94,576
66,000 Swire Pacific Ltd., Class A........................ 629,323
22,000 Television Broadcasts Ltd. ........................ 87,892
-----------
1,959,590
-----------
SPAIN -- 3.1%
1,900 Banco Popular de Espanol........................... 373,195
108,100 Iberdrola SA....................................... 1,532,093
-----------
1,905,288
-----------
FINLAND -- 2.1%
11,500 Metra AB, Class B.................................. 640,000
38,300 Valmet Corporation, Class A........................ 669,417
-----------
1,309,417
-----------
SINGAPORE -- 1.9%
81,000 D.B.S. Land Ltd. .................................. 298,113
38,000 Development Bank of Singapore (F).................. 513,257
18,000 Singapore International Airlines
Ltd. (F).......................................... 163,367
11,000 Singapore Press Holdings (F)....................... 216,966
-----------
1,191,703
-----------
SWITZERLAND -- 1.8%
1,003 Novartis AG+....................................... 1,148,365
-----------
SWEDEN -- 1.8%
8,220 ABB AB, B Shares................................... 930,591
4,000 Astra AB, Class B.................................. 192,986
-----------
1,123,577
-----------
PORTUGAL -- 1.4%
30,000 Portugal Telecommunications SA..................... 855,208
-----------
MALAYSIA -- 1.2%
44,500 Commerce Asset Holdings Berhad..................... 334,785
75,000 New Straits Time Press Berhad...................... 433,578
-----------
768,363
-----------
THAILAND -- 1.2%
21,000 Bangkok Bank Public Company
Ltd. (F).......................................... 203,073
6,400 International Cosmetics Public
Company Ltd. ..................................... 31,943
14,700 Siam Cement Public Company Ltd. (F)................ 460,844
13,800 Thai Military Bank Public
Company Ltd. ..................................... 27,174
-----------
723,034
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<C> <S> <C>
NORWAY -- 1.0%
160,000 Den Norske Bank, Series A........................ $ 615,375
-----------
INDONESIA -- 1.0%
125,500 International Nickel of Indonesia (F)............ 282,933
60,500 PT Bank International of
Indonesia (F)+.................................. 59,552
31,000 PT Indosat ...................................... 85,309
54,000 Semen Gresik (F)................................. 173,751
-----------
601,545
-----------
DENMARK -- 0.9%
22,000 International Service Systems AS,
Class B......................................... 578,874
-----------
POLAND -- 0.9%
5,700 Bank Przemyslcowo-Handlowy SA.................... 367,743
30,700 Polifarb-Cieszyn SA.............................. 170,229
-----------
537,972
-----------
SOUTH KOREA -- 0.8%
13,800 Korea Electric Power Corporation................. 401,751
1,300 Samsung Electronics Company Ltd.................. 70,000
-----------
471,751
-----------
AUSTRIA -- 0.6%
2,275 VA Technologie AG................................ 357,054
-----------
NETHERLANDS -- 0.5%
7,900 Philips Electronics NV........................... 320,097
-----------
Total Common Stocks
(Cost $53,881,069).............................. 57,426,304
-----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<C> <S> <C>
CORPORATE BONDS -- 1.1%
$ 45,000 Bangkok Bank, Convertible,
3.250% due 03/03/2004........................... 43,875
JPY 17,000,000 Izumiya, Convertible,
0.800% due 08/31/1999........................... 176,151
JPY 10,000,000 NEC Corporation, Convertible,
1.900% due 03/30/2001........................... 125,205
$ 310,000 Telekom Malaysia Berhad,
4.000% due 10/03/2004........................... 317,750
-----------
Total Corporate Bonds (Cost $693,330)............ 662,981
-----------
<CAPTION>
SHARES
------
<C> <S> <C>
PREFERRED STOCK -- 0.1%
(Cost $63,736)
195 G.E.A. AG, Pfd................................... 61,395
-----------
INVESTMENT COMPANY SECURITY -- 1.8%
(Cost $1,006,397)
1,090,000 General Pacific Securities Taiwan
Index Fund...................................... 1,100,900
-----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<C> <S> <C>
REPURCHASE AGREEMENT -- 3.4%
(Cost $2,152,000)
$ 2,152,000 Agreement with State Street Bank & Trust Company,
5.000% dated 12/31/1996, to be repurchased at
$2,152,598 on 01/02/1997, collateralized by
$2,150,000 U.S. Treasury Note, 6.000% due
08/31/1997 (Market Value -- $2,198,375)......... 2,152,000
-----------
</TABLE>
See Notes to Financial Statements.
57
<PAGE>
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
INTERNATIONAL GROWTH FUND
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL EXPIRATION STRIKE VALUE
AMOUNT DATE PRICE (NOTE 2)
- --------- ---------- ------ --------
<C> <S> <C> <C> <C>
CALL OPTIONS PURCHASED ON STOCK INDICES -- 0.0%#
KRW 4,755,161 Kospi 200 Stock Index......... 02/07/1997 $ 0.110 $ 5
JPY 42,509 Tokyo Price Index (TOPIX)..... 03/14/1997 1,539.200 6,840
-----------
Total Call Options Purchased on Stock Indices (Cost
$85,000)............................................. 6,845
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (COST $57,881,532*)....................... 98.5% 61,410,425
OTHER ASSETS AND LIABILITIES (NET).......................... 1.5 944,091
----- -----------
NET ASSETS.................................................. 100.0% $62,354,516
===== ===========
</TABLE>
- ------------
* Aggregate cost for federal tax purposes is $57,881,906.
+ Non-income producing security.
++ A portion or all of this security is exempt from registration under Rule
144A of the Securities Act of 1933. This security may be resold in transac-
tions exempt from registration, normally to qualified institutional buyers.
# Amount represents less than 0.1% of net assets.
AS OF DECEMBER 31, 1996 SECTOR DIVERSIFICATION WAS AS FOLLOWS (UNAUDITED):
<TABLE>
<CAPTION>
% OF VALUE
SECTOR DIVERSIFICATION NET ASSETS (NOTE 2)
---------------------- ---------- -----------
<S> <C> <C>
COMMON STOCKS:
Materials & Processing.................................. 17.1% $10,666,474
Producer Durables....................................... 15.2 9,437,792
Financial Services...................................... 13.9 8,671,345
Telecommunications...................................... 8.9 5,531,417
Consumer Discretionary.................................. 7.6 4,757,528
Autos & Transportation.................................. 7.1 4,407,808
Utilities............................................... 5.7 3,560,383
Technology.............................................. 5.3 3,314,734
Health Care............................................. 3.3 2,078,956
Energy.................................................. 2.5 1,543,701
Consumer Staples........................................ 1.7 1,066,031
Retail.................................................. 1.4 888,454
Computer Software & Services............................ 0.5 321,993
Other................................................... 1.9 1,179,688
----- -----------
TOTAL COMMON STOCKS..................................... 92.1 57,426,304
OTHER INVESTMENTS....................................... 6.4 3,984,121
----- -----------
TOTAL INVESTMENTS....................................... 98.5 61,410,425
OTHER ASSETS AND LIABILITIES (NET)...................... 1.5 944,091
----- -----------
NET ASSETS.............................................. 100.0% $62,354,516
===== ===========
</TABLE>
See Notes to Financial Statements.
58
<PAGE>
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
INTERNATIONAL GROWTH FUND
DECEMBER 31, 1996
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
U. S. FORWARD FOREIGN CURRENCY CONTRACTS TO BUY
<TABLE>
<CAPTION>
CONTRACTS TO RECEIVE
------------------------------------- UNREALIZED
EXPIRATION LOCAL VALUE IN IN EXCHANGE DEPRECIATION
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- ----------------------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
03/05/1997 JPY 1,054,121,000 9,184,029 10,000,000 $ (815,971)
03/05/1997 JPY 359,251,186 3,129,976 3,425,746 (295,770)
04/02/1997 DEM 3,754,029 2,454,263 2,526,055 (71,792)
10/24/1997 JPY 616,298,200 5,553,269 5,786,837 (233,568)
-----------
$(1,417,101)
-----------
</TABLE>
U. S. FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
<TABLE>
<CAPTION>
CONTRACTS TO DELIVER UNREALIZED
------------------------------------- APPRECIATION/
EXPIRATION LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACTS
- ---------- ----------------------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
01/02/1997 PHP 728,244 27,690 27,669 $ (21)
01/03/1997 FRF 500,000 96,367 96,117 (250)
03/05/1997 FRF 16,379,909 3,168,628 3,226,297 57,669
03/05/1997 JPY 1,038,600,000 9,048,803 10,000,000 951,197
03/05/1997 JPY 374,772,186 3,265,203 3,600,117 334,914
04/02/1997 DEM 3,754,029 2,454,263 2,490,000 35,737
10/24/1997 JPY 857,130,400 7,723,332 8,000,000 276,668
10/24/1997 JPY 375,466,000 3,383,206 3,500,000 116,794
----------
$1,772,708
----------
Net Unrealized Appreciation of Forward
Foreign Currency Contracts.................. $ 355,607
==========
</TABLE>
GLOSSARY OF TERMS
ADR--American Depositary Receipt
DEM--German Deutsche Mark
(F)--Foreign or Alien Shares
FRF--French Franc
GDR--Global Depositary Receipt
GDS--Global Depositary Share
JPY--Japanese Yen
KRW--South Korean Won
PHP--Philippine Peso
See Notes to Financial Statements.
59
<PAGE>
NOTES TO FINANCIAL STATEMENTS
THE SIERRA VARIABLE TRUST
1. ORGANIZATION AND BUSINESS
The Sierra Variable Trust (the "Trust") was organized under the laws of the
Commonwealth of Massachusetts on January 29, 1993 as a business entity commonly
known as a "Massachusetts business trust". The Trust is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a no-load,
open-end management investment company. The Trust offers nine managed
investment funds (the "Funds") to the public only through certain variable
annuity contracts offered by American General Life Insurance Company ("AG
Life"): the Global Money Fund (the "Money Fund"); the Short Term High Quality
Bond, Short Term Global Government, U.S. Government and Corporate Income Funds
(the "Bond Funds"); and the Growth and Income, Growth, Emerging Growth and
International Growth Funds (the "Equity Funds").
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Funds in the
preparation of their financial statements.
PORTFOLIO VALUATION:
Money Fund: The investments of the Money Fund are valued on the basis of
amortized cost so long as the Trust's Board of Trustees (the "Board of
Trustees") determines that this method constitutes fair value. Amortized cost
involves valuing a portfolio instrument at its cost initially, and, thereafter,
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. The Money Fund attempts to maintain a constant net asset value
of $1.00 per share.
Bond Funds and Equity Funds: A security that is primarily traded on a United
States ("U.S.") or foreign exchange (including securities traded through the
NASDAQ National Market System) is valued at the last sale price on that
exchange or, if there were no sales during the day, at the current quoted bid
price. Portfolio securities that are primarily traded on foreign exchanges are
generally valued at the most recent closing values of such securities on their
respective exchanges, except when an occurrence subsequent to the time a value
was so established is likely to have changed the value, then the fair value of
those securities will be determined in good faith through consideration of
other factors by or under the direction of the Board of Trustees or its
delegates. Over-the-counter securities that are not traded through the NASDAQ
National Market System and securities listed or traded on certain foreign
exchanges whose operations are similar to the U.S. over-the-counter market, are
valued on the basis of the bid price at the close of business on each day.
Investments in U.S. Government securities (other than short-term securities)
are valued at the average of the quoted bid and asked prices in the over-the-
counter market. The current market value of an option is the last price on the
principal exchange on which such option is traded or in the absence of a sale,
is the mean between the last bid and offering price. Short-term investments
that mature in 60 days or less are valued at amortized cost; such investments
denominated in foreign currencies are stated at amortized cost as determined in
the foreign currency, translated to U.S. dollars at the current day's exchange
rate.
Corporate debt securities and debt securities of U.S. issuers (other than U.S.
Government securities and short-term investments) are valued by an independent
pricing service which utilizes market quotations and transactions, quotations
from dealers and various relationships among securities in determining value.
If not valued by a pricing service, such securities are valued at prices
obtained from independent brokers. Investments with prices that cannot be
readily obtained, if any, are carried at fair value as determined in good faith
under consistently applied procedures established by and under the supervision
of the Board of Trustees.
REPURCHASE AGREEMENTS:
Each Fund may engage in repurchase agreement transactions. Under the terms of a
typical repurchase agreement, the Fund through its custodian takes possession
of an underlying debt obligation subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the collateral is
at least equal at all times to the total amount of the repurchase obligation,
including interest. In the event of counterparty default, the Fund has the
right to use the collateral to offset losses incurred. There is potential loss
to the Fund in the event the Fund is delayed or prevented from exercising its
right to dispose of the collateral
60
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
THE SIERRA VARIABLE TRUST
securities, including the risk of a possible decline in the value of the
underlying securities during the period while the Fund seeks to assert its
rights. Each Fund's respective Sub-advisor, acting under the supervision of the
Trust's investment advisor, Sierra Investment Advisors Corporation ("Sierra
Advisors") and the Board of Trustees, reviews the value of the collateral and
the creditworthiness of those banks and dealers with which the Fund enters into
repurchase agreements to evaluate potential risks.
REVERSE REPURCHASE AGREEMENTS:
All Funds except the Money Fund may engage in reverse repurchase agreements.
Reverse repurchase agreements are the same as repurchase agreements except
that, in this instance, the Funds would assume the role of seller/borrower in
the transaction. The Funds may use reverse repurchase agreements to borrow
short term funds. The value of the reverse repurchase agreements that the Funds
have committed to sell are reflected in the Funds' Statements of Assets and
Liabilities. The Funds will maintain segregated accounts with the Trust's
custodian consisting of U.S. Government securities, cash or money market
instruments that at all times are in an amount equal to their obligations under
reverse repurchase agreements. Reverse repurchase agreements involve the risks
that the market value of the securities sold by the Funds may decline below the
repurchase price of the securities and, if the proceeds from the reverse
repurchase agreement are invested in securities, that the market value of the
securities bought may decline below the repurchase price of the securities
sold.
OPTION CONTRACTS:
All Funds except the Money Fund may engage in option contracts. The Funds may
use option contracts to manage their exposure to the stock and bond markets and
to fluctuations in interest rates and currency values. The underlying principal
amounts and option values are shown in the Portfolio of Investments under the
captions "Put Options Purchased on Foreign Currency", "Call Option Purchased on
Foreign Interest Rate Futures", "Call Options Purchased on Stock Indices" and
"Call Options Written on Foreign Currency". These amounts reflect each
contract's exposure to the underlying instrument at December 31, 1996. Writing
puts and buying calls tends to increase the Funds' exposure to the underlying
instrument. Buying puts and writing calls tends to decrease the Funds' exposure
to the underlying instrument or to hedge other Fund investments.
Upon the purchase of a put option or a call option by the Funds, the premium
paid is recorded as an investment, the value of which is marked-to-market
daily. When a purchased option expires, the Funds will realize a loss in the
amount of the cost of the option. When the Funds enter into a closing sale
transaction, the Funds will realize a gain or loss depending on whether the
sales proceeds from the closing sale transaction are greater or less than the
cost of the option. When the Funds exercise a put option, they will realize a
gain or loss from the sale of the underlying security and the proceeds from
such sale will be decreased by the premium originally paid. When the Funds
exercise a call option, the cost of the security which the Funds purchase upon
exercise will be increased by the premium originally paid.
When the Funds write a call option or a put option, an amount equal to the
premium received by the Funds are recorded as a liability, the value of which
is marked-to-market daily. When a written option expires, the Funds realize a
gain equal to the amount of the premium received. When the Funds enter into a
closing purchase transaction, the Funds realize a gain (or loss if the cost of
the closing purchase transaction exceeds the premium received when the option
was sold) without regard to any unrealized gain or loss on the underlying
security, and the liability related to such option is eliminated. When a
written call option is exercised, the Funds realize a gain or loss from the
sale of the underlying security and the proceeds from such sale are increased
by the premium originally received. When a written put option is exercised, the
amount of the premium originally received will reduce the cost of the security
that the Funds purchased upon exercise.
The risk associated with purchasing options is limited to the premium
originally paid. Options written by a Fund involve, to varying degrees, risk of
loss in excess of the option value reflected in the Statements of Assets and
Liabilities. The risk in writing a covered call option is that the Funds may
forego the opportunity of profit if the market price of the underlying security
increases and the option is exercised. The risk in writing a covered put option
is that the Funds may incur a loss if the market price of the underlying
security decreases and the option is exercised. In addition, there is the risk
the Funds may not be able to enter into a closing transaction because of an
illiquid secondary market or, for over-the-counter options, because of a
counterparty's inability to perform.
The Short Term High Quality Bond, Short Term Global Government, Growth and
International Growth Funds may engage in options on foreign currency and
options on interest rate futures as a hedge to provide protection against
adverse movements in the value of foreign securities in the portfolio.
61
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
THE SIERRA VARIABLE TRUST
Certain risks are associated with the use of options on foreign currency and
options on interest rate futures contracts as hedging devices. The predominant
risk is that the movement in the price of the instrument underlying such
options may not correlate perfectly with the movement in the prices of the
assets being hedged. The lack of correlation could render the Funds' hedging
strategy unsuccessful and could result in a loss to the Funds. In addition,
there is the risk that the Funds may not be able to enter into a closing
transaction because of an illiquid secondary market or, for over-the-counter
options, because of the counterparty's inability to perform. Options written by
a Fund involve, to varying degrees, risk of loss in excess of the option value
reflected in the Statements of Assets and Liabilities.
FUTURES CONTRACTS:
All Funds except the Money Fund may engage in futures transactions. The Funds
may use futures contracts to manage their exposure to the stock and bond
markets and to fluctuations in interest rates and currency values. The
underlying value of a futures contract is incorporated within the unrealized
appreciation/(depreciation) shown in the Portfolio of Investments under the
caption "Futures Contracts". This amount reflects each contract's exposure to
the underlying instrument at December 31, 1996. Buying futures contracts tends
to increase the Fund's exposure to the underlying instrument. Selling futures
contracts tends to either decrease the Fund's exposure to the underlying
instrument, or to hedge other Fund investments.
Upon entering into a futures contract, the Fund is required to deposit with the
broker an amount of cash or cash equivalents equal to a certain percentage of
the contract amount. This is known as the "initial margin". Subsequent payments
("variation margin") are made or received by the Fund each day, depending on
the daily fluctuation of the value of the contract. The daily changes in
contract value are recorded as unrealized gains or losses and the Fund
recognizes a realized gain or loss when the contract is closed. Futures
contracts are valued at the settlement price established by the board of trade
or exchange on which they are traded.
There are several risks in connection with the use of futures contracts as a
hedging device. Futures contracts involve, to varying degrees, risk of loss in
excess of the futures variation margin reflected in the Statements of Assets
and Liabilities. The change in the value of futures contracts primarily
corresponds with the value of their underlying instruments, which may not
correlate with the change in the value of the hedged instruments. In addition,
there is the risk that the Fund may not be able to enter into a closing
transaction because of an illiquid secondary market.
FOREIGN CURRENCY:
The books and records of the Funds are maintained in U.S. dollars. Foreign
currencies, investments and other assets and liabilities are translated into
U.S. dollars at the exchange rates prevailing at the end of the period, and
purchases and sales of investment securities, income and expenses are
translated on the respective dates of such transactions. It is not practicable
to isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the portion that arises from changes
in market prices of investments during the period. Accordingly, all such
changes have been reflected as net gain/(loss) from security transactions in
the Statements of Operations.
Unrealized gains and losses, not relating to securities, which result from
changes in foreign currency exchange rates have been included in unrealized
appreciation/(depreciation) of foreign currency and other assets and
liabilities. Unrealized gains and losses of securities, which result from
changes in foreign currency exchange rates as well as changes in market prices
of securities, have been included in unrealized appreciation/(depreciation) of
securities. Net realized foreign currency gains and losses include foreign
currency gains and losses resulting from changes in exchange rates between
trade date and settlement date on investment securities transactions, gains and
losses on foreign currency transactions and the difference between the amounts
of interest and dividends recorded on the books of the Funds and the amount
actually received. The portion of foreign currency gains and losses related to
fluctuation in exchange rates between the initial purchase trade date and
subsequent sale trade date is included in realized gain/(loss) from security
transactions.
FORWARD FOREIGN CURRENCY CONTRACTS:
The Short Term High Quality Bond, Short Term Global Government, Corporate
Income, Growth and Income, Growth, Emerging Growth and International Growth
Funds may enter into forward foreign currency contracts. Forward foreign
currency contracts are agreements to exchange one currency for another at a
future date and at a specified price. The Funds may use forward foreign
currency contracts to facilitate transactions in foreign securities and to
manage the Funds' foreign currency exposure. The U.S. dollar market value,
contract value and the foreign currencies the Funds have committed to buy
62
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
THE SIERRA VARIABLE TRUST
or sell are shown in the Portfolio of Investments under the caption "Schedule
of Forward Foreign Currency Contracts". These amounts represent the aggregate
exposure to each foreign currency the Funds have acquired or hedged through
forward foreign currency contracts at December 31, 1996. Forward foreign
currency contracts are reflected as both a forward foreign currency contract to
buy and a forward foreign currency contract to sell. Forward foreign currency
contracts to buy generally are used to acquire exposure to foreign currencies,
while forward foreign currency contracts to sell are used to hedge the Funds'
investments against currency fluctuations. Also, a forward foreign currency
contract to buy or sell can offset a previously acquired opposite forward
foreign currency contract.
Forward foreign currency contracts are marked-to-market daily using foreign
currency exchange rates supplied by an independent pricing service. The change
in a contract's market value is recorded by the Funds as an unrealized gain or
loss. When the contract is closed or delivery is taken, the Funds record a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
The use of forward foreign currency contracts does not eliminate fluctuations
in the underlying prices of the Fund's securities, but it does establish a rate
of exchange that can be achieved in the future. These forward foreign currency
contracts involve market risk in excess of the unrealized
appreciation/(depreciation) of forward foreign currency contracts reflected in
the Funds' Statements of Assets and Liabilities. Although forward foreign
currency contracts used for hedging purposes limit the risk of loss due to a
decline in the value of the hedged currency, they also limit any potential gain
that might result should the value of the currency increase. In addition, the
Funds could be exposed to risks if the counterparties to the contracts are
unable to meet the terms of their contracts. The Fund's Sub-advisor will enter
into forward foreign currency contracts only with parties approved by the Board
of Trustees because there is a risk of loss to the Funds if the counterparties
do not complete the transaction.
DOLLAR ROLL TRANSACTIONS:
The Short Term High Quality Bond, Short Term Global Government, U.S. Government
and Corporate Income Funds, in order to seek a high level of current income,
may enter into dollar roll transactions with financial institutions to take
advantage of opportunities in the mortgage market. The value of the dollar roll
transactions are reflected in the Funds' Statements of Assets and Liabilities.
A dollar roll transaction involves a sale by the Funds of securities that they
hold with an agreement by the Funds to repurchase similar securities at an
agreed upon price and date. The securities repurchased will bear the same
interest as those sold, but generally will be collateralized at time of
delivery by different pools of mortgages with different prepayment histories
than those securities sold. The Funds are paid a fee for entering into a dollar
roll transaction, that is accrued as income over the life of the dollar roll
contract. During the period between the sale and repurchase, the Funds will not
be entitled to receive interest and principal payments on the securities sold.
Management anticipates that the proceeds of the sale will be invested in
additional instruments for the Funds, and the income from these investments,
together with any additional fee income received on the dollar roll transaction
will generate income for the Funds exceeding the interest that would have been
earned on the securities sold. Dollar roll transactions involve the risk that
the market value of the securities sold by the Funds may decline below the
repurchase price of those similar securities which the Fund is obligated to
purchase or that the return earned by the Fund with the proceeds of a dollar
roll may not exceed transaction costs.
INDEXED SECURITIES:
Each of the Funds, except for the Money Fund, may invest in indexed securities
whose value is linked either directly or inversely to changes in foreign
currencies, interest rates, commodities, indices, or other reference
instruments. Indexed securities may be more volatile than the reference
instrument itself, but any loss is limited to the amount of the original
investment.
ILLIQUID INVESTMENTS:
Up to 15% of the assets of each Bond and Equity Fund, and up to 10% of the
assets of the Money Fund, may be invested in securities that are not readily
marketable, including: (1) repurchase agreements with maturities greater than
seven calendar days; (2) time deposits maturing in more than seven calendar
days; (3) except for the Money Fund, to the extent a liquid secondary market
does not exist for the instruments, futures contracts and options thereon; (4)
certain over-the-counter options; (5) for the Money Fund and Growth and Income
Fund certain variable rate demand notes having a demand period of more than
seven days; and (6) securities, the disposition of which are restricted under
Federal securities laws, excluding certain Rule 144A securities as defined
below.
63
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
THE SIERRA VARIABLE TRUST
Illiquid securities generally cannot be sold or disposed of in the ordinary
course of business within seven days at approximately the value at which the
Funds have valued the investments. This may have an adverse effect on the
Fund's ability to dispose of particular illiquid securities at fair market
value and may limit the Fund's ability to obtain accurate market quotations for
purposes of valuing the securities and calculating the net asset value of
shares of the Fund. The Funds may also purchase securities that are not
registered under the Securities Act of 1933, as amended (the "Act"), but that
can be sold to qualified institutional buyers in accordance with Rule 144A
under the Act ("Rule 144A securities"). Rule 144A securities generally may be
resold only to other qualified institutional buyers. If a particular investment
in Rule 144A securities is not determined to be liquid under guidelines
established by the Board of Trustees, that investment will be included within
the 15% or 10% limitation, as applicable, on investment in illiquid securities.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are recorded as of the trade date (the date the order
to buy or sell is executed). Realized gains and losses from securities sold are
recorded on the identified cost basis. Interest income is recorded on the
accrual basis and consists of interest accrued and, if applicable, discount
earned less premiums amortized. Dividend income is recorded on the ex-dividend
date, except that certain dividends from foreign securities are recorded as
soon as the Funds are informed of the ex-dividend date.
Securities purchased or sold on a when-issued or delayed-delivery basis may be
settled a month or more after the trade date; interest income is not accrued
until settlement date. Each Fund instructs the custodian to segregate assets of
the Fund in a separate account with a current value at least equal to the
amount of its when-issued purchase commitments.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income of the Money Fund are declared daily and
paid monthly. Dividends from net investment income of the Bond Funds are
declared and paid quarterly. Dividends from net investment income of the Equity
Funds are declared and paid annually. Distributions of any net long-term
capital gains earned by a Fund are made annually. Distributions of any net
short-term capital gains earned by a Fund are distributed no less frequently
than annually at the discretion of the Board of Trustees. Income distributions
and capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Funds, timing differences and
differing characterization of distributions made by each Fund as a whole.
For the year ended December 31, 1996, permanent differences resulting from book
and tax accounting for organizational costs were reclassified to paid-in
capital at year end. Certain reclassification adjustments were also made
between undistributed net investment income and realized gains due to different
book and tax accounting for currency gains and losses, net operating losses and
paydowns of certain debt instruments. Per share information in the Financial
Highlights reflects the effect of these reclassifications.
<TABLE>
<CAPTION>
INCREASE/DECREASE INCREASE/DECREASE
DECREASE UNDISTRIBUTED NET ACCUMULATED
PAID- INVESTMENT NET REALIZED
IN CAPITAL INCOME GAIN/LOSS
---------- ----------------- -----------------
<S> <C> <C> <C>
Global Money Fund........ $(3,291) $ 3,291 --
Short Term High Quality
Bond Fund............... -- (36,035) $ 36,035
Short Term Global Govern-
ment Fund............... (3,291) 156,809 (153,518)
U.S. Government Fund..... (3,291) (63,590) 66,881
Corporate Income Fund.... (3,291) (14,853) 18,144
Growth Fund.............. (3,291) 120,612 (117,321)
Emerging Growth Fund..... -- 588,791 (588,791)
International Growth
Fund.................... (3,291) 343,545 (340,254)
</TABLE>
FEDERAL INCOME TAXES:
It is each Fund's policy to qualify as a regulated investment company by
complying with the requirements of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and by, among other
things, distributing substantially all of its taxable and tax-exempt earnings
to its shareholders. Therefore, no Federal income tax provision is required.
64
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
THE SIERRA VARIABLE TRUST
EXPENSES:
General expenses of the Trust are allocated to the Funds based upon the
relative net assets of each Fund.
OTHER:
The Corporate Income Fund may purchase floating rate, inverse floating rate and
variable rate obligations. Floating rate obligations have an interest rate that
changes whenever there is a change in the external interest rate, while
variable rate obligations provide for a specified periodic adjustment in the
interest rate. The interest rate on an inverse floating rate obligation (an
"inverse floater") can be expected to move in the opposite direction from the
market rate of interest to which the inverse floater is indexed. The Fund may
purchase floating rate, inverse floating rate and variable rate obligations
that carry a demand feature which would permit the Fund to tender them back to
the issuer or remarketing agent at par value prior to maturity. Frequently,
floating rate, inverse floating rate and variable rate obligations are secured
by letters of credit or other credit support arrangements provided by banks.
The Corporate Income Fund may purchase mortgage-backed securities that are
floating rate, inverse floating rate and variable rate obligations. The Money
Fund and Growth and Income Fund may purchase variable rate demand notes.
Although variable rate demand notes are frequently not rated by credit rating
agencies, unrated notes purchased by the Funds will be of comparable quality at
the time of purchase to rated instruments that may be purchased by such Fund,
as determined by the Fund's Sub-advisor. Moreover, while there may be no active
secondary market with respect to a particular variable rate demand note
purchased by a Fund, the Fund may, upon the notice specified in the note,
demand payment of the principal of and accrued interest on the note at any time
and may resell the note at any time to a third party. The absence of such an
active secondary market, however, could make it difficult for a Fund to dispose
of a particular variable rate demand note in the event the issuer of the note
defaulted on its payment obligations, and the Fund could, for this or other
reasons, suffer a loss to the extent of the default.
An inverse floater may be considered to be leveraged to the extent that its
interest rate varies by a magnitude that exceeds the magnitude of the change in
the index rate of interest. The higher degree of leverage inherent in inverse
floaters is associated with greater volatility in their market values.
Accordingly, the duration of an inverse floater may exceed its stated final
maturity. Inherent in these instruments is the risk of potential loss should
the Fund be delayed or prevented from exercising the put feature.
3. INVESTMENT ADVISORY, SUB-ADVISORY, ADMINISTRATION FEES AND OTHER
TRANSACTIONS
Sierra Advisors, an indirect wholly-owned subsidiary of Great Western Financial
Corporation ("GWFC"), a publicly held corporation, serves as investment advisor
to the Trust. J.P. Morgan Investment Management Inc. ("J.P. Morgan"), a wholly-
owned subsidiary of J.P. Morgan & Co. Incorporated, a publicly traded company,
serves as the Sub-advisor to the Money Fund and Growth and Income Fund and,
until April 8, 1996, served as the Sub-advisor to the International Growth
Fund. Warburg, Pincus Counsellors, Inc. ("Warburg"), a privately held
corporation, began serving as the Sub-advisor to the International Growth Fund
on April 8, 1996. BlackRock Financial Management, Inc. ("BlackRock"), an
indirect wholly-owned subsidiary of PNC Bank, N.A., an indirect wholly-owned
subsidiary of PNC Bank Corp. ("PNC"), a publicly traded multi-bank holding
company, serves as the Sub-advisor to the U.S. Government Fund. TCW Funds
Management, Inc. ("TCW"), a wholly-owned subsidiary of The TCW Group, Inc., a
privately held company, serves as the Sub-advisor to the Corporate Income Fund.
Janus Capital Corporation ("Janus"), an indirect majority-owned subsidiary of
Kansas City Southern Industries, Inc., which is a publicly traded holding
company, serves as the Sub-advisor to the Growth and Emerging Growth Funds.
Scudder, Stevens & Clark, Inc. ("Scudder"), a privately held corporation,
serves as the Sub-advisor to the Short Term High Quality Bond and Short Term
Global Government Funds. Each of the foregoing sub-advisors is referred to
individually as a "Sub-advisor" and collectively as the "Sub-advisors".
65
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
THE SIERRA VARIABLE TRUST
The Trust pays Sierra Advisors a monthly fee, in arrears, based on a percentage
of the average daily net assets of each Fund during the month, out of which
Sierra Advisors pays the Sub-advisor of each Fund a monthly fee, in arrears, at
annual rates as follows:
<TABLE>
<CAPTION>
FEES ON FEES ON
ASSETS EQUAL TO ASSETS
OR LESS THAN EXCEEDING
NAME OF FUND $500 MILLION $500 MILLION
------------ --------------- ----------------
<S> <C> <C>
Global Money Fund
Sierra Advisors.......... .35% .25%
Sub-advisor.............. .15% .15%
--- ---
Total fees paid to
Sierra Advisors*....... .50% .40%
=== ===
<CAPTION>
FEES ON
ASSETS EXCEEDING
FEES ON $200 MILLION AND FEES ON
ASSETS EQUAL TO EQUAL TO OR ASSETS
OR LESS THAN LESS THAN EXCEEDING
$200 MILLION $500 MILLION $500 MILLION
--------------- ---------------- ------------
<S> <C> <C> <C>
Short Term High Quality
Bond Fund
Sierra Advisors.......... .35% .35% .30%
Sub-advisor.............. .15% .10% .10%
--- --- ---
Total fees paid to Si-
erra Advisors*......... .50% .45% .40%
=== === ===
Short Term Global Govern-
ment Fund
Sierra Advisors.......... .47% .65% .55%
Sub-advisor.............. .28% .10% .10%
--- --- ---
Total fees paid to Si-
erra Advisors*......... .75% .75% .65%
=== === ===
</TABLE>
<TABLE>
<CAPTION>
WHEN "COMBINED ASSETS"**
WHEN "COMBINED ASSETS"** EXCEED $650 MILLION AND
ARE EQUAL TO OR LESS THAN ARE EQUAL TO OR LESS WHEN "COMBINED ASSETS"**
$650 MILLION THAN $1 BILLION EXCEED $1 BILLION
---------------------------- ---------------------------- ----------------------------
FEES ON FEES ON FEES ON FEES ON FEES ON FEES ON
ASSETS EQUAL TO ASSETS ASSETS EQUAL TO ASSETS ASSETS EQUAL TO ASSETS
OR LESS THAN EXCEEDING OR LESS THAN EXCEEDING OR LESS THAN EXCEEDING
$500 MILLION $500 MILLION $500 MILLION $500 MILLION $500 MILLION $500 MILLION
--------------- ------------ --------------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government Fund
Sierra Advisors........ .415% .315% .45% .35% .50% .40%
Sub-advisor**.......... .185% .185% .15% .15% .10% .10%
---- ---- --- --- --- ---
Total fees paid to
Sierra Advisors*..... .600% .500% .60% .50% .60% .50%
==== ==== === === === ===
</TABLE>
<TABLE>
<CAPTION>
FEES ON FEES ON
ASSETS EQUAL TO ASSETS
OR LESS THAN EXCEEDING
$500 MILLION $500 MILLION
--------------- ------------
<S> <C> <C>
Corporate Income Fund
Sierra Advisors........................ .35% .25%
Sub-advisor............................ .30% .25%
--- ---
Total fees paid to Sierra Advisors*... .65% .50%
=== ===
</TABLE>
66
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
THE SIERRA VARIABLE TRUST
<TABLE>
<CAPTION>
FEES ON FEES ON FEES ON
ASSETS EXCEEDING ASSETS EXCEEDING ASSETS EXCEEDING
FEES ON $100 MILLION $200 MILLION $400 MILLION FEES ON
ASSETS EQUAL TO AND EQUAL TO AND EQUAL TO AND EQUAL TO ASSETS
OR LESS THAN OR LESS THAN OR LESS THAN OR LESS THAN EXCEEDING
NAME OF FUND $100 MILLION $200 MILLION $400 MILLION $500 MILLION $500 MILLION
------------ --------------- ---------------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Growth and Income Fund
Sierra Advisors........ .35% .35% .35% .35% .275%
Sub-advisor............ .45% .40% .35% .30% .300%
--- --- --- --- ----
Total fees paid to
Sierra Advisors*..... .80% .75% .70% .65% .575%
=== === === === ====
</TABLE>
<TABLE>
<CAPTION>
FEES ON FEES ON
ASSETS EQUAL TO ASSETS
OR LESS THAN EXCEEDING
$25 MILLION $25 MILLION
--------------- ----------------
<S> <C> <C>
Growth Fund
Sierra Advisors.......... .40% .375%
Sub-advisor.............. .55% .500%
--- ----
Total fees paid to Si-
erra Advisors*......... .95% .875%
=== ====
<CAPTION>
FEES ON
ASSETS EXCEEDING
FEES ON $25 MILLION FEES ON
ASSETS EQUAL TO AND EQUAL TO ASSETS
OR LESS THAN OR LESS THAN EXCEEDING
$25 MILLION $500 MILLION $500 MILLION
--------------- ---------------- ------------
<S> <C> <C> <C>
Emerging Growth Fund
Sierra Advisors.......... .35% .35% .25%
Sub-advisor.............. .55% .50% .50%
--- ---- ---
Total fees paid to Si-
erra Advisors*......... .90% .85% .75%
=== ==== ===
<CAPTION>
FEES ON
ASSETS EXCEEDING
FEES ON $50 MILLION FEES ON
ASSETS EQUAL TO AND EQUAL TO ASSETS
OR LESS THAN OR LESS THAN EXCEEDING
$50 MILLION $125 MILLION $125 MILLION
--------------- ---------------- ------------
<S> <C> <C> <C>
International Growth Fund
Sierra Advisors.......... .45% .35% .25%
Sub-advisor***........... .50% .50% .50%
--- ---- ---
Total fees paid to
Sierra Advisors*....... .95% .85% .75%
=== ==== ===
</TABLE>
------------
* Sierra Advisors retains only the net amount of the fees after sub-
advisory fees have been paid.
** The monthly fee paid to BlackRock is based upon the combined average
daily net assets of the U.S. Government Fund and the Sierra Trust
Funds' U.S. Government Fund (together, the "Combined Assets").
*** As of April 8, 1996, Warburg replaced J.P. Morgan as Sub-advisor to
the International Growth Fund pursuant to a sub-advisory agreement
pending shareholder approval. On June 21, 1996 at a special meeting
of shareholders, the shareholders of the International Growth Fund
approved the sub-advisory agreement. Prior to April 8, 1996, J.P.
Morgan received monthly fees at the following annual rates: (i) .60%
of the Fund's average daily net assets equal to or less than $50
million; (ii) .50% of the Fund's average daily net assets exceeding
$50 million and equal to or less than $125 million; and (iii) .50%
of the Fund's average daily net assets exceeding $125 million. As of
April 8, 1996, Warburg is paid a monthly fee at an annual rate of
.50% of the Fund's average daily net assets.
Sierra Advisors and certain Sub-advisors may voluntarily waive fees payable to
them from time to time. Any fee waivers by a Sub-advisor may be retained by
Sierra Advisors, or Sierra Advisors may pass part or all of such fee waivers
through to the Funds.
67
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
THE SIERRA VARIABLE TRUST
Fees voluntarily waived by Sierra Advisors for the year ended December 31, 1996
are as follows:
<TABLE>
<CAPTION>
NAME OF FUND FEES WAIVED
------------ -----------
<S> <C>
Global Money Fund............................................. $61,700
Short Term High Quality Bond Fund............................. 10,732
</TABLE>
Sierra Fund Administration Corporation ("Sierra Administration"), an indirect
wholly-owned subsidiary of GWFC, serves as administrator to each Fund. First
Data Investor Services Group, Inc. ("FDISG"), a wholly-owned subsidiary of
First Data Corporation, serves as sub-administrator and transfer agent to each
Fund. For its services as administrator, each Fund pays Sierra Administration a
monthly fee at an annual rate of .18% of the value of each Fund's average daily
net assets. Out of its fee, Sierra Administration pays FDISG for its services
as sub-administrator. The Trust pays FDISG certain out-of-pocket expenses as
transfer agent. Separately, as of July 1, 1996, the Trust pays FDISG fees for
its services as transfer agent. Prior to July 1, 1996, Sierra Administration
served as transfer agent.
The Trust also pays Boston Safe Deposit and Trust Company ("Boston Safe"), the
Trust's custodian, certain custodial transaction charges. Boston Safe is an
indirect wholly-owned subsidiary of The Boston Company, Inc., which is a
wholly-owned subsidiary of Mellon Bank Corporation.
Custodian fees have been reduced by credits allowed by Boston Safe for the year
ended December 31, 1996 as follows:
<TABLE>
<CAPTION>
CREDITS
ALLOWED BY THE
NAME OF FUND CUSTODIAN
------------ --------------
<S> <C>
Global Money Fund.......................................... $ 303
Short Term High Quality Bond Fund.......................... 276
Short Term Global Government Fund.......................... 116
U.S. Government Fund....................................... 2,185
Corporate Income Fund...................................... 91
Growth and Income Fund..................................... 567
Growth Fund................................................ 4,277
Emerging Growth Fund....................................... 3,564
International Growth Fund.................................. 1,384
</TABLE>
4. TRUSTEES' FEES
No director, officer or employee of Sierra Investment Services Corporation
("Sierra Services"), the Trust's distributor, Great Western Financial
Securities Corporation ("GW Securities"), a registered broker-dealer, Sierra
Advisors, Sierra Administration, the Sub-advisors or FDISG, or any of their
affiliates receives any compensation from the Trust for serving as an officer
or Trustee of the Trust. GW Securities is a wholly-owned subsidiary (directly
held as of January 1, 1996) and Sierra Services is an indirect wholly-owned
subsidiary of GWFC. The Trust pays each Trustee who is not a director, officer
or employee of Sierra Services, GW Securities, Sierra Advisors, Sierra
Administration, the Sub-advisors or FDISG, or any of their affiliates, $5,000
per annum plus $1,250 per board meeting attended, $1,000 per audit and/or
nominating committee meeting attended and reimbursement for travel and out-of-
pocket expenses. The Chairman of the Audit Committee receives $1,500 per audit
committee meeting attended.
Pursuant to an exemptive order granted by the Securities and Exchange
Commission on October 11, 1995, the Trust's eligible Trustees may participate
in a deferred compensation plan (the "Plan") which may be terminated at any
time. Under the Plan, Trustees may elect to defer receipt of all or a portion
of their fees which in accordance with the Plan are invested in mutual fund
shares. Upon termination of the Plan, Trustees that have deferred accounts
under the Plan will be paid benefits no later than the time the payments would
otherwise have been made without regard to such termination. All benefits
provided under these plans are funded and any payments to plan participants are
paid solely out of the Trust's assets.
68
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
THE SIERRA VARIABLE TRUST
5. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities,
excluding U.S. Government and short-term investments, for the year ended
December 31, 1996 were as follows:
<TABLE>
<CAPTION>
NAME OF FUND PURCHASES SALES
------------ ------------ ------------
<S> <C> <C>
Short Term High Quality Bond Fund............ $ 6,990,270 $ 5,373,736
Short Term Global Government Fund............ 13,630,568 16,003,370
Corporate Income Fund........................ 6,957,254 4,755,444
Growth and Income Fund....................... 51,433,729 44,095,241
Growth Fund.................................. 166,485,088 162,926,174
Emerging Growth Fund......................... 51,554,128 49,591,066
International Growth Fund.................... 65,640,990 51,895,732
The aggregate cost of purchases and proceeds from sales of U.S. Government
securities, excluding short-term investments, for the year ended December 31,
1996 were as follows:
<CAPTION>
NAME OF FUND PURCHASES SALES
------------ ------------ ------------
<S> <C> <C>
Short Term High Quality Bond Fund............ $ 8,987,861 $ 10,670,357
Short Term Global Government Fund............ 1,631,959 869,675
U.S. Government Fund......................... 170,057,961 156,559,805
Corporate Income Fund........................ 10,967,430 11,884,702
At December 31, 1996, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost and aggregate
gross unrealized depreciation for all securities in which there is an excess of
tax cost over value were as follows:
<CAPTION>
TAX BASIS TAX BASIS
UNREALIZED UNREALIZED
NAME OF FUND APPRECIATION DEPRECIATION
------------ ------------ ------------
<S> <C> <C>
Short Term High Quality Bond Fund............ $ 124,624 $ 30,565
Short Term Global Government Fund............ 603,856 158,371
U.S. Government Fund......................... 1,467,214 322,860
Corporate Income Fund........................ 1,428,843 965,039
Growth and Income Fund....................... 9,168,112 1,526,099
Growth Fund.................................. 16,778,150 3,499,189
Emerging Growth Fund......................... 13,045,213 3,023,792
International Growth Fund.................... 7,149,770 3,621,251
Option activity for the Short Term High Quality Bond Fund for the year ended
December 31, 1996 was as follows:
<CAPTION>
NUMBER OF
WRITTEN OPTIONS: PREMIUMS CONTRACTS
---------------- ------------ ------------
<S> <C> <C>
Options outstanding at December 31, 1995..... $ 0 0
Options written.............................. 24,231 1,713,716
Options expired.............................. (7,860) (988,700)
Options closed............................... (12,819) (16)
------------ ------------
Options outstanding at December 31, 1996..... $ 3,552 725,000
============ ============
Option activity for the Short Term Global Government Fund for the year ended
December 31, 1996 was as follows:
<CAPTION>
WRITTEN OPTIONS ON FOREIGN CURRENCY: PREMIUMS
------------------------------------ ------------
<S> <C>
Options outstanding at December 31, 1995..... $ 118,194
Options written.............................. 318,485
Options closed............................... (311,709)
Options expired.............................. (90,690)
------------
Options outstanding at December 31, 1996..... $ 34,280
============
</TABLE>
69
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
THE SIERRA VARIABLE TRUST
Information regarding dollar roll transactions by the U.S. Government and
Corporate Income Funds is as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT CORPORATE
DOLLAR ROLL TRANSACTIONS: FUND INCOME FUND
------------------------- --------------- -----------
<S> <C> <C>
Maximum amount outstanding during the year... $16,035,000 $3,065,000
Average amount outstanding during the year*.. $ 3,330,461 $1,755,625
Average monthly shares outstanding during the
year........................................ 6,178,261 5,956,296
Average debt per share outstanding during the
year........................................ $ 0.54 $ 0.29
</TABLE>
------------
* The average amount outstanding during the year was calculated by
adding the borrowings at the end of each day and dividing the sum by
the number of days in the year ended December 31, 1996.
Fee income earned for the year ended December 31, 1996 by the U.S. Government
and Corporate Income Funds for dollar roll transactions aggregated $116,700 and
$42,589, respectively.
Information regarding reverse repurchase agreement transactions by the U.S.
Government Fund is as follows:
Reverse Repurchase Agreement for the U.S. Government Fund:
<TABLE>
<CAPTION>
FACE MARKET
VALUE VALUE
----- ----------
<C> <S> <C>
$5,087,250 Reverse Repurchase Agreement with Morgan Stanley
& Co. Inc., 5.250% dated 12/26/1996, to be
repurchased at $5,092,443 on 01/02/1997,
collateralized by $7,500,000 U.S. Treasury
Bond, 6.500% due 11/15/2026.................... $5,087,250
----------
</TABLE>
<TABLE>
<CAPTION>
REVERSE REPURCHASE AGREEMENTS:
------------------------------
<S> <C>
Maximum amount outstanding during the year.................... $7,630,000
Average amount outstanding during the year*................... $1,470,210
Average monthly shares outstanding during the year............ 6,178,261
Average debt per share outstanding during the year............ $ 0.24
</TABLE>
------------
* The average amount outstanding during the year was calculated by
adding the borrowings at the end of each day and dividing the sum by
the number of days in the year ended December 31, 1996.
Interest rates ranged from 4.50% to 5.90% during the year. Interest paid for
the year ended December 31, 1996, on borrowings by the Fund under reverse
repurchase agreements aggregated $83,013.
6. SHARES OF BENEFICIAL INTEREST
Each Fund of the Trust may issue an unlimited number of shares of beneficial
interest without par value.
7. ORGANIZATION COSTS
Expenses incurred in connection with the organization of the Global Money,
Short Term Global Government, U.S. Government, Corporate Income, Growth and
International Growth Funds, including the fees and expenses of registering and
qualifying each Fund's shares for distribution under Federal and state
securities regulations, are being amortized on a straight-line basis over a
period of 60 months from commencement of operations of each Fund. In the event
any of the initial shares of a Fund are redeemed by any holder thereof during
the amortization period, the proceeds of such redemptions will be reduced by an
amount equal to the pro-rata portion of the applicable Fund's unamortized
deferred organizational expenses in the same proportion as the number of shares
being redeemed bears to the number of initial shares of such Fund outstanding
at the time of such redemption.
70
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
THE SIERRA VARIABLE TRUST
8. CAPITAL LOSS CARRYFORWARDS
At December 31, 1996, the following Funds had available for federal income tax
purposes unused capital losses as follows:
<TABLE>
<CAPTION>
NAME OF FUND EXPIRING IN 2002 EXPIRING IN 2003 EXPIRING IN 2004
------------ ---------------- ---------------- ----------------
<S> <C> <C> <C>
Short Term High Quality
Bond Fund.............. $ 87,775 $ 71,035 $241,115
Short Term Global Gov-
ernment Fund........... 89,073 91,070 --
U.S. Government Fund.... 750,083 1,366,480 --
Corporate Income Fund... 1,220,489 878,516 144,318
</TABLE>
Under current tax law, capital losses realized after October 31, may be
deferred and treated as occurring on the first day of the following fiscal
year.
For the fiscal year ended December 31, 1996, the following Funds have elected
to defer losses occurring between November 1, 1996 and December 31, 1996 under
these rules, as follows:
<TABLE>
<CAPTION>
CAPITAL
LOSSES
NAME OF FUND DEFERRED
------------ --------
<S> <C>
Short Term High Quality Bond Fund............................... $ 841
Short Term Global Government Fund............................... 1,998
U.S. Government Fund............................................ 3,257
Growth Fund..................................................... 270,127
</TABLE>
Such deferred losses will be treated as arising on the first day of the fiscal
year ending December 31, 1997.
9. GEOGRAPHIC AND INDUSTRY CONCENTRATION
All Funds except the U.S. Government Fund may invest in securities of foreign
companies and foreign governments. There are certain risks involved in
investing in foreign securities that are in addition to the usual risks
inherent in domestic investments. These risks include those resulting from
future adverse political and economic developments and the possible imposition
of currency exchange blockages or other foreign governmental laws or
restrictions.
In addition, the Money Fund may invest at least 25% of its assets in bank
obligations. As a result of this concentration policy, the Fund's investments
may be subject to greater risk than a fund that does not concentrate in the
banking industry. In particular, bank obligations may be subject to the risks
associated with interest rate volatility, changes in Federal and state laws and
regulations governing the banking industry and the inability of borrowers to
pay principal and interest when due. In addition, foreign banks present risks
similar to those investing in foreign securities generally and are not subject
to the same reserve requirements and other regulations as U.S. banks.
71
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES AND SHAREHOLDER
OF THE SIERRA VARIABLE TRUST
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of each of the nine
funds constituting The Sierra Variable Trust (the "Trust"), at December 31,
1996, the results of each of their operations, the changes in each of their net
assets and the financial highlights of each of the funds for the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
investments at December 31, 1996 by correspondence with the custodian and
brokers, and the application of alternative auditing procedures where
confirmations from brokers were not received, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
BOSTON, MASSACHUSETTS
FEBRUARY 14, 1997
- --------------------------------------------------------------------------------
MEETING OF SHAREHOLDERS (UNAUDITED)
On June 21, 1996 a Special Meeting of Shareholders of The Sierra Variable Trust
International Growth Fund (the "International Growth Fund") was held. The
purpose of the meeting was to approve the selection of Warburg, Pincus
Counsellors, Inc. ("Warburg") as Investment Sub-Advisor for the International
Growth Fund and also to approve the adoption of a new Investment Sub-Advisory
Agreement by and among The Sierra Variable Trust Funds (the "Trust"), Sierra
Investment Advisors Corporation and Warburg with respect to the International
Growth Fund.
At the meeting 3,701,786 votes were cast in favor of the proposal and 90,590
votes were cast against the proposal. In addition, there were 480,724
abstentions with respect to the proposal.
72
<PAGE>
This material is not an offer to sell nor a solicitation to buy The Sierra
Advantage Variable Annuity or shares of The Sierra Variable Trust. It is not
authorized for distribution unless preceded or accompanied by a current
prospectus that includes information regarding the risk factors, expenses,
policies, and objectives of The Sierra Advantage Variable Annuity program.
Please read it carefully before investing. Sierra Advantage may not be available
for sale in all states.
Shares of The Sierra Variable Trust are not insured by the FDIC. They are not
deposits or obligations of, nor are they guaranteed by, the depository
institution. These securities are subject to investment risk, including
possible loss of principal amount invested.
Distributed by
Sierra Investment Services Corporation
Member NASD
- ---------
SIERRA Bulk Rate
ADVANTAGE U.S. Postage
- --------- PAID
A TAX-DEFERRED VARIABLE ANNUITY Van Nuys, CA
Permit No.987
The Sierra Variable Trust
9301 Corbin Avenue, Suite 333
P.O. Box 1130
Northridge, California 91324
