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WM Variable Trust – ‘N14AE24’ on 10/10/97

As of: Friday, 10/10/97 · Accession #: 950109-97-6303 · File #: 333-37637

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

10/10/97  WM Variable Trust                 N14AE24                4:252K                                   Donnelley R R & S… 01/FA

Registration Statement of an Open-End Investment Company (Business Combination) — Form N-14
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: N14AE24     Registration Statement of an Open-End Investment      77    408K 
                          Company (Business Combination)                         
 3: EX-99.11    Opinion and Consent of Counsel                         2      7K 
 4: EX-99.14    Accountants Consent                                    1      6K 
 2: EX-99.6     Advisory Agreement                                     8     25K

N14AE24 — Registration Statement of an Open-End Investment Company (Business Combination)
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Agreement Comparison of Investment Objectives, Policies and Restrictions Credit Risk Cross-Reference Sheet Exhibits Federal Income Tax Consequences Funds II. Financial Statements Indemnification Information About the Merger Operating Expenses Overview of Merger Prepayment Risk Prospectus/Proxy Statement Repurchase Agreements Reverse Repurchase Agreements and Borrowings Risk Factors Table of Contents Undertakings
1	1st Page - Filing Submission
2	Cross-Reference Sheet
8	Prospectus/Proxy Statement
10	Overview of Merger
"	Operating Expenses
13	Federal Income Tax Consequences
"	Comparison of Investment Objectives, Policies and Restrictions
16	Risk Factors
17	Credit Risk
"	Prepayment Risk
"	Repurchase Agreements
"	Reverse Repurchase Agreements and Borrowings
19	Funds
25	Information About the Merger
30	Agreement
50	Table of Contents
51	II. Financial Statements
72	Item 15. Indemnification
73	Item 16. Exhibits
75	Item 17. Undertakings

N14AE24 1st Page of 77 TOC ↑Top Previous Next ↓Bottom Just 1st
 
As filed with the Securities and Exchange Commission on October 10, 1997  

Registration No. ____ 

SECURITIES AND EXCHANGE COMMISSION  
WASHINGTON, D.C.  20549 

------------  

FORM N-14 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 

[_] Pre-Effective Amendment No. __  
[_] Post-Effective Amendment No. __ 

The Sierra Variable Trust 
(Exact name of Registrant as Specified in Charter)  

9301 Corbin Avenue, Suite 333 
Northridge, California  91324 
(Address of Principal Executive Offices)  
(800) 222-5852  
(Area Code and Telephone Number)  

------------  

Keith B. Pipes  
9301 Corbin Avenue  
Northridge, California  91324 
(Name and Address of Agent for Service) 

Copies to:  
Richard W. Grant, Esq.                     Joseph B. Kittredge, Esq.
Morgan, Lewis & Bockius, LLP               Ropes & Gray             
2000 One Logan Square                      One International Place  
Philadelphia, PA  19103                    Boston, MA  02110        

------------  

Approximate Date of Proposed Public Offering: 
As soon as practicable after this Registration Statement becomes effective. 

------------  

It is proposed that this filing will become effective on November 10, 1997
pursuant to Rule 488. 

------------  

    The Registrant has registered an indefinite amount of its securities under
the Securities Act of 1933, pursuant to Rule 24f-2 under the Investment Company 
Act of 1940.  In reliance upon Rule 24f-2, no filing fee is being paid at this  
time.  A Rule 24f-2 Notice for the Registrant for the fiscal year ended December
31, 1996 was filed on February 24, 1997.                                        

N14AE24 2nd Page of 77 TOC 1st Previous Next ↓Bottom Just 2nd
The Sierra Variable Trust 

Cross-Reference Sheet 
as required by Rule 481(a)

Form N-14 Item    Caption in Prospectus/Proxy Statement                         

1            Cross-Reference Sheet; Outside Front Cover of Prospectus 

2            Outside Back Cover Page of Prospectus; Table of Contents 

3            Overview of Merger; Risk Factors                         

4            Approval or Disapproval of Agreement and Plan of         
Reorganization                              

5,6          Information about the Acquired and Acquiring Funds       

7            Voting Information                                       

8,9          Not Applicable                                           

Form N-14 Item    Caption in Statement of Additional Information                

10           Cover Page                                               

11           Table of Contents                                        

    12, 13       Additional Information about the Acquiring and Acquired Funds

14           Financial Statements                                     

Form N-14 Item    Caption in Part C                                             

15           Indemnification                                          

16           Exhibits                                                 

17           Undertakings                                             

N14AE24 3rd Page of 77 TOC 1st Previous Next ↓Bottom Just 3rd
[AMERICAN GENERAL LIFE LOGO]  

                                                              November  , 1997

Dear Variable Annuity Contract Holder:                                          

American General Life Insurance Company ("AGL") has been offering various   
forms of variable annuity contracts through Separate Account D (the "Separate   
Account"), a unit investment trust, since 1973. The Separate Account consists   
of forty-three (43) investment divisions (the "Divisions") which are each       
available under annuity contracts funded through the Separate Account (the      
"Contracts"). If you've had your Contract for some time, you'll recall that we  
periodically ask you to tell us how you would like us to represent your inter-  
ests at meetings of shareholders of The Sierra Variable Trust (the "Trust").    
The issues that are considered at shareholder meetings generally have to do     
with the management of the Trust and/or the various funds within the Trust.     
The Trust is a family of funds underlying the investment options in your Con-   
tract, and it includes the Short Term Global Government Fund (the "Global Gov-  
ernment Fund") and the Short Term High Quality Bond Fund (the "High Quality     
Bond Fund").                                                                    

Included in this booklet is information about the upcoming Shareholder's    
meeting (the "Special Meeting"):                                                

.  A NOTICE OF A SPECIAL MEETING OF THE SHAREHOLDERS OF THE GLOBAL GOVERN-  
MENT FUND, which explains, in summary format, the issues for which you
are being asked to provide voting instructions;                       

.  AN INFORMATION STATEMENT, which outlines the voting procedures;          

.  A PROSPECTUS/PROXY STATEMENT FOR THE SPECIAL MEETING, which provides     
  comprehensive information on the specific issues being considered at the
Special Meeting.                                                      

ALSO ENCLOSED ARE YOUR BALLOT AND POSTAGE-PAID RETURN ENVELOPE.             

We encourage you to review each of these items thoroughly. Once you've de-  
termined how you wish to vote, please mark your preferences on your ballot,     
making sure that you sign and date your ballot before mailing it in the post-   
age-paid envelope. A prompt response on your part will help to ensure that      
your interests are represented.                                                 

                  Sincerely,

                                           -----------------------------------

N14AE24 4th Page of 77 TOC 1st Previous Next ↓Bottom Just 4th
AMERICAN GENERAL LIFE   
INSURANCE COMPANY   

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS 
OF THE SIERRA VARIABLE TRUST  
SHORT TERM GLOBAL GOVERNMENT FUND 

To be held on December  , 1997  

Dear American General Life Client:                                              

The net purchase payments made under your American General Life ("AGL")     
variable annuity contract (the "Contract") have been allocated at your direc-   
tion to the investment divisions ("Division/s") of Separate Account D (the      
"Separate Account"). The Separate Account invests in Divisions which include    
corresponding series of The Sierra Variable Trust (the "Trust"), an open end    
management investment company, including the Short Term Global Government Fund  
(the "Fund").                                                                   

As a Contract owner ("Contractowner") of record at the close of business on 
, 1997 (the "Record Date"), you are entitled to instruct AGL as to how it 
should vote on certain proposals to be considered at a Special Meeting of the   
Fund's shareholders.                                                            

The Special Meeting of Shareholders of the Fund, will be held on     , De-  
cember  , 1997 at     at the offices of     to consider the following, on       
which you are entitled to provide AGL with voting instructions:                 

1. To consider and act upon a proposal to elect the Board of Trustees.  

2. To approve or disapprove an Agreement and Plan of Reorganization pro-
viding for the transfer of all of the assets of the Fund to the Short Term  
High Quality Bond Fund (the "High Quality Bond Fund"), a series of the      
Trust, in exchange for shares of the High Quality Bond Fund and the assump- 
tion by the High Quality Bond Fund of all of the liabilities of the Fund,   
and the distribution of such shares to the shareholders of the Fund in com- 
plete liquidation of the Fund.                                              

3. To consider such other business as may properly come before the meet-
ing.                                                                        

Attached to this notice are the Information Statement of AGL and the        
Prospectus/Proxy Statement of the Trust. You are urged to read both of these    
statements before completing your ballot.                                       

                        Steven A. Glover
                           Assistant Secretary

November  , 1997                                                                

--------------------------------------------------------------------------------
IT IS IMPORTANT THAT YOUR CONTRACT BE REPRESENTED. PLEASE PROMPTLY MARK       
YOUR VOTING INSTRUCTIONS ON THE ENCLOSED BALLOT; THEN, SIGN, DATE AND MAIL    
IT IN THE ACCOMPANYING ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE      
UNITED STATES. YOUR PROMPT RESPONSE WILL HELP AVOID THE UNNECESSARY           
EXPENSE OF A FURTHER SOLICITATION OF BALLOTS.                                 
--------------------------------------------------------------------------------

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AMERICAN GENERAL LIFE INSURANCE COMPANY 

----------------------------------------------------- 

INFORMATION STATEMENT 
REGARDING A SPECIAL MEETING OF THE  
SHAREHOLDERS OF THE SIERRA VARIABLE TRUST SHORT TERM GLOBAL GOVERNMENT FUND 

----------------------------------------------------- 

NOVEMBER  , 1997  

GENERAL 

This information statement is furnished by American General Life Insurance  
Company ("AGL"), a Texas stock life insurance company, to owners of its vari-   
able annuity contracts ("Contractowners") who had net purchase payments allo-   
cated to the Short Term Global Government Fund investment division of AGL's     
Separate Account D (the "Separate Account") as of    , 1997 (the "Record        
Date"). The assets in such investment division of the Separate Account (the     
"Division") are invested in the shares of beneficial interest of the Short      
Term Global Government Fund (the "Fund"), a series of The Sierra Variable       
Trust (the "Trust").                                                            

AGL is required to offer Contractowners the opportunity to instruct AGL, as 
owner of all Trust shares held by the Separate Account, as to how it should     
vote on the proposals to be considered at the Special Meeting of the share-     
holders of the Fund referred to in the preceding notice and at any adjourn-     
ments (the "Special Meeting").                                                  

The proposals to be considered at the Special Meeting are discussed in the  
Trust's Prospectus/Proxy Statement, which is enclosed. Contractowners are       
urged to read the enclosed Prospectus/Proxy Statement prior to completing the   
ballot.                                                                         

AGL is an indirect, wholly-owned subsidiary of American General Corporation,
formerly American General Insurance Company, a diversified financial services   
holding company engaged primarily in the insurance business. The home office    
of AGL is located at 2727-A Allen Parkway, Houston, Texas 77019, and the mail-  
ing address is American General Life Insurance Company, Annuity Administration  
Department, P.O. Box 1401, Houston, Texas 77251-1401.                           

This Information Statement and the accompanying ballot are being mailed to  
Contractowners on or about November  , 1997.                                    

HOW TO INSTRUCT AGL 

To instruct AGL as to how to vote the shares of beneficial interest of the  
Trust (the "Shares") held in the Division, Contractowners are asked to          
promptly mark their voting instructions on the enclosed ballot; then, sign,     
date and mail it in the accompanying postage-paid envelope.                     

N14AE24 6th Page of 77 TOC 1st Previous Next ↓Bottom Just 6th
IF A BALLOT IS NOT MARKED TO INDICATE VOTING  
INSTRUCTIONS BUT IS SIGNED, DATED AND RETURNED,   
IT WILL BE TREATED AS AN INSTRUCTION TO   
VOTE THE SHARES FOR EACH OF THE PROPOSALS.  

The number of Shares held in the Division for which a Contractowner may pro-
vide voting instructions (in the aggregate, "Shares Attributable to             
Contractowners") was determined as of the Record Date by dividing (i) a Con-    
tract's account value (minus any contract indebtedness) allocable to the Divi-  
sion by (ii) the net asset value of one share of the Fund.                      

At any time prior to AGL's voting of the Shares held in the Division at the 
Special Meeting, a Contractowner may revoke his or her ballot with respect to   
the Division by written notice to the Vice President--Annuity Administrator of  
AGL at P.O. Box 1401, Houston, Texas 77251-1401.                                

HOW AGL WILL VOTE 

The Shares Attributable to Contractowners in the Division for which AGL re- 
ceives no voting instructions in time will be voted by AGL for or against ap-   
proval of a proposal, or as an abstention, in the same proportion as the        
Shares of Attributable to Contractowners for which AGL receives voting in-      
structions. Shares attributable to amounts retained by AGL in the Division      
will be voted in the same proportion as votes cast by Contractowners of all     
Shareholders in respect of the Division.                                        

OTHER MATTERS 

AGL is not aware of any matters, other than the specified proposals, to be  
acted upon at the Special Meeting. If any other matters come before the Spe-    
cial Meeting, AGL will vote the Shares upon such matters in its discretion.     

Ballots may be solicited by employees of AGL and its subsidiaries. The so-  
licitation will be by mail and may also be by telephone, telegram or personal   
interview. AGL reserves the right to vote for adjournment of the Special Meet-  
ing for the purpose of further solicitation of ballots.                         

                        Steven A. Glover
                           Assistant Secretary

PLEASE PROMPTLY MARK YOUR VOTING INSTRUCTIONS ON THE ENCLOSED BALLOT; THEN  
SIGN, DATE AND MAIL IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE. IT IS IMPORTANT   
THAT YOUR CONTRACT BE REPRESENTED.                                              

2 

N14AE24 7th Page of 77 TOC 1st Previous Next ↓Bottom Just 7th
THE SIERRA VARIABLE TRUST 

SHORT TERM GLOBAL GOVERNMENT FUND 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS 

DECEMBER  , 1997

To the Shareholders:                                                            

Notice is hereby given that a Special Meeting of Shareholders of the Short    
Term Global Government Fund (the "Fund"), a series of The Sierra Variable Trust 
(the "Trust"), will be held on     , December  , 1997 at      at the offices of 
to consider the following:                                          

1. To consider and act upon a proposal to elect the Board of Trustees.        

2. To approve or disapprove an Agreement and Plan of Reorganization providing 
for the transfer of all of the assets of the Fund to the Short Term High Qual-  
ity Bond Fund (the "High Quality Bond Fund"), a series of the Trust, in ex-     
change for shares of the High Quality Bond Fund and the assumption by the High  
Quality Bond Fund of all of the liabilities of the Fund, and the distribution   
of such shares to the shareholders of the Fund in complete liquidation of the   
High Quality Bond Fund.                                                         

3. To consider such other business as may properly come before the meeting.   

The Trustees have fixed the close of business on October  , 1997 as the record
date for determination of shareholders entitled to notice of, and to vote at,   
the special meeting.                                                            

                                         By order of the Board of Trustees

                                 Keith B. Pipes, Secretary

November  , 1997                                                                

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PROSPECTUS/PROXY STATEMENT  

                                                              November  , 1997

This Prospectus/Proxy Statement relates to (1) the election of Trustees of    
The Sierra Variable Trust (the "Trust"), 9301 Corbin Avenue, Suite 333, North-  
ridge, California 91324, and (2) the proposed acquisition of the assets of the  
Short Term Global Government Fund, a series of the Trust (the "Global Govern-   
ment Fund"), by and in exchange for shares of the Short Term High Quality Bond  
Fund, also a series of the Trust (the "High Quality Bond Fund") (the "Merg-     
er"). The Merger is to be effected through the transfer of all of the assets    
of the Global Government Fund to the High Quality Bond Fund in exchange for     
shares of beneficial interest of the High Quality Bond Fund (the "Merger        
Shares") and the assumption by the High Quality Bond Fund of all of the lia-    
bilities of the Global Government Fund, followed by the distribution of the     
Merger Shares to the shareholders of the Global Government Fund in liquidation  
of the Global Government Fund. As a result of the proposed Merger, each share-  
holder of the Global Government Fund will receive in exchange for its Global    
Government Fund shares a number of High Quality Bond Fund shares equal in       
value at the date of the exchange to the aggregate value of the shareholder's   
Global Government Fund shares.                                                  

The Trust is a no-load, open-end management investment company that serves as 
an investment vehicle for variable annuity contracts (the "Contracts") issued   
by American General Life Insurance Company ("AGL") and its Separate Account D   
(the "Separate Account"). As a technical matter, AGL holds Trust shares in the  
Separate Account in which contributions and premiums received under the Con-    
tracts are initially invested. The Separate Account, in turn, purchases Trust   
shares which are divided into fourteen series, five of which are asset alloca-  
tion portfolios (the "Asset Allocation Portfolios") that invest in various      
combinations of the other nine series, including both the Global Government     
Fund and the High Quality Bond Fund. Consequently, as used herein, the term     
"shareholder" refers to AGL and the Asset Allocation Portfolios of the Trust    
which have invested in the Global Government Fund. AGL offers certain con-      
tract-owners (the "Global Government Contractown-ers") the right to give AGL    
instructions as to how those shares of the Fund attributable to their Contract  
should be voted, although owners of Contracts whose premiums are invested in    
Asset Allocation Portfolios do not have the right so to instruct AGL.           

This Prospectus/Proxy Statement is being furnished on behalf of the Board of  
Trustees of the Trust to AGL in its capacity as shareholder of the Global Gov-  
ernment Fund for its use in obtaining instructions from the Global Government   
Contractowners as to how to vote on the proposals to be considered at the spe-  
cial meeting of shareholders of the Global Government Fund to be held on De-    
cember  , 1997 (the "Special Meeting"). AGL will attend the Special Meeting in  
person [or by proxy] and will vote shares of the Global Government Fund held    
directly by the Separate Account in accordance with voting instructions re-     
ceived from Global Government Contractowners and in accordance with voting      
procedures established by the Trust. Shares of the Global Government Fund at-   
tributable to contracts for which no voting instructions have been received by  
AGL, shares attributable to amounts retained by AGL in the Separate Account     
and shares owned by the Trust's Asset Allocation Portfolios will be voted for,  
against or withheld from voting on each proposal in the same proportions as     
are the shares for which voting instructions have been received by AGL from     
Global Government Contractowners. Global Government Contractowners as of    ,   
1997 (the "Record Date") have the right to give voting instructions with re-    
spect to the Special Meeting or any adjournment thereof.                        

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This Prospectus/Proxy Statement is being mailed to shareholders on or about   
November  , 1997. Instructions executed by Global Government Contractowners     
may be revoked at any time before they are exercised by a written revocation    
received [by     at AGL] or by properly executing later-dated instructions.     

The Trust expects that the Information Statement and ballot prepared for use  
by AGL, as well as this Prospectus/Proxy Statement, will be mailed by AGL to    
the Global Government Contractown- ers by AGL on or about November  , 1997 in   
order to obtain voting instructions from those Contractowners.                  

Because shareholders of the Global Government Fund are being asked to approve 
a transaction which will result in their receiving shares of the High Quality   
Bond Fund, this Proxy Statement also serves as a Prospectus for the Merger      
Shares of the High Quality Bond Fund. The High Quality Bond Fund seeks as high  
a level of current income as is consistent with prudent investment management   
and stability of principal. It will pursue this objective by investing primar-  
ily in high quality short-term bonds and other debt instruments. This           
Prospectus/Proxy Statement explains concisely what you should know before in-   
vesting in the High Quality Bond Fund. Please read it and keep it for future    
reference.                                                                      

This Prospectus/Proxy Statement is accompanied by the current Prospectus of   
the Trust which includes the Global Government Fund and the High Quality Bond   
Fund dated May 1, 1997 (as amended or supplemented from time to time the "Pro-  
spectus"). The information regarding the Funds contained in such Prospectus is  
incorporated into this Prospectus/Proxy Statement by reference. The following   
documents have been filed with the Securities and Exchange Commission (the      
"SEC") and are also incorporated into this Prospectus/Proxy Statement by ref-   
erence: (i) the Trust's Annual Report to Shareholders for the year ended De-    
cember 31, 1996 (the "Annual Report"); (ii) the Trust's Semi-Annual Report to   
Shareholders for the six months ended June 30, 1997 (the "Semi-Annual Re-       
port"); (iii) the current Statement of Additional Information of the Trust,     
dated May 1, 1997, as amended or supplemented from time to time (the "SAI");    
and (iv) a Statement of Additional Information dated November  , 1997 relating  
to the transaction described in this Prospectus/Proxy Statement (the "Merger    
SAI").                                                                          

For a free copy of any or all of the Prospectus, SAI, Merger SAI, Annual Re-  
port or Semi-Annual Report referred to in the foregoing paragraph, please call  
1-800-247-6584 or write to [American General Life Insurance Company, Attn: An-  
nuity Administration, P.O. Box 1401, Houston, Texas 77251-1401.]                

THE SECURITIES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT HAVE NOT BEEN AP-   
PROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE     
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY        
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.            

--------------------------------------------------------------------------------

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OVERVIEW OF MERGER                                                              

PROPOSED TRANSACTION                                                            

The transaction described on the first page of this Prospectus/Proxy State-   
ment is a separate part of an overall restructuring of the registered invest-   
ment companies (the "Composite/Sierra Mutual Funds") advised by Composite Re-   
search & Management Co. ("CRM") and Sierra Investment Advisors Corporation      
("Sierra"). CRM, which has been in the business of investment management since  
1944, is a direct subsidiary of Washington Mutual, Inc. ("Washington Mutual"),  
a financial services company, and Sierra is an indirect subsidiary of Washing-  
ton Mutual as a result of the merger, which took place on July 1, 1997, of Si-  
erra's former indirect parent, Great Western Financial Corporation, with and    
into a wholly-owned subsidiary of Washington Mutual. The restructuring in-      
volves, among other components, several "mergers" of the Composite/Sierra Mu-   
tual Funds with similar investment objectives and policies and the substitu-    
tion of CRM for Sierra as investment manager/adviser for most of the            
Composite/Sierra Mutual Funds. The result of the restructuring will be a sin-   
gle, more integrated mutual fund complex.                                       

As a result of the proposed transaction that is the focus of this             
Prospectus/Proxy Statement, the Global Government Fund will receive a number    
of shares of the High Quality Bond Fund (the "Merger Shares") equal in value    
to the value of the net assets of the Global Government Fund being trans-       
ferred. Following the transfer, (i) the High Quality Bond Fund will distribute  
to its shareholders a number of full and fractional Merger Shares of the High   
Quality Bond Fund equal in value to the aggregate value of its Global Govern-   
ment Fund shares, and (ii) the Global Government Fund will be liquidated.       

Shares of both Funds (referred to together as the "Funds") are sold without a 
front-end sales charge and are not subject to a contingent deferred sales       
charge. No sales charge will be charged to Global Government Fund shareholders  
on the issuance of the Merger Shares, and no CDSC will be charged to Global     
Government Fund shareholders on the exchange of their Global Government Fund    
shares for the Merger Shares.                                                   

The Trustees unanimously recommend that shareholders of the Global Government 
Fund approve the Merger because it offers shareholders the opportunity to pur-  
sue a similar investment program in a larger fund, which should offer opportu-  
nities for greater diversification of risk and reduced operating expenses. See  
"Operating Expenses" below and "Background and Reasons for the Proposed Merg-   
er."                                                                            

OPERATING EXPENSES                                                              

As described more fully below, Sierra currently serves as investment manager  
and Scudder, Stevens & Clark, Inc. ("Scudder") serves as subadviser to both     
Funds. In addition to investment management fees, both Funds currently pay ad-  
ministrative fees to an affiliate of Sierra at an annual rate equal to .18%     
per annum of average daily net assets. As the following table and related       
notes indicate, the currently approved contractual management fee rate for the  
High Quality Bond Fund is lower than the currently approved contractual man-    
agement fee rate for the Global Government Fund. Effective on or about January  
1, 1998, it is proposed that CRM become the investment manager of the High      
Quality Bond Fund at the same management fee rate as is presently paid to Si-   
erra, such change being part of the general restructuring described above. It   
is also proposed that at that time the Funds will no longer pay administrative  
fees. Accordingly, and as a result of expected economies of scale, it is ex-    
pected that aggregate operating expenses of the High Quality Bond Fund will be  
lower following the Merger than the aggregate operating expenses currently      
borne by the Global Government Fund. There can be no assurance that the Merger  
will result in expense savings for shareholders. These tables                   

4 

N14AE24 11th Page of 77 TOC 1st Previous Next ↓Bottom Just 11th
summarize expenses, adjusted in each case to reflect the proposed elimination   
of the administrative fees, (i) that the Global Government Fund would have in-  
curred in the first six months of its current fiscal year as well as its fis-   
cal year ending December 31, 1996, (ii) that the High Quality Bond Fund would   
have incurred in the first six months of its current fiscal year as well as     
its fiscal year ending December 31, 1996, and (iii) that the High Quality Bond  
Fund would have incurred in the first six months of its current fiscal year as  
well as its fiscal year ending December 31, 1996, after giving effect on a pro  
forma combined basis to the proposed Merger, as if the Merger had occurred as   
of the beginning of such fiscal year. The tables are provided to help explain   
a shareholder's share of the operating expenses which each Fund incurs and do   
not reflect any Contract level expenses.                                        

5 

N14AE24 12th Page of 77 TOC 1st Previous Next ↓Bottom Just 12th
                                                        [Enlarge/Download Table]

                             ADJUSTED EXPENSES         ADJUSTED EXPENSES        PRO FORMA EXPENSES    
                          GLOBAL GOVERNMENT FUND    HIGH QUALITY BOND FUND    HIGH QUALITY BOND FUND  
                           (FOR THE YEAR ENDING      (FOR THE YEAR ENDING      (FOR THE YEAR ENDING   
                           DECEMBER 31, 1996)(1)     DECEMBER 31, 1996)(1)     DECEMBER 31, 1996)(1)  
                         ------------------------- ------------------------- -------------------------
ANNUAL FUND OPERATING                                                                                 
 EXPENSES                                                                                             
 (as a percentage of                                                                                  
 average net assets)                                                                                  
------------------------------------------------------------------------------------------------------
                                                                                                      
Management Fees.........            .75%                     .50%                      .50%           
12b-1 Fees..............            None                     None                      None           
Other Expenses..........            .35%                     .38%                      .24%           
Total Fund Operating                                                                                  
 Expenses...............           1.10%(2)                  .88%(2)                   .74%           
------------------------------------------------------------------------------------------------------

                             ADJUSTED EXPENSES         ADJUSTED EXPENSES        PRO FORMA EXPENSES    
                          GLOBAL GOVERNMENT FUND    HIGH QUALITY BOND FUND    HIGH QUALITY BOND FUND  
                         (FOR THE SIX MONTHS ENDED (FOR THE SIX MONTHS ENDED (FOR THE SIX MONTHS ENDED
                             JUNE 30, 1997)(1)         JUNE 30, 1997)(1)         JUNE 30, 1997)(1)    
                         ------------------------- ------------------------- -------------------------
ANNUAL FUND OPERATING                                                                                 
 EXPENSES                                                                                             
 (as a percentage of                                                                                  
 average net assets)                                                                                  
------------------------------------------------------------------------------------------------------
                                                                                                      
Management Fees.........            .75%                     .50%                      .50%           
12b-1 Fees..............            None                     None                      None           
Other Expenses..........            .33%                     .42%                      .22%           
Total Fund Operating                                                                                  
 Expenses...............           1.08%(2)                  .92%(2)                   .72%           
------------------------------------------------------------------------------------------------------

(1) Adjusted to reflect the elimination of administrative fees at the rate of   
0.18% per annum.                                                        

(2) Before application of the waiver described below and custodial credits,     
Total Fund Operating Expenses of the Global Government Fund and the High
Quality Bond Fund would have been 1.26% and 1.10%, respectively, for the
six-month period and 1.28% and 1.06%, respectively for the 1996 fiscal  
 year (which percentages include the administrative fees described in note
1). During the relevant periods, however, the Funds' investment manager 
and administrator undertook to waive their fees and/or bear certain ex- 
penses to the extent necessary to limit Total Fund Operating Expenses to
 the annual rates of 1.35%, in the case of the Global Government Fund, and
 to 1.00%, in the case of the High Quality Bond Fund. Consequently, actual
historical expenses for the period were reduced to the annual rate of   
1.00% for the High Quality Bond Fund pursuant to the waiver. Actual his-
torical expenses for the Global Government Fund were unaffected by the  
waiver. For more information, see the Annual Report and the Semi-Annual 
Report.                                                                 

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FEDERAL INCOME TAX CONSEQUENCES                                                 

So long as the Contracts qualify as annuity contracts under Section 72 of the 
Internal Revenue Code, the Merger will not create any tax liability for owners  
of Contracts. The Global Government Fund is expected to recognize gain or loss  
on both (i) the anticipated significant realignment of the Global Government    
Fund's portfolio that will occur in connection with the Merger, and (ii) the    
sale of its assets to the High Quality Bond Fund in the merger itself, and      
Global Government Fund shareholders (but not owners of Contracts) are expected  
to recognize taxable gain or loss on receipt of shares in the High Quality      
Bond Fund, equal to the difference between the net asset value of the High      
Quality Bond Fund shares received and the shareholder's tax basis in its        
Global Government Fund shares.                                                  

If, as expected, the Merger is a taxable transaction, the High Quality Bond   
Fund's cost basis for each security will be the market value of such security   
at the time of the Merger (rather the Global Government Fund's cost basis).     
The Global Government Fund will distribute at the time of the Merger all of     
the Global Government Fund's net investment income and net realized capital     
gains to its shareholders. There is some uncertainty as to the federal tax      
treatment of the Merger. The Internal Revenue Service may take the position     
that the Merger is a tax-free reorganization, and there can be no assurance     
that the Fund's reporting position will prevail.                                

--------------------------------------------------------------------------------

COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS                  

The High Quality Bond Fund has an investment objectives that is similar to    
that of the Global Government Fund. The investment objectives, policies and     
restrictions of the Global Government Fund and the High Quality Bond Fund, and  
certain differences between them, are summarized below. For a more detailed     
description of the investment techniques used by the Funds, please see the ac-  
companying Prospectus, the Merger SAI and the SAI.                              

The Funds have substantially similar investment objectives. The High Quality  
Bond Fund attempts to provide as high a level of current income as is consis-   
tent with prudent investment management and stability of principal. The Global  
Government Fund attempts to provide high current income consistent with pro-    
tection of principal. The Global Government Fund is a non-diversified fund,     
generally invests a substantial portion of its assets in foreign securities     
and has greater flexibility to invest in lower-rated securities. The High       
Quality Bond Fund is a diversified fund and may only invest in securities       
that, at the time of purchase, are investment grade bonds.                      

Both Funds seek to maintain a dollar-weighted average portfolio maturity of   
three years or less but may hold individual securities with remaining maturi-   
ties of more than three years. However, under no circumstances will the High    
Quality Bond Fund have a dollar-weighted average portfolio maturity in excess   
of five years. The Global Government Fund seeks to maintain greater price sta-  
bility than longer-term bond funds.                                             

Under normal market conditions, the Global Government Fund will invest at     
least 65% of its total assets in short-term bonds and money market instruments  
issued or guaranteed by foreign governments or the U.S. Government or their     
agencies, instrumentalities or political subdivisions (including securities     
which are majority owned by such government, agency, instrumentality or polit-  
ical subdivision) that are rated within the three                               

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highest rating categories by Standard & Poor's ("S&P") or Moody's Investors     
Service, Inc. ("Moody's") or, if unrated, are judged to be of comparable qual-  
ity. These securities may be denominated in foreign currencies, multinational   
currency units or the U.S. dollar and under normal market conditions will be    
invested in government securities in at least three different countries, one    
of which may be the United States. In the case of the High Quality Bond Fund,   
at least 65% of total assets will be invested in short-term investment-grade    
bonds and other fixed-income securities issued by the U.S. Government, corpo-   
rations and other issuers, or mortgage-related securities rated in one of the   
two highest categories by a nationally recognized statistical rating organiza-  
tion ("NRSRO"). No more than 10% of its assets may be invested in foreign se-   
curities. All debt securities purchased by the High Quality Bond Fund will be   
investment-grade (rated in one of the four highest categories by a NRSRO) at    
the time of purchase. See "Risk Factors--Credit Risk."                          

The Funds may also invest in: (i) American depository receipts; (ii) securi-  
ties indexed to foreign currency exchange rates; (iii) floating rate, inverse   
floating rate and variable rate obligations, including participation interests  
therein; (iv) bank obligations, which include certificates of deposit, time     
deposits and bankers' acceptances of U.S. commercial banks or savings and loan  
institutions with assets of at least $500 million as of the end of the most     
recent fiscal year; (v) mortgage-backed and government stripped mortgage-       
backed securities; (vi) repurchase agreements; and (vii) lease obligation       
bonds. Each Fund may also borrow up to 30% of total assets for temporary emer-  
gency purposes, purchase securities on a "when-issued" or "delayed-delivery"    
basis, invest up to 10% of assets in securities of unaffiliated mutual funds    
and lend securities up to 20% of the Fund's total assets.                       

The Funds may utilize various other investment strategies involving deriva-   
tives, including exchange-listed and over-the-counter put and call options on   
securities, foreign currencies, equity and fixed-income indices and other fi-   
nancial instruments, financial futures contracts and options thereon, currency  
forward transactions, and interest rate transactions such as swaps, caps,       
floors and collars to hedge various market risks, to manage the effective ma-   
turity or duration of fixed-income securities, or to seek potentially higher    
returns. The Funds may write covered put and call options on securities but     
neither Fund will use more than 10% of assets to purchase put options or more   
than 10% of assets to purchase call options, will not write put options with    
respect to more than 50% of total assets, and will not enter into derivative    
transactions that are not "covered" or entered into for "bona fide hedging"     
purposes that are in the aggregate principal amount in excess of 25% of its     
net assets. In addition, neither Fund may enter into any futures or options     
contracts for which aggregate initial margin deposits and premiums paid for     
unexpired options entered into for purposes other than bona fide hedging ex-    
ceed 5% of the fair market value of the Fund's assets.                          

The Global Government Fund may also invest: (i) up to 10% of its assets in    
securities rated at the time of purchase below investment-grade (below BBB by   
S&P or Baa by Moody's) and unrated securities of comparable quality; (ii) in    
non-government foreign and domestic securities, including debt securities is-   
sued or guaranteed by supranational organizations, corporate debt securities,   
and bank or bank holding company obligations such as certificates of deposit,   
bankers' acceptances and time deposits; and (iv) up to 10% of total assets in   
asset-backed securities. See "Risk Factors."                                    

The High Quality Bond Fund may also invest: (i) in high-quality, short-term   
obligations with a maturity of 12 months or less, such as commercial paper is-  
sued by domestic and foreign corporations, bankers' acceptances issued by do-   
mestic and foreign banks, certificates of deposit and demand and time deposits  
of domestic and foreign banks and savings and loan associations; (ii) obliga-   
tions                                                                           

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issued or guaranteed by domestic or foreign governments or their agencies or    
instrumentalities; (iii) high-grade corporate debt obligations, such as bonds,  
debentures, notes, equipment lease and truck certificates; (iv) collateralized  
mortgage obligations; (v) up to 25% of total assets in asset-backed securi-     
ties; and (vi) in certain illiquid investments such as privately placed obli-   
gations including restricted securities and may borrow money or enter into re-  
verse repurchase agreements or dollar roll transactions in the aggregate up to  
33 1/3% of total assets (but currently intends to limit such activity to 10%    
of total assets). See "Risk Factors--Prepayment Risk," "--Repurchase Agree-     
ments," and "--Reverse Repurchase Agreements and Borrowings."                   

In addition to the investment restrictions described above, the Global Gov-   
ernment Fund may not invest in dollar rolls and will not purchase any addi-     
tional securities whenever borrowings, including reverse repurchase agree-      
ments, exceed 5% of total assets.                                               

In addition to the investment restrictions described above, the High Quality  
Bond Fund may not engage in short sales or maintain short positions or invest   
in non-investment-grade securities (rated lower than BBB by S&P or Baa by       
Moody's).                                                                       

Adam M. Greshin, Product Leader for Scudder's global and international fixed- 
income investing, is primarily responsible for the management of the Global     
Government Fund. The day-to-day management of the High Quality Bond Fund's      
portfolio has been the responsibility of Thomas M. Poor, Managing Director of   
Scudder.                                                                        

As part of the overall restructuring described above, the Trustees of the     
Trust have approved for The High Quality Bond Fund a new Advisory Agreement     
(the "CRM Advisory Agreement") with CRM whereby CRM will provide the services   
currently provided by both Sierra, as the investment manager, and Scudder as    
the sub-advisor. The CRM Advisory Agreement will be voted upon at the meeting   
of the High Quality Bond Fund's shareholders to be held on or about December    
, 1997.                                                                       

 ,      of CRM, would be primarily responsible for the management of the
High Quality Bond Fund. CRM does not intend to effect any changes to the in-    
vestment objectives, policies or restrictions of the Fund, as outlined above.   
The approval of CRM as adviser to the High Quality Bond Fund is not a condi-    
tion to the Merger. Thus, depending on whether shareholders of the High Qual-   
ity Bond Fund approve the proposed advisory arrangement with CRM, the day-to-   
day portfolio management of the High Quality Bond Fund following the Merger     
may be provided either by CRM or by Scudder.                                    

COMPARISON OF DISTRIBUTION POLICIES AND PURCHASE, EXCHANGE AND REDEMPTION       
PROCEDURES                                                                      

The Shares of the Funds are sold in a continuous offering to AGL and to the   
Asset Allocation Portfolios for the Separate Account to fund Contracts. Net     
purchase payments under the Contracts are placed in one or more of the invest-  
ment divisions ("Divisions") of the Separate Account and are invested in the    
shares of the Trust's portfolios, including the Funds, corresponding to such    
Divisions. Shares of the Funds are purchased and redeemed at net asset value    
without sales or redemption charges.                                            

For each day on which either the Global Government Fund's or the High Quality 
Bond Fund's net asset value is calculated, the Separate Account transmits to    
the Trust any orders to purchase or redeem shares of the Global Government      
Fund or the High Quality Bond Fund based upon the purchase payments, redemp-    
tion (surrender) requests and transfer requests from Contractowners,            
annuitants or beneficiaries which are priced as of that day.                    

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All purchase and redemption orders will be processed in accordance with ap-   
plicable regulations. The Trust may also suspend redemption, if permitted un-   
der the 1940 Act, for any period during which the New York Stock Exchange       
("NYSE") is closed or during which trading is restricted by the SEC for the     
protection of the Trust's shareholders.                                         

AGL also offers certain contracts under its "Sierra Asset Manager" product.   
Under the relevant Contracts (the "SAM Contracts"), purchase premiums are al-   
located to Divisions of the Separate Account investing in the Asset Allocation  
Portfolios. As indicated above, Asset Allocation Portfolios invest in turn in   
the Trust's other nine series (the "Primary Funds") including both Funds. The   
current investment advisor to the Asset Allocation Portfolios is Sierra In-     
vestment Services Corporation ("Sierra Services") and, as part of the restruc-  
turing, CRM will take over the responsibilities of the investment advisor. Si-  
erra Services also serves as distributor of each Asset Allocation Portfolio     
and is affiliated with Sierra, the Funds' current investment manager, and CRM,  
the Funds' proposed investment advisor. Conflicts of interest may arise as      
these companies seek to fulfill their fiduciary responsibilities to both the    
Asset Allocation Portfolios and the Primary Funds, including the High Quality   
Bond Fund.                                                                      

From time to time, one or more of the Primary Funds used for investment by    
the Asset Allocation Portfolios may experience relatively large investments or  
redemptions due to reallocations or rebalancings by the Asset Allocation Port-  
folios as recommended by their investment adviser(s). These transactions will   
affect the Primary Funds, since those that experience redemptions as a result   
of reallocations or rebalancings may have to sell portfolio securities and      
those that receive additional cash will have to invest such cash. While it is   
impossible to predict the overall impact of these transactions over time,       
there could be adverse effects on portfolio management to the extent that the   
Primary Funds, including the Funds, may be required to sell securities or in-   
vest cash at times when they would not otherwise do so. These transactions      
could also increase transaction costs. The investment advisors to the Primary   
Funds are committed to minimizing the impact of Asset Allocation Portfolio      
transactions on the Primary Funds and the investment advisor to the Asset Al-   
location Portfolios is committed to minimizing such impact on the Primary       
Funds to the extent it is consistent with pursuing the investment objectives    
of the Asset Allocation Portfolios. Those advisors will nevertheless face con-  
flicts in fulfilling their respective responsibilities because they are affil-  
iates and employ some of the same investment professionals.                     

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RISK FACTORS                                                                    

Certain risks associated with an investment in the High Quality Bond Fund are 
summarized below. Because the High Quality Bond Fund shares similar investment  
objectives with the Global Government Fund and because both the High Quality    
Bond Fund and the Global Government Fund share certain policies described more  
fully above under "Overview of Merger--Comparison of Investment Objectives,     
Policies and Restrictions," many of the risks of an investment in the High      
Quality Bond Fund are substantially similar to the risks of an investment in    
the Global Government Fund. A more detailed description of certain of the       
risks associated with an investment in the High Quality Bond Fund may be found  
in the Prospectus under the caption "Investment Policies" and in the SAI under  
the caption "Investment Objectives and Policies of the Funds and Portfolios."   

The values of all securities and other instruments held by the High Quality   
Bond Funds vary                                                                 

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from time to time in response to a wide variety of market factors. Consequent-  
ly, the net asset value per share of the High Quality Bond Fund will vary so    
that an investor's shares, when redeemed, may be worth more or less than the    
amount invested.                                                                

INTEREST RATE RISK. The Funds share similar interest rate risk associated     
with investment in fixed income securities, including U.S. Government securi-   
ties. U.S. Government securities are considered among the safest of fixed-in-   
come investments, but their values, like those of other debt securities, will   
fluctuate with changes in interest rates. Thus, a decrease in interest rates    
will generally result in an increase in the value of the High Quality Bond      
Fund's holdings of fixed income securities. Conversely, during periods of ris-  
ing interest rates, the value of the High Quality Bond Fund's holdings of       
fixed-income securities will generally decline.                                 

CREDIT RISK. Fixed income securities are subject to credit risk. Credit risk  
related to the ability of the issuer to make payments of principal and inter-   
est. All fixed income securities are therefore subject to the risk of default.  
As described above, the High Quality Bond Fund invests only in investment       
grade securities and invests 65% of its assets in securities which are rated    
in one of the two highest categories by a nationally recognized statistical     
rating organization. The Global Government Fund may invest in below investment  
grade fixed income securities which offer a more substantial risk of default.   
Risks of lower-rated high-yield securities include (i) limited liquidity and    
secondary market support; (ii) substantial market price volatility resulting    
from changes in prevailing interest rates; (iii) subordination to the prior     
claims of banks and other senior lenders; (vi) the operation of mandatory       
sinking fund or call/redemption provisions during periods of declining inter-   
est rates whereby the Fund may reinvest premature redemption proceeds in lower  
yielding portfolio securities; (v) the possibility that earnings of the issuer  
may be insufficient to meet its debt service; and (vi) the issuer's low cred-   
itworthiness and potential for insolvency during periods of rising interest     
rates and economic downturn.                                                    

PREPAYMENT RISK. The Funds share risks associated with investment in mort-    
gage-backed or asset-backed securities. The High Quality Bond Fund may invest   
in mortgage-backed securities. Prepayment on mortgage-backed or asset-backed    
securities may require reinvestment of principal under less attractive terms.   
Prepayments may also significantly shorten the effective maturities of these    
securities, especially during periods of declining interest rates. Conversely,  
during periods of rising interest rates, a reduction in prepayments may in-     
crease the effective maturities of these securities. Prepayments may cause      
losses in securities purchased at a premium. Prepayments could result in        
losses on stripped mortgage-backed or asset-backed securities. The yield-to-    
maturity on an interest-only class of stripped mortgage-backed or asset-backed  
securities is extremely sensitive not only to changes in prevailing interest    
rates but also to the rate of principal payments (including prepayments) on     
the underlying assets. Because of the foregoing characteristics, mortgage-      
backed securities may be more volatile than other fixed income securities.      

REPURCHASE AGREEMENTS. Investing in repurchase agreements subjects the High   
Quality Bond Fund, like the Global Government Fund, to the risk that the de-    
fault or bankruptcy of the other party to the repurchase agreement could sub-   
ject the Fund to expenses, delays and risk of loss on the securities subject    
thereto.                                                                        

REVERSE REPURCHASE AGREEMENTS AND BORROWINGS. The High Quality Bond Fund may  
invest in reverse repurchase agreements in the aggregate up to 33 1/3% of its   
total assets but currently intends to limit such activity to 10% of total as-   
sets. Reverse repurchase agreements and borrowings subject the High Quality     
Bond Fund to the risk that changes in the value of a Fund's                     

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portfolio securities may amplify changes in the Fund's net asset value per      
share and also may cause the Fund to liquidate portfolio positions when it      
would not be advantageous to do so.                                             

ILLIQUID SECURITIES. The Funds share similar risks for investment in illiquid 
securities--specifically, higher transaction costs.                             

INVESTMENT IN FOREIGN SECURITIES. The High Quality Bond Fund may invest in    
non-government foreign and domestic securities, including debt securities is-   
sued or guaranteed by supranational organizations. Investment in foreign secu-  
rities involves the risk of potentially reduced domestic marketability of such  
securities, the lower reserve requirements generally mandated for overseas      
banking operations, the possible impact of interruptions in the flow of inter-  
national currency transactions, potential political and social instability or   
expropriation, imposition of foreign taxes, less government supervision of is-  
suers, difficulty in enforcing contractual obligations and lack of uniform ac-  
counting standards.                                                             

LENDING OF PORTFOLIO SECURITIES. The Funds may incur similar risks from lend- 
ing their securities. As with other extensions of credit, there are risks of    
delay in recovery or even loss of rights in the collateral should the borrower  
of the securities fail financially.                                             

DERIVATIVE INSTRUMENTS. The High Quality Bond Fund may enter into options and 
futures contracts for hedging purposes or as a part of their investment strat-  
egies and may engage in swap agreements. Use of derivative instruments may in-  
volve certain costs and risks, including the risk that the Fund could not       
close out a position when it would be most advantageous to do so due to an il-  
liquid market, the risk of an imperfect correlation between the value of the    
securities being hedged and the value of the particular derivative instrument,  
the risk of bankruptcy or default of counter- parties, and the risk that unex-  
pected changes in interest rates or other market movements may adversely af-    
fect the value of the Fund's investments in particular derivative instruments.  

--------------------------------------------------------------------------------

SPECIAL MEETING OF SHAREHOLDERS                                                 

This Prospectus/Proxy Statement is furnished in connection with a Special     
Meeting of Global Government Fund shareholders to be held on December  , 1997   
or at such later time made necessary by adjournment (the "Meeting") and the     
solicitation of proxies by and on behalf of the Trustees of the Trust for use   
at the Meeting. The Meeting is being held to consider the election of Trustees  
of the Trust and the proposed Merger of the Global Government Fund and the      
High Quality Bond Fund by the transfer of all of the Global Government Fund's   
assets and liabilities to the High Quality Bond Fund. This Prospectus/Proxy     
Statement and the enclosed form of proxy are being mailed to shareholders on    
or about November     , 1997.                                                   

The Trustees of the Trust know of no matters other than those set forth       
herein to be brought before the Meeting. If, however, any other matters prop-   
erly come before the Meeting, it is the Trustees' intention that proxies will   
be voted on such matters in accordance with the judgment of the persons named   
in the enclosed form of proxy.                                                  

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PROPOSAL 1:                                                                     

ELECTION OF TRUSTEES                                                            

At the Meeting, it is proposed that thirteen Trustees of the Trust be elected 
to hold office until their successors are duly elected and qualified. The nom-  
inees for election are: David E. Anderson, Wayne L. Attwood, M.D., Arthur H.    
Bernstein, Esq., Kristianne Blake, Edmond R. Davis, Esq., John W. English,      
Anne V. Farrell, Michael K. Murphy, Alfred E. Osborne, Jr., Ph.D., William G.   
Papesh, Daniel L. Pavelich, Jay Rockey and Richard C. Yancey (each a "Nominee"  
and collectively, the "Nominees"). Messrs. Anderson, Bernstein, Davis, English  
and Osborne are currently members of the Trust's Board of Trustees. Messrs.     
Atwood, Murphy, Papesh, Pavelich, Rockey and Yancey and Mses. Blake and         
Farrell are all directors of the mutual funds advised by CRM (the "Composite    
Funds"), but have not previously served on the Trust's Board of Trustees.       

Shareholders of the Global Government Fund, along with the shareholders of    
each other series of the Trust, are entitled to vote in the election of the     
Trust's Trustees. If the proposed Merger by and between the Global Government   
Fund and the High Quality Bond Fund is consummated, the Global Government's     
separate existence would be terminated and its shareholders would become        
shareholders of the High Quality Bond Fund, which is also a series of the       
Trust, and would be governed by the same Board of Trustees.                     

The proposal to elect the Board of Trustees is being presented for share-     
holder approval pursuant to requirements of the Investment Company Act of 1940  
(the "1940 Act"). Under the 1940 Act, Trustees may not fill vacancies unless    
at least two-thirds of the Trustees holding office after such vacancies are     
filled have been elected by the shareholders. Approval of this proposal will    
result in a combined Board of Trustees consisting of the current Trustees and   
the Trustees of The Composite                                                   

Funds. The proposal, if approved, will provide the Board with operating flexi-  
bility by making it possible for the Board of Trustees to fill vacancies that   
may occur in the future.                                                        

Each of the Nominees has consented to being named in this Prospectus/Proxy    
Statement and to serving as a Trustee if elected. The Trust knows of no reason  
why any Nominee would be unable or unwilling to serve if elected.               

The Trust is organized as a business trust under the laws of the Commonwealth 
of Massachusetts. Under Massachusetts law, the Trust is not required to hold    
annual meetings. The Trust has availed itself of this provision and achieves    
cost savings by eliminating printing costs, mailing charges and other expenses  
involved in routine annual meetings. Because the Trust does not hold regular    
annual shareholder meetings, each Nominee, if elected, will hold office until   
his or her successor is elected and qualified.                                  

Even with the elimination of routine annual meetings, the Board of Trustees   
may call special meetings of shareholders for action by shareholder vote as     
may be required by the 1940 Act, or as required or permitted by the Trust's     
Master Trust Agreement. Shareholder meetings will be held, in compliance with   
the 1940 Act, to elect Trustees under certain circumstances. Shareholder meet-  
ings may also be held by the Trust for other purposes, including to approve     
investment policy changes, a new investment advisory agreement or other mat-    
ters requiring shareholder action under the 1940 Act.                           

A meeting may also be called by shareholders holding at least 10% of the      
shares entitled to vote at the meeting for the purpose of voting upon the re-   
moval of Trustees, in which case shareholders may receive assistance in commu-  
nicating with other shareholders as if the provisions contained in Section      
16(c) of the 1940 Act applied.                                                  

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INFORMATION REGARDING NOMINEES                                                  

The following information is provided for each Nominee. It includes his or    
her name, position with the Trust, if so held, tenure in office, trustee posi-  
tions, principal occupations or employment during the past five years,          
directorships/trusteeships with other companies which file reports periodi-     
cally with the SEC, number of trustee positions with the registered investment  
companies which hold themselves out to investors as related companies for pur-  
poses of investment and investor services to which Sierra or an affiliated      
person of Sierra provides investment advisory or administration services (col-  
lectively, the "Fund Complex"). As of July 1, 1997, no Nominee, Trustee or of-  
ficer of the Trust beneficially owned any shares of any series of the Trust,    
since they are offered exclusively to the Separate Account and the Asset Allo-  
cation Portfolios and no Nominee, Trustee, or officer of the Trust own any      
Contracts.                                                                      

                                                                [Download Table]

                                           ADDRESS AND BUSINESS EXPERIENCE       
      NAME, AGE AND POSITION                       DURING THE PAST               
          WITH THE FUND               FIVE YEARS (INCLUDING ALL DIRECTORSHIPS)   
      ----------------------          ----------------------------------------   
                                                                                 
Arthur H. Bernstein, Esq. (72)     11661 San Vicente Blvd. Suite 701             
 Chairman of the Board             Los Angeles, CA 90049.                        
 and Trustee since 1989.           President, Bancorp Capital Group, Inc., 1988  
                                   to present; President, Bancorp Venture        
                                   Capital, Inc., 1988 to present. Trustee of 4  
                                   trusts in the Fund Complex, which includes the
                                   Sierra Trust Funds, The Sierra Variable Trust,
                                   Sierra Prime Income Fund and Sierra Asset     
                                   Management Portfolios.                        
David E. Anderson (70)             17960 Seabreeze Drive                         
 Trustee since 1989.               Pacific Palisades, CA 90272.                  
                                   Retired. Formerly, President and Chief        
                                   Executive Officer, GTE California, Inc., 1979 
                                   to 1988. Trustee of 4 trusts in the Fund      
                                   Complex.                                      
Edmond R. Davis, Esq. (69)         550 South Hope Street                         
 Trustee since 1989.               21st Floor                                    
                                   Los Angeles, CA 90071.                        
                                   Partner, Brobeck, Phleger & Harrison (law     
                                   firm) 1987 to present. Trustee of 4 trusts in 
                                   the Fund Complex.                             
John W. English (64)               50 H New England Ave.                         
 Trustee since 1994.               PO Box 640                                    
                                   Summit, NJ 07902-0640.                        
                                   Retired. Formerly, Vice President and Chief   
                                   Investment Officer, Ford Foundation, 1981 to  
                                   1993. Chairman of the Board and Director, The 
                                   China Fund, Inc. (a closed-end mutual fund),  
                                   1993 to present; Trustee, Retail Property     
                                   Trust (a company providing management services
                                   for shopping centers), 1994 to 1997; Director,
                                   The Northern Trust Company's Benchmark Funds  
                                   (open-end mutual funds), 1994 to present.     
                                   Trustee of 4 trusts in the Fund Complex.      
+Alfred E. Osborne, Jr. Ph.D. (52) 110 Westwood Plaza, Suite C305                
 Trustee since 1996.               Los Angeles, CA 90095-1481.                   
                                   Professor, The Anderson School and Director,  
                                   The Harold Price Center for Entrepreneurial   
                                   Studies at University of California at Los    
                                   Angeles, 1972 to present; Independent general 
                                   partner, Technology Funding Venture Partners  
                                   V, 1990 to present. Formerly, Governor,       
                                   National Association of Securities Dealers,   
                                   Inc., 1994 to 1996; Director, NASD Regulation,
                                   September 1996 to December 1996. Director,    
                                   Times Mirror Company, 1980 to present;        
                                   Director, United States Filter Corporation,   
                                   1991 to present; Director, Nordstrom, Inc.,   
                                   1987 to present; Director, Seda Specialty     
                                   Packing Corporation, 1993 to 1997; Director,  
                                   Greyhound Lines, Inc., 1994 to present.       
                                   Trustee of 4 trusts in the Fund Complex.      

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                                                                [Download Table]


  NAME, AGE AND POSITION       ADDRESS AND BUSINESS EXPERIENCE DURING THE PAST   
       WITH THE FUND               FIVE YEARS (INCLUDING ALL DIRECTORSHIPS)      
  ----------------------       -----------------------------------------------   
                                                                                 
Wayne L. Attwood, M.D. (68) 2931 S. Howard                                       
 Nominee                    Spokane, WA 99203.                                   
                            Retired. Formerly, Doctor of internal medicine and   
                            gastroenterology. Director of [7] funds in the Fund  
                            Complex.                                             

Kristianne Blake (43)       705 W. 7th, Suite D                                  
 Nominee                    Spokane, Washington 99203.                           
                            President, Kristianne Gates Blake, PS Director of [7]
                            funds in the Fund Complex.                           

*Anne V. Farrell (62)       425 Pike Street, Suite 510                           
 Nominee                    Seattle, WA 98101.                                   
                            President and Chief Executive Officer, The Seattle   
                            Foundation. Director, Washington Mutual, Inc.        
                            Director of [7] funds in the Fund Complex.           

*Michael K. Murphy (60)     P.O. Box 3366                                        
 Nominee                    Spokane, WA 99220.                                   
                            Chairman and Chief Executive Officer, CPM Development
                            Corporation. Director, Washington Mutual, Inc.       
                            Director of [7] funds in the Fund Complex.           

*William G. Papesh (54)     601 W. Main Avenue                                   
 Nominee                    Suite 300                                            
                            Spokane, WA 99201.                                   
                            President and Director, Advisor and Transfer Agent;  
                            an executive vice president and Director,            
                            Distributor. Director of [7] funds in the Fund       
                            Complex.                                             

Daniel L. Pavelich (53)     Two Prudential Plaza                                 
 Nominee                    180 North Stetson Avenue                             
                            Suite 4300                                           
                            Chicago, IL 60601.                                   
                            Chairman and Chief Executive Office, BDO Seidman.    
                            Director of [7] funds in the Fund Complex.           

Jay Rockey (69)             2121 Fifth Avenue                                    
 Nominee                    Seattle, WA 98121.                                   
                            Chairman and Chief Executive Officer, The Rockey     
                            Company Director of [7] funds in the Fund Complex.   

Richard C. Yancey (71)      535 Madison Avenue                                   
 Nominee                    New York, NY 10022.                                  
                            Senior Advisor, Dillon, Read & Co., Inc. Director of 
                            [7] funds in the Fund Complex.                       

+   Dr. Osborne also served as Trustee of the Trust from 1989 to     .          
*   Denotes an individual who is an "interested person" of the Funds as defined 
in the 1940 Act.                                                        
**  This information has been provided by each Nominee.                         
*** As of July 1, 1997, the Nominees as a group beneficially owned an aggregate 
of less than 1% of the shares of each fund of the Trust.                

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COMPENSATION OF TRUSTEES                                                        

Each Trustee who is not an "interested person" receives an aggregate annual   
fee (plus reimbursement for reasonable out-of-pocket expenses incurred in con-  
nection with his or her attendance at Board and committee meetings) from the    
Funds and all of the funds in the Fund Complex for which he or she serves. The  
Trust pays each Trustee who is not a director, officer or employee of Washing-  
ton Mutual, Inc., Sierra Investment Services Corporation, Sierra Investment     
Advisors Corporation, the sub-advisors to the Trust or First Data Investor      
Services Group, Inc., or any of their affiliates, $5,000 per annum plus $1,250  
per board meeting attended, $1,000 per Audit and/or Nominating Committee meet-  
ing attended and reimbursement for travel and out-of-pocket expenses. Since     
December 1996, Mr. Bernstein, the Chairman, has received one and a half times   
the Trustee's compensation described above. The Chairman of the Audit Commit-   
tee receives $1,500 per Audit Committee meeting attended. Officers of the       
Trust receive no direct remuneration in such capacity from the Trust. Officers  
of the Trust who are employees of Sierra or its affiliates may be considered    
to have received remuneration indirectly.                                       

Pursuant to an exemptive order granted by the SEC, the Trust's eligible       
Trustees may participate in a deferred compensation plan (the "Plan") which     
may be terminated at any time. Under the Plan, Trustees may elect to defer re-  
ceipt of all or a portion of their fees which, in accordance with the Plan,     
are invested in mutual fund shares. Upon termination of the Plan, Trustees      
that have deferred accounts under the Plan will be paid benefits no later than  
the time the payments would otherwise have been made without regard to such     
termination. All benefits provided under these plans are funded and any pay-    
ments to plan participants are paid solely out of the Trust's assets.           

The aggregate compensation payable by the Trust to each of the Trust's Trust- 
ees serving during the fiscal year ended December 31, 1996 is set forth in the  
compensation table below. The aggregate compensation payable to such Trustees   
during the fiscal year ended December 31, 1996, by the Fund Complex is also     
set forth in the compensation table below.                                      

COMPENSATION TABLE                                                              

                                                        [Enlarge/Download Table]

                                             PENSION OR                                     
                            AGGREGATE        RETIREMENT            TOTAL COMPENSATION       
                          COMPENSATION   BENEFITS ACCRUED AS          FROM THE FUND         
                             PAYABLE        PART OF FUND           AND FUND COMPLEX**       
   NAME AND POSITION     FROM THE TRUST*      EXPENSES            PAYABLE TO DIRECTORS      
   -----------------     --------------- ------------------- -------------------------------
                                                                                            
Arthur H. Bernstein,                                                                        
 Esq.,+,++, Trustee.....     $14,814             $ 0         $53,625 for service on 4 boards
David E. Anderson,                                                                          
 Trustee................     $14,459               0          50,250 for service on 4 boards
Edmond R. Davis, Esq.,                                                                      
 Trustee................     $13,959               0          50,250 for service on 4 boards
John W. English,                                                                            
 Trustee................     $13,959               0          51,250 for service on 4 boards
Alfred E. Osborne, Jr.,                                                                     
 +++, Trustee...........     $ 6,709               0          28,750 for service on 4 boards
--------------------------------------------------------------------------------------------

* Includes compensation deferred pursuant to the Plan. The total amount of  
  deferred compensation payable by the Trust to Messrs. Bernstein, Anderson,
  Davis, English and Osborne as of December 31, 1996 were $   , 0, 0, 0, and
0, respectively, including income earned on such amounts.               
** The Fund Complex consisted of the Trust, the Sierra Trust Funds ("STF"),   
Sierra Prime Income Fund ("SPIF") and Sierra Asset Management Portfolios
("SAMP") as of December 31, 1996.                                       
+ Includes $1,500 paid to Mr. Anderson for serving as Chairman of the Audit 
Committee held by the Trust.                                            
++ Includes $1,500 and $1,125 paid to Mr. Bernstein for Audit Committee meet- 
ings held by STF and SPIF respectively.                                 
+++ Dr. Osborne was appointed a Trustee of the Trust, STF, SPIF and SAMP on     
July 1, 1996                                                            

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MEETINGS AND COMMITTEES OF THE BOARD OF TRUSTEES                                

There were ten meetings of the Board of Trustees held during the fiscal year  
ended December 31, 1996. In such fiscal year, all Trustees attended at least    
75% of the meetings of the Board of Trustees.                                   

The Board of Trustees has an Audit Committee. The Audit Committee makes rec-  
ommendations to the full Board of Trustees with respect to the engagement of    
independent accountants and reviews, with the independent accountants, the re-  
sults of the audit engagement and matters having a material effect on the       
Fund's financial operations. The members of the Audit Committee during the      
fiscal year ended December 31, 1996, were Messrs. Bernstein (Chairman), Ander-  
son, Davis, English and Osborne, each of whom is not an "interested person"     
within the meaning of the 1940 Act. The Audit Committee met once during the     
fiscal year ended December 31, 1996 and all members attended the meeting.       

The Board of Trustees has a Nominating Committee. The Nominating Committee    
makes recommendations to the full Board of Trustees with respect to candidates  
for the Board of Trustees. The members of the Nominating Committee during the   
fiscal year ended December 31, 1996, were Messrs. Cerini (Mr. Cerini resigned   
as a Trustee of the Trust effective May 29,1997), Anderson, Bernstein, Davis,   
Osborne and English, each of whom, with the exception of Mr. Cerini, is not an  
"interested person" within the meaning of the 1940 Act. The Nominating Commit-  
tee did not meet during the fiscal year ended December 31, 1996 and all mem-    
bers attended the meeting held on October 27 and 28, 1997.                      

BOARD APPROVAL OF THE ELECTION OF TRUSTEES                                      

At a meeting of the Board of Trustees held October 27 and 28, 1997, the Board 
of Trustees recommended that shareholders vote FOR each of the Nominees for     
Trustee named herein. In recommending that shareholders elect the Nominees as   
Trustees of the Trust, the Board considered the Nominees' experience and qual-  
ifications. In particular, each of the Nominees who has not previously served   
on the Board of Trustees of the Trust has previous experience serving on the    
Board of Directors of the various Composite Funds.                              

SHAREHOLDER APPROVAL OF THE ELECTION OF TRUSTEES                                

The Election of the Trustees requires the affirmative vote of a plurality of  
all votes cast at the Meeting, provided that a majority of the shares entitled  
to vote are present in person or by proxy at the Meeting. If your shares are    
represented at the meeting but you give no voting instructions, your shares     
will be voted FOR all Nominees named herein. If the Nominees are not approved   
by shareholders of the Trust, the Board of Trustees will consider alternative   
nominations.                                                                    

THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT THE SHAREHOLDERS OF THE    
GLOBAL GOVERNMENT FUND VOTE FOR THE ELECTION OF THE NOMINEES AS TRUSTEES OF     
THE TRUST.                                                                      

--------------------------------------------------------------------------------

PROPOSAL 2:                                                                     

APPROVAL OR DISAPPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION                 

The shareholders of the Global Government Fund are being asked to approve or  
disapprove a Merger between the Global Government Fund and                      

the High Quality Bond Fund. The Merger is proposed to take place pursuant to    
an Agreement and Plan of Reorganization between the Global Gov-                 

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ernment Fund and the High Quality Bond Fund, [dated as of November  , 1997]     
(the "Agreement"), the form of which is attached to this Prospectus/Proxy       
Statement as Appendix A.                                                        

The Agreement provides, among other things, for the transfer of all of the    
assets of the Global Government Fund to the High Quality Bond Fund in exchange  
for (i) the assumption by the High Quality Bond Fund of all of the liabilities  
of the Global Government Fund and (ii) the issuance to the Global Government    
Fund of the Merger Shares, the number of which will be calculated based upon    
the value of the net assets of the Global Government Fund acquired by the High  
Quality Bond Fund and the net asset value per share of the High Quality Bond    
Fund, all as more fully described below under "Information About the Merger."   

After receipt of the Merger Shares, the Global Government Fund will cause the 
Merger Shares to be distributed to its shareholders in complete liquidation of  
the Global Government Fund. Each shareholder of the Global Government Fund      
will receive a number of full and fractional Merger Shares equal in value at    
the date of the exchange to the aggregate value of the shareholder's Global     
Government Fund shares.                                                         

TRUSTEES' RECOMMENDATION. THE TRUSTEES OF THE TRUST HAVE VOTED UNANIMOUSLY TO 
APPROVE THE PROPOSED MERGER BY AND BETWEEN THE GLOBAL GOVERNMENT FUND AND HIGH  
QUALITY BOND FUND AND TO RECOMMEND THAT SHAREHOLDERS OF THE GLOBAL GOVERNMENT   
FUND ALSO APPROVE THE MERGER FOR SUCH FUND.                                     

REQUIRED SHAREHOLDER VOTE. Approval of the proposed Merger will require the   
affirmative vote of the lesser of (A) 67% or more of the shares of the Global   
Government Fund present or represented at the Meeting if the holders of more    
than 50% of the outstanding shares are present or represented by proxy at the   
Meeting, or (B) more than 50% of the outstanding shares of the Global Govern-   
ment Fund.                                                                      

A shareholder of the Global Government Fund objecting to the proposed Merger  
is not entitled under either Massachusetts law or the Trust's Master Trust      
Agreement (the "Sierra Declaration of Trust") to demand payment for or an       
appraisal of Global Government Fund shares if the Merger is consummated over    
his or her objection. Global Government Contractowners may be able to exercise  
exchange rights under their Contracts to reallocate purchase premiums to        
Divisions of the Separate Account investing in other series of the Trust.       

BACKGROUND AND REASONS FOR THE PROPOSED MERGERS                                 

The Trustees of the Trust, including the Trustees who are not "interested     
persons" of the Trust (the "Independent Trustees"), have determined that the    
Merger would be in the best interests of the Global Government Fund, and that   
the interests of the Global Government Fund's shareholders would not be di-     
luted as a result of effecting the Merger. At a meeting held on October 27 and  
28, 1997, the Trustees [unanimously] approved the proposed Merger and recom-    
mended its approval by shareholders. Before reaching its conclusions, the       
Trust's Board of Trustees conducted an extensive "due diligence" review. Among  
other things, the Board received reports from counsel and experts hired to      
evaluate the Merger.                                                            

The principal reasons why the Trustees are recommending the Merger are as     
follows:                                                                        

(i) ECONOMIES OF SCALE AT FUND LEVEL. The Trustees have determined that it  
is in the best interests of the Global Government Fund's shareholders to com- 
bine the Global Government Fund with the High Quality Bond Fund in order to   
increase the asset base over which the Global Government Fund's expenses will 
be spread. The increased asset base is expected to result in aggregate oper-  
ating expenses (exclusive of management fees) that would be lower than those  
that will otherwise be borne by the Global Government Fund.                   

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N14AE24 25th Page of 77 TOC 1st Previous Next ↓Bottom Just 25th
(ii) APPROPRIATE INVESTMENT OBJECTIVES, DIVERSIFICATION, ETC. The investment
objectives of the High Quality Bond Fund are substantially similar to those   
of the Global Government Fund, and the Trustees believe that an investment in 
shares of the High Quality Bond Fund (whose portfolio will have been combined 
with that of the Global Government Fund) will provide shareholders with an    
investment opportunity comparable to that currently afforded by the Global    
Government Fund, with the potential for reduced investment risk because of    
the opportunities for additional diversification of portfolio investments     
through increased Fund assets.                                                

INFORMATION ABOUT THE MERGER                                                    

AGREEMENT AND PLAN OF REORGANIZATION. The proposed Agreement and Plan of Re-  
organization provides that the High Quality Bond Fund will acquire all of the   
assets of the Global Government Fund in exchange for the assumption by the      
High Quality Bond Fund of all of the liabilities of the Global Government Fund  
and for the issuance of the Merger Shares, all as of the Exchange Date (de-     
fined in the Agreement to be December [31], 1997 or such other date as may be   
agreed upon by the Funds). The following discussion of the Agreement is quali-  
fied in its entirety by the full text of the Agreement, the form of which is    
attached as Appendix A to this Prospectus/Proxy Statement.                      

The Global Government Fund will sell all of its assets to the High Quality    
Bond Fund, and, in exchange, the High Quality Bond Fund will assume all of the  
liabilities of the Global Government Fund and deliver to the Global Government  
Fund a number of full and fractional Merger Shares having an aggregate net as-  
set value equal to the value of the assets of the Global Government Fund, less  
the value of the liabilities of the Global Government Fund assumed by the High  
Quality Bond Fund.                                                              

Immediately following the Exchange Date, the Global Government Fund will dis- 
tribute pro rata to its shareholders of record as of the close of business on   
the Exchange Date the full and fractional Merger Shares received by the Global  
Government Fund, with Merger Shares being distributed to holders of shares of   
the Global Government Fund. As a result of the proposed transaction, each       
holder of shares of the Global Government Fund will receive a number of Merger  
Shares equal in aggregate value at the Exchange Date to the value of the        
shares of the Global Government Fund held by the shareholder. This distribu-    
tion will be accomplished by the establishment of accounts on the share rec-    
ords of the High Quality Bond Fund in the names of the Global Government Fund   
shareholders, each account representing the number of full and fractional       
Merger Shares due such shareholder. New certificates for Merger Shares will     
not be issued.                                                                  

The consummation of the Merger is subject to the conditions set forth in the  
Agreement, including the receipt of certain regulatory approvals, and certain   
of these conditions may be waived. The Agreement may be terminated and the      
Merger abandoned at any time, before or after approval by the shareholders of   
the Global Government Fund, prior to the Exchange Date, by mutual consent of    
the Funds or, if any condition set forth in the Agreement has not been ful-     
filled and has not been waived by the party entitled to its benefits, by such   
party.                                                                          

All legal and accounting fees and expenses, printing and other fees and ex-   
penses (other than portfolio transfer taxes (if any), brokerage and other sim-  
ilar expenses, all of which will be borne by the relevant Fund) incurred in     
connection with the consummation of the transactions contemplated by the        
Agreement will be [borne by CRM and/or Washington Mutual] [allocated in accor-  
dance with the following: First, the costs of the overall restructuring of the  
Composite/Sierra Mutual Funds referred to in the Overview under "Proposed       
Transactions," including the costs of                                           

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the Merger and this Prospectus/Proxy Statement, are being preliminarily allo-   
cated on a basis approved by the Trustees, including the Independent Trustees,  
of the Trust as well as by the Trustees of the Composite Funds, including the   
Trustees who are not "interested persons" thereof, and directors of the Com-    
posite Funds, including the directors who are not "interested persons" there-   
of. CRM and/or Sierra will bear any and all expenses preliminarily allocated    
to any of the series of Composite Funds involved in the overall restructuring   
and CRM and/or Sierra will also bear any and all expenses allocated to Sierra   
Funds, including the Global Government Fund and the High Quality Bond Fund to   
the extent that they would otherwise exceed the respective expense caps (the    
"Relevant Expense Caps") set forth below. The Sierra Funds, including the       
Global Government Fund and the High Quality Bond Fund have agreed to pay the    
expenses preliminarily allocated to them but not, however, in an amount ex-     
ceeding the Relevant Expense Caps. The Relevant Expense Caps represent a per-   
centage (approximately 50%) of the projected aggregate savings for sharehold-   
ers for the first year following the Mergers. The currently estimated expenses  
to be borne by the Funds and the Relevant Expense Caps are as follows:          

                                                                [Download Table]

                                                           CURRENT             
                                                           EXPENSE             
  NAME OF FUND                                             ESTIMATE EXPENSE CAP
  ------------                                             -------- -----------
                                                                               
Global Government Fund....................................                     
High Quality Bond Fund....................................                     

Notwithstanding any of the foregoing, expenses will in any event be paid by   
the party directly incurring such expenses if and to the extent that the pay-   
ment by any other party of such expenses would result in the disqualification   
of the first party as a "regulated investment company" within the meaning of    
Section 851 of the Internal Revenue Code of 1986, as amended (the "Code").      

DESCRIPTION OF THE MERGER SHARES. Full and fractional Merger Shares will be   
issued to the Global Government Fund's shareholders in accordance with the      
procedure under the Agreement as described above. The Merger Shares are shares  
of the High Quality Bond Fund, which have characteristics similar to shares of  
the Global Government Fund with respect to sales charges and other fees. The    
purchase of shares of the High Quality Bond Fund by AGL through the Separate    
Account involve no sales charge at the time of purchase, and the Global Gov-    
ernment Fund shareholders receiving Merger Shares in the Merger will not pay a  
sales charge on such shares.                                                    

DECLARATION OF TRUST. Each of the Merger Shares will be fully paid and nonas- 
sessable by the High Quality Bond Fund when issued, will be transferable with-  
out restriction, and will have no preemptive or conversion rights.              

Under Massachusetts law, shareholders of a Massachusetts business trust       
could, under certain circumstances, be held personally liable for the obliga-   
tions of the trust. However, the Sierra Declaration of Trust disclaims share-   
holder liability for acts or obligations of the Trust and/or the High Quality   
Bond Fund and requires that notice of such disclaimer be given in each agree-   
ment, undertaking, or obligation entered into or executed by the Trust, the     
High Quality Bond Fund or the Trust's Trustees. The Sierra Declaration of       
Trust provides for indemnification out of the High Quality Bond Fund property   
for all loss and expense of any shareholder held personally liable for the ob-  
ligations of the High Quality Bond Fund. Thus, the risk of a shareholder's in-  
curring financial loss from shareholder liability is limited to circumstances   
in which the High Quality Bond Fund would be unable to meet its obligations.    
The likelihood of such a circumstance is considered remote. The shareholders    
of the Global Government Fund are currently subject to the same risk of share-  
holder liability under Massachusetts law and the Sierra Declaration of Trust.   

The Sierra Declaration of Trust provides that Trustees may be removed by two- 
thirds vote of the Trustees or by vote of shareholders holding at least         

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two-thirds of the outstanding shares of the Trust. In addition, the Sierra      
Declaration of Trust provides that shareholders holding 10% or more of the      
outstanding shares of the Trust may call a meeting of shareholders to consider  
the removal of any Trustee.                                                     

The Sierra Declaration of Trust provides that the liquidation of any fund,  
including the Global Government Fund, requires the approval not only of a ma-   
jority of the Trustees, but also of a "majority of the outstanding voting se-   
curities" of the fund, as defined in the 1940 Act, which means the lesser of    
(A) 67% or more of the shares of the fund present at a meeting, if the holders  
of more than 50% of the outstanding shares of the fund are present or repre-    
sented by proxy, or (B) more than 50% of the outstanding shares of the fund.    
The Sierra Declaration of Trust provides that the Trust may be terminated only  
by both the vote of a majority of the outstanding voting securities of each     
fund and the vote of a majority of the Trustees.                                

The Sierra Declaration of Trust provides that a quorum for a meeting of     
shareholders is a majority of the shares entitled to vote at the meeting.       

CAPITALIZATION. The following table shows the capitalization of the High      
Quality Bond Fund and the Global Government Fund as of December 31, 1997 and    
of the High Quality Bond Fund on a pro forma basis as of that date, giving ef-  
fect to the proposed acquisition by the High Quality Bond Fund of the assets    
and liabilities of the Global Government Fund at net asset value:               
DECEMBER 31, 1996 

                                                                [Download Table]

                                                             HIGH QUALITY BOND
                                                                   FUND:      
                         HIGH QUALITY BOND GLOBAL GOVERNMENT     PRO FORMA    
                               FUND              FUND            COMBINED     
                         ----------------- ----------------- -----------------
                                                                              
Net Assets (000's omit-                                                       
 ted)...................      $12,402           $21,910           $34,312     
Shares outstanding                                                            
 (000's omitted)........        5,099             8,843            14,108     
Net asset value per                                                           
 share*.................      $  2.43           $  2.48           $  2.43     
------------------------------------------------------------------------------

* Although the Net Asset Value per share of the High Quality Bond Fund stated   
on a pro forma basis subsequent to the Merger is less than the current Net  
Asset Value per share of the Global Government Fund reflected in the above  
table, a shareholder's net assets will remain unchanged as a result of the  
Merger because the amount of shares they hold will change.                  

Because the Agreement provides that the High Quality Bond Fund will be the    
surviving Fund following the reorganization and because the High Quality Bond   
Fund's investment objective and policies will remain unchanged, the pro forma   
financial statements reflect the transfer of the assets and liabilities of the  
Global Government Fund to the High Quality Bond Fund as contemplated by the     
Agreement.                                                                      
------------------------------------------------------------------------------- 
INFORMATION ABOUT THE ACQUIRED AND ACQUIRING FUNDS                              

Other information regarding the Global Government Fund and the High Quality   
Bond Fund, including information with respect to the investment objectives,     
policies and restrictions and financial history may be found in the accompany-  
ing Prospectus, as well as in the Merger SAI, the SAI and the Annual Report     
and the Semi-Annual Re                                                          

port, which are available upon request by calling [1-800-247-6584]. To the ex-  
tent that any information in respect of the Global Government Fund or the High  
Quality Bond Fund found in any such document is inconsistent with the informa-  
tion contained in this Prospectus/Proxy Statement, this Prospectus/ Proxy       
Statement should be deemed to                                                   

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supersede such other document. Certain recent financial information and cer-    
tain information and commentary from the Semi-Annual Report relating to the     
High Quality Bond Fund's recent investment performance is set forth in Appen-   
dix B to this Prospectus/Proxy Statement.                                       

Proxy materials, reports, proxy and information statements and other informa- 
tion filed by the Trust with respect to the Funds can be inspected and copied   
at the Public Reference Facilities maintained by the Securities and Exchange    
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; 7 World Trade     
Center, Suite 1300, New York, New York 10048; and 500 West Madison Street,      
Suite 1400, Chicago, Illinois 60661. Copies of such material can also be ob-    
tained from the Public Reference Branch, Office of Consumer Affairs and Infor-  
mation Services, Securities and Exchange Commission, Washington, D.C. 20549 at  
prescribed rates.                                                               
------------------------------------------------------------------------------- 

VOTING INFORMATION                                                              

RECORD DATE, QUORUM AND METHOD OF TABULATION. Shareholders of record of the   
Global Government Fund at the close of business on October  , 1997 (the "Rec-   
ord Date") will be entitled to notice of and to vote at the Meeting or any ad-  
journment thereof. The holders of a majority of the shares of the Global Gov-   
ernment Fund outstanding at the close of business on the Record Date present    
in person or represented by proxy will constitute a quorum for the Meeting      
with respect to that Fund. Shareholders are entitled to one vote for each       
share held, with fractional shares voting proportionally. Only shareholders of  
the Global Government Fund will vote on the approval or disapproval of the      
Merger. Shareholders of all of the funds within the Trust will vote together    
as a single class on the election of the Trust's Board of Trustees.             

Votes cast by proxy or in person at the Meeting will be counted by persons    
appointed by the Trust as tellers for the Meeting. The tellers will count the   
total number of votes cast "for" approval of the proposal for purposes of de-   
termining whether sufficient affirmative votes have been cast. Shares of the    
Global Government Fund which are held by the Asset Allocation Portfolios and    
shares with respect to which AGL has not received instructions from             
Contractowners are required to be voted for, voted against or withheld from     
voting on each Proposal in the same proportion as the other outstanding shares  
of the Global Government Fund are voted.                                        
SHARES OUTSTANDING AND BENEFICIAL OWNERSHIP. As of the Record Date, as shown  
on the books of the Trust, there were issued and outstanding shares of benefi-  
cial interest of the Global Government Fund.                                    
As of the Record Date, to the best of the knowledge of the Trust, the follow- 
ing persons owned of record or beneficially 5% or more of the outstanding       
shares of the indicated classes of the Global Government Fund and the High      
Quality Bond Fund:                                                              

[insert list of 5% shareholders and pro forma ownership of the 5% sharehold-  
ers following Merger]                                                           

SOLICITATION OF INSTRUCTIONS. Solicitation of proxies by personal interview,  
mail, and telephone, may be made by officers and Trustees of the Trust and em-  
ployees of Sierra and CRM and their affiliates. The costs for solicitation of   
instructions, like the other costs associated with the overall restructuring    
of the Composite/Sierra Mutual Funds, will be [borne by CRM and/or Sierra]      
[only partially borne by the Funds]. See "Information About the Merger."        

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REVOCATION OF INSTRUCTIONS. Any shareholder giving instructions has the power 
to revoke such instructions by mail (addressed to American General Life Insur-  
ance Company, Attn: Annuity Administration, P.O. Box 1401, Houston, Texas       
77251) by executing superseding instructions. All properly executed instruc-    
tions received in time for the Meeting will be voted as specified in the in-    
structions.                                                                     

SHAREHOLDER PROPOSALS AT FUTURE MEETINGS OF SHAREHOLDERS. The Sierra Declara- 
tion of Trust does not provide for annual meetings of shareholders and the      
Trust does not currently intend to hold such a meeting for shareholders in 1997 
or 1998. Shareholder proposals for inclusion in a proxy statement for any sub-  
sequent meeting of the Global Government Fund's shareholders must be received   
by the Trust a reasonable period of time prior to any such meeting. If the      
Merger is consummated, the Global Government Fund's existence will terminate in 
December 1997 or shortly thereafter, after which there would be no meetings of  
the shareholders of the Global Government Fund.                                 

ADJOURNMENT. [If sufficient votes in favor of any proposal are not received by
the time scheduled for the Meeting, the persons named as proxies may propose    
one or more adjournments of the Meeting to permit further solicitation of prox- 
ies. Any adjournment will require the affirmative vote of a plurality of the    
votes cast on the question in person or by proxy at the session of the Meeting  
to be adjourned. If the Meeting is adjourned only with respect to one proposal, 
any other proposal may still be acted upon by the shareholders. The persons     
named as proxies will vote in favor of such adjournment those proxies which     
they are entitled to vote in favor of the proposal. They will vote against any  
such adjournment those proxies required to be voted against the proposal. [The  
Global Government Fund/CRM or its affiliates] will pay the costs of any addi-   
tional solicitation and of any adjourned session.]                              

November  , 1997                                                                

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                                                                    APPENDIX A

FORM OF AGREEMENT AND PLAN OF REORGANIZATION  

This Agreement and Plan of Reorganization (the "Agreement") is made as of   
October    , 1997 in    ,    , by and between The Sierra Variable Trust, a      
Massachusetts business trust (the "Sierra Trust") on behalf of its Short Term   
Global Government Fund series (the "Acquired Fund"), and the Sierra Trust, on   
behalf of its Short Term High Quality Bond Fund series (the "Acquiring Fund").  

PLAN OF REORGANIZATION                                                          

(a) The Acquired Fund will sell, assign, convey, transfer and deliver to the  
Acquiring Fund on the Exchange Date (as defined in Section 6) all of its prop-  
erties and assets. In consideration therefor, the Acquiring Fund shall, on the  
Exchange Date, assume all of the liabilities of the Acquired Fund existing at   
the Valuation Time (as defined in Section 3(c)) and deliver to the Acquired     
Fund (i) a number of full and fractional shares of beneficial interest of the   
Acquiring Fund (the "Merger Shares") having an aggregate net asset value equal  
to the value of the assets of the Acquired Fund shares of the Acquired Fund     
transferred to the Acquiring Fund on such date less the value of the liabili-   
ties of the Acquired Fund shares of the Acquired Fund assumed by the Acquiring  
Fund on that date (the "Merger Shares"). It is intended that the reorganiza-    
tion described in this Agreement shall be a reorganization within the meaning   
of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code").   

(b) Upon consummation of the transaction described in paragraph (a) of this   
Agreement, the Acquired Fund shall distribute in complete liquidation to its    
shareholders of record as of the Exchange Date the Merger Shares of the Ac-     
quiring Fund, each such shareholder being entitled to receive that proportion   
of such Merger Shares which the number of shares of beneficial interest of the  
Acquired Fund held by such shareholder bears to the number of shares of the     
Acquired Fund outstanding on such date. Certificates representing the Merger    
Shares will not be issued. All issued and outstanding shares of the Acquired    
Fund will simultaneously be canceled on the books of the Acquired Fund.         

(c) As promptly as practicable after the liquidation of the Acquired Fund as  
aforesaid, the Acquired Fund shall be dissolved pursuant to the provisions of   
the Declaration of Trust of the Sierra Trust, as amended, and applicable law,   
and its legal existence terminated. Any reporting responsibility of the Ac-     
quired Fund is and shall remain the responsibility of the Acquired Fund up to   
and including the Exchange Date and, if applicable, such later date on which    
the Acquired Fund is liquidated.                                                

AGREEMENT                                                                       

The Acquiring Fund and the Acquired Fund agree as follows:                    

1. Representations, Warranties and Agreements of the Acquiring Fund. The Ac-  
quiring Fund represents and warrants to and agrees with the Acquired Fund       
that:                                                                           

a. The Acquiring Fund is a series of shares of the Sierra Trust, a Massachu-
setts business trust duly established and validly existing under the laws of  
The Commonwealth of Massachusetts, and has power to own all of its properties 
and assets and to carry out its obligations under this Agreement. The Sierra  
Trust is qualified as a foreign association in every jurisdiction where re-   
quired, except to the extent that failure to so qualify would not have a ma-  
terial adverse effect on the Sierra Trust. Each of the Sierra Trust and       

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the Acquiring Fund has all necessary federal, state and local authorizations  
to carry on its business as now being conducted and to carry out this Agree-  
ment.                                                                         

b. The Sierra Trust is registered under the Investment Company Act of 1940, 
as amended (the "1940 Act"), as an open-end management investment company,    
and such registration has not been revoked or rescinded and is in full force  
and effect.                                                                   

c. Statements of assets and liabilities, statements of operations, state-   
ments of changes in net assets and schedules of investments (indicating their 
market values) of the Acquiring Fund as of and for the year ended December    
31, 1996 and as of and for the six months ended 6/30/97 have been furnished   
to the Acquired Fund. Such statements of assets and liabilities and schedules 
fairly present the financial position of the Acquiring Fund as of their dates 
and such statements of operations and changes in net assets fairly reflect    
the results of its operations and changes in net assets for the periods cov-  
ered thereby in conformity with generally accepted accounting principles.     

d. The current prospectus and statement of additional information of the Si-
erra Trust, each dated May 1, 1997 (collectively, the "Sierra Prospectus"),   
which has previously been furnished to the Acquired Fund, did not as of such  
date and does not contain as of the date hereof, with respect to the Sierra   
Trust and the Acquiring Fund, any untrue statements of a material fact or     
omit to state a material fact required to be stated therein or necessary to   
make the statements therein not misleading.                                   

e. There are no material legal, administrative or other proceedings pending 
or, to the knowledge of the Sierra Trust or the Acquiring Fund, threatened    
against the Sierra Trust or the Acquiring Fund, which assert liability on the 
part of the Sierra Trust or the Acquiring Fund. The Acquiring Fund knows of   
no facts which might form the basis for the institution of such proceedings   
and is not a party to or subject to the provisions of any order, decree or    
judgment of any court or governmental body which materially and adversely af- 
fects its business or its ability to consummate the transactions herein con-  
templated.                                                                    

f. The Acquiring Fund has no known liabilities of a material nature, contin-
gent or otherwise, other than those shown belonging to it on its statement of 
assets and liabilities as of June 30, 1997, those incurred in the ordinary    
course of its business as an investment company since June 30, 1997 and those 
to be assumed pursuant to this Agreement. Prior to the Exchange Date, the Ac- 
quiring Fund will endeavor to quantify and to reflect on its balance sheet    
all of its material known liabilities and will advise the Acquired Fund of    
all material liabilities, contingent or otherwise, incurred by it subsequent  
to June 30, 1997, whether or not incurred in the ordinary course of business. 

g. As of the Exchange Date, the Acquiring Fund will have filed all federal  
and other tax returns and reports which, to the knowledge of the Sierra       
Trust's officers, are required to be filed by the Acquiring Fund and have     
paid or will pay all federal and other taxes shown to be due on said returns  
or on any assessments received by the Acquiring Fund. All tax liabilities of  
the Acquiring Fund have been adequately provided for on its books, and no tax 
deficiency or liability of the Acquiring Fund has been asserted, and no ques- 
tion with respect thereto has been raised or is under audit, by the Internal  
Revenue Service or by any state or local tax authority for taxes in excess of 
those already paid.                                                           

h. No consent, approval, authorization or order of any court or governmental
authority is required for the consummation by the Acquiring Fund of the       
transactions contemplated by this Agreement, except such as may be required   

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under the Securities Act of 1933, as amended (the "1933 Act"), the Securities 
Exchange Act of 1934, as amended (the "1934 Act"), the 1940 Act and state se- 
curities or blue sky laws (which term as used herein shall include the laws   
of the District of Columbia and of Puerto Rico).                              

i. The registration statement (the "Registration Statement") filed with the 
Securities and Exchange Commission (the "Commission") by the Sierra Trust on  
Form N-14 on behalf of the Acquiring Fund and relating to the Merger Shares   
issuable hereunder and the proxy statement of the Acquired Fund relating to   
the meeting of the Acquired Fund shareholders referred to in Section 7(a)     
herein (together with the documents incorporated therein by reference, the    
"Acquired Fund Proxy Statement"), on the effective date of the Registration   
Statement, (i) will comply in all material respects with the provisions of    
the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations     
thereunder and (ii) will not contain any untrue statement of a material fact  
or omit to state a material fact required to be stated therein or necessary   
to make the statements therein not misleading; and at the time of the share-  
holders meeting referred to in Section 7(a) and on the Exchange Date, the     
prospectus which is contained in the Registration Statement, as amended or    
supplemented by any amendments or supplements filed with the Commission by    
the Sierra Trust, and the Acquired Fund Proxy Statement will not contain any  
untrue statement of a material fact or omit to state a material fact required 
to be stated therein or necessary to make the statements therein not mislead- 
ing; provided, however, that none of the representations and warranties in    
this subsection shall apply to statements in or omissions from the Registra-  
tion Statement or the Acquired Fund Proxy Statement made in reliance upon and 
in conformity with information furnished in writing by the Acquired Fund to   
the Acquiring Fund or the Sierra Trust specifically for use in the Registra-  
tion Statement or the Acquired Fund Proxy Statement.                          

j. There are no material contracts outstanding to which the Acquiring Fund  
is a party, other than as are or will be disclosed in the Sierra Prospectus,  
the Registration Statement or the Acquired Fund Proxy Statement.              

k. The Acquiring Fund has no shares of beneficial interest issued and out-  
standing. All of the issued and outstanding shares of beneficial interest of  
the Acquiring Fund have been offered for sale and sold in conformity with all 
applicable federal and state securities laws (including any applicable exemp- 
tions therefrom), or the Acquiring Fund has taken any action necessary to     
remedy any prior failure to have offered for sale and sold such shares in     
conformity with such laws.                                                    

l. The Acquiring Fund qualifies and will at all times through the Exchange  
Date qualify for taxation as a "regulated investment company" under Sections  
851 and 852 of the Code.                                                      

m. The issuance of the Merger Shares pursuant to this Agreement will be in  
compliance with all applicable federal and state securities laws.             

n. The Merger Shares to be issued to the Acquired Fund have been duly autho-
rized and, when issued and delivered pursuant to this Agreement, will be le-  
gally and validly issued and will be fully paid and non-assessable by the Ac- 
quiring Fund, and no shareholder of the Acquiring Fund will have any preemp-  
tive right of subscription or purchase in respect thereof.                    

o. All issued and outstanding shares of the Acquiring Fund are, and at the  
Exchange Date all issued and outstanding shares of the Acquiring Fund will    
be, duly authorized, validly issued, fully paid and non-assessable by the Ac- 
quiring Fund. The Acquiring Fund does not have outstanding any options, war-  
rants or other rights to                                                      

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subscribe for or purchase any Acquiring Fund shares, nor is there outstanding 
any security convertible into any Acquiring Fund shares.                      

2. Representations, Warranties and Agreements of the Acquired Fund. The Ac-   
quired Fund represents and warrants to and agrees with the Acquiring Fund       
that:                                                                           

a. The Acquired Fund is a series of shares of the Sierra Trust, a Massachu- 
setts business trust duly established and validly existing under the laws of  
The Commonwealth of Massachusetts, and has power to own all of its properties 
and assets and to carry out this Agreement. The Sierra Trust is qualified as  
a foreign association in every jurisdiction where required, except to the ex- 
tent that failure to so qualify would not have a material adverse effect on   
the Sierra Trust. Each of the Sierra Trust and the Acquired Fund has all nec- 
essary federal, state and local authorizations to own all of its properties   
and assets and to carry on its business as now being conducted and to carry   
out this Agreement.                                                           

b. The Sierra Trust is registered under the 1940 Act as an open-end manage- 
ment investment company, and such registration has not been revoked or re-    
scinded and is in full force and effect.                                      

c. A statement of assets and liabilities, statement of operations, statement
of changes in net assets and a schedule of investments (indicating their mar- 
ket values) of the Acquired Fund as of and for the year ended June 30, 1997   
have been furnished to the Acquiring Fund. Such statement of assets and lia-  
bilities and schedule fairly present the financial position of the Acquired   
Fund as of their date, and such statements of operations and changes in net   
assets fairly reflect the results of its operations and changes in net assets 
for the period covered thereby, in conformity with generally accepted ac-     
counting principles.                                                          

d. The Sierra Prospectus, which has been previously furnished to the Acquir-
ing Fund, did not contain as of such dates and does not contain, with respect 
to the Sierra Trust and the Acquired Fund, any untrue statement of a material 
fact or omit to state a material fact required to be stated therein or neces- 
sary to make the statements therein not misleading.                           

e. There are no material legal, administrative or other proceedings pending 
or, to the knowledge of the Sierra Trust or the Acquired Fund, threatened     
against the Sierra Trust or the Acquired Fund, which assert liability on the  
part of the Sierra Trust or the Acquired Fund. The Acquired Fund knows of no  
facts which might form the basis for the institution of such proceedings and  
is not a party to or subject to the provisions of any order, decree or judg-  
ment of any court or governmental body which materially and adversely affects 
its business or its ability to consummate the transactions herein contemplat- 
ed.                                                                           

f. There are no material contracts outstanding to which the Acquired Fund is
a party, other than as are disclosed in the Sierra Trust's registration       
statement on Form N-1A or the Sierra Prospectus.                              

g. The Acquired Fund has no known liabilities of a material nature, contin- 
gent or otherwise, other than those shown on the Acquired Fund's statement of 
assets and liabilities as of June 30, 1997 referred to above and those in-    
curred in the ordinary course of its business as an investment company since  
such date. Prior to the Exchange Date, the Acquired Fund will endeavor to     
quantify and to reflect on its balance sheet all of its material known lia-   
bilities and will advise the Acquiring Fund of all material liabilities, con- 
tingent or otherwise, incurred by it subsequent to June 30, 1997, whether or  
not incurred in the ordinary course of business.                              

h. As of the Exchange Date, the Acquired Fund will have filed all federal   
and other tax                                                                 

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returns and reports which, to the knowledge of the Sierra Trust's officers,   
are required to be filed by the Acquired Fund and has paid or will pay all    
federal and other taxes shown to be due on said returns or on any assessments 
received by the Acquired Fund. All tax liabilities of the Acquired Fund have  
been adequately provided for on its books, and no tax deficiency or liability 
of the Acquired Fund has been asserted, and no question with respect thereto  
has been raised or is under audit, by the Internal Revenue Service or by any  
state or local tax authority for taxes in excess of those already paid.       

i. At the Exchange Date, the Sierra Trust, on behalf of the Acquired Fund,  
will have full right, power and authority to sell, assign, transfer and de-   
liver the Investments (as defined below) and any other assets and liabilities 
of the Acquired Fund to be transferred to the Acquiring Fund pursuant to this 
Agreement. At the Exchange Date, subject only to the delivery of the Invest-  
ments and any such other assets and liabilities as contemplated by this       
Agreement, the Acquiring Fund will acquire the Investments and any such other 
assets and liabilities subject to no encumbrances, liens or security inter-   
ests whatsoever and without any restrictions upon the transfer thereof. As    
used in this Agreement, the term "Investments" shall mean the Acquired Fund's 
investments shown on the schedule of its investments as of December 31, 1996  
referred to in Section 2(c) hereof, as supplemented with such changes in the  
portfolio as the Acquired Fund shall make, and changes resulting from stock   
dividends, stock split-ups, mergers and similar corporate actions through the 
Exchange Date.                                                                

j. No registration under the 1933 Act of any of the Investments would be re-
quired if they were, as of the time of such transfer, the subject of a public 
distribution by either of the Acquiring Fund or the Acquired Fund, except as  
previously disclosed to the Acquiring Fund by the Acquired Fund.              

k. No consent, approval, authorization or order of any court or governmental
authority is required for the consummation by the Acquired Fund of the trans- 
actions contemplated by this Agreement, except such as may be required under  
the 1933 Act, 1934 Act, the 1940 Act or state securities or blue sky laws.    

l. The Registration Statement and the Acquired Fund Proxy Statement, on the 
effective date of the Registration Statement, (i) will comply in all material 
respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act   
and the rules and regulations thereunder and (ii) will not contain any untrue 
statement of a material fact or omit to state a material fact required to be  
stated therein or necessary to make the statements therein not misleading;    
and at the time of the shareholders meeting referred to in Section 7(a) and   
on the Exchange Date, the Acquired Fund Proxy Statement and the Registration  
Statement will not contain any untrue statement of a material fact or omit to 
state a material fact required to be stated therein or necessary to make the  
statements therein not misleading; provided, however, that none of the repre- 
sentations and warranties in this subsection shall apply to statements in or  
omissions from the Registration Statement or the Acquired Fund Proxy State-   
ment made in reliance upon and in conformity with information furnished in    
writing by the Acquiring Fund to the Acquired Fund or the Sierra Trust spe-   
cifically for use in the Registration Statement or the Acquired Fund Proxy    
Statement.                                                                    

m. The Acquired Fund qualifies and will at all times through the Exchange   
Date qualify for taxation as a "regulated investment company" under Section   
851 and 852 of the Code.                                                      

n. At the Exchange Date, the Acquired Fund will have sold such of its as-   
sets, if any, as are necessary to assure that, after giving effect to the ac- 
quisition of the assets of the Acquired Fund pursuant to this Agreement, the  
Acquiring Fund                                                                

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will remain a "diversified company" within the meaning of Section 5(b)(1) of  
the 1940 Act and in compliance with such other mandatory investment restric-  
tions as are set forth in the Sierra Prospectus, as amended through the Ex-   
change Date.                                                                  

o. All of the issued and outstanding shares of beneficial interest of the   
Acquired Fund shall have been offered for sale and sold in conformity with    
all applicable federal and state securities laws (including any applicable    
exemptions therefrom), or the Acquired Fund has taken any action necessary to 
remedy any prior failure to have offered for sale and sold such shares in     
conformity with such laws.                                                    

p. All issued and outstanding shares of the Acquired Fund are, and at the   
Exchange Date will be, duly authorized, validly issued, fully paid and non-   
assessable by the Acquired Fund. The Acquired Fund does not have outstanding  
any options, warrants or other rights to subscribe for or purchase any of the 
Acquired Fund shares, nor is there outstanding any security convertible into  
any of the Acquired Fund shares.                                              

3. Reorganization.                                                            

a. Subject to the requisite approval of the shareholders of the Acquired    
Fund and to the other terms and conditions contained herein (including the    
Acquired Fund's obligation to distribute to its shareholders all of its in-   
vestment company taxable income and net capital gain as described in Section  
8(m)), the Acquired Fund agrees to sell, assign, convey, transfer and deliver 
to the Acquiring Fund, and the Acquiring Fund agrees to acquire from the Ac-  
quired Fund, on the Exchange Date all of the Investments and all of the cash  
and other properties and assets of the Acquired Fund, whether accrued or con- 
tingent (including cash received by the Acquired Fund upon the liquidation by 
the Acquired Fund of any investments purchased by the Acquired Fund after     
June 30, 1997 and designated by the Acquiring Fund as being unsuitable for it 
to acquire), in exchange for that number of shares of beneficial interest of  
the Acquiring Fund provided for in Section 4 and the assumption by the Ac-    
quiring Fund of all of the liabilities of the Acquired Fund, whether accrued  
or contingent, existing at the Valuation Time except for the Acquired Fund's  
liabilities, if any, arising in connection with this Agreement. Pursuant to   
this Agreement, the Acquired Fund will, as soon as practicable after the Ex-  
change Date, distribute all of the Merger Shares received by it to the share- 
holders of the Acquired Fund in exchange for their shares of the Acquired     
Fund.                                                                         

b. The Acquired Fund will pay or cause to be paid to the Acquiring Fund any 
interest, cash or such dividends, rights and other payments received by it on 
or after the Exchange Date with respect to the Investments and other proper-  
ties and assets of the Acquired Fund, whether accrued or contingent, received 
by it on or after the Exchange Date. Any such distribution shall be deemed    
included in the assets transferred to the Acquiring Fund at the Exchange Date 
and shall not be separately valued unless the securities in respect of which  
such distribution is made shall have gone "ex" such distribution prior to the 
Valuation Time, in which case any such distribution which remains unpaid at   
the Exchange Date shall be included in the determination of the value of the  
assets of the Acquired Fund acquired by the Acquiring Fund.                   

c. The Valuation Time shall be 4:00 p.m. Eastern time on [the Exchange Date]
or such earlier or later day as may be mutually agreed upon in writing by the 
parties hereto (the "Valuation Time").                                        

4. Exchange Date: Valuation Time.  On the Exchange Date, the Acquiring Fund   
will deliver to                                                                 

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the Acquired Fund (i) a number of full and fractional Merger Shares having an 
aggregate net asset value equal to the value of the assets of the Acquired    
Fund shares of the Acquired Fund transferred to the Acquiring Fund on such    
date less the value of the liabilities of the Acquired Fund shares of the Ac- 
quired Fund assumed by the Acquiring Fund on that date.                       

a. The net asset value of the Merger Shares to be delivered to the Acquired 
Fund, the value of the assets attributable to the shares of the Acquired      
Fund, and the value of the liabilities attributable to the shares of the Ac-  
quired Fund to be assumed by the Acquiring Fund, shall in each case be deter- 
mined as of the Valuation Time.                                               

b. The net asset value of the Merger Shares shall be computed in the manner 
set forth in the Sierra Prospectus. The value of the assets and liabilities   
of the shares of the Acquired Fund shall be determined by the Acquiring Fund, 
in cooperation with the Acquired Fund, pursuant to procedures which the Ac-   
quiring Fund would use in determining the fair market value of the Acquiring  
Fund's assets and liabilities.                                                

c. No adjustment shall be made in the net asset value of either the Acquired
Fund or the Acquiring Fund to take into account differences in realized and   
unrealized gains and losses.                                                  

d. The Acquiring Fund shall issue the Merger Shares to the Acquired Fund in 
a certificate registered in the name of the Acquired Fund, representing the   
Merger Shares. The Acquired Fund shall distribute the Merger Shares to the    
shareholders of the Acquired Fund by redelivering such certificate to the Ac- 
quiring Fund's transfer agent, which will as soon as practicable set up open  
accounts for each Acquired Fund shareholder in accordance with written in-    
structions furnished by the Acquired Fund. [With respect to any Acquired Fund 
shareholder holding share certificates as of the Exchange Date, such certifi- 
cates will from and after the Exchange Date be deemed to be certificates for  
the Merger Shares issued to each shareholder in respect of the Acquired Fund  
shares represented by such certificates; certificates representing the Merger 
Shares will not be issued to Acquired Fund shareholders.]                     

e. The Acquiring Fund shall assume all liabilities of the Acquired Fund,    
whether accrued or contingent, in connection with the acquisition of assets   
and subsequent dissolution of the Acquired Fund or otherwise, except for the  
Acquired Fund's liabilities, if any, pursuant to this Agreement.              

5. Expenses, Fees, etc.                                                       

a. The parties hereto understand and agree that the transactions contem-    
plated by this Agreement are being undertaken contemporaneously with a gen-   
eral restructuring and consolidation of certain of the registered investment  
companies advised by Composite Research & Management Co. and Sierra Invest-   
ment Advisors Corporation and their affiliates; and that in connection there- 
with the costs of all such transactions are being [borne by Sierra Investment 
Advisors Corporation] [preliminarily allocated on a basis approved, inter     
alia, by the Trustees of the Trust. Each of the Acquired Fund and the Acquir- 
ing Fund agrees to pay the expenses preliminarily allocated to it but not,    
however, in an amount exceeding $    and $   , respectively (the "Relevant    
Expense Cap"). Sierra Investment Advisors Corporation will bear any and all   
expenses (1) preliminarily allocated to Acquiring Fund and (2) preliminarily  
allocated to the Acquired Fund, in each case to the extent that they would    
otherwise exceed the Relevant Expense Cap.] Notwithstanding any of the fore-  
going, expenses will in any event be paid by the party directly incurring     
such expenses if and to the extent that the payment by the other party of     
such expenses would result in the disqualification of such party as a "regu-  
lated investment company" within the meaning of Section 851 of the Code.      

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b. In the event the transactions contemplated by this Agreement are not con-
summated by reason of the Acquiring Fund's being either unwilling or unable   
to go forward other than by reason of the nonfulfillment or failure of any    
condition to the Acquiring Fund's obligations referred to in Section 7(a) or  
Section 8, the Acquiring Fund shall pay directly all reasonable fees and ex-  
penses incurred by the Acquired Fund in connection with such transactions,    
including, without limitation, legal, accounting and filing fees.             

c. In the event the transactions contemplated by this Agreement are not con-
summated by reason of the Acquired Fund's being either unwilling or unable to 
go forward other than by reason of the nonfulfillment or failure of any con-  
dition to the Acquired Fund's obligations referred to in Section 7(a) or Sec- 
tion 9, the Acquired Fund shall pay directly all reasonable fees and expenses 
incurred by the Acquiring Fund in connection with such transactions, includ-  
ing, without limitation, legal, accounting and filings fees.                  

d. In the event the transactions contemplated by this Agreement are not con-
summated for any reason other than (i) the Acquiring Fund's or the Acquired   
Fund's being either unwilling or unable to go forward or (ii) the nonfulfill- 
ment or failure of any condition to the Acquiring Fund's or the Acquired      
Fund's obligations referred to in Section 7(a), Section 8 or Section 9 of     
this Agreement, then each of the Acquiring Fund and the Acquired Fund shall   
bear all of its own expenses incurred in connection with such transactions.   

e. Notwithstanding any other provisions of this Agreement, if for any reason
the transactions contemplated by this Agreement are not consummated, no party 
shall be liable to the other party for any damages resulting therefrom, in-   
cluding, without limitation, consequential damages, except as specifically    
set forth above.                                                              

6. Exchange Date. Delivery of the assets of the Acquired Fund to be trans-    
ferred, assumption of the liabilities of the Acquired Fund to be assumed, and   
the delivery of the Merger Shares to be issued shall be made at [place] at      
[time] as of December [31], 1997, or at such other time and date agreed to by   
the Acquiring Fund and the Acquired Fund, the date and time upon which such     
delivery is to take place being referred to herein as the "Exchange Date."      

7. Meetings of Shareholders; Dissolution.                                     

a. The Sierra Trust, on behalf of the Acquired Fund, agrees to call a meet- 
ing of the Acquired Fund's shareholders as soon as is practicable after the   
effective date of the Registration Statement for the purpose of considering   
the sale of all of its assets to and the assumption of all of its liabilities 
by the Acquiring Fund as herein provided, adopting this Agreement, and autho- 
rizing the liquidation and dissolution of the Acquired Fund.                  

b. The Acquired Fund agrees that the liquidation and dissolution of the Ac- 
quired Fund will be effected in the manner provided in the Sierra Trust's     
Declaration of Trust in accordance with applicable law and that on and after  
the Exchange Date, the Acquired Fund shall not conduct any business except in 
connection with its liquidation and dissolution.                              

c. The Acquiring Fund has, in consultation with the Acquired Fund and based 
in part on information furnished by the Acquired Fund, filed the Registration 
Statement with the Commission. Each of the Acquired Fund and the Acquiring    
Fund will cooperate with the other, and each will furnish to the other the    
information relating to itself required by the 1933 Act, the 1934 Act and the 
1940 Act and the rules and regulations thereunder to be set forth in the Reg- 
istration Statement.                                                          

8. Conditions to the Acquiring Fund's Obligations. The obligations of the Ac- 
quiring Fund hereunder shall be subject to the following conditions:            

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a. That this Agreement shall have been adopted and the transactions contem- 
plated hereby shall have been approved by the requisite votes of the holders  
of the outstanding shares of beneficial interest of the Acquired Fund enti-   
tled to vote.                                                                 

b. That the Acquired Fund shall have furnished to the Acquiring Fund a      
statement of the Acquired Fund's assets and liabilities, with values deter-   
mined as provided in Section 4 of this Agreement, together with a list of In- 
vestments with their respective tax costs, all as of the Valuation Time, cer- 
tified on the Acquired Fund's behalf by the Sierra Trust's President (or any  
Vice President) and Treasurer (or any Assistant Treasurer), and a certificate 
of both such officers, dated the Exchange Date, that there has been no mate-  
rial adverse change in the financial position of the Acquired Fund since June 
30, 1997, other than changes in the Investments and other assets and proper-  
ties since that date or changes in the market value of the Investments and    
other assets of the Acquired Fund, or changes due to dividends paid or losses 
from operations.                                                              

c. That the Acquired Fund shall have furnished to the Acquiring Fund a      
statement, dated the Exchange Date, signed by the Sierra Trust's President    
(or any Vice President) and Treasurer (or any Assistant Treasurer) certifying 
that as of the Valuation Time and as of the Exchange Date all representations 
and warranties of the Acquired Fund made in this Agreement are true and cor-  
rect in all material respects as if made at and as of such dates and the Ac-  
quired Fund has complied with all the agreements and satisfied all the condi- 
tions on its part to be performed or satisfied at or prior to such dates.     

d. [That the Acquired Fund shall have delivered to the Acquiring Fund a let-
ter from [Price Waterhouse LLP] dated the Exchange Date stating that such     
firm has employed certain procedures whereby it has obtained schedules of the 
tax provisions and qualifying tests for regulated investment companies as     
prepared for the fiscal year ended June 30, 1997 and the period July 1, 1997  
to the Exchange Date (the latter period being based on unaudited data) and    
that, in the course of such procedures, nothing came to their attention which 
caused them to believe that the Acquired Fund (i) would not qualify as a reg- 
ulated investment company for federal, state, or local income tax purposes or 
(ii) would owe any federal, state or local income tax or excise tax, for the  
tax year ended June 30, 1997, and for the period from July 1, 1997 to the Ex- 
change Date.] [To be discussed.]                                              

e. That there shall not be any material litigation pending with respect to  
the matters contemplated by this Agreement.                                   

f. That the Acquiring Fund shall have received an opinion of counsel to the 
Acquired Fund, in form satisfactory to counsel to the Acquiring Fund, and     
dated the Exchange Date, to the effect that (i) the Sierra Trust is a Massa-  
chusetts business trust duly formed and is validly existing under the laws of 
The Commonwealth of Massachusetts and has the power to own all its properties 
and to carry on its business as presently conducted; (ii) this Agreement has  
been duly authorized, executed and delivered by the Sierra Trust on behalf of 
the Acquired Fund and, assuming that the Registration Statement, the Sierra   
Prospectus and the Acquired Fund Proxy Statement comply with the 1933 Act,    
the 1934 Act and the 1940 Act and assuming due authorization, execution and   
delivery of this Agreement by the Sierra Trust on behalf of the Acquiring     
Fund, is a valid and binding obligation of the Sierra Trust and the Acquired  
Fund; (iii) the Sierra Trust, on behalf of the Acquired Fund, has power to    
sell, assign, convey, transfer and deliver the assets contemplated hereby     
and, upon consummation of the transactions contemplated hereby in accordance  
with the terms of this Agreement, the Acquired Fund will have                 

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duly sold, assigned, conveyed, transferred and delivered such assets to the   
Acquiring Fund; (iv) the execution and delivery of this Agreement did not,    
and the consummation of the transactions contemplated hereby will not, vio-   
late the Sierra Trust's Declaration of Trust or By-Laws or any provision of   
any agreement known to such counsel to which the Sierra Trust or the Acquired 
Fund is a party or by which it is bound; and (v) no consent, approval, autho- 
rization or order of any court or governmental authority is required for the  
consummation by the Sierra Trust on behalf of the Acquired Fund of the trans- 
actions contemplated hereby, except such as have been obtained under the 1933 
Act, the 1934 Act and the 1940 Act and such as may be required under state    
securities or blue sky laws.                                                  

g. [Reserved]                                                               

h. [Reserved]                                                               

i. That the assets of the Acquired Fund to be acquired by the Acquiring Fund
will include no assets which the Acquiring Fund, by reason of charter limita- 
tions or of investment restrictions disclosed in the Registration Statement   
in effect on the Exchange Date, may not properly acquire.                     

j. That the Registration Statement shall have become effective under the    
1933 Act, and no stop order suspending such effectiveness shall have been in- 
stituted or, to the knowledge of the Sierra Trust or the Acquiring Fund,      
threatened by the Commission.                                                 

k. That the Sierra Trust shall have received from the Commission, any rele- 
vant state securities administrator and any relevant state insurance regula-  
tory authority such order or orders as are reasonably necessary or desirable  
under the 1933 Act, the 1934 Act, the 1940 Act, and any applicable state se-  
curities or blue sky laws or state insurance laws in connection with the      
transactions contemplated hereby, and that all such orders shall be in full   
force and effect.                                                             

l. That all actions taken by the Sierra Trust on behalf of the Acquired Fund
in connection with the transactions contemplated by this Agreement and all    
documents incidental thereto shall be satisfactory in form and substance to   
the Acquiring Fund and its counsel.                                           

m. That, prior to the Exchange Date, the Acquired Fund shall have declared a
dividend or dividends which, together with all previous such dividends, shall 
have the effect of distributing to the shareholders of the Acquired Fund (i)  
all of the excess of (x) the Acquired Fund's investment income excludable     
from gross income under Section 103(a) of the Code over (y) the Acquired      
Fund's deductions disallowed under Sections 265 and 171(a)(2) of the Code,    
(ii) all of the Acquired Fund's investment company taxable income (as defined 
in Section 852 of the Code) for its taxable years ending on or after December 
31, 1996 and on or prior to the Exchange Date (computed in each case without  
regard to any deduction for dividends paid), and (iii) all of the Acquired    
Fund's net capital gain realized (after reduction for any capital loss carry- 
over), in each case for both the taxable year ending on December 31, 1996 and 
the short taxable period beginning on January 1, 1997 and ending on the Ex-   
change Date.                                                                  

n. That the Acquired Fund shall have furnished to the Acquiring Fund a cer- 
tificate, signed by the President (or any Vice President) and the Treasurer   
(or any Assistant Treasurer) of the Sierra Trust, as to the tax cost to the   
Acquired Fund of the securities delivered to the Acquiring Fund pursuant to   
this Agreement, together with any such other evidence as to such tax cost as  
the Acquiring Fund may reasonably request.                                    

o. That the Acquired Fund's custodian shall have delivered to the Acquiring 
Fund a certificate identifying all of the assets of the Acquired Fund held or 
maintained by such custodian as of the Valuation Time.                        

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p. That the Acquired Fund's transfer agent shall have provided to the Ac-   
quiring Fund (i) the originals or true copies of all of the records of the    
Acquired Fund in the possession of such transfer agent as of the Exchange     
Date, (ii) a certificate setting forth the number of shares of the Acquired   
Fund outstanding as of the Valuation Time, and (iii) the name and address of  
each holder of record of any shares and the number of shares held of record   
by each such shareholder.                                                     

q. That all of the issued and outstanding shares of beneficial interest of  
the Acquired Fund shall have been offered for sale and sold in conformity     
with all applicable state securities or blue sky laws (including any applica- 
ble exemptions therefrom) and, to the extent that any audit of the records of 
the Acquired Fund or its transfer agent by the Acquiring Fund or its agents   
shall have revealed otherwise, either (i) the Acquired Fund shall have taken  
all actions that in the opinion of the Acquiring Fund or its counsel are nec- 
essary to remedy any prior failure on the part of the Acquired Fund to have   
offered for sale and sold such shares in conformity with such laws or (ii)    
the Acquired Fund shall have furnished (or caused to be furnished) surety, or 
deposited (or caused to be deposited) assets in escrow, for the benefit of    
the Acquiring Fund in amounts sufficient and upon terms satisfactory, in the  
opinion of the Acquiring Fund or its counsel, to indemnify the Acquiring Fund 
against any expense, loss, claim, damage or liability whatsoever that may be  
asserted or threatened by reason of such failure on the part of the Acquired  
Fund to have offered and sold such shares in conformity with such laws.       

r. [That the Acquiring Fund shall have received from [Price Waterhouse LLP] 
a letter addressed to the Acquiring Fund dated as of the Exchange Date satis- 
factory in form and substance to the Acquiring Fund to the effect that, on    
the basis of limited procedures agreed upon by the Acquiring Fund and de-     
scribed in such letter (but not an examination in accordance with generally   
accepted auditing standards), as of the Valuation Time the value of the as-   
sets and liabilities of the Acquired Fund to be exchanged for the Merger      
Shares has been determined in accordance with the provisions of the Sierra    
Trust's Declaration of Trust, pursuant to the procedures customarily utilized 
by the Acquiring Fund in valuing its assets and issuing its shares.] [To be   
discussed.]                                                                   

9. Conditions to the Acquired Fund's Obligations. The obligations of the Ac-  
quired Fund hereunder shall be subject to the following conditions:             

a. That this Agreement shall have been adopted and the transactions contem- 
plated hereby shall have been approved by the requisite votes of the holders  
of the outstanding shares of beneficial interest of the Acquired Fund enti-   
tled to vote.                                                                 

b. That the Sierra Trust, on behalf of the Acquiring Fund, shall have exe-  
cuted and delivered to the Acquired Fund an Assumption of Liabilities dated   
as of the Exchange Date pursuant to which the Acquiring Fund will assume all  
of the liabilities of the Acquired Fund existing at the Valuation Time in     
connection with the transactions contemplated by this Agreement, other than   
liabilities arising pursuant to this Agreement.                               

c. That the Acquiring Fund shall have furnished to the Acquired Fund a      
statement, dated the Exchange Date, signed by the Sierra Trust's President    
(or any Vice President) and Treasurer (or any Assistant Treasurer) certifying 
that as of the Valuation Time and as of the Exchange Date all representations 
and warranties of the Acquiring Fund made in this Agreement are true and cor- 
rect in all material respects as if made at and as of such dates, and that    
the Acquiring Fund has complied with all of the agreements and satisfied all  
of the conditions on its part to be                                           

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performed or satisfied at or prior to each of such dates.                     

d. That there shall not be any material litigation pending or threatened    
with respect to the matters contemplated by this Agreement.                   

e. That the Acquired Fund shall have received an opinion of counsel to the  
Acquiring Fund, in form satisfactory to counsel to the Acquired Fund, and     
dated the Exchange Date, to the effect that (i) the Sierra Trust is a Massa-  
chusetts business trust duly formed and is validly existing under the laws of 
The Commonwealth of Massachusetts and has the power to own all its properties 
and to carry on its business as presently conducted; (ii) the Merger Shares   
to be delivered to the Acquired Fund as provided for by this Agreement are    
duly authorized and upon such delivery will be validly issued and will be     
fully paid and non-assessable by the Sierra Trust and the Acquiring Fund and  
no shareholder of the Acquiring Fund has any preemptive right to subscription 
or purchase in respect thereof; (iii) this Agreement has been duly autho-     
rized, executed and delivered by the Sierra Trust on behalf of the Acquiring  
Fund and, assuming that the Sierra Prospectus, the Registration Statement and 
the Acquired Fund Proxy Statement comply with the 1933 Act, the 1934 Act and  
the 1940 Act and assuming due authorization, execution and delivery of this   
Agreement by the Sierra Trust on behalf of the Acquired Fund, is a valid and  
binding obligation of the Sierra Trust and the Acquiring Fund; (iv) the exe-  
cution and delivery of this Agreement did not, and the consummation of the    
transactions contemplated hereby will not, violate the Sierra Trust's Decla-  
ration of Trust or By-Laws, or any provision of any agreement known to such   
counsel to which the Sierra Trust or the Acquiring Fund is a party or by      
which it is bound; (v) no consent, approval, authorization or order of any    
court or governmental authority is required for the consummation by the Si-   
erra Trust on behalf of the Acquiring Fund of the transactions contemplated   
herein, except such as have been obtained under the 1933 Act, the 1934 Act    
and the 1940 Act and such as may be required under state securities or blue   
sky laws; and (vi) the Registration Statement has become effective under the  
1933 Act, and to best of the knowledge of such counsel, no stop order sus-    
pending the effectiveness of the Registration Statement has been issued and   
no proceedings for that purpose have been instituted or are pending or con-   
templated under the 1933 Act.                                                 

f. [Reserved]                                                               

g. That all actions taken by the Sierra Trust on behalf of the Acquiring    
Fund in connection with the transactions contemplated by this Agreement and   
all documents incidental thereto shall be satisfactory in form and substance  
to the Acquired Fund and its counsel.                                         

h. That the Registration Statement shall have become effective under the    
1933 Act, and no stop order suspending such effectiveness shall have been in- 
stituted or, to the knowledge of the Sierra Trust or the Acquiring Fund,      
threatened by the Commission.                                                 

i. That the Sierra Trust shall have received from the Commission, any rele- 
vant state securities administrator and any relevant state insurance regula-  
tory authority such order or orders as are reasonably necessary or desirable  
under the 1933 Act, the 1934 Act, the 1940 Act, and any applicable state se-  
curities or blue sky laws or state insurance laws in connection with the      
transactions contemplated hereby, and that all such orders shall be in full   
force and effect.                                                             

10. Indemnification.                                                            

a. The Acquired Fund will indemnify and hold harmless, out of the assets of 
the Acquired Fund (which shall be deemed to include the assets of the Acquir- 
ing Fund represented by the Merger Shares following the Exchange Date) but no 
other assets, the trustees and officers of the                                

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Sierra Trust (for purposes of this subparagraph, the "Indemnified Parties")   
against any and all expenses, losses, claims, damages and liabilities at any  
time imposed upon or reasonably incurred by any one or more of the Indemni-   
fied Parties in connection with, arising out of, or resulting from any claim, 
action, suit or proceeding in which any one or more of the Indemnified Par-   
ties may be involved or with which any one or more of the Indemnified Parties 
may be threatened by reason of any untrue statement or alleged untrue state-  
ment of a material fact relating to the Sierra Trust or the Acquired Fund     
contained in the Registration Statement or the Sierra Prospectus, the Ac-     
quired Fund Proxy Statement or any amendment or supplement to any of the      
foregoing, or arising out of or based upon the omission or alleged omission   
to state in any of the foregoing a material fact relating to the Sierra Trust 
or the Acquired Fund required to be stated therein or necessary to make the   
statements relating to the Sierra Trust or the Acquired Fund therein not mis- 
leading, including, without limitation, any amounts paid by any one or more   
of the Indemnified Parties in a reasonable compromise or settlement of any    
such claim, action, suit or proceeding, or threatened claim, action, suit or  
proceeding made with the consent of the Sierra Trust or the Acquired Fund.    
The Indemnified Parties will notify the Sierra Trust and the Acquired Fund in 
writing within ten days after the receipt by any one or more of the Indemni-  
fied Parties of any notice of legal process or any suit brought against or    
claim made against such Indemnified Party as to any matters covered by this   
Section 10(a). The Acquired Fund shall be entitled to participate at its own  
expense in the defense of any claim, action, suit or proceeding covered by    
this Section 10(a), or, if it so elects, to assume at its expense by counsel  
satisfactory to the Indemnified Parties the defense of any such claim, ac-    
tion, suit or proceeding, and if the Acquired Fund elects to assume such de-  
fense, the Indemnified Parties shall be entitled to participate in the de-    
fense of any such claim, action, suit or proceeding at their expense. The Ac- 
quired Fund's obligation under Section 10(a) to indemnify and hold harmless   
the Indemnified parties shall constitute a guarantee of payment so that the   
Acquired Fund will pay in the first instance any expenses, losses, claims,    
damages and liabilities required to be paid by it under this Section 10(a)    
without the necessity of the Indemnified Parties' first paying the same.      

b. The Acquiring Fund will indemnify and hold harmless, out of the assets of
the Acquiring Fund but no other assets, the trustees and officers of the Si-  
erra Trust (for purposes of this subparagraph, the "Indemnified Parties")     
against any and all expenses, losses, claims, damages and liabilities at any  
time imposed upon or reasonably incurred by any one or more of the Indemni-   
fied Parties in connection with, arising out of, or resulting from any claim, 
action, suit or proceeding in which any one or more of the Indemnified Par-   
ties may be involved or with which any one or more of the Indemnified Parties 
may be threatened by reason of any untrue statement or alleged untrue state-  
ment of a material fact relating to the Acquiring Fund contained in the Reg-  
istration Statement, the Sierra Prospectus, the Acquired Fund Proxy Statement 
or any amendment or supplement to any of the foregoing, or arising out of or  
based upon, the omission or alleged omission to state in any of the foregoing 
a material fact relating to the Sierra Trust or the Acquiring Fund required   
to be stated therein or necessary to make the statements relating to the Si-  
erra Trust or the Acquiring Fund therein not misleading, including, without   
limitation, any amounts paid by any one or more of the Indemnified Parties in 
a reasonable compromise or settlement of any such claim, action, suit or pro- 
ceeding, or threatened claim, action, suit or proceeding made with the con-   
sent of the Sierra                                                            

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Trust or the Acquiring Fund. The Indemnified Parties will notify the Sierra   
Trust and the Acquiring Fund in writing within ten days after the receipt by  
any one or more of the Indemnified parties of any notice of legal process or  
any suit brought against or claim made against such Indemnified Party as to   
any matters covered by this Section 10(b). The Acquiring Fund shall be enti-  
tled to participate at its own expense in the defense of any claim, action,   
suit or proceeding covered by this Section 10(b), or, if it so elects, to as- 
sume at its expense by counsel satisfactory to the Indemnified Parties the    
defense of any such clam, action, suit or proceeding, and, if the Acquiring   
Fund elects to assume such defense, the Indemnified Parties shall be entitled 
to participate in the defense of any such claim, action, suit or proceeding   
at their own expense. The Acquiring Fund's obligation under this Section      
10(b) to indemnify and hold harmless the Indemnified Parties shall constitute 
a guarantee of payment so that the Acquiring Fund will pay in the first in-   
stance any expenses, losses, claims, damages and liabilities required to be   
paid by it under this Section 10(b) without the necessity of the Indemnified  
Parties' first paying the same.                                               

11. No Broker, etc. Each of the Acquired Fund and the Acquiring Fund repre-   
sents that there is no person who has dealt with it or the Sierra Trust who by  
reason of such dealings is entitled to any broker's or finder's or other simi-  
lar fee or commission arising out of the transactions contemplated by this      
Agreement.                                                                      

12. Termination. The Acquired Fund and the Acquiring Fund may, by mutual con- 
sent of the trustees of the Sierra Trust on behalf of each Fund, terminate      
this Agreement, and the Acquired Fund or the Acquiring Fund, after consulta-    
tion with counsel and by consent of their respective trustees or an officer     
authorized by such trustees, may waive any condition to their respective obli-  
gations hereunder. If the transactions contemplated by this Agreement have not  
been substantially completed by [     , 1998], this Agreement shall automati-   
cally terminate on that date unless a later date is agreed to by the Acquired   
Fund and the Acquiring Fund.                                                    

13. Rule 145. Pursuant to Rule 145 under the 1933 Act, the Acquiring Fund     
will, in connection with the issuance of any of any Merger Shares to any per-   
son who at the time of the transaction contemplated hereby is deemed to be an   
affiliate of a party to the transaction pursuant to Rule 145(c), cause to be    
affixed upon the certificates issued to such person (if any) a legend as fol-   
lows:                                                                           

"THESE SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO THE SHORT  
TERM HIGH QUALITY BOND FUND OR ITS PRINCIPAL UNDERWRITER UNLESS (I) A REGIS-  
TRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT  
OF 1933, AS AMENDED, OR (II) IN THE OPINION OF COUNSEL REASONABLY SATISFAC-   
TORY TO THE FUND SUCH REGISTRATION IS NOT REQUIRED."                          

and, further, the Acquiring Fund will issue stop transfer instructions to the   
Acquiring Fund's transfer agent with respect to such shares. The Acquired Fund  
will provide the Acquiring Fund on the Exchange Date with the name of any Ac-   
quired Fund shareholder who is to the knowledge of the Acquired Fund an affil-  
iate of the Acquired Fund on such date.                                         

14. Covenants, etc. Deemed Material. All covenants, agreements, representa-   
tions and warranties made under this Agreement and any certificates delivered   
pursuant to this Agreement shall be deemed to have been material and relied     
upon by each of the parties, notwithstanding an investigation made by them or   
on their behalf.                                                                

15. Sole Agreement; Amendments. This Agreement supersedes all previous corre- 
spondence and                                                                   

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oral communications between the parties regarding the subject matter hereof,    
constitutes the only understanding with respect to such subject matter, may     
not be changed except by a letter of agreement signed by each party hereto,     
and shall be construed in accordance with and governed by the laws of The Com-  
monwealth of Massachusetts.                                                     

16. Declaration of Trust. A copy of the Declaration of Trust of the Sierra    
Trust is on file with the Secretary of State of The Commonwealth of Massachu-   
setts, and notice is hereby given that this instrument is executed on behalf    
of the trustees of the Sierra Trust on behalf of the Acquired Fund and the on   
behalf Acquiring Fund, as trustees and not individually and that the obliga-    
tions of this instrument are not binding upon any of the trustees, officers or  
shareholders of the Sierra Trust individually but are binding only upon the     
assets and property of the Acquired Fund and the Acquiring Fund.                

                        THE SIERRA VARIABLE TRUST,

                         on behalf of its Short Term
                           Global Government Fund series

 By:
                                   -----------------------------
                 Name:
                  Title:

                        THE SIERRA VARIABLE TRUST,

                         on behalf of its Short Term
                           High Quality Bond Fund series

 By:
                                   -----------------------------
                 Name:
                  Title:

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APPENDIX B

SHORT TERM HIGH QUALITY BOND FUND 

PERFORMANCE REVIEW:                                                             

From the Fund's inception (January 12, 1994) through June 30, 1997, the Short 
Term High Quality Bond Fund's average annual total return advanced 3.94%. For   
the 12-month period ended June 30, 1997, the Fund's total return was 5.89%. The 
Fund's 30-day SEC yield as of June 30, 1997, was 5.76%. For additional informa- 
tion, see the accompanying chart.                                               

WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE 
OVER THE SIX-MONTH PERIOD ENDED JUNE 30, 1997?                                  

The most significant factors contributing to the Fund's performance over the  
past six months were the generation of income into the Fund and the strong per- 
formance of the Fund's corporate and mortgage-backed holdings. Over the last    
six months, interest rates rose slightly, but a rally in the second quarter re- 
versed what started out to be another lackluster year in bond markets. While    
volatility continues to be present, our focus on income has enabled the Fund to 
generate positive total returns over the last six months.                       

WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND 
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?               

Over the last six months, the U.S. bond market has continued to exhibit vola- 
tility, albeit within a fairly tight trading range. On December 31, 1996, the   
yield on the 30-year Treasury Bond was 6.64%; the six-month period ended with a 
6.78% yield. The 14 basis point increase in rates masked the positive returns   
experienced in the quarter, as well as the confidence created by a strong June. 
Conflicting economic statistics made it tough to determine the magnitude of the 
economy's growth and structure duration appropriately. As such, we held the     
Fund's duration within a fairly tight range--reflecting uncertainty regarding   
the direction of interest rates.                                                

Despite the fluctuation of interest rates over the last 12 months, the Fund   
has benefited from sizable positions in high-income producing corporate bonds,  
asset-backed securities and mortgages. Yield advantages have helped to provide  
positive returns in all of these categories.                                    

[LINE GRAPH APPEARS HERE]                                                       

                                                                [Download Table]


Growth of a $10,000 investment            

                                          
Inception* 1/12/94        10,000    10,000
                          10,000    10,000
                           9,960     9,898
Mar                        9,920     9,785
                           9,880     9,726
                           9,880     9,743
Jun                        9,880     9,770
                           9,961     9,898
                          10,001     9,942
Sep                        9,953     9,887
                           9,994     9,899
                           9,994     9,843
                  12/94    9,838     9,864
                           9,838    10,027
                           9,921    10,227
Mar                        9,999    10,291
                          10,081    10,412
                          10,288    10,680
Jun                       10,329    10,750
                          10,329    10,778
                          10,413    10,871
Sep                       10,455    10,942
                          10,583    11,049
                          10,668    11,182
                  12/95   10,753    11,288
                          10,839    11,405
                          10,753    11,323
Mar                       10,710    11,279
                          10,710    11,269
                          10,710    11,278
Jun                       10,797    11,384
                          10,841    11,427
                          10,886    11,450
Sep                       10,975    11,596
                          11,065    11,775
                          11,156    11,905
                  12/96   11,156    11,863
                          11,201    11,924
                          11,247    11,955
Mar                       11,247    11,901
                          11,293    12,025
                          11,386    12,121
                  06/97   11,433    12,227

The above line graph does not reflect administrative fees or other expenses   
charged by American General Life Insurance Company Separate Account D through   
which shares of the Fund are purchased.                                         

*Index total returns were calculated from 1/31/94 to 6/30/97. The Lehman      
Brothers Mutual Fund Short (1-5) Investment Grade Debt Index includes all in-   
vestment-grade corporate debt securities with maturities of one to five years,  
assumes reinvestment of all dividends/distributions, and does not reflect any   
asset-based charges for investment management or other expenses. Past invest-   
ment performance does not guarantee future performance. The returns for the     
Fund assume reinvestment of all dividends/distributions by the shareholder.     

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During the period noted, the Advisor (Sierra Investment Advisors Corporation) 
and Administrator (Sierra Fund Administration Corporation) waived a portion of  
their management fees, and credits were allowed by the Custodian. In the ab-    
sence of the waivers or Custodian credits, yield and total return would have    
been lower.                                                                     

                                                                [Download Table]

 AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/97  6 MONTH 1 YEAR  SINCE INCEPTION  
-------------------------------------------- ------- ------ ------------------
                                                            (JANUARY 12, 1994)
                                                                              
Fund........................................  2.49%  5.89%        3.94%       
Lehman Brothers Mutual Fund Short (1-5)                                       
 Investment Grade Debt Index*...............  3.07%  7.41%        6.06%       

B-2 

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SHORT TERM HIGH QUALITY BOND FUND 

WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAD A SIG-
NIFICANT IMPACT ON FUND PERFORMANCE?                                            

There were no major shifts in portfolio holdings that significantly impacted  
performance. However, we should note the performance of various sectors.        
Corporates, mortgages, and asset-backed securities were important components of 
the Fund's portfolio construction. Over the past 12 months, these sectors per-  
formed very well relative to Treasuries. The best performing sector was mort-   
gages, largely due to strong price performance and high yields. The Fund's      
holdings in this sector increased in both value and overall portfolio weight-   
ing.                                                                            

WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?               

Given the current economic outlook, we expect strength in the bond market to  
continue. Should growth be stronger than expected, we will most likely see a    
resurgence of inflation concerns. With this uncertainty over the intermediate   
term, the Fund's duration should remain at slightly below two years.            

Looking forward, we expect continued growth in the economy but have concerns  
regarding how long this expansion can last, especially with little or no infla- 
tion. Potential credit excesses, profit disappointments, and the unpredictabil- 
ity of foreign capital flows may all have a negative impact on the bond market. 
However, over the long run, we continue to believe that fixed-income investors  
will be rewarded in terms of both income and total returns.                     

[PIE CHART APPEARS HERE]  

BROAD SECTOR DIVERSIFICATION

                                                                [Download Table]
                                                                                
BBB...................................................................... 23.06%
AAA...................................................................... 67.04%
A........................................................................  9.90%

Allocation percentages are based on total investment value of the portfolio as
of 6/30/97.                                                                     

B-3 

N14AE24 48th Page of 77 TOC 1st Previous Next ↓Bottom Just 48th
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.  

                                                                [Download Table]

                             SIX MONTHS        YEAR         YEAR        PERIOD    
                                ENDED         ENDED        ENDED         ENDED    
                              06/30/97       12/31/96     12/31/95     12/31/94*  
                             -----------     --------     --------     ---------  
                             (UNAUDITED)                                          
                                                                                  
Net asset value, beginning                                                        
 of period.................    $  2.43       $  2.49      $  2.39       $  2.50   
                               -------       -------      -------       -------   
Income From Investment                                                            
 Operations:                                                                      
Net Investment Income......       0.07          0.15         0.12          0.08   
Net realized and unrealized                                                       
 gain (loss) on                                                                   
 investments...............      (0.01)        (0.06)        0.10         (0.12)  
                               -------       -------      -------       -------   
Total from investment                                                             
 operations................       0.06          0.09         0.22         (0.04)  
Less Distributions:                                                               
Dividends from net                                                                
 investment income.........      (0.07)        (0.15)       (0.12)        (0.07)  
                               -------       -------      -------       -------   
Total distributions........      (0.07)        (0.15)       (0.12)        (0.07)  
                               -------       -------      -------       -------   
Net asset value, end of                                                           
 period....................    $  2.42       $  2.43      $  2.49       $  2.39   
                               =======       =======      =======       =======   
Total Return...............       2.49%         3.74%        9.30%        (1.62)% 
                               =======       =======      =======       =======   
Ratios to Average Net                                                             
 Assets/Supplemental Data:                                                        
Net assets, end of period                                                         
 (in 000's)................    $12,190       $12,402      $12,365       $15,547   
Ratio of operating expenses                                                       
 to average net assets.....       1.00%**       0.98%        0.85%         0.77%**
Ratio of net investment                                                           
 income to average net                                                            
 assets....................       6.08%**       6.08%        6.14%         5.63%**
Portfolio turnover rate....         16%          125%         188%           80%  
Ratio of operating expenses                                                       
 to average net assets                                                            
 without credits allowed by                                                       
 the custodian.............       1.00%**(a)    0.98%(a)     0.87%(a)       N/A   
Ratio of operating expenses                                                       
 to average net assets                                                            
 without fee waivers and/or                                                       
 credits allowed by the                                                           
 custodian.................       1.10%**(a)    1.06%(a)     1.01%(a)      1.10%**
Net investment income per                                                         
 share without fee waivers                                                        
 and/or credits allowed by                                                        
 the custodian.............    $  0.07(a)    $  0.15(a)   $  0.11(a)    $  0.07   

--------                                                                        
*   The Fund commenced operations on January 12, 1994.                          
**  Annualized                                                                  
+   Total return represents aggregate total return for the periods indicated.   
  The total return would have been lower if certain fees had not been waived
 by the investment advisor and administrator or without credits allowed by
the custodian.                                                          
(a) The ratio and per share number include custodian fees without credits al-   
 lowed by the custodian as required by amended disclosure requirements ef-
fective September 1, 1995.                                              

B-4 

N14AE24 49th Page of 77 TOC 1st Previous Next ↓Bottom Just 49th
THE SIERRA VARIABLE TRUST 

FORM N-14 
PART B  

STATEMENT OF ADDITIONAL INFORMATION 
November __, 1997 

This Statement of Additional Information (the "SAI") relates to the   
proposed merger (the "Merger") of the Short Term Global Government Fund (the    
"Acquired Fund"), a series of The Sierra Variable Trust, a Massachusetts        
business trust (the "Trust"), into the Short Term High Quality Bond Fund (the   
"Acquiring Fund"), a series of the Trust.                                       

    This SAI contains information which may be of interest to shareholders but
which is not included in the Prospectus/Proxy Statement dated November __, 1997 
(the "Prospectus/Proxy Statement") of the Trust which relates to the Merger. As 
described in the Prospectus/Proxy Statement, the Merger would involve the       
transfer of all the assets of the Acquired Fund in exchange for shares of the   
Acquiring Fund and the assumption of all the liabilities of the Acquired Fund.  
The Acquired Fund would distribute the Acquiring Fund shares it receives to its 
shareholders in complete liquidation of the Acquired Fund.                      

 This SAI is not a prospectus and should be read in conjunction with the
Prospectus/Proxy Statement. The Prospectus/Proxy Statement has been filed with  
the Securities and Exchange Commission and is available upon request and without
charge by writing to the American General Life Insurance Company, Attn: Annuity 
Administration, P.O. Box 1401, Houston, Texas 77251-1401, or by calling         
1-800-247-6584.                                                                 

N14AE24 50th Page of 77 TOC 1st Previous Next ↓Bottom Just 50th
Table of Contents 

                                                                [Download Table]


Item                                                                        Page
------                                                                      ----
                                                                                
I.   Additional Information about Acquiring and Acquired Funds............      

II.  Financial Statements.................................................      


N14AE24 51st Page of 77 TOC 1st Previous Next ↓Bottom Just 51st
I.   Additional Information about Acquiring and Acquired Funds.                 

    This SAI is accompanied by the current Statement of Additional Information
of the Trust, dated May 1, 1997, which provides further information relating to 
the Acquired and Acquiring Funds, including information in respect of their     
investment objectives, policies and financial history.                          

The following documents, which have previously been filed with the    
Securities and Exchange Commission, have been incorporated by reference into    
Part A of this Registration Statement:                                          

(1)  Prospectus of the Trust relating to the Acquired and Acquiring Funds dated 
  May 1, 1997 (filed on April 30, 1997 as part of Post-Effective Amendment
 No. 9 to the Trust's Registration Statement in Form N-1A) (Registration
Nos. 033-57732 and 811-07462)                                         

(2)  Supplement dated September 1, 1997 to the Prospectus of the Trust dated May
1, 1997 (Filed on September 15, 1997 pursuant to Rule 497 under the   
Securities Act of 1933) (Registration Nos. 033-57732 and 811-07462)   

(3)  Statement of Additional Information of the Trust dated May 1, 1997 (filed  
    on April 30, 1997 as part of Post-Effective Amendment No. 9 to the Trust's
    Registration Statement in Form N-1A) (Registration Nos. 033-57732 and 811-
07462)                                                                

(4)  Annual Report of the Trust dated December 31, 1996 (filed on February 28,  
1997) (Registration Nos. 033-57732 and 811-07462)                     

(5)  Semiannual Report of the Trust dated June 30, 1997 (filed on September 5,  
1997) (Registration Nos. 033-57732 and 811-07462)                     

II.  Financial Statements.                                                      

This SAI is accompanied by the Annual Report of the Trust for the year
ended December 31, 1996, and the Semiannual Report of the Trust for the six     
months ended June 30, 1997, each of which contains historical financial         
information regarding the Acquired and Acquiring Funds. Such reports have been  
filed with the Securities and Exchange Commission, and the information therein  
relating to the Acquired and Acquiring Funds is incorporated herein by          
reference.                                                                      

   Pro forma financial statements for the Acquiring Fund are provided on the
following pages.                                                                

N14AE24 52nd Page of 77 TOC 1st Previous Next ↓Bottom Just 52nd
THE SIERRA VARIABLE TRUST                                                       
-------------------------                                                       
Short Term High Quality Bond Fund                                               
Short Term Global Government Fund                                               
Combined Portfolio of Investments                                               
December 31, 1996 (Unaudited)                                                   

                                                        [Enlarge/Download Table]


                  PRINCIPAL                                                                                                     
                   AMOUNT                                                                                 VALUE                 
--------------------------------------------------------------------------------------------------------------------------------
        Short Term   Short Term                         SECURITY                          Short Term   Short Term               
       High Quality    Global                         DESCRIPTIONS                        High Quality   Global                 
           Bond      Government                                                              Bond      Government               
           Fund         Fund       Combined                                                  Fund         Fund       Combined   
--------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                
FOREIGN BONDS AND NOTES - 45.7% #                                                                                               
       German Deutsche Mark Bonds - 8.5%                                                                                        
                                                Federal Republic of Germany:                                                    
   DEM            0    1,500,000    1,500,000      6.625% due 01/20/1998                           $0   $1,008,480   $1,008,480 
                  0    1,800,000    1,800,000      6.000% due 02/20/1998 **                         0    1,204,796    1,204,796 
                  0      925,000      925,000      5.250% due 10/20/1998                            0      619,913      619,913 
                                                                                          --------------------------------------
                                                Total German Deutsche Mark Bonds                    0    2,833,189    2,833,189 
                                                                                          --------------------------------------
       Italian Lira Bonds - 7.6%                                                                                                
                                                Italian Treasury Bonds:                                                         
   ITL            0  1,560,000,000 1,560,000,000    8.500% due 08/01/1997                            0    1,033,281    1,033,281
                  0 2,220,000,000  2,220,000,000    8.500% due 01/01/1999                            0    1,524,293    1,524,293
                                                                                          --------------------------------------
                                                Total Italian Lira Bonds                            0    2,557,574    2,557,574 
                                                                                          --------------------------------------
       New Zealand Dollar Bond - 6.7%                                                                                           
                                                Government of New Zealand:                                                      
   NZD            0    2,500,000    2,500,000      8.700% due 02/10/1997 ++                         0    1,752,304    1,752,304 
            725,000            0      725,000      8.138% due 04/09/1997 ++                   502,079            0      502,079 
                                                                                          --------------------------------------
                                                                                              502,079    1,752,304    2,254,383 
                                                                                          --------------------------------------
       Danish Kroner Bond - 5.5%                                                                                                
   DKK            0   10,000,000   10,000,000   Kingdom of Denmark,                                                             
                                                   9.000% due 11/15/1998 **                         0    1,845,945    1,845,945 
                                                                                          --------------------------------------
       Canadian Dollar Bonds - 4.0%                                                                                             
                                                Government of Canada:                                                           
   CAD            0      900,000      900,000      6.500% due 09/01/1998 **                         0      682,056      682,056 
                  0      860,000      860,000      6.500% due 08/01/1999 **                         0      656,327      656,327 
                                                                                          --------------------------------------
                                                Total Canadian Dollar Bonds                         0    1,338,383    1,338,383 
                                                                                          --------------------------------------
       Great Britain Pound Sterling Note - 3.4%                                                                                 
   GBP            0      640,000      640,000   United Kingdom Treasury Note,                                                   
                                                   8.000% due 12/07/2000                            0    1,126,139    1,126,139 
                                                                                          --------------------------------------
       Spanish Peseta Bonds - 3.0%                                                                                              
                                                Government of Spain:                                                            
   ESP            0   85,000,000   85,000,000      11.450% due 08/30/1998                           0      707,106      707,106 
                  0   35,000,000   35,000,000      10.250% due 11/30/1998                           0      291,107      291,107 
                                                                                          --------------------------------------
                                                Total Spanish Peseta Bonds                          0      998,213      998,213 
                                                                                          --------------------------------------
       Australian Dollar Bond and Note - 2.6%                                                                                   
   AUD            0      595,000      595,000   Commonwealth of Australia,                                                      
                                                   7.000% due 08/15/1998                            0      478,138      478,138 
                  0      500,000      500,000   New South Wales Treasury Note,                                                  
                                                   7.500% due 02/01/1998                            0      402,443      402,443 
                                                                                          --------------------------------------
                                                Total Australian Dollar Bond and Note               0      880,581      880,581 
                                                                                          --------------------------------------
       Netherlands Guilder Bonds - 2.6%                                                                                         
                                                Government of Netherlands,                                                      
   NLG            0      910,000      910,000      6.250% due 07/15/1998                          0      548,865      548,865   
                  0      500,000      500,000      7.500% due 06/15/1999                          0      314,598      314,598   
                                                                                        --------------------------------------  
                                                Total Netherlands Guilder Bonds                   0      863,463      863,463   
                                                                                        --------------------------------------  
       Swedish Krona Bond - 1.8%                                                                                                
   SEK            0    3,700,000    3,700,000   Kingdom of Sweden,                                                              
                                                   11.000% due 01/21/1999 **                      0      610,419      610,419   
                                                                                        --------------------------------------  

                                                ------------------------------------------------------------------------------  
                                                Total Foreign Bonds and Notes               502,079   14,806,210   15,308,289   
                                                ------------------------------------------------------------------------------  

N14AE24 53rd Page of 77 TOC 1st Previous Next ↓Bottom Just 53rd
THE SIERRA VARIABLE TRUST                                                       
-------------------------                                                       
Short Term High Quality Bond Fund                                               
Short Term Global Government Fund                                               
Combined Portfolio of Investments (Continued)                                   
December 31, 1996 (Unaudited)                                                   

                                                        [Enlarge/Download Table]

                      PRINCIPAL                                                                                                    
                        AMOUNT                                                                              VALUE                  
---------------------------------------------------------------------------------------------------------------------------------- 
        Short Term   Short Term                         SECURITY                            Short Term   Short Term                
       High Quality    Global                         DESCRIPTIONS                          High Quality   Global                  
           Bond      Government                                                                Bond      Government                
           Fund         Fund       Combined                                                    Fund         Fund       Combined    
---------------------------------------------------------------------------------------------------------------------------------- 
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 14.5%                                                                          
       Government National Mortgage Association (GNMA) - 9.8%                                                                      
                                                                                                                                   
  $          92,309            0       92,309   #121425, Seasoned,                                                                 
                                                   11.000% due 04/15/2015                      $104,625           $0     $104,625  
            126,245            0      126,245   #140834, Seasoned,                                                                 
                                                   11.000% due 12/15/2015                       143,088            0      143,088  
             56,076            0       56,076   #144538, Seasoned,                                                                 
                                                   11.000% due 12/15/2015                        63,557            0       63,557  
            132,108            0      132,108   #151670, Seasoned,                                                                 
                                                   11.000% due 12/15/2015                       149,490            0      149,490  
                  0      337,071      337,071   #213862, Seasoned,                                                                 
                                                   10.000% due 09/15/2018                             0      371,091      371,091  
                  0      193,942      193,942   #225305, Seasoned,                                                                 
                                                   10.000% due 02/15/2018                             0      213,608      213,608  
                  0       41,462       41,462   #234561, Seasoned,                                                                 
                                                   10.000% due 12/15/2017                             0       45,666       45,666  
             63,542            0       63,542   #254937, Seasoned,                                                                 
                                                   10.000% due 06/15/2019                        69,955            0       69,955  
            105,426            0      105,426   #257814, Seasoned,                                                                 
                                                   10.000% due 09/15/2018                       116,066            0      116,066  
                  0      296,846      296,846   #264735, Seasoned,                                                                 
                                                   10.000% due 02/15/2019                             0      327,086      327,086  
                  0      191,834      191,834   #289333, Seasoned,                                                                 
                                                   10.000% due 05/15/2020                             0      211,018      211,018  
                  0      462,227      462,227   #291116, Seasoned,                                                                 
                                                   10.000% due 06/15/2020                             0      508,667      508,667  
             91,755            0       91,755   #293511, Seasoned,                                                                 
                                                   10.000% due 07/15/2020                       101,016            0      101,016  
            263,339            0      263,339   #780081, Seasoned,                                                                 
                                                   10.000% due 02/15/2025**                     290,042            0      290,042  
             69,490            0       69,490   #780121, Seasoned,                                                                 
                                                   10.000% due 04/15/2025                        76,439            0       76,439  
             65,545            0       65,545   #780141, Seasoned,                                                                 
                                                   10.000% due 12/15/2020                        72,131            0       72,131  
            399,245            0      399,245   #780317, Seasoned,                                                                 
                                                   9.000% due 12/15/2020                        425,815            0      425,815  
                                                                                            -------------------------------------- 
                                                Total GNMAs                                   1,612,224    1,677,136    3,289,360  
                                                                                            -------------------------------------- 

       Adjustable Rate Mortgage-Backed Securities (ARM) - 2.4%                                                                     
            159,423            0      159,423   Federal Home Loan Mortgage Corporation (FHLMC),                                    
                                                    #845988,                                                                       
                                                    7.792% due 11/01/2021+                      166,398            0      166,398  
                                                Federal National Mortgage Association (FNMA):                                      
            240,024            0      240,024      #82247,                                                                         
                                                   6.125% due 04/01/2019+                       238,899            0      238,899  
             71,867            0       71,867      #124571,                                                                        
                                                   7.837% due 11/01/2022+                        74,012            0       74,012  
             85,843            0       85,843      #152205,                                                                        
                                                   7.366% due 01/01/2019+                        88,472            0       88,472  
            250,000            0      250,000      #313257,                                                                        
                                                    6.132% due 11/01/2035                       248,828            0      248,828  
                                                                                              ------------------------------------ 
                                                Total ARMs                                      816,609            0      816,609  
                                                                                              ------------------------------------ 

       Federal Home Loan Mortgage Corporation (FHLMC) - 1.5%                                                                       
                  0      181,948      181,948   #1223,                                                                             
                                                   7.250% due 07/15/2020                              0      183,369      183,369  
            332,772            0      332,772   #G50135, 5 Year Balloon, GOLD,                                                     
                                                   5.500% due 03/01/1999                        324,140            0      324,140  
                                                                                              ------------------------------------ 
                                                                                                324,140      183,369      507,509  
                                                                                              ------------------------------------ 

       Federal National Mortgage Association (FNMA) - 0.8%                                                                         
                  0      276,579      276,579   #141461,                                                                           
                                                   7.781% due 11/01/2021 +                            0      288,508      288,508  
                                                                                              ------------------------------------ 
                                                ---------------------------------------------------------------------------------- 
                                                Total U.S. Government Agency                                                       
                                                   Mortgage-Backed Securities                  2,752,973    2,149,013    4,901,986 
                                                -----------------------------------------------------------------------------------

N14AE24 54th Page of 77 TOC 1st Previous Next ↓Bottom Just 54th
THE SIERRA VARIABLE TRUST                                                       
-------------------------                                                       
Short Term High Quality Bond Fund                                               
Short Term Global Government Fund                                               
Combined Portfolio of Investments (Continued)                                   
December 31, 1996 (Unaudited)                                                   

                                                        [Enlarge/Download Table]

                  PRINCIPAL                                                                                                         
                   AMOUNT                                                                                      VALUE                
------------------------------------------------------------------------------------------------------------------------------------
        Short Term   Short Term                         SECURITY                               Short Term   Short Term              
       High Quality    Global                         DESCRIPTIONS                             High Quality   Global                
           Bond      Government                                                                   Bond      Government              
           Fund         Fund       Combined                                                       Fund         Fund       Combined  
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                    
U.S. TREASURY NOTES - 11.3%                                                                                                         
  $               0      500,000      500,000   5.125% due 03/31/1998                                   $0     $496,655     $496,655
                  0    2,325,000    2,325,000   6.375% due 01/15/1999 **                                 0    2,346,888    2,346,888
            300,000            0      300,000   5.625% due 11/30/2000                              294,561            0      294,561
            600,000            0      600,000   6.500% due 08/31/2001                              606,564            0      606,564
                                                                                                 -----------------------------------
                                                ------------------------------------------------------------------------------------
                                                Total U.S. Treasury Notes                          901,125    2,843,543    3,744,668
                                                ------------------------------------------------------------------------------------
CORPORATE NOTES - 10.1%                                                                                                             
            100,000            0      100,000   Colonial Realty, Sr. Note,                                                          
                                                   7.500% due 07/15/2001                           101,500            0      101,500
            100,000            0      100,000   ERP Operating LP,                                                                   
                                                   8.500% due 05/15/1999+++                        103,559            0      103,559
                                                General Motors Acceptance Corporation:                                              
            300,000            0      300,000      Deb.,                                                                            
                                                   8.625% due 06/15/1999 **                        315,189            0      315,189
            200,000            0      200,000      MTN,                                                                             
                                                   7.850% due 11/17/1997 **                        203,410            0      203,410
            200,000            0      200,000   Lockheed Martin Corporation,                                                        
                                                   6.850% due 05/15/2001                           202,000            0      202,000
                                                Lyondell Petrochemical Company:                                                     
            100,000            0      100,000      9.125% due 03/15/2002                           108,779            0      108,779
            150,000            0      150,000      9.750% due 09/04/2003 +++                       170,952            0      170,952
            250,000            0      250,000   Oasis Residential Inc.,                                                             
                                                   6.750% due 11/15/2001                           247,500            0      247,500
            250,000            0      250,000   Southern National Corporation, Sub. Note,                                           
                                                   7.050% due 05/23/2003                           252,265            0      252,265
            300,000      300,000      600,000   Sun Communities Inc., Sr. Note,                                                     
                                                   7.625% due 05/01/2003                           306,033      306,033      612,066
            100,000            0      100,000   Susa Partnership LP,                                                                
                                                   7.125% due 11/01/2003                            99,750            0       99,750
                                                Taubman Realty Corporation:                                                         
            100,000            0      100,000      8.000% due 06/15/1999                           102,156            0      102,156
            100,000            0      100,000      MTN,                                                                             
                                                   7.500% due 06/15/2002                           100,785            0      100,785
                                                The Money Store, Inc.:                                                              
            280,000            0      280,000      9.160% due 09/09/1997+++                        284,942            0      284,942
            300,000            0      300,000      7.630% due 04/15/1998+++                        303,198            0      303,198
                                                Time Warner Inc.:                                                                   
            100,000            0      100,000      7.450% due 02/01/1998                           101,101            0      101,101
             50,000            0       50,000      7.950% due 02/01/2000                            51,634            0       51,634
                                                                                               -------------------------------------
                                                ------------------------------------------------------------------------------------
                                                Total Corporate Notes                            3,054,753      306,033    3,360,786
                                                ------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES - 9.0%                                                                                                      
            132,625            0      132,625   Advanta Mortgage Loan Trust, 1996-2-A1,                                             
                                                  6.740% due 11/25/2009                            133,155            0      133,155
            100,000            0      100,000   Conti-Mortgage Home Equity Loan Trust, 1996-3-A2,                                   
                                                  6.950% due 07/15/2011                            100,843            0      100,843
            250,000            0      250,000   Green Tree Financial Corporation, 1995-1-B2,                                        
                                                  9.200% due 06/15/2025                            266,405            0      266,405
            165,000            0      165,000   Green Tree Home Improvement, 1995-D-B2,                                             
                                                  7.450% due 09/15/2025                            164,980            0      164,980
             96,475            0       96,475   Green Tree NIM, 1994-B, Class A,                                                    
                                                  7.850% due 07/15/2004                             97,560            0       97,560
            102,415            0      102,415   Green Tree Recreational, Equipment & Consumer,                                      
                                                  1996-A, Class A1,                                                                 
                                                  5.550% due 02/15/2018                            100,956            0      100,956
             94,402            0       94,402   Green Tree Security Mortgage Trust, 1994-A,                                         
                                                   6.900% due 02/15/2004                            94,063            0       94,063
            100,000            0      100,000   H & T Master Trust,                                                                 
                                                   8.430% due 08/15/2002+++                         98,900            0       98,900
             10,000            0       10,000   Household Affinity Credit Card, 1993,                                               
                                                   4.950% due 03/15/1999                             9,997            0        9,997

N14AE24 55th Page of 77 TOC 1st Previous Next ↓Bottom Just 55th
THE SIERRA VARIABLE TRUST                                                       
-------------------------                                                       
Short Term High Quality Bond Fund                                               
Short Term Global Government Fund                                               
Combined Portfolio of Investments (Continued)                                   
December 31, 1996 (Unaudited)                                                   

                                                        [Enlarge/Download Table]

                      PRINCIPAL                                                                                                     
                        AMOUNT                                                                                   VALUE              
------------------------------------------------------------------------------------------------------------------------------------
        Short Term   Short Term                         SECURITY                                 Short Term   Short Term            
       High Quality    Global                         DESCRIPTIONS                               High Quality   Global              
           Bond      Government                                                                     Bond      Government            
           Fund         Fund       Combined                                                         Fund         Fund      Combined 
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                    
ASSET BACKED SECURITIES - (Continued)                                                                                               
                                              Merrill Lynch Mortgage Investors, Inc.:                                               
  $        57,243            0       57,243      1991-B-A,                                                                          
                                                 9.200% due 04/15/2011                             $58,227           $0      $58,227
           78,442            0       78,442      1991-I-A,                                                                          
                                                 7.650% due 01/15/2012                              79,447            0       79,447
          239,365            0      239,365      1992-B-A4,                                                                         
                                                 7.850% due 04/15/2012                             242,579            0      242,579
          362,875            0      362,875   Mid-State Trust, Series 4, Class A,                                                   
                                                 8.330% due 04/01/2030                             384,350            0      384,350
          141,378            0      141,378   Sec Pac Manufacturing Housing, 95-1, Class A1,                                        
                                                 6.500% due 04/10/2020                             141,894            0      141,894
           10,000            0       10,000   Standard Credit Card Trust, 94-1A,                                                    
                                                 4.650% due 03/07/1999                               9,991            0        9,991
                                              The Money Store, Inc.:                                                                
          200,000            0      200,000     1996-A-A2,                                                                          
                                                 6.330% due 06/15/2008                             200,287            0      200,287
          185,142            0      185,142     1996-B-A1,                                                                          
                                                 6.720% due 02/15/2010                             186,058            0      186,058
          400,000            0      400,000   UCFC Home Equity Loan Trust, 1995-B1,                                                 
                                                 6.600% due 07/10/2009  **                         401,668            0      401,668
          250,000            0      250,000   World Omni Automobile Lease Securitization, 1996-B,                                   
                                                 6.850% due 11/15/2002+++                          250,703            0      250,703
                                                                                               -------------------------------------

                                              --------------------------------------------------------------------------------------
                                              Total Asset-Backed Securities                      3,022,063            0    3,022,063
                                              --------------------------------------------------------------------------------------

COLLATERALIZED MORTGAGE OBLIGATIONS - 5.2%                                                                                          
                                              Countrywide Funding Corporation:                                                      
           29,840            0       29,840     1994-1-A3,                                                                          
                                                6.250% due 03/25/2024                               28,553            0       28,553
          500,000            0      500,000     1994-2-A8,                                                                          
                                                6.500% due 02/25/2009 **                           498,590            0      498,590
          203,470            0      203,470   Federal Home Loan Mortgage Corporation (FHLMC),                                       
                                                 P/O, REMIC, #1719-C,                                                               
                                                 Zero coupon due 04/15/1999                        184,840            0      184,840
          156,686            0      156,686   Fund America Investors Corporation, 1991-1-H,                                         
                                                7.950% due 02/20/2020  **                          158,693            0      158,693
          140,962            0      140,962   General Electric Capital Mortgage Association,                                        
                                                  1994-27-A1, 6.500% due 07/25/2024 **             140,169            0      140,169
          295,168            0      295,168   Norwest Asset Securities Corporation, 1996-5-A13,                                     
                                                  7.500% due 11/25/2026                            296,644            0      296,644
                                              Prudential Home Mortgage Securities:                                                  
           77,053            0       77,053     1992-47,                                                                            
                                                7.500% due 01/25/2023                               76,885            0       76,885
          274,522            0      274,522     1993-43-A1,                                                                         
                                                5.400% due 10/25/2023                              271,003            0      271,003
           83,294            0       83,294   Ryland Acceptance Corporation,                                                        
                                                8.950% due 08/20/2019                               85,245            0       85,245
                                                                                               -------------------------------------

                                              --------------------------------------------------------------------------------------
                                              Total Collateralized Mortgage Obligations          1,740,622            0    1,740,622
                                              --------------------------------------------------------------------------------------

INDEXED NOTES - 2.0%                                                                                                                
                                              J.P. Morgan & Company:                                                                
                0      436,000      436,000      (Value is directly linked to the Philippine Peso),                                 
                                                 9.700% due 01/21/1997                                   0      440,129      440,129
                0      220,000      220,000      (Value is directly linked to the South Korean Won),                                
                                                 9.825% due 02/05/1997                                   0      215,942      215,942
                                                                                               -------------------------------------

                                                                                               -------------------------------------
                                              -------------------------------------------------                                     
                                              Total Indexed Notes                                        0      656,071      656,071
                                              --------------------------------------------------------------------------------------

N14AE24 56th Page of 77 TOC 1st Previous Next ↓Bottom Just 56th
THE SIERRA VARIABLE TRUST                                                       
-------------------------                                                       
Short Term High Quality Bond Fund                                               
Short Term Global Government Fund                                               
Combined Portfolio of Investments (Continued)                                   
December 31, 1996 (Unaudited)                                                   

                                                        [Enlarge/Download Table]


                  PRINCIPAL                                                                                                         
                   AMOUNT                                                                                    VALUE                  
----------------------------------------------------------------------------------------------------------------------------------- 
        Short Term   Short Term                         SECURITY                             Short Term   Short Term                
       High Quality    Global                         DESCRIPTIONS                           High Quality    Global                 
           Bond      Government                                                                 Bond       Government               
           Fund         Fund       Combined                                                     Fund          Fund      Combined    
----------------------------------------------------------------------------------------------------------------------------------- 
                                                                                                                                    
COMMERCIAL PAPER - 1.6%                                                                                                             
  $         164,000       366,000       530,000 General Electric Capital Corporation,                                               
                                                   7.100% due 01/02/1997                          $164,000    $366,000    $530,000  
                                                                                             -------------------------------------- 

U.S. GOVERNMENT AGENCY OBLIGATION - 0.5%                                                                                            
            175,000             0       175,000 Federal National Mortgage Association (FNMA),                                       
                                                      (Inverse Floater),                                                            
                                                      9.897% due 12/29/1997 +                      180,688           0     180,688  
                                                                                             -------------------------------------- 

                                                                          Expiration    Strike                                      
                                                                             Date       Price                                       
                                                                         ------------------------                                   
OPTIONS PURCHASED - 0.1%                                                                                                            
       Put Options Purchased on Foreign Currency - 0.1%                                                                             
   DEM            0     1,500,000     1,500,000 German Deutsche Mark Put  03/03/1997        1.567         0       5,550       5,550 
   AUD            0     1,100,000     1,100,000 Australian Dollar Put     03/07/1997        0.790         0       6,270       6,270 
   NZD            0     2,500,000     2,500,000 New Zealand Dollar Put    03/13/1997        0.685         0       4,497       4,497 
   ITL            0 4,000,000,000 4,000,000,000 Italian Lira Put          03/25/1997    1,561.750         0       9,960       9,960 
   DEM            0     1,000,000     1,000,000 German Deutsche Mark Put  05/23/1997        1.521         0      15,000      15,000 
   NZD      725,000             0       725,000 New Zealand Dollar Put    04/07/1997        0.685     2,208           0       2,208 
                                                                                              --------------------------------------
                                                Total Put Options Purchased on Foreign Currency       2,208      41,277      43,485 
                                                                                              --------------------------------------


                  NUMBER OF                                                                                                         
                  CONTRACTS                                                                                                         
                                                                                                                                    
       Call Options Purchased on Foreign Interest Rate Futures - 0.0% ##                                                            
                 21             0          21   Euro Dollar Call          03/14/1997     94.500       1,575           0       1,575 
                                                                                              --------------------------------------

                                                ------------------------------------------------------------------------------------
                                                Total Options Purchased                               3,783      41,277      45,060 
                                                ------------------------------------------------------------------------------------

                                                ------------------------------------------------------------------------------------
                                                TOTAL INVESTMENTS                               $12,322,086 $21,168,147 $33,490,233 
                                                ------------------------------------------------------------------------------------

                                                ------------------------------------------------------------------------------------
                                                TOTAL COST                                      $12,228,027 $20,722,662 $33,396,174*
                                                ------------------------------------------------------------------------------------


                  PRINCIPAL                                                                                                         
                   AMOUNT                                                                                                           
                                                                                                                                    
CALL OPTIONS WRITTEN ON FOREIGN CURRENCY - (-0.1)%                                                                                  
   AUD            0     1,100,000     1,100,000 Australian Dollar Call    03/07/1997        0.808        $0     ($3,960)    ($3,960)
   NZD            0     2,500,000     2,500,000 New Zealand Dollar Call   03/13/1997        0.707         0     (15,695)    (15,695)
   ITL            0 4,000,000,000 4,000,000,000 Italian Lira Call         03/25/1997    1,508.150         0     (20,400)    (20,400)
   NZD      725,000            0        725,000 New Zealand Dollar Call   04/07/1997        0.715    (3,104)          0      (3,104)
                                                                                              --------------------------------------

                                                ------------------------------------------------------------------------------------
                                                Total Value of Call Options Written on                                              
                                                  Foreign Currency                                   (3,104)    (40,055)    (43,159)
                                                ------------------------------------------------------------------------------------

                                                ------------------------------------------------------------------------------------
                                                 Premiums received on Call Options Written on                                       
                                                  Foreign Currency                                    3,552      34,280      43,607*
                                                ------------------------------------------------------------------------------------

  * Combined cost represents cost of Sierra Variable Trust Short Term High
    Quality Bond Fund and value of Sierra Variable Trust Short Term Global
   Government Fund as contemplated by the proposed Agreement and Plan of
Reorganization. See Note 1.                                       
** A portion or all of this security is pledged as collateral for option
contracts.                                                        
+ Floating rate security. The interest rate shown reflects the rate   
currently in effect.                                              
++ Rate represents annualized yield at date of purchase (unaudited).    
 +++ Security exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions exempt from  
registration, normally to qualified institutional buyers.         
  # As reorganized, the Sierra Variable Trust Short Term High Quality Bond
Fund will be limited to their percentages of foreign holdings,    
accordingly certain positions will need to be disposed of prior to
consummation of the Plan of Reorganization.                       
## Amount represents less than 0.1% of total investments.               

N14AE24 57th Page of 77 TOC 1st Previous Next ↓Bottom Just 57th
THE SIERRA VARIABLE TRUST                                                       
-------------------------                                                       
Short Term Global Government Fund                                               
Schedule of Forward Foreign Currency Contracts #                                
December 31, 1996 (Unaudited)                                                   

U.S. Forward Foreign Currency Contracts to Buy                                  

                                                        [Enlarge/Download Table]

                                                           Contracts to Receive                                                   
               -------------------------------------------------------------------------------------------------------------------
                                                                                                                 Net Unrealized   
                                                                                                                  Appreciation/   
                   Expiration                     Local                      Value in         In Exchange for    (Depreciation)   
                      Date                       Currency                     U.S. $             for U.S. $       of Contracts    
               -------------------------------------------------------------------------------------------------------------------
                                                                                                                                  
                   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)   
                                                                                                             ------------------   

U.S. Forward Foreign Currency Contracts to Sell                                                                                   
                                                          Contracts to Deliver                                                    
               -------------------------------------------------------------------------------------------------------------------
                                                                                                                 Net Unrealized   
                   Expiration                    Local                      Value in          In Exchange for     Appreciation    
                      Date                      Currency                     U.S. $              for U.S. $       of Contracts    
               -------------------------------------------------------------------------------------------------------------------
                                                                                                                                  
                   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    
                                                                                                             ------------------   

# As reorganized, the Sierra Variable Trust Short Term High Quality Bond        
Fund will be limited to their percentages of foreign holdings,              
accordingly certain positions will need to be disposed of prior to          
consummation of the Plan of Reorganization.                                 

                                                                [Download Table]

----------------------------------------------------------------
              GLOSSARY OF TERMS                                 
                                                                
AUD         - Australian Dollar                                 
BALLOON     - Five- and seven-year mortgages with larger        
              dollar amounts of payments falling due in the     
              later years of the obligation                     
BEF         - Belgian Franc                                     
CAD         - Canadian Dollar                                   
CHF         - Swiss Franc                                       
DEM         - German Deutsche Mark                              
DKK         - Danish Kroner                                     
ESP         - Spanish Peseta                                    
FRF         - French Franc                                      
GBP         - Great Britain Pound Sterling                      
GOLD        - Payments are on accelerated 45-day payment        
              cycle instead of 75-day payment cycle             
ITL         - Italian Lira                                      
LP          - Limited Partnership                               
MTN         - Medium Term Note                                  
NLG         - Netherlands Guilder                               
NZD         - New Zealand Dollar                                
P/O         - Principal Only                                    
REMIC       - Real Estate Mortgage Investment Conduit           
SEK         - Swedish Krona                                     
----------------------------------------------------------------

N14AE24 58th Page of 77 TOC 1st Previous Next ↓Bottom Just 58th
 The Sierra Variable Trust
 Short Term High Quality Bond Fund
 Short Term Global Government Fund
 Pro Forma Combining Statement of Assets and Liabilities (Unaudited)
 December 31, 1996

                                                        [Enlarge/Download Table]

                                                          Short Term   Short Term                                       
                                                             High        Global                                         
                                                            Quality     Government  Adjustments to         Pro Forma    
                                                           Bond Fund      Fund         Proforma        Combined (Note 1)
                                                          -----------  -----------    -----------         -----------   
ASSETS:                                                                                                                 
                                                                                                                        
Investments, at value (a) ..............................  $12,322,086  $21,168,147    $      --           $33,490,233   
Cash and/or foreign currency (b) .......................          406          563           --                   969   
Dividends and/or interest receivable ...................      107,844      499,239           --               607,083   
Receivable for investment securities sold ..............        1,193         --                                1,193   
Receivable for Fund shares sold ........................        2,252        2,854           --                 5,106   
Net unrealized appreciation of forward                                                                                  
   foreign currency contracts ..........................         --        330,959           --               330,959   
Unamortized organization costs .........................         --          8,342         (8,342)(d)               0   
Receivable from investment advisor .....................         --           --            8,342 (d)           8,342   
Other assets ...........................................          917        1,522           --                 2,439   
                                                          -----------  -----------    -----------         -----------   
     Total Assets ......................................   12,434,698   22,011,626              0          34,446,324   
                                                          -----------  -----------    -----------         -----------   

LIABILITIES:                                                                                                            
Investment advisory fee payable ........................        6,070       13,937           --                20,007   
Administration fee payable .............................        1,892        3,345           --                 5,237   
Transfer agent fees payable ............................          293          305           --                   598   
Custodian fees payable .................................        1,079        1,917           --                 2,996   
Accrued Trustees' fees and expenses ....................          488          862           --                 1,350   
Options written, at value (c) ..........................        3,104       40,055           --                43,159   
Accrued expenses and other payables ....................       19,890       40,820           --                60,710   
                                                          -----------  -----------    -----------         -----------   
     Total Liabilities .................................       32,816      101,241              0             134,057   
                                                          -----------  -----------    -----------         -----------   

Net Assets Applicable to Shares Outstanding ............  $12,401,882  $21,910,385    $         0         $34,312,267   
                                                          ===========  ===========    ===========         ===========   

Net asset value, offering price and redemption price per                                                                
   share of beneficial interest outstanding ............  $      2.43  $      2.48    $                   $      2.43   
                                                          ===========  ===========    ===========         ===========   

Number of Fund shares outstanding ......................    5,099,390    8,843,198        165,886          14,108,474   
                                                          ===========  ===========    ===========         ===========   

-------------------------------------------------------                                                                 
(a) Investments, at cost ...............................  $12,228,027  $20,722,662    $   445,485         $33,396,174*  
(b) Cash and/or foreign currency, at cost ..............  $       406  $     1,516    $      (953)        $       969*  
(c) Premiums ...........................................  $     3,552  $    34,280    $     5,775         $    43,607*  

(d) Unamortized organization costs of the acquired fund will be borne by the    
investment advisor.                                                     
*   Combined cost represents cost of Sierra Variable Trust Short Term High      
Quality Bond Fund and value of Sierra Variable Trust Short Term Global  
Government Fund as contemplated by the proposed Agreement and Plan of   
Reorganization. See Note 1.                                             

                                 See Notes to Proforma Financial Statements.

N14AE24 59th Page of 77 TOC 1st Previous Next ↓Bottom Just 59th
 The Sierra Variable Trust
 Short Term High Quality Bond Fund
 Short Term Global Government Fund
 Pro Forma Statement of Operations (Unaudited)
For the Year Ended December 31, 1996

                                                        [Enlarge/Download Table]


                                                  Short Term   Short Term                                      
                                                     High        Global                                        
                                                   Quality     Government   Adjustments to        Pro Forma    
                                                  Bond Fund       Fund         Proforma       Combined (Note 1)
                                                ------------  ------------  ---------------  ------------------
                                                                                                               
INVESTMENT INCOME:                                                                                             
Interest .....................................   $   942,451   $ 1,584,502    $      --          $  2,526,953  
Foreign withholding tax on interest income ...          --         (41,650)          --               (41,650) 
                                                 -----------   -----------    -----------        ------------  
      Total investment income ................       942,451     1,542,852           --             2,485,303  
                                                 -----------   -----------    -----------        ------------  

EXPENSES:                                                                                                      
Investment advisory fee ......................        66,754       166,447        (55,483)(a)         177,718  
Administration fee ...........................        24,031        39,947        (63,978)(b)               0  
Trustees' fees and expenses ..................         1,989         3,278           --                 5,267  
Legal and audit fees .........................        24,948        46,045        (35,116)(c)          35,877  
Transfer agent fees ..........................         2,439         2,668         (2,668)(c)           2,439  
Custodian fees ...............................         6,784        10,755           --                17,539  
Amortization of organization costs ...........          --           6,137         (6,137)(d)               0  
Other ........................................        14,872         8,861           --                23,733  
Fees waived by investment advisor ............       (10,732)         --           10,732 (e)               0  
                                                 -----------   -----------    -----------        ------------  
      Subtotal ...............................       131,085       284,138       (152,650)            262,573  
Credits allowed by the custodian .............          (276)         (116)          --                  (392) 
                                                 -----------   -----------    -----------        ------------  
      Net expenses ...........................       130,809       284,022       (152,650)            262,181  
                                                 -----------   -----------    -----------        ------------  
NET INVESTMENT INCOME ........................       811,642     1,258,830        152,650           2,223,122  
                                                 -----------   -----------    -----------        ------------  

NET REALIZED AND UNREALIZED                                                                                    
   GAIN/(LOSS) ON INVESTMENTS                                                                                  
Realized gain/(loss) from:                                                                                     
   Security transactions .....................      (156,023)     (128,366)          --              (284,389) 
   Forward foreign currency contracts                                                                          
       and foreign currency transactions .....       (21,340)      144,427           --               123,087  
   Futures contracts .........................       (92,454)         --             --               (92,454) 
   Written options ...........................           644       264,338           --               264,982  
Net unrealized appreciation/(depreciation) of:                                                                 
   Securities ................................      (102,420)     (222,122)          --              (324,542) 
   Forward foreign currency contracts ........          --         567,861           --               567,861  
   Foreign currency, written options,                                                                          
      futures contracts and other assets                                                                       
      and liabilities ........................           448       (48,250)          --               (47,802) 
                                                 -----------   -----------    -----------        ------------  
Net Realized and Unrealized Gain/(Loss) on                                                                     
   Investments ...............................      (371,145)      577,888           --               206,743  
                                                 -----------   -----------    -----------        ------------  
NET INCREASE IN NET ASSETS                                                                                     
   RESULTING FROM OPERATIONS .................   $   440,497   $ 1,836,718    $   152,650        $  2,429,865  
                                                 ===========   ===========    ===========        ============  

(a) Adjustment reflects contractual fee of The Sierra Variable Trust Short Term 
High Quality Bond Fund.                                                 
(b) Adjustment reflects the effect of the expected transfer of administrative   
functions to an affiliate of Composite Research & Management Co.        
(c) Adjustment reflects expected savings when the two funds become one.         
(d) Organization expense of the acquired fund is not an expense of the combined 
fund.                                                                   
(e) Adjustment reflects the effect of an anticipated management fee             
 waiver/expense reimbursement for the The Sierra Variable Trust Short Term
High Quality Bond Fund at December 31, 1996.                            

                                     See Notes to Proforma Financial Statements.

N14AE24 60th Page of 77 TOC 1st Previous Next ↓Bottom Just 60th
THE SIERRA VARIABLE TRUST 
Short Term High Quality Bond Fund 
Short Term Global Government Fund 
Notes to Pro Forma Financial Statements (Unaudited) 

1.     Basis of Combination                                                     
Sierra Variable Trust Funds (the "Trust") is registered under the Investment    
Company Act of 1940, as amended (the "1940 Act"), as a no load, open-end        
management investment company. As of December 31, 1996, the Trust offers        
fourteen managed investment funds. The unaudited Pro Forma Combining Portfolio  
of Investments and Statement of Assets and Liabilities and the Statement of     
Operations reflect the accounts of the Short Term High Quality Bond Fund and the
Short Term Global Government Fund for the year ended December 31, 1996. These   
statements have been derived from books and records utilized in calculating     
daily net asset value at December 31, 1996.                                     

The pro forma statements give effect to the proposed transfer of assets and     
stated liabilities of the Short Term Global Government Fund in exchange for     
shares of Short Term High Quality Bond Fund. The pro forma statements do not    
reflect the expenses of either fund in carrying out its obligations under the   
proposed Agreement and Plan of Reorganization.                                  

As described in the Prospectus/Proxy Statement under "Overview of               
Merger--Federal Income Tax Consequences," the proposed transaction is expected  
to result in the recognition of gain or loss for federal income tax purposes.   
Please see the Prospectus/Proxy Statement for more information.                 

The Pro Forma Combining Portfolio of Investments and Statement of Assets and    
Liabilities and the Statement of Operations should be read in conjunction with  
the historical financial statements of the funds incorporated by reference in   
the Statement of Additional Information.                                        

For the year ended December 31, 1996, the Short Term High Quality Bond Fund's   
investment advisory fee was computed based on the annual rates as follows:      

                                                        [Enlarge/Download Table]

                                                                    Fees on Assets               
                                                                      Exceeding                  
                                                    Fees on Assets   $200 million      Fees on   
                                                     Equal To or     and Equal To       Assets   
                                                      Less Than      or Less Than     Exceeding  
      Name of Fund                                   $200 million    $500 million    $500 million
      ------------                                  --------------  ---------------  ------------
                                                                                                 
Short Term High Quality Bond Fund                                                                
      Sierra Advisors..............................      .35%             .35%           .30%    
      Sub-advisor..................................      .15%             .10%           .10%    
                                                         ---              ---            ---     
         Total fees paid to                                                                      
             Sierra Advisors*......................      .50%             .45%           .40%    
                                                         ===              ===            ===     

*  Sierra Advisors retains only the net amount of the fees after sub-advisory   
fees have been paid.                                                      

-1- 

N14AE24 61st Page of 77 TOC 1st Previous Next ↓Bottom Just 61st
THE SIERRA VARIABLE TRUST 
Short Term High Quality Bond Fund 
Short Term Global Government Fund 
Notes to Pro Forma Financial Statements (Unaudited) (Continued) 

2.     Portfolio Valuation                                                      

The securities are valued at market, as determined by the fund, as of December  
31, 1996.                                                                       

3.     Capital Shares                                                           

The pro forma net asset value per share assumes the issuance of additional      
shares of Short Term High Quality Bond Fund which would have been issued at     
December 31, 1996 in connection with the proposed reorganization. The pro forma 
number of shares outstanding of 14,108,474 consists of 9,009,084 shares assumed 
issued in the reorganization plus 5,099,390 shares of Short Term High Quality   
Bond Fund at December 31, 1996.                                                 

-2- 

N14AE24 62nd Page of 77 TOC 1st Previous Next ↓Bottom Just 62nd
THE SIERRA VARIABLE TRUST                                                       
-------------------------                                                       
Short Term High Quality Bond Fund                                               
Short Term Global Government Fund                                               
Combined Portfolio of Investments                                               
June 30, 1997 (Unaudited)                                                       

                                                        [Enlarge/Download Table]

               PRINCIPAL                                                                                                            
                AMOUNT                                                                                   VALUE                      
------------------------------------------------------------------------------------------------------------------------------------
    Short Term   Short Term                                  SECURITY                  Short Term      Short Term                   
   High Quality    Global                                  DESCRIPTIONS               High Quality       Global                     
       Bond      Government                                                               Bond         Government                   
       Fund        Fund          Combined                                                 Fund           Fund            Combined   
------------------------------------------------------------------------------------------------------------------------------------
FOREIGN BONDS AND NOTES - 39.7% #                                                                                                   
     Italian Lira Bonds - 7.2%                                                                                                      
                                                                                                                                    
                                                  Italian Treasury Bonds:                                                           
ITL      0      1,560,000,000   1,560,000,000       8.500% due 08/01/1997                       $0        $914,122        $914,122  
         0      2,220,000,000   2,220,000,000       8.500% due 01/01/1999                        0       1,346,836       1,346,836  
                                                                                   ------------------------------------------------ 
                                                  Total Italian Lira Bonds                       0       2,260,958       2,260,958  
                                                                                   ------------------------------------------------ 
     German Deutsche Mark Bonds - 6.9%                                                                                              
                                                  Federal Republic of Germany:                                                      
DEM      0          1,500,000       1,500,000       6.625% due 01/20/1998                        0         876,201         876,201  
         0          1,280,000       1,280,000       6.000% due 02/20/1998 **                     0         746,810         746,810  
         0            925,000         925,000       5.250% due 10/20/1998                        0         542,976         542,976  
                                                                                   ------------------------------------------------ 
                                                  Total German Deutsche Mark Bonds               0       2,165,987       2,165,987  
                                                                                   ------------------------------------------------ 
     New Zealand Dollar Bond - 5.5%                                                                                                 
NZD      0          2,505,000       2,505,000     Federal National Mortgage                                                         
                                                    Association (FNMA), Global Note,                                                
                                                    7.250% due 06/20/2020                        0       1,720,238       1,720,238  
                                                                                   ------------------------------------------------ 
     Danish Kroner Bond - 4.0%                                                                                                      
DKK      0          7,735,000       7,735,000     Kingdom of Denmark,                                                               
                                                    9.000% due 11/15/1998 **                     0       1,243,327       1,243,327  
                                                                                   ------------------------------------------------ 
     Great Britain Pound Sterling Note - 3.6%                                                                                       
GBP      0            685,000         685,000     United Kingdom Treasury Note,                                                     
                                                    7.000% due 06/07/2000                        0       1,136,454       1,136,454  
                                                                                   ------------------------------------------------ 
     Canadian Dollar Bonds - 3.1%                                                                                                   
CAD      0            860,000         860,000     Government of Canada,                                                             
                                                    6.500% due 08/01/1999 **                     0         642,128         642,128  
         0            400,000         400,000     Royal Bank of Canada,                                                             
                                                    10.900% due 01/15/1999                       0         314,624         314,624  
                                                                                   ------------------------------------------------ 
                                                  Total Canadian Dollar Bonds                    0         956,752         956,752  
                                                                                   ------------------------------------------------ 
     Irish Pound Bond - 2.3%                                                                                                        
IEP      0            465,000         465,000     Republic of Ireland,                                                              
                                                    6.250% due 04/01/1999                        0         707,037         707,037  
                                                                                   ------------------------------------------------ 
     Spanish Peseta Bonds - 2.2%                                                                                                    
                                                  Government of Spain:                                                              
ESP      0         59,000,000      59,000,000       11.450% due 08/30/1998                       0         428,075         428,075  
         0         35,000,000      35,000,000       10.250% due 11/30/1998                       0         253,587         253,587  
                                                                                   ------------------------------------------------ 
                                                  Total Spanish Peseta Bonds                     0         681,662         681,662  
                                                                                   ------------------------------------------------ 
     Australian Dollar Bond - 2.1%                                                                                                  
AUD      0            850,000         850,000     International Finance Corporation,                                                
                                                    7.750% due 06/24/1999                        0         663,528         663,528  
                                                                                   ------------------------------------------------ 
     Swedish Krona Bond - 1.7%                                                                                                      
SEK      0          3,700,000       3,700,000     Kingdom of Sweden,                                                                
                                                    11.000% due 01/21/1999 **                    0         522,982         522,982  
                                                                                   ------------------------------------------------ 
     Mexican Peso Bond - 0.8%                                                                                                       
MXN      0          2,419,260       2,419,260     Mexican Cetes,                                                                    
                                                    Zero coupon due 06/04/1998                   0         252,954         252,954  
                                                                                   ------------------------------------------------ 
     Argentinian Peso Bond - 0.3%                                                                                                   
ARP      0            119,080         119,080     Republic of Argentina,                                                            
                                                    5.625% due 04/01/2000 +                      0         108,526         108,526  
                                                                                   ------------------------------------------------ 
                                                  ----------------------------------------------------------------------------------
                                                     Total Foreign Bonds and Notes               0      12,420,405      12,420,405  
                                                  ----------------------------------------------------------------------------------

N14AE24 63rd Page of 77 TOC 1st Previous Next ↓Bottom Just 63rd
THE SIERRA VARIABLE TRUST                                                       
-------------------------                                                       
Short Term High Quality Bond Fund                                               
Short Term Global Government Fund                                               
Combined Portfolio of Investments (Continued)                                   
June 30, 1997 (Unaudited)                                                       

                                                        [Enlarge/Download Table]

                       PRINCIPAL                                                                                                    
                        AMOUNT                                                                           VALUE                      
------------------------------------------------------------------------------------------------------------------------------------
  Short Term       Short Term                                  SECURITY                 Short Term     Short Term                   
 High Quality        Global                                  DESCRIPTIONS              High Quality      Global                     
     Bond          Government                                                              Bond        Government                   
     Fund             Fund         Combined                                                Fund           Fund           Combined   
------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 15.4%                                                                           
     Government National Mortgage Association (GNMA) - 10.7%                                                                        
                                                                                                                                    
$      91,320               0        91,320         #121425, Seasoned,                                                              
                                                          11.000% due 04/15/2015           $102,643            $0        $102,643   
      108,631               0       108,631         #140834, Seasoned,                                                              
                                                          11.000% due 12/15/2015            122,100             0         122,100   
       40,328               0        40,328         #144538, Seasoned,                                                              
                                                          11.000% due 12/15/2015             45,400             0          45,400   
      118,579               0       118,579         #151670, Seasoned,                                                              
                                                          11.000% due 12/15/2015            133,281             0         133,281   
            0         334,654       334,654         #213862, Seasoned,                                                              
                                                          10.000% due 09/15/2018                  0       367,828         367,828   
            0         182,815       182,815         #225305, Seasoned,                                                              
                                                          10.000% due 02/15/2018                  0       200,938         200,938   
            0          36,287        36,287         #234561, Seasoned,                                                              
                                                          10.000% due 12/15/2017                  0        39,954          39,954   
       37,043               0        37,043         #254937, Seasoned,                                                              
                                                          10.000% due 06/15/2019 **          40,715             0          40,715   
       92,809               0        92,809         #257814, Seasoned,                                                              
                                                          10.000% due 09/15/2018            102,109             0         102,109   
            0         294,120       294,120         #264735, Seasoned,                                                              
                                                          10.000% due 02/15/2019                  0       323,276         323,276   
            0         180,715       180,715         #289333, Seasoned,                                                              
                                                          10.000% due 05/15/2020                  0       199,000         199,000   
            0         406,571       406,571         #291116, Seasoned,                                                              
                                                          10.000% due 06/15/2020                  0       447,314         447,314   
       81,996               0        81,996         #293511, Seasoned,                                                              
                                                          10.000% due 07/15/2020**           90,374             0          90,374   
      343,233               0       343,233         #400224, Seasoned,                                                              
                                                           8.000% due 06/15/2009            354,707             0         354,707   
      234,655               0       234,655         #780081, Seasoned,                                                              
                                                          10.000% due 02/15/2025**          257,917             0         257,917   
       60,047               0        60,047         #780121, Seasoned,                                                              
                                                          10.000% due 04/15/2025**           66,183             0          66,183   
       57,822               0        57,822         #780141, Seasoned,                                                              
                                                          10.000% due 12/15/2020**           63,616             0          63,616   
      365,052               0       365,052         #780317, Seasoned,                                                              
                                                           9.000% due 12/15/2020**          390,430             0         390,430   
                                                                                     ---------------------------------------------  
                                                    Total GNMAs                           1,769,475     1,578,310       3,347,785   
                                                                                     ---------------------------------------------  

     Adjustable Rate Mortgage-Backed Securities (ARM) - 2.5%                                                                        
      145,346               0       145,346       Federal Home Loan Mortgage Corporation (FHLMC),                                   
                                                    #845988,                                                                        
                                                    7.807% due 11/01/2021+                  152,318             0         152,318   
                                                  Federal National Mortgage Association (FNMA):                                     
      237,078               0       237,078         #82247,                                                                         
                                                    6.125% due 04/01/2019+                  234,337             0         234,337   
       64,565               0        64,565         #124571,                                                                        
                                                    7.847% due 11/01/2022+                   67,662             0          67,662   
       78,430               0        78,430         #152205,                                                                        
                                                    7.498% due 01/01/2019+                   81,335             0          81,335   
      233,838               0       233,838         #313257,                                                                        
                                                    6.056% due 11/01/2035                   231,135             0         231,135   
                                                                                     ---------------------------------------------  
                                                  Total ARMs                                766,787             0         766,787   
                                                                                     ---------------------------------------------  

     Federal Home Loan Mortgage Corporation (FHLMC) - 1.4%                                                                          
            0         142,555       142,555       #1223,                                                                            
                                                    7.250% due 07/15/2020                         0       143,446         143,446   
      299,843               0       299,843       #G50135, 5 Year Balloon, GOLD,                                                    
                                                    5.500% due 03/01/1999                   296,473             0         296,473   
                                                                                     -----------------------------------------------
                                                                                            296,473       143,446         439,919   
                                                                                     -----------------------------------------------

     Federal National Mortgage Association (FNMA) - 0.8%                                                                            
            0         249,213       249,213       #141461,                                                                          
                                                    7.784% due 11/01/2021 +                       0       260,933         260,933   
                                                                                     -----------------------------------------------

                                                 -----------------------------------------------------------------------------------
                                                  Total U.S. Government Agency                                                      
                                                    Mortgage-Backed Securities            2,832,735     1,982,689       4,815,424   
                                                 -----------------------------------------------------------------------------------

N14AE24 64th Page of 77 TOC 1st Previous Next ↓Bottom Just 64th
THE SIERRA VARIABLE TRUST                                                       
-------------------------                                                       
Short Term High Quality Bond Fund                                               
Short Term Global Government Fund                                               
Combined Portfolio of Investments (Continued)                                   
June 30, 1997 (Unaudited)                                                       

                                                        [Enlarge/Download Table]

               PRINCIPAL                                                                                                        
                AMOUNT                                                                                   VALUE                  
--------------------------------------------------------------------------------------------------------------------------------
    Short Term  Short Term                       SECURITY                                 Short Term   Short Term               
   High Quality   Global                       DESCRIPTIONS                              High Quality    Global                 
       Bond     Government                                                                   Bond      Government               
       Fund       Fund       Combined                                                        Fund         Fund       Combined   
--------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                
U.S. TREASURY NOTES - 11.4%                                                                                                     
$             0    500,000     500,000       5.125% due 03/31/1998                                 $0     $498,210     $498,210 
              0  1,550,000   1,550,000       6.375% due 01/15/1999 **                               0    1,558,537    1,558,537 
      1,200,000          0   1,200,000       6.375% due 04/30/1999                          1,206,372            0    1,206,372 
        300,000          0     300,000       5.625% due 11/30/2000                            293,859            0      293,859 
                                                                                          ------------------------------------- 
                                        ----------------------------------------------------------------------------------------
                                             Total U.S. Treasury Notes                      1,500,231    2,056,747    3,556,978 
                                        ----------------------------------------------------------------------------------------

CORPORATE NOTES - 10.0%                                                                                                         
        100,000          0     100,000       Colonial Realty, Sr. Note,                                                         
                                               7.500% due 07/15/2001                          100,875            0      100,875 
        100,000          0     100,000       ERP Operating LP,                                                                  
                                               8.500% due 05/15/1999++                        103,160            0      103,160 
        300,000          0     300,000       General Motors Acceptance Corporation, Deb.,                                       
                                               8.625% due 06/15/1999                          312,081            0      312,081 
        200,000          0     200,000       Lockheed Martin Corporation,                                                       
                                               6.850% due 05/15/2001                          200,500            0      200,500 
                                             Lyondell Petrochemical Company:                                                    
        100,000          0     100,000         9.125% due 03/15/2002                          108,668            0      108,668 
        150,000          0     150,000         9.750% due 09/04/2003 ++                       168,563            0      168,563 
        250,000          0     250,000       Oasis Residential Inc.,                                                            
                                               6.750% due 11/15/2001                          246,250            0      246,250 
        250,000          0     250,000       Southern National Corporation, Sub. Note,                                          
                                               7.050% due 05/23/2003                          250,065            0      250,065 
        300,000    300,000     600,000       Sun Communities Inc., Sr. Note,                                                    
                                               7.625% due 05/01/2003 **                       306,474      306,474      612,948 
        100,000          0     100,000       Susa Partnership LP,                                                               
                                               7.125% due 11/01/2003                           99,000            0       99,000 
                                             Taubman Realty Corporation:                                                        
        100,000          0     100,000         8.000% due 06/15/1999                          101,983            0      101,983 
        100,000          0     100,000         MTN,                                                                             
                                               7.500% due 06/15/2002                          101,663            0      101,663 
                                             The Money Store, Inc.:                                                             
        280,000          0     280,000         9.160% due 09/09/1997++                        281,120            0      281,120 
        300,000          0     300,000         7.630% due 04/15/1998++                        302,229            0      302,229 
                                             Time Warner Inc.:                                                                  
        100,000          0     100,000         7.450% due 02/01/1998                          100,596            0      100,596 
         50,000          0      50,000         7.950% due 02/01/2000                           51,405            0       51,405 
                                                                                         ---------------------------------------
                                        ----------------------------------------------------------------------------------------
                                             Total Corporate Notes                          2,834,632      306,474    3,141,106 
                                        ----------------------------------------------------------------------------------------

ASSET-BACKED SECURITIES - 8.7%                                                                                                  
         77,621          0      77,621       Advanta Mortgage Loan Trust, 1996-2-A1,                                            
                                               6.740% due 11/25/2009                           77,784            0       77,784 
                                             Green Tree Financial Corporation:                                                  
        250,000          0     250,000         1995-1-B2,                                                                       
                                                  9.200% due 06/15/2025                       270,703            0      270,703 
        200,000          0     200,000         1995-6-B1,                                                                       
                                                  7.700% due 09/15/2026                       203,000            0      203,000 
        100,000          0     100,000       Green Tree Home Equity Loan Trust, 1997-B-A5,                                      
                                               7.150% due 04/15/2027                          100,563            0      100,563 
        165,000          0     165,000       Green Tree Home Improvement, 1995-D-B2,                                            
                                               7.450% due 09/15/2025                          164,071            0      164,071 
         80,253          0      80,253       Green Tree NIM, 1994-B, Class A,                                                   
                                               7.850% due 07/15/2004                           80,678            0       80,678 
         79,571          0      79,571       Green Tree Recreational, Equipment & Consumer,                                     
                                               1996-A, Class A1,                                                                
                                                5.550% due 02/15/2018                          78,682            0       78,682 
         85,972          0      85,972       Green Tree Security Mortgage Trust, 1994-A,                                        
                                               6.900% due 02/15/2004                           85,811            0       85,811 
        100,000          0     100,000       H & T Master Trust,                                                                
                                               8.430% due 08/15/2002++                        100,140            0      100,140 

N14AE24 65th Page of 77 TOC 1st Previous Next ↓Bottom Just 65th
THE SIERRA VARIABLE TRUST                                                       
-------------------------                                                       
Short Term High Quality Bond Fund                                               
Short Term Global Government Fund                                               
Combined Portfolio of Investments (Continued)                                   
June 30, 1997 (Unaudited)                                                       

                                                        [Enlarge/Download Table]

                      PRINCIPAL                                                                                                     
                        AMOUNT                                                                                   VALUE              
------------------------------------------------------------------------------------------------------------------------------------
        Short Term   Short Term                          SECURITY                                Short Term   Short Term            
       High Quality    Global                          DESCRIPTIONS                              High Quality   Global              
           Bond      Government                                                                     Bond      Government            
           Fund         Fund       Combined                                                         Fund         Fund     Combined  
------------------------------------------------------------------------------------------------------------------------------------
ASSET BACKED SECURITIES - (Continued)                                                                                               
                                                                                                                                    
                                                Merrill Lynch Mortgage Investors, Inc.:                                             
  $          37,744            0       37,744      1991-B-A,                                                                        
                                                   9.200% due 04/15/2011                             $38,240       $0      $38,240  
             64,718            0       64,718      1991-I-A,                                                                        
                                                   7.650% due 01/15/2012                              65,547        0       65,547  
            179,878            0      179,878      1992-B-A4,                                                                       
                                                   7.850% due 04/15/2012                             181,677        0      181,677  
            350,697            0      350,697   Mid-State Trust, Series 4, Class A,                                                 
                                                   8.330% due 04/01/2030                             367,472        0      367,472  
            106,282            0      106,282   Sec Pac Manufacturing Housing, 95-1, Class A1,                                      
                                                   6.500% due 04/10/2020                             106,524        0      106,524  
                                                The Money Store, Inc.:                                                              
            162,405            0      162,405      1996-A-A2,                                                                       
                                                   6.330% due 06/15/2008                             162,186        0      162,186  
            105,143            0      105,143      1996-B-A1,                                                                       
                                                   6.720% due 02/15/2010                             105,389        0      105,389  
            283,966            0      283,966   UCFC Home Equity Loan Trust, 1995-B1,                                               
                                                   6.600% due 07/10/2009                             285,499        0      285,499  
            250,000            0      250,000   World Omni Automobile Lease Securitization, 1996-B,                                 
                                                   6.850% due 11/15/2002++                           249,453        0      249,453  
                                                                                                 ---------------------------------- 
                                                ----------------------------------------------------------------------------------- 
                                                Total Asset-Backed Securities                      2,723,419        0    2,723,419  
                                                ----------------------------------------------------------------------------------- 

COLLATERALIZED MORTGAGE OBLIGATIONS - 4.9%                                                                                          
                                                Countrywide Funding Corporation:                                                    
             28,589            0       28,589      1994-1-A3,                                                                       
                                                   6.250% due 03/25/2024                              27,311        0       27,311  
            500,000            0      500,000      1994-2-A8,                                                                       
                                                   6.500% due 02/25/2009                             500,000        0      500,000  
            185,234            0      185,234   Federal Home Loan Mortgage Corporation (FHLMC),                                     
                                                   P/O, REMIC, #1719-C,                                                             
                                                   Zero coupon due 04/15/1999                        171,863        0      171,863  
             77,276            0       77,276   Fund America Investors Corporation, 1991-1-H,                                       
                                                   7.950% due 02/20/2020                              78,048        0       78,048  
            120,349            0      120,349   General Electric Capital Mortgage Association, 1994-27-A1,                          
                                                   6.500% due 07/25/2024                             119,858        0      119,858  
            280,281            0      280,281   Norwest Asset Securities Corporation, 1996-5-A13,                                   
                                                   7.500% due 11/25/2026                             282,777        0      282,777  
                                                Prudential Home Mortgage Securities:                                                
             55,321            0       55,321      1992-47,                                                                         
                                                   7.500% due 01/25/2023                              55,200        0       55,200  
            233,734            0      233,734      1993-43-A1,                                                                      
                                                   5.400% due 10/25/2023                             230,813        0      230,813  
             61,742            0       61,742   Ryland Acceptance Corporation,                                                      
                                                   8.950% due 08/20/2019                              62,764        0       62,764  
                                                                                                 ---------------------------------- 
                                                ----------------------------------------------------------------------------------- 
                                                Total Collateralized Mortgage Obligations          1,528,634        0    1,528,634  
                                                ----------------------------------------------------------------------------------- 
TIME DEPOSITS - 3.0%                                                                                                                
   GRD            0  106,086,208  106,086,208   Bankers Trust Corporation,                                                          
                                                   9.020% due 08/14/1997                                   0  386,133      386,133  
   EGP            0      300,000      300,000   Citibank,                                                                           
                                                   9.000% due 07/07/1997                                   0  300,000      300,000  
   ZAR            0    1,159,888    1,159,888   J.P. Morgan & Company,                                                              
                                                   15.750% due 09/11/1997                                  0  255,651      255,651  
                                                                                                 ---------------------------------- 
                                                ----------------------------------------------------------------------------------- 
                                                Total Time Deposits                                        0  941,784      941,784  
                                                ----------------------------------------------------------------------------------- 

N14AE24 66th Page of 77 TOC 1st Previous Next ↓Bottom Just 66th
THE SIERRA VARIABLE TRUST                                                       
-------------------------                                                       
Short Term High Quality Bond Fund                                               
Short Term Global Government Fund                                               
Combined Portfolio of Investments (Continued)                                   
June 30, 1997 (Unaudited)                                                       

                                                        [Enlarge/Download Table]

              PRINCIPAL                                                                                                             
               AMOUNT                                                                                                 VALUE         
------------------------------------------------------------------------------------------------------------------------------------
  Short Term     Short Term                              SECURITY                                 Short Term   Short Term           
 High Quality      Global                              DESCRIPTIONS                              High Quality    Global             
     Bond        Government                                                                          Bond      Government           
     Fund           Fund      Combined                                                               Fund         Fund      Combined
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                    
INDEXED NOTES - 2.5%                                                                                                                
   $    0         250,000     250,000 Citibank,                                                                                     
                                         (Value is directly linked to the Morrocan Dirham),                                         
                                         8.000% due 12/01/1997                                        $0     $246,625     $246,625  
                                      J.P. Morgan & Company:                                                                        
        0         302,750     302,750    (Value is directly linked to the Indonesia Rupiah),                                        
                                         11.200% due 08/11/1997                                        0      302,210      302,210  
        0         240,000     240,000    (Value is directly linked to the Philippine Peso),                                         
                                         10.450% due 07/29/1997                                        0      239,696      239,696  
                                                                                                    ------------------------------- 

                                                                                                    ------------------------------- 
                                                          --------------------------------------------------------------------------
                                                          Total Indexed Notes                          0      788,531      788,531  
                                                          --------------------------------------------------------------------------

COMMERCIAL PAPER - 3.6%                                                                                                             
  505,000      613,000   1,118,000    General Electric Capital Corporation,                                                         
                                       6.100% due 07/01/1997                                     505,000      613,000    1,118,000  
                                                                                               -------------------------------------

U.S. GOVERNMENT AGENCY OBLIGATION - 0.6%                                                                                            
  175,000           0      175,000    Federal National Mortgage Association (FNMA),                                                 
                                         (Inverse Floater),                                                                         
                                         9.781% due 12/29/1997 +                                 178,063            0      178,063  
                                                                                               -------------------------------------


                                                                Expiration     Strike                                               
                                                                   Date         Price                                               
                                                              --------------------------                                            
PUT OPTIONS PURCHASED ON FOREIGN CURRENCY - 0.2%                                                                                    
                                                                                                                                    
AUD     0       880,000     880,000   Australian Dollar Put      07/16/1997      0.762                   0        8,643      8,643  
CAD     0     1,343,500   1,343,500   Canadian Dollar Put        08/01/1997      1.396                   0        1,293      1,293  
NZD     0     2,500,000   2,500,000   New Zealand Dollar Put     09/15/1997      0.686                   0       28,500     28,500  
DEM     0     2,000,000   2,000,000   German Deutsche Mark Put   11/26/1997      1.700                   0       34,427     34,427  
                                                                                          ------------------------------------------

                                     -----------------------------------------------------------------------------------------------
                                     Total Put Options Purchased on Foreign Currency                    0       72,863       72,863 
                                     -----------------------------------------------------------------------------------------------

                                     -----------------------------------------------------------------------------------------------
                                     TOTAL INVESTMENTS                                        $12,102,714  $19,182,493  $31,285,207 
                                     -----------------------------------------------------------------------------------------------

                                     -----------------------------------------------------------------------------------------------
                                     TOTAL COST                                               $12,014,856  $19,809,397  $31,197,349*
                                     -----------------------------------------------------------------------------------------------

CALL OPTIONS WRITTEN ON FOREIGN CURRENCY - (0.0)%                                                                                   
AUD     0     880,000      880,000    Australian Dollar Call             07/16/1997    0.777          $0        ($338)        ($338)
CAD     0   1,343,500    1,343,500    Canadian Dollar Call               08/01/1997    1.366           0       (2,352)       (2,352)
GBP     0     680,000      680,000    Great Britain Pound Sterling Call  08/07/1997    1.637           0      (22,002)      (22,002)
NZD     0   2,500,000    2,500,000    New Zealand Dollar Call            09/15/1997    0.692           0       (8,250)       (8,250)
                                                                                         -------------------------------------------

                                     -----------------------------------------------------------------------------------------------
                                     Total Value of Call Options Written on Foreign Currency            0     (32,942)     (32,942) 
                                     -----------------------------------------------------------------------------------------------

                                     -----------------------------------------------------------------------------------------------
                                     Premium received on Call Options Written on Foreign Currency       0      45,615       32,942* 
                                     -----------------------------------------------------------------------------------------------

      * Combined cost represents cost of Sierra Variable Trust Short Term High
        Quality Bond Fund and value of Sierra Variable Trust Short Term Global
       Government Fund as contemplated by the proposed Agreement and Plan of
Reorganization. See Note 1.                                   
     ** A portion or all of this security is pledged as collateral for futures
and options contracts.                                        
  + Floating rate security.  The interest rate shown reflects the rate
currently in effect.                                          
      ++ Security exempt from registration under Rule 144A of the Securities Act
  of 1933. This security may be resold in transactions exempt from
registration, normally to qualified institutional buyers.     
      # As reorganized, the Sierra Variable Trust Short Term High Quality Bond
Fund will be limited to their percentages of foreign holdings,
    accordingly certain positions will need to be disposed of prior to
consummation of the Plan of Reorganization.                   

                                                        [Enlarge/Download Table]

                       NUMBER OF                                                                 UNREALIZED                  
                       CONTRACTS                                                                DEPRECIATION                 
                       ---------                                                                ------------                 
FUTURES CONTRACTS - SHORT POSITION                                                                                           
                                                                                                                             
        13        0              13  U.S. Treasury Note, Five Year, September 1997       ($7,031)       $0         ($7,031)  
                                                                                    -----------------------------------------

N14AE24 67th Page of 77 TOC 1st Previous Next ↓Bottom Just 67th
THE SIERRA VARIABLE TRUST                                                       
-------------------------                                                       
Short Term Global Government Fund                                               
Schedule of Forward Foreign Currency Contracts #                                
June 30, 1997 (Unaudited)                                                       

                                                        [Enlarge/Download Table]

U.S. Forward Foreign Currency Contracts to Buy                                                                                     

                                                                Contracts to Receive                                               
            -----------------------------------------------------------------------------------------------------------------------
                                                                                                                   Net Unrealized  
                                                                                                                    Appreciation/  
              Expiration                          Local                           Value in         In Exchange for (Depreciation)  
                 Date                            Currency                          U.S. $            for U.S. $     of Contracts   
            -----------------------------------------------------------------------------------------------------------------------
                                                                                                                                   
              07/07/1997                IEP                            132,121         200,035             200,000             $35 
              08/12/1997                DKK                          1,331,040         200,982             208,627          (7,645)
              08/12/1997                DKK                          1,195,516         180,519             181,689          (1,170)
              08/25/1997                SEK                          1,538,160         199,295             200,000            (705)
              09/15/1997                CHF                          1,466,038       1,013,046           1,014,208          (1,162)
              12/01/1997                DEM                             44,202          25,639              25,808            (169)
              12/01/1997                DEM                             44,202          25,639              25,929            (290)
              12/01/1997                ESP                         58,124,000         395,386             400,000          (4,614)
                                                                                                                   ----------------
                                                                                                                          ($15,720)
                                                                                                                   ----------------

U.S. Forward Foreign Currency Contracts to Sell                                                                                    
                                                                Contracts to Deliver                                               
            -----------------------------------------------------------------------------------------------------------------------
                                                                                                                   Net Unrealized  
                                                                                                                    Appreciation/  
              Expiration                          Local                           Value in         In Exchange for (Depreciation)  
                 Date                            Currency                          U.S. $            for U.S. $     of Contracts   
            -----------------------------------------------------------------------------------------------------------------------
                                                                                                                                   
              07/07/1997                IEP                            466,616         706,469             702,817         ($3,652)
              08/07/1997                FRF                          3,376,386         576,073             614,000          37,927 
              08/12/1997                DKK                         10,689,600       1,614,090           1,691,392          77,302 
              08/25/1997                BEF                         17,148,400         478,324             497,777          19,453 
              08/25/1997                SEK                          4,000,000         518,269             543,072          24,803 
              09/15/1997                CHF                          1,466,038       1,013,046           1,005,720          (7,326)
              09/18/1997                NLG                            441,554         226,241             234,620           8,379 
              09/24/1997                CHF                          1,139,680         788,364             800,000          11,636 
              11/06/1997                DEM                          2,409,835       1,395,144           1,414,222          19,078 
              12/01/1997                DEM                             88,405          51,279              52,500           1,221 
              12/01/1997                ESP                          2,305,760          15,685              16,000             315 
              12/01/1997                FRF                            540,786          92,989              94,750           1,761 
              12/01/1997                GBP                             13,917          23,215              22,750            (465)
              12/01/1997                ITL                         24,642,025          14,441              14,500              59 
              12/01/1997                ITL                      2,000,000,000       1,172,095           1,173,847           1,752 
                                                                                                                   ----------------
                                                                                                                          $192,243 
                                                                                                                   ----------------

                            Net Unrealized Appreciation of Forward Foreign Currency Contracts                             $176,523 
                                                                                                                   ----------------

# As reorganized, the Sierra Variable Trust Short Term High Quality Bond Fund   
 will be limited to their percentages of foreign holdings, accordingly certain
positions will need to be disposed of prior to consummation of the Plan of  
Reorganization.                                                             

-----------------------------------------------------------------   
GLOSSARY OF TERMS               
ARP             - Argentinian Peso                                  
AUD             - Australian Dollar                                 
BALLOON         - Five- and seven-year mortgages with larger        
             dollar amounts of payments falling due in the
later years of the obligation   
BEF             - Belgian Franc                                     
CAD             - Canadian Dollar                                   
CHF             - Swiss Franc                                       
DEM             - German Deutsche Mark                              
DKK             - Danish Kroner                                     
EGP             - Egyptian Pound                                    
ESP             - Spanish Peseta                                    
FRF             - French Franc                                      
GBP             - Great Britain Pound Sterling                      
GOLD            - Payments are on accelerated 45-day payment        
     cycle instead of 75-day payment cycle
GRD             - Greek Drakma                                      
IEP             - Irish Pound                                       
ITL             - Italian Lira                                      
LP              - Limited Partnership                               
MTN             - Medium Term Note                                  
MXN             - Mexican Peso                                      
NLG             - Netherlands Guilder                               
NZD             - New Zealand Dollar                                
P/O             - Principal Only                                    
REMIC           - Real Estate Mortgage Investment Conduit           
SEK             - Swedish Krona                                     
ZAR             - South African Rand                                
-----------------------------------------------------------------   

N14AE24 68th Page of 77 TOC 1st Previous Next ↓Bottom Just 68th
 The Sierra Variable Trust
 Short Term High Quality Bond Fund
 Short Term Global Government Fund
 Pro Forma Combining Statement of Assets and Liabilities (Unaudited)
 June 30, 1997

                                                        [Enlarge/Download Table]

                                                           Short Term       Short Term                                     
                                                              High            Global                                       
                                                            Quality         Government   Adjustments to      Pro Forma     
                                                           Bond Fund           Fund         Proforma     Combined (Note 1) 
                                                          -----------------------------------------------------------------
                                                                                                                           
ASSETS:                                                                                                                    
Investments, at value (a) ..............................   $12,102,714   $19,182,493   $       --         $31,285,207      
Cash and/or foreign currency (b) .......................         8,710        55,348           --              64,058      
Dividends and/or interest receivable ...................        99,449       411,581           --             511,030      
Receivable for investment securities sold ..............         3,406          --             --               3,406      
Net unrealized appreciation of forward                                                                                     
   foreign currency contracts ..........................          --         176,523           --             176,523      
Unamortized organization costs .........................          --           5,273         (5,273)(d)             0      
Receivable from investment advisor .....................          --            --            5,273 (d)         5,273      
Variation Margin .......................................         3,250          --             --               3,250      
Other assets ...........................................         1,026         1,727           --               2,753      
                                                           -----------   -----------   ------------       -----------      
     Total Assets ......................................    12,218,555    19,832,945              0        32,051,500      
                                                           -----------   -----------   ------------       -----------      

LIABILITIES:                                                                                                               
Payable for Fund shares redeemed .......................         2,008         2,191           --               4,199      
Investment advisory fee payable ........................         3,761        12,291           --              16,052      
Administration fee payable .............................         1,805         2,950           --               4,755      
Transfer agent fees payable ............................           417           417           --                 834      
Custodian fees payable .................................           651           858           --               1,509      
Accrued Trustees' fees and expenses ....................           304           495           --                 799      
Options written, at value (c) ..........................          --          32,942           --              32,942      
Accrued expenses and other payables ....................        19,366        22,264           --              41,630      
                                                           -----------   -----------   ------------       -----------      
     Total Liabilities .................................        28,312        74,408              0           102,720      
                                                           -----------   -----------   ------------       -----------      

Net Assets Applicable to Shares Outstanding ............   $12,190,243   $19,758,537   $          0       $31,948,780      
                                                           ===========   ===========   ============       ===========      

Net asset value, offering price and redemption price per                                                                   
   share of beneficial interest outstanding ............   $      2.42   $      2.42   $                  $      2.42      
                                                           ===========   ============                     ===========      

Number of Fund shares outstanding ......................     5,033,452     8,150,482     13,183,934                        
                                                           ===========   ============                     ===========      
--------------------------------------------------------                                                                   
(a) Investments, at cost ...............................   $12,014,856   $19,809,397   $   (626,904)      $31,197,349*     
(b) Cash and/or foreign currency, at cost ..............   $     8,710   $    54,881   $        467       $    64,058*     
(c) Premiums ...........................................   $         0   $    45,615   $    (12,673)      $    32,942*     

(d) Unamortized organization costs of the acquired fund will be borne by the    
investment advisor.                                                     
*   Combined cost represents cost of Sierra Variable Trust Short Term High      
Quality Bond Fund and value of Sierra Variable Trust Short Term Global  
Government Fund as contemplated by the proposed Agreement and Plan of   
Reorganization. See Note 1.                                             

                                     See Notes to Proforma Financial Statements.

N14AE24 69th Page of 77 TOC 1st Previous Next ↓Bottom Just 69th
The Sierra Variable Trust 
Short Term High Quality Bond Fund 
Short Term Global Government Fund 
Pro Forma Statement of Operations (Unaudited) 
For the Six Months Ended June 30, 1997  

                                                        [Enlarge/Download Table]

                                                 Short Term     Short Term                                         
                                                    High          Global                                           
                                                  Quality       Government      Adjustments to       Pro Forma     
                                                 Bond Fund         Fund            Proforma       Combined (Note 1)
                                                -----------  ----------------  ----------------   -----------------
                                                                                                                   
INVESTMENT INCOME:                                                                                                 
Interest .....................................  $  431,307   $       755,585   $          -       $      1,186,892 
Foreign withholding tax on interest income ...        -              (10,224)             -                (10,224)
                                                -----------  ----------------  ----------------   -----------------
      Total investment income ................     431,307           745,361              -              1,176,668 
                                                -----------  ----------------  ----------------   -----------------
EXPENSES:                                                                                                          
Investment advisory fee ......................      30,451            77,203           (25,734)(a)          81,920 
Administration fee ...........................      10,962            18,529           (29,491)(b)               0 
Trustees' fees and expenses ..................         679             1,089              -                  1,768 
Legal and audit fees .........................       8,524            18,858           (17,400)(c)           9,982 
Transfer agent fees ..........................       2,083             2,083            (2,083)(c)           2,083 
Custodian fees ...............................       4,475             6,885              -                 11,360 
Amortization of organization costs ...........        -                3,069            (3,069)(d)               0 
Other ........................................       9,668             1,986              -                 11,654 
Fees waived by investment advisor ............      (5,750)             -                5,750 (e)               0 
                                                -----------  ----------------  ----------------   -----------------
      Subtotal ...............................      61,092           129,702           (72,027)            118,767 
Credits allowed by the custodian .............        (248)             (237)             -                   (485)
                                                -----------  ----------------  ----------------   -----------------
      Net expenses ...........................      60,844           129,465           (72,027)            118,282 
                                                -----------  ----------------  ----------------   -----------------
NET INVESTMENT INCOME ........................     370,463           615,896            72,027           1,058,386 
                                                -----------  ----------------  ----------------   -----------------
NET REALIZED AND UNREALIZED                                                                                        
   GAIN/(LOSS) ON INVESTMENTS                                                                                      
Realized gain/(loss) from:                                                                                         
   Security transactions .....................     (42,692)         (212,718)             -               (255,410)
   Forward foreign currency contracts                                                                              
       and foreign currency transactions .....      (3,142)        1,161,003              -              1,157,861 
   Futures contracts .........................     (16,575)             -                 -                (16,575)
   Written options ...........................       6,383           120,253              -                126,636 
Net unrealized appreciation/(depreciation) of:                                                                     
   Securities ................................      (6,201)       (1,072,389)             -             (1,078,590)
   Forward foreign currency contracts ........        -             (154,436)             -               (154,436)
   Foreign currency, written options,                                                                              
      futures contracts and other assets                                                                           
      and liabilities ........................      (7,479)           12,142              -                  4,663 
                                                -----------  ----------------  ----------------   -----------------
Net Realized and Unrealized Loss on                                                                                
   Investments ...............................     (69,706)         (146,145)             -               (215,851)
                                                -----------  ----------------  ----------------   -----------------
NET INCREASE IN NET ASSETS                                                                                         
   RESULTING FROM OPERATIONS .................  $  300,757   $       469,751   $        72,027    $        842,535 
                                                ===========  ================  ================   =================

(a) Adjustment reflects contractual fee of The Sierra Variable Trust Short Term 
High Quality Bond Fund.                                                 
(b) Adjustment reflects the effect of the expected transfer of administrative   
functions to an affiliate of Composite Research & Management Co.        
(c) Adjustment reflects expected savings when the two funds become one.         
(d) Organization expense of the acquired fund is not an expense of the combined 
fund.                                                                   
(e) Adjustment reflects the effect of an anticipated management fee             
 waiver/expense reimbursement for the The Sierra Variable Trust Short Term
High Quality Bond Fund at June 30, 1997.                                

                                     See Notes to Proforma Financial Statements.

N14AE24 70th Page of 77 TOC 1st Previous Next ↓Bottom Just 70th
 THE SIERRA VARIABLE TRUST
 Short Term High Quality Bond Fund
 Short Term Global Government Fund
 Notes to Pro Forma Financial Statements (Unaudited)

1.  Basis of Combination                                                        
Sierra Variable Trust Funds (the "Trust") is registered under the Investment    
Company Act of 1940, as amended (the "1940 Act"), as a no load, open-end        
management investment company. As of June 30, 1997, the Trust offers            
fourteen managed investment funds. The unaudited Pro Forma Combining Portfolio  
of Investments and Statement of Assets and Liabilities and the Statement of     
Operations reflect the accounts of the Short Term High Quality Bond Fund and the
Short Term Global Government Fund for the six months ended June 30, 1997. These 
statements have been derived from books and records utilized in calculating     
daily net asset value at June 30, 1997.                                         

The pro forma statements give effect to the proposed transfer of assets and     
stated liabilities of the Short Term Global Government Fund in exchange for     
shares of Short Term High Quality Bond Fund. The pro forma statements do not    
reflect the expenses of either fund in carrying out its obligations under the   
proposed Agreement and Plan of Reorganization.                                  

As described in the Prospectus/Proxy Statement under "Overview of               
Merger--Federal Income Tax Consequences," the proposed transaction is expected  
to result in the recognition of gain or loss for federal income tax purposes.   
Please see the Prospectus/Proxy Statement for more information.                 

The Pro Forma Combining Portfolio of Investments and Statement of Assets and    
Liabilities and the Statement of Operations should be read in conjunction with  
the historical financial statements of the funds incorporated by reference in   
the Statement of Additional Information.                                        

For the six months ended June 30, 1997, the Short Term High Quality Bond Fund's 
investment advisory fee was computed based on the annual rates as follows:      

                                                        [Enlarge/Download Table]

                                                          Fees on Assets               
                                                             Exceeding                 
                                          Fees on Assets   $200 million     Fees on    
                                            Equal To or    and Equal To      Assets    
                                             Less Than     or Less Than     Exceeding  
      Name of Fund                         $200 million    $500 million    $500 million
      ------------                        --------------  ---------------  ------------
                                                                                       
Short Term High Quality Bond Fund                                                      
      Sierra Advisors....................     .35%            .35%             .30%    
      Sub-advisor........................     .15%            .10%             .10%    
                                              ---             ---              ---     
         Total fees paid to                                                            
             Sierra Advisors*............     .50%            .45%             .40%    
                                              ===             ===              ===     

*  Sierra Advisors retains only the net amount of the fees after sub-advisory   
fees have been paid.                                                            

-1- 

N14AE24 71st Page of 77 TOC 1st Previous Next ↓Bottom Just 71st
 THE SIERRA VARIABLE TRUST
 Short Term High Quality Bond Fund
 Short Term Global Government Fund
 Notes to Pro Forma Financial Statements (Unaudited) (Continued)

2.  Portfolio Valuation                                                         

The securities are valued at market, as determined by the fund, as of June 30,  
1997.                                                                           

3.  Capital Shares                                                              

The pro forma net asset value per share assumes the issuance of additional      
shares of Short Term High Quality Bond Fund which would have been issued at     
June 30, 1997 in connection with the proposed reorganization. The pro forma     
number of shares outstanding of 13,183,934 consists of 8,150,482 shares assumed 
issued in the reorganization plus 5,033,452 shares of Short Term High Quality   
Bond Fund at June 30, 1997.                                                     

-2- 

N14AE24 72nd Page of 77 TOC 1st Previous Next ↓Bottom Just 72nd
THE SIERRA VARIABLE TRUST 

FORM N-14 

PART C.   Other Information                                                     
-----------------                                           

Item 15.  Indemnification                                                       
---------------                                             

   Under Section 6.4 of Registrant's Master Trust Agreement, as amended, any
past or present Trustee or officer of Registrant (including persons who serve at
Registrant's request as directors, officers or trustees of another organization 
in which Registrant has any interest as a shareholder, creditor or otherwise    
(hereinafter referred to as a "Covered Person")), is indemnified to the fullest 
extent permitted by law against liability and all expenses reasonably incurred  
by him in connection with any action, suit or proceeding to which he may be a   
party or otherwise involved by reason of his being or having been a Covered     
Person.  This provision does not authorize indemnification when it is           
determined, in the manner specified in the Master Trust Agreement, that a       
Covered Person has not acted in good faith in the reasonable belief that his    
actions were in or not opposed to the best interests of Registrant.  Moreover,  
this provision does not authorize indemnification when it is determined, in the 
manner specified in the Master Trust Agreement, that the Covered Person would   
otherwise be liable to Registrant or its shareholders by reason of willful      
misfeasance, bad faith, gross negligence or reckless disregard of his duties.   
Expenses may be paid by Registrant in advance of the final disposition of any   
action, suit or proceeding upon receipt of an undertaking by a Covered Person to
repay those expenses to Registrant in the event that it is ultimately determined
that indemnification of the expenses is not authorized under the Master Trust   
Agreement and the Covered Person either provides security for such undertaking  
or insures Registrant against losses from such advances or the disinterested    
Trustees or independent legal counsel determines, in the manner specified in the
Master Trust Agreement, that there is reason to believe the Covered Person will 
be found to be entitled to indemnification.                                     

   Insofar as indemnification for liability arising under the Securities Act
of 1933, as amended (the "1933 Act"), may be permitted to Trustees, officers and
controlling persons of Registrant pursuant to the foregoing provisions, or      
otherwise, Registrant has been advised that, in the opinion of the Securities   
and Exchange Commission, such indemnification is against public policy as       
expressed in the 1933 Act and is, therefore, unenforceable.  In the event that a
claim for indemnification against such liabilities (other than the payment by   
Registrant of expenses incurred or paid by a Trustee, officer or controlling    
person of Registrant in the successful defense of any action, suit or           
proceeding) is asserted by such Trustee, officer or controlling person in       
connection with the securities being registered, Registrant will, unless in the 
opinion of its counsel the matter has been settled by controlling precedent,    
submit to a court of appropriate jurisdiction the question whether such         
indemnification by it is against public policy as expressed in the 1933 Act and 
will by governed by the final adjudication of such issue.                       

N14AE24 73rd Page of 77 TOC 1st Previous Next ↓Bottom Just 73rd
Item 16. Exhibits                                                               
--------                                                      

1(a)              Agreement and Declaration of Trust, dated January 29, 1993 is 
                  incorporated by reference to Post-Effective Amendment No. 7 to
              the Registrant's Registration Statement on Form N-1A (File
              Nos. 033-57732 and 811-07462), filed on February 28, 1997.

1(b)-1            Amendment No. 1 to the Trust's Agreement and Declaration of   
               Trust, dated April 27, 1993 is incorporated by reference to
      Post-Effective Amendment No. 7 to the Registrant's
                Registration Statement on Form N-1A (File Nos. 033-57732 and
811-07462), filed on February 28, 1997.     

1(b)-2            Amendment No. 2 to the Trust's Agreement and Declaration of   
                Trust, dated September 22, 1993 is incorporated by reference
         to Post-Effective Amendment No. 7 to the Registrant's
                Registration Statement on Form N-1A (File Nos. 033-57732 and
811-07462), filed on February 28, 1997.     

1(c)-1            Establishment and Designation of Series of Shares of          
                  Beneficial Interest, dated April 27, 1993, with respect to the
                Global Money, Short Term Global Government, U.S. Government,
              Corporate Income, Growth and International Growth Funds is
                  incorporated by reference to Post-Effective Amendment No. 7 to
              the Registrant's Registration Statement on Form N-1A (File
              Nos. 033-57732 and 811-07462), filed on February 28, 1997.

1(c)-2            Establishment and Designation of Series of Shares of          
                Beneficial Interest, dated February 3, 1995, with respect to
           the Short Term High Quality Bond, Growth and Income and
               Emerging Growth Funds is incorporated by reference to Post-
              Effective Amendment No. 7 to the Registrant's Registration
               Statement on Form N-1A (File Nos. 033-57732 and 811-07462),
filed on February 28, 1997.                 

1(c)-3            Establishment and Designation of Series of Shares of          
                Beneficial Interest, dated January 23, 1997, with respect to
          the Income, Value, Balanced, Growth and Capital Growth
             Portfolios is incorporated by reference to Post-Effective
                 Amendment No. 7 to the Registrant's Registration Statement on
           Form N-1A (File Nos. 033-57732 and 811-07462), filed on
February 28, 1997.                          

2                 By-Laws of the Trust are incorporated by reference to Post-   
              Effective Amendment No. 7 to the Registrant's Registration
               Statement on Form N-1A (File Nos. 033-57732 and 811-07462),
filed on February 28, 1997.                 

3                 Not Applicable.                                               

4                 Form of Agreement and Plan of Reorganization is filed herewith
                as Appendix A to the Prospectus/Proxy Statement set forth as
Part A hereof.                              

5                 Article V, Shareholders' Voting Powers and Meetings, of the   
          Master Trust Agreement, as amended, is incorporated by
                reference to Exhibits 1(a) through 1(c)-3 above. Article 11,
                Shareholders' Voting Powers and Meetings, is incorporated by
reference to Exhibit 2 above.               

-2- 

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6(a)              Management Agreement, dated January 1, 1994, between the Trust
       and Sierra Investment Advisors Corporation ("Sierra
                Advisors"), with respect to the Short Term High Quality Bond
                  Fund, is incorporated by reference to Post-Effective Amendment
                 No. 7 to the Registrant's Registration Statement on Form N-1A
              (File Nos. 033-57732 and 811-07462), filed on February 28,
1997.                                       

6(b)              Sub-Adviser Agreement, dated as of January 1, 1994, between   
           Sierra Advisors and Scudder, Stevens & Clark, Inc. with
       respect to the Short Term High Quality Bond Fund is
                  incorporated by reference to Post-Effective Amendment No. 7 to
              the Registrant's Registration Statement on Form N-1A (File
              Nos. 033-57732 and 811-07462), filed on February 28, 1997.

6(c)              Form of Management Agreement between the Trust, with respect  
           to the Short Term High Quality Bond Fund, and Composite
Research & Management Co. is filed herewith.

7(a)              Distribution Agreement, dated April 19, 1993, between the     
             Trust and Sierra Investment Services Corporation ("Sierra
             Services") is incorporated by reference to Post-Effective
                 Amendment No. 7 to the Registrant's Registration Statement on
           Form N-1A (File Nos. 033-57732 and 811-07462), filed on
February 28, 1997.                          

7(b)-1            Participation Agreement, regarding Sierra Advantage among the 
                  Trust, Sierra Advisors, Sierra Services, American General Life
               Insurance Company ("American General") and American General
                  Securities Incorporated ("American General Securities"), dated
              as of May 3, 1993, is incorporated by reference to Exhibit
                 6(b) of Post-Effective No. 7 to the Registrant's Registration
               Statement on Form N-1A (File Nos. 033-57732 and 811-07462),
filed on February 28, 1997.                 

7(b)-2            Form of First Amendment to Participation Agreement dated as of
               May 3, 1993, is incorporated by reference to Post-Effective
                 Amendment No. 9 to the Registrant's Registration Statement on
                 Form N-1A (File Nos. 033-57732 and 811-07462), filed on April
30, 1997.                                   

8                 Not Applicable.                                               

9(a)-1            Custody Agreement, dated as of January 1, 1996, between the   
                 Trust and Boston Safe Deposit & Trust Company is incorporated
                  by reference to Exhibit 8(a) of Post-Effective Amendment No. 7
                 to the Registrant's Registration Statement on Form N-1A (File
              Nos. 033-57732 and 811-07462), filed on February 28, 1997.

9(a)-2            Schedules A and C, as amended and supplemented May 1, 1997, to
             Custody Agreement (Exhibit 9(a)-1 above) dated January 1,
         1996, are incorporated by reference to Post-Effective
                 Amendment No. 9 to the Registrant's Registration Statement on
                 Form N-1A (File Nos. 033-57732 and 811-07462), filed on April
30, 1997.                                   

10                Not Applicable                                                

11                Opinion and Consent of Counsel is filed herewith.             

12                Not Applicable                                                

-3- 

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13                Not Applicable.                                               

14                Consent of Independent Accountants is filed herewith.         

15                Not Applicable.                                               

16                Not Applicable                                                

17                Copy of Registrant's Rule 24f-2 declaration is incorporated by
                reference to the Registrant's initial Registration Statement
              on Form N-1A (File Nos. 033-57732 and 811-07462), filed on
February 2, 1993.                           

Item 17. Undertakings                                                           
------------                                                  

                  (1)  The registrant agrees that prior to any public reoffering
                of the securities registered through the use of a prospectus
                which is a part of this registration statement by any person
                  or party who is deemed to be an underwriter within the meaning
                of Rule 145(c) of the Securities Act of 1933, the reoffering
             prospectus will contain the information called for by the
               applicable registration form for reofferings by persons who
              may be deemed underwriters, in addition to the information
         called for by the other items of the applicable form.

                  (2)  The registrant agrees that every prospectus that is filed
           under paragraph (1) above will be filed as a part of an
                amendment to the registration statement and will not be used
                  until the amendment is effective, and that, in determining any
          liability under the Securities Act of 1933, each post-
                effective amendment shall be deemed to be a new registration
                  statement for the securities offered therein, and the offering
            of the securities at that time shall be deemed to be the
initial bona fide offering of them.         

-4- 

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SIGNATURES
----------

    As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the Registrant, in the City of Northridge and State of 
California on the 30th day of September, 1997.                                  

                                         THE SIERRA VARIABLE TRUST

                                         By: /s/ James H. Overholt
                                                  ----------------------------
                                                  James H. Overholt, President

    As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacity on the dates indicated.    

Signature                           Title(s)                 Date               
---------                           --------                 ----               

/s/ James H. Overholt              President                September 30, 1997
----------------------------------                                              
James H. Overholt (Principal                                                    
Executive Officer)                                                            

/s/ Keith B. Pipes                 Executive Vice           September 30, 1997
----------------------------------  President, Treasurer                        
Keith B. Pipes                      and Secretary                               
(Principal Financial and                                                        
Accounting Officer)                                                           

/s/ David E. Anderson              Trustee                  September 30, 1997
----------------------------------                                              
David E. Anderson                                                               

       Chairman of the
----------------------------------  Board and Trustee                           
Arthur H. Bernstein, Esq.                                                     

/s/ Edmond R. Davis                Trustee                  September 30, 1997
----------------------------------                                              
Edmond R. Davis, Esq.                                                           

/s/ John W. English                Trustee                  September 30, 1997
----------------------------------                                              
John W. English                                                                 

/s/ Alfred E. Osborne, Jr.          Trustee                  September 30, 1997 
----------------------------------                                              
Alfred E. Osborne, Jr.                                                          

-5-   

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Exhibit Index 

Exhibit                                                                         
No.              Description                                                    
-------          -----------                                                    

6(c)             Form of Management Agreement between the Trust, with respect to
                 the Short Term High Quality Bond Fund, and Composite Research &
Management Co.                                

11               Opinion and Consent of Counsel                                 

14               Consent of Independent Accountants                             

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘N14AE24’ Filing	Date	First	Last	Other Filings

	1/1/98	10
	12/31/97	27		485APOS, N-30D, NSAR-B
	11/10/97	1
Filed on:	10/10/97	1
	9/30/97	76
	9/15/97	51		497
	9/5/97	51		N-30D
	9/1/97	51
	7/1/97	10	38
	6/30/97	9	71	N-30D, NSAR-A
	5/1/97	9	74	485BPOS
	4/30/97	51	74	485BPOS
	2/28/97	51	74	485APOS, N-30D, NSAR-B
	2/24/97	1		24F-2NT
	1/23/97	73
	1/1/97	39
	12/31/96	1	61	24F-2NT, N-30D, NSAR-B
	7/1/96	22
	1/1/96	74
	9/1/95	48
	2/3/95	73
	1/12/94	45	48
	1/1/94	74
	9/22/93	73
	5/3/93	74
	4/27/93	73
	4/19/93	74
	2/2/93	75
	1/29/93	73
				List all Filings

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Filing Submission 0000950109-97-006303 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

WM Variable Trust – ‘N14AE24’ on 10/10/97

As of: Friday, 10/10/97 · Accession #: 950109-97-6303 · File #: 333-37637

Registration Statement of an Open-End Investment Company (Business Combination) — Form N-14Filing Table of Contents

N14AE24 — Registration Statement of an Open-End Investment Company (Business Combination)Document Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Registration Statement of an Open-End Investment Company (Business Combination) — Form N-14
Filing Table of Contents

N14AE24 — Registration Statement of an Open-End Investment Company (Business Combination)
Document Table of Contents