SIERRA VARIABLE TRUST, 485APOS, 1997-12-15

SIERRA VARIABLE TRUST
485APOS, 1997-12-15

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 1997

SECURITIES ACT FILE NO. 33-57732

INVESTMENT COMPANY ACT FILE NO. 811-7462

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]

POST-EFFECTIVE AMENDMENT NO. 11 [X]

AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]

AMENDMENT NO. 12 [X]

THE SIERRA VARIABLE TRUST

--------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

601 WEST MAIN STREET, SUITE 801
SPOKANE, WASHINGTON 99201-0613
----------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 725-0200

F. BRIAN CERINI
THE SIERRA VARIABLE TRUST
601 WEST MAIN STREET, SUITE 801
SPOKANE, WASHINGTON 99201-0613
---------------------------------------
(NAME AND ADDRESS OF AGENT FOR SERVICE)

COPY TO:

JOSEPH B. KITTREDGE, JR.
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110

It is proposed that this filing will become effective (check appropriate box):

[ ] immediately upon filing pursuant to paragraph (b), or

[ ] on [date] pursuant to paragraph (b), or

[ ] 60 days after filing pursuant to paragraph (a)(1), or

[X] 75 days after filing pursuant to paragraph (a)(2), or

[ ] on [date] pursuant to paragraph (a) of Rule 485.

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This Post-Effective Amendment relates only to the Money Market Fund, Bond &
Stock Fund and the Northwest Fund series of The Sierra Variable Trust (the
"Trust"). Information contained in the Registration Statement relating to other
series of the Trust is neither amended nor superseded hereby.

THE SIERRA VARIABLE TRUST
<PAGE>

FORM N-1A

CROSS REFERENCE SHEET

PART A

<S> <C>
Item No. Prospectus Heading
- -------- ------------------

1. Cover Page....................................... Cover Page

2. Synopsis......................................... Highlights

3. Condensed Financial
Information...................................... Financial Highlights

4. General Description of
Registrant....................................... The Funds' Investments and Risk
Considerations; Common Investment
Practices; Performance Information

5. Management of the Trust.......................... Management of the Trust; Distributor; Administration

5A. Management's Discussion of
Fund Performance............................... Not Applicable

6. Capital Stock and Other
Securities....................................... Dividends, Distributions and Taxes; General
Information and History --The Trust

7. Purchase of Securities
Being Offered.................................... General Information and History -- Purchase
and Redemption, and -- Net Asset Value; Management of the
Trust -- Distributor

8. Redemption or Repurchase......................... General Information and History Purchase and
Redemption

9. Pending Legal Proceedings........................ Not Applicable

PART B

Heading in Statement of
Item No. Additional Information
- -------- ----------------------

10. Cover Page...................................... Cover Page

11. Table of Contents............................... Contents

12. General Information and
History........................................ General Information and History; Management
of the Trust; see Prospectus -- "General Information
and History"

13. Investment Objectives and
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
<S> <C>
Policies...................................... Investment Objectives and Policies of the
Funds

14. Management of the Fund......................... Management of the Trust

15. Control Persons and Principal
Holders of Securities......................... Management of the Trust; see Prospectus
-- "General Information and History"

16. Investment Advisory and
Other Services................................ Management of the Trust; see Prospectus
-- "Management of the Trust--Administration"

17. Brokerage Allocation and
Other Practices............................... Investment Objectives and Policies of the Funds

18. Capital Stock and Other
Securities.................................... Management of the Trust; see Prospectus --
"Dividends, Distributions and Taxes" and "General
Information and History"

19. Purchase, Redemption and
Pricing of Securities
Being Offered................................. Purchase and Pricing of Shares; Net Asset Value

20. Tax Status..................................... Taxes; see Prospectus -- "Dividends, Distributions
and Taxes"

21. Underwriters................................... Purchase and Pricing of Shares; see Prospectus --"Management
of the Trust -- Distributor"

22. Calculation of Performance
Data.......................................... Performance; see Prospectus -- "Performance"

23. Financial Statements........................... Financial Statements

</TABLE>

PART C

Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE>

THE SIERRA VARIABLE TRUST
601 WEST MAIN AVENUE, SUITE 801
SPOKANE, WASHINGTON 99201-0613

The Sierra Variable Trust (the "Trust") is a no-load, open-end management
investment company, commonly known as a mutual fund. The Trust serves as an
investment vehicle for variable annuity contracts and variable life insurance
policies offered by insurance companies. Shares of the Trust are presently
offered only to American General Life Insurance Company ("AGL") and its separate
accounts for its variable annuity contracts ("Contracts"). Currently, ten
different investment funds of the Trust are offered to AGL for its Sierra
Advantage Annuity, and five additional investment funds of the Trust, are
offered to AGL for its Sierra Asset Manager Annuity. This prospectus describes
three such investment funds, the Money Market Fund, Bond & Stock Fund and the
Northwest Fund (the "Funds"). Information relating to the other investment funds
of the Trust is contained in separate prospectuses.

Please read this Prospectus before allocating premiums to the Funds and keep it
on file for future reference. It contains useful information that can help you
decide if a Fund's investment goals match your own.

A Statement of Additional Information ("SAI") about the Funds, dated March 1,
1998, has been filed with the Securities and Exchange Commission ("SEC") and is
incorporated herein by reference. The SAI is available free upon request by
calling AGL at 800-247-6584 or by writing to American General Life Insurance
Company, Attention: Annuity Administration, P.O. Box 1401, Houston, Texas 77251-
1401.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

PROSPECTUS DATED MARCH 1, 1998

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<PAGE>

CONTENTS

<TABLE>
<S> <C>
Highlights............................................ 3
Financial Highlights.................................. 3
The Funds' Investments and Risk Considerations........ 4
Common Investment Practices........................... 4
Management of the Trust............................... 6
Board of Trustees.......................... 6
Investment Management...................... 6
Distributor................................ 7
Administration............................. 7
General Information and History....................... 8
The Trust.................................. 8
Purchase and Redemption.................... 8
Purchase through the SAM Program........... 9
Net Asset Value............................ 9
Dividends, Distributions and Taxes.................... 9
Performance........................................... 10

</TABLE>

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HIGHLIGHTS

INTRODUCTION

Owners of the Sierra Advantage Annuity may allocate their account value among
ten different investment funds, including the Funds. Each of the Funds has a
different investment objective and different investment policies. Sierra
Advantage Annuity owners may also elect to participate in the Sierra Asset
Management Program ("SAM Program"), which periodically reallocates account
values in light of financial and investment objectives and changing economic and
market conditions, through Composite Research & Management Co.
("Composite").

The following Funds provide a diversified selection for different investment
objectives and strategies:

The Money Market Fund - seeks to provide maximum current income, while
preserving capital and maintaining liquidity. The Fund invests in high-quality
money market instruments.

The Bond & Stock Fund - seeks to provide continuity of income, conservation of
principal, and long-term growth of income and principal. The Fund invests
primarily in bonds, preferred stocks, common stocks and convertible bonds.

The Northwest Fund - seeks long-term growth of capital by investing in common
stocks of companies doing business or located in Alaska, Idaho, Montana, Oregon
and Washington.

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FINANCIAL HIGHLIGHTS

The following information has been audited by _____________ independent
accountants. Their unqualified report is included in the Trust's Annual Report
to Shareholders (the "Annual Report"). The financial statements, notes to
financial statements and report of independent accountants sections of the
Annual Report are included in the SAI. Further information about the performance
of the Funds is contained in the Annual Report. The SAI and Annual Report can be
obtained at no charge by calling AGL at 800-247-6584 or writing to them at the
address shown on the first page of this Prospectus.

MONEY MARKET FUND

FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
12/31/96 12/31/95 12/31/94 12/31/93*
---------- --------- --------- ---------
Net asset value, beginning of year............... $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................ 0.049 0.053 0.037 0.016
---------- --------- --------- ---------
Total from investment operations................. 0.049 0.053 0.037 0.016
LESS DISTRIBUTIONS:
Dividends from net investment
income......................................... (0.049) (0.053) (0.037) (0.016)
Distributions from net realized capital

gains.......................................... (0.000) # -- -- --
---------- --------- --------- ---------
Total distributions.............................. (0.049) (0.053) (0.037) (0.016)
---------- --------- --------- ---------
Net asset value, end of year..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========= ========= =========
TOTAL RETURN+.................................... 4.97% 5.46% 3.69% 1.59%
========== ========= ========= =========
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's)............... $ 23,266 $ 20,373 $ 6,159 $ 1,488
Ratio of operating expenses to average
net assets..................................... 0.58% 0.50% 0.49% 0.39%**
Ratio of net investment income to average
net assets..................................... 4.86% 5.30% 3.84% 2.54%**
Ratio of operating expenses to average
net assets without fees reduced by
credits allowed by the custodian............... 0.58%(a) 0.51%(a) N/A N/A
Ratio of operating expenses to average
net assets without fee waivers,
expenses absorbed and/or fees reduced
by credits allowed by the custodian............ 0.88%(a) 1.01%(a) 1.25% 6.42%**
Net investment income/(loss) per share
without fee waivers and/or expenses
absorbed and/or fees reduced by credits
allowed by the custodian....................... $ 0.046 $ 0.048 $ 0.030 $ (0.022)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>

* The Fund commenced operations on May 10, 1993.
** Annualized.
+ Total return represents aggregate total return for the periods
indicated. The total return would have been lower if certain fees had not
been waived by the investment advisor and administrator and if certain
expenses had not been absorbed by the investment advisor or if fees had not
been reduced by credits allowed by the custodian.

(a) The ratio includes custodian fees before reduction by credits allowed
by the custodian as required by amended disclosure requirements effective
September 1, 1995.
# Amount represents less than $0.001 per share.

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THE FUNDS' INVESTMENTS AND RISK CONSIDERATIONS

The following section describes the investment objective and policies of each
Fund and some of the risk considerations of investing in the Funds. The "Common
Investment Practices" section that follows provides more detailed information
about the common investment practices of the Funds.

The investment objective of each Fund and the policies and restrictions
specifically identified as fundamental may not be changed without the approval
of a majority of the outstanding shares of that Fund. Investment policies and
restrictions not identified as fundamental may be changed at any time without
shareholder consent by the Trust's Board of Trustees. A complete list of
fundamental investment restrictions is contained in the SAI. None of the Funds
is intended to be a complete investment program, and there is no assurance that
any of the Funds will achieve its investment objective.

MONEY MARKET FUND. In general, this Fund invests only in U.S. dollar-
denominated short-term, money market securities that present minimal credit
risks and meet the following rating criteria. The Fund will not purchase a
security (other than a U.S. Government security) unless the security or the
issuer with respect to a comparable security (i) is rated by at least two
nationally recognized statistical rating organizations ("NRSROs"), such as
Standard & Poor's ("S&P") or Moody's Investors Service, Inc. ("Moody's"), in one
of the two highest rating categories for short-term debt securities, (ii) is
rated in one of the two highest categories for short-term debt by the only NRSRO
that has issued a rating, or (iii) if not so rated, is determined to be of
comparable quality. A description of the rating systems of S&P and Moody's is
contained in the SAI. At the time of investment, no security purchased by the
Fund (except securities subject to repurchase agreements and variable rate
demand notes) will have a maturity exceeding 397 days, and the Fund's average
portfolio maturity cannot exceed 90 days. Although the Fund attempts to
maintain a stable net asset value ("NAV") of $1.00, there can be no assurance,
that the Money Fund will be able to maintain a stable NAV of $1.00.

BOND & STOCK FUND. This fund has three objectives: continuity of income,
conservation of principal, and long-term growth of income and principal. The
Fund invests in bonds, preferred stocks, common stocks and convertible bonds.
Under normal market conditions at least 25% of the Fund's assets will be
invested in fixed-income securities.

The Fund may invest in money market instruments for temporary or defensive
purposes. The Fund may invest up to 25% of its assets in real estate investment
trusts known as "REITs." See "Common Investment Practices - Real Estate
Investment Trusts."

The Fund may invest in fixed-income securities of any maturity, including
mortgage-backed and other asset backed securities. The Fund may also invest in
below-investment-grade bonds (sometimes called junk bonds). See "Common
Investment Practices - Lower-Rated Securities."

The Fund may purchase or sell U.S. Government securities or collateralized
mortgage obligations on what is called a "When-issued" or "delayed-delivery"
basis in an aggregate up to 20% of the market value of its total assets minus
total liabilities (except for the obligations created by these commitments).
The Fund may write (sell) covered call options. A call option is covered if the
Fund owns the security underlying the option it has written or it maintains
enough cash, cash equivalents or liquid securities to purchase the underlying
security. The Fund may invest up to 25% of its assets in U.S. dollar-
denominated securities of foreign issuers. Investments in foreign securities
may involve somewhat different risks. See "Common Investment Practices - Foreign
Investments."

Jeffrey D. Hoffman, CFA, ______________ of Composite has had primary
responsibility for the day-to-day management of the Fund's portfolio since
[1995]. Prior to 1995, Mr. Hoffman [5 years experience].

NORTHWEST FUND. This Fund invests with the objective of long-term growth of
capital. Common stocks are selected from companies located or doing business in
the northwest states of Alaska, Idaho, Montana, Oregon and Washington. Under
normal circumstances, at least 65% of the Fund's total assets will be invested
in companies whose principal executive offices are located in the
northwest.

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<PAGE>

The Fund is permitted to invest in money market instruments for temporary or
defensive purposes. The Fund may invest up to 25% of its assets in real estate
investment trusts known as "REITs." The Fund may write (sell) covered call
options. A call option is "covered" if the Fund owns the security underlying the
option it has written or it maintains enough cash, cash equivalents, or liquid
securities to purchase the underlying security. See "Common Investment
Practices."

Because the Fund concentrates its investments in companies located or doing
business in the Northwest, the Fund could be adversely impacted by economic
trends within the five state area. Some of the companies whose securities are
held by the Fund may have significant national or international markets for
their products and services. Therefore, the Fund's performance could also be
affected by national or international economic conditions.

David W. Simpson, CFA, ________________ of Composite, has had primary
responsibility for the day-to-day management of the Fund's portfolio since
[1993]. Prior to 1993, Mr. Simpson [FIVE YEAR'S EXPERIENCE].

COMMON INVESTMENT PRACTICES

The following pages contain more detailed information about types of securities
in which the Funds may invest, and strategies Composite may employ in pursuit of
the Funds' investment objectives, as well as a summary of risks and restrictions
associated with these securities and investment practices. Each Fund's NAV will
fluctuate as the values of the securities it owns change. There are many factors
that influence fluctuations in the market value of securities owned by the
Funds. All policies and limitations are considered at the time of purchase; the
sale of securities is not required in the event of a subsequent change in
circumstances. For more information see the SAI.

AMERICAN DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY RECEIPTS. The Bond & Stock
Fund may invest in securities of foreign issuers directly or in the form of
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs") or other similar securities representing
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities they represent. These
securities involve the risks described under "Foreign Investments" below.

BORROWING. A Fund may borrow money from banks solely for temporary or emergency
purposes subject to various limitations. If a Fund borrows money, its share
price may be subject to greater fluctuation until the borrowing is paid off.
The Funds may borrow up to 5% of total assets for such emergency purposes. In
addition, the Money Market Fund may borrow up to 33-1/3% of total assets to meet
redemption requests.

The Bond & Stock and Northwest Funds may engage in reverse repurchase
agreements, which under the Investment Company Act of 1940, as amended, may be
considered borrowings by the seller. Reverse repurchase agreements involve the
risk that the market value of the securities sold by a Fund may decline below
the repurchase price of the securities and, if the proceeds from the reverse
purchase agreement are invested in securities, that the market value of the
securities bought may decline below the repurchase price of the securities sold.

CURRENCY MANAGEMENT. If a Fund invests significantly in securities denominated
in foreign currencies, movements in foreign currency exchange rates versus the
U.S. dollar are likely to impact the Fund's share price stability relative to
domestic short-term income funds. Fluctuations in foreign currencies can have a
positive or negative impact on returns. The Bond & Stock and Northwest Funds,
authorized to invest in securities of foreign issuers, may engage in currency
management strategies.

DEBT SECURITIES ISSUED OR GUARANTEED BY SUPRANATIONAL ORGANIZATIONS. Funds
authorized to invest in securities of foreign issuers may invest assets in debt
securities issued or guaranteed by supranational organizations, such as
obligations issued or guaranteed by the Asian Development Bank, Inter-American
Development Bank, International Bank for Reconstruction and Development (World
Bank), African Development Bank, European Coal and Steel Community, European
Economic Community, European Investment Bank and the Nordic Investment
Bank.

EXCHANGE RATE-RELATED SECURITIES. Each of the Funds, except for the Money Market
Fund, may invest in securities which are indexed to certain specific foreign
currency exchange rates. These securities involve the possibility of

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<PAGE>

significant changes in rates of exchange between the U.S. dollar and any foreign
currency to which an exchange rate-related security is linked. In addition,
there is no assurance that sufficient trading interest to create a liquid
secondary market will exist for a particular exchange rate-related security due
to conditions in the debt and foreign currency markets. Illiquidity in the
forward foreign exchange market and the high volatility of the foreign exchange
market may from time to time combine to make it difficult to sell an exchange
rate-related security prior to maturity without incurring a significant price
loss.

FIXED-INCOME SECURITIES. The market value of fixed-income securities held by a
Fund and, consequently, the value of the Fund's shares can be expected to vary
inversely to changes in prevailing interest rates. Investors should also
recognize that, in periods of declining interest rates, the yield of the Fund
will tend to be somewhat higher than prevailing market rates and, in periods of
rising interest rates, the Fund's yield will tend to be somewhat lower. Also,
when interest rates are falling, any net inflow of money to the Fund will likely
be invested in instruments producing lower yields than the balance of its
assets, thereby reducing current yield. In periods of rising interest rates, the
opposite can be expected to occur. The prices of longer maturity securities are
also subject to greater market fluctuations as a result of changes in interest
rates. In addition, obligations purchased by a Fund may be subject to the risk
of default.

FLOATING RATE, INVERSE FLOATING RATE AND VARIABLE RATE OBLIGATIONS. The Bond &
Stock Fund may purchase floating rate, inverse floating rate and variable rate
obligations, including participation interests therein. The Bond & Stock Fund
may purchase mortgage-backed securities that are floating rate, inverse floating
rate and variable rate obligations.

An inverse floater may be considered to be leveraged to the extent that its
interest rate varies by a multiple of the change in the index rate, which may
lead to greater volatility in their market values.

FOREIGN INVESTMENTS. The Bond & Stock and Northwest Funds may invest in U.S.
dollar denominated securities of foreign issuers. There are certain risks
involved in investing in foreign securities, including those resulting from (i)
fluctuations in currency exchange rates, (ii) devaluation of currencies, (iii)
future political or economic developments and the possible imposition of
currency exchange blockages or other foreign governmental laws or restrictions,
(iv) reduced availability of public information concerning issuers, and (v) the
fact that foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards or to other regulatory practices and
requirements comparable to those applicable to domestic companies. Moreover,
securities of many foreign companies may be less liquid and their prices more
volatile than those of securities of comparable domestic companies. In addition,
there is the possibility of expropriation, nationalization, confiscatory
taxation and limitations on the use or removal of funds or other assets of the
Funds, including the withholding of dividends. The risks associated with foreign
securities may be greater for securities of issuers in developing countries,
commonly known as "emerging markets."

In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the New York Stock Exchange ("NYSE"). Accordingly, the Funds'
foreign investments may be less liquid and their prices may be more volatile
than comparable investments in securities of U.S. companies. Moreover, the
settlement periods for foreign securities, which are often longer than those for
securities of U.S. issuers, may affect portfolio liquidity. In buying and
selling securities on foreign exchanges, the Fund normally pays fixed
commissions that are generally higher than the negotiated commissions charged in
the United States. In addition, there is generally less governmental supervision
and regulation of securities exchanges, brokers and issuers in foreign countries
than in the United States. In addition, foreign securities generally are
denominated and pay dividends or interest in foreign currencies, and the value
of the Funds' net assets as measured in U.S. dollars will be affected favorably
or unfavorably by changes in exchange rates.

GEOGRAPHICAL CONCENTRATION. Potential investors in the Northwest Fund should
consider the possibly greater risk arising from the geographic concentration of
their investments, as developments affecting the regional economy may
particularly affect the Fund.

ILLIQUID SECURITIES. Up to 15% of the net assets of each of the Bond & Stock and
Northwest Funds and up to 10% of the net assets of the Money Market Fund may be
invested in securities that are not readily marketable. Such illiquid securities
may include (1) repurchase agreements with maturities greater than seven
calendar days; (2) time deposits maturing in more than seven calendar days; (3)
to the extent a liquid secondary market does not exist for the instruments,

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<PAGE>

futures contracts and options thereon; (4) certain over-the-counter options, as
described in the SAI; (5) certain variable rate demand notes having a demand
period of more than seven days; and (6) securities the disposition of which is
restricted under federal securities laws (excluding Rule 144A securities,
described below). The Funds will not include for purposes of the restrictions on
illiquid investments securities sold pursuant to Rule 144A under the Securities
Act of 1933, as amended, so long as such securities meet liquidity guidelines
established by the Board of Trustees.

LENDING OF SECURITIES. The Bond & Stock and Northwest Funds have the ability to
lend portfolio securities up to 33% of total assets. These transactions involve
a risk of loss to the Fund if the counterparty should fail to return such
securities to the Fund upon demand.

LOWER-RATED SECURITIES. The Bond & Stock Fund may invest up to 35% of the total
assets of the Fund in debt securities rated lower than BBB by S&P or Baa by
Moody's, or of equivalent quality as determined by Composite or that Fund's sub-
adviser. These non-investment-grade debt securities are commonly referred to as
"junk bonds."

Securities rated below investment-grade, as well as comparable unrated
securities, usually entail greater risk (including the possibility of default or
bankruptcy of the issuers), generally involve greater price volatility and risk
of principal and income, and may be less liquid than securities in higher rated
categories. Both price volatility and illiquidity may make it difficult for the
Fund to value or to sell certain of these securities under certain market
conditions. Non-investment-grade debt securities are often considered to be
speculative and involve greater risk of default or price changes due to changes
in the issuer's creditworthiness. The market prices of these securities may
fluctuate more than higher-rated securities and may decline significantly in
periods of general economic difficulty, which may follow periods of rising
interest rates. For further information, see the SAI.

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The Bond & Stock and Northwest
Funds may invest in commercial mortgage-backed securities, which are similar to
the above Mortgage-Backed Securities, except they are issued by non-governmental
entities. Commercial mortgage-backed securities include collateralized mortgage
obligations and real estate mortgage investment conduits ("REMICs"). While
commercial mortgage-backed securities are generally structured with one or more
types of credit enhancement, they typically lack a guarantee by an entity having
the credit status of a governmental agency or instrumentality.

To the extent that a Fund purchases mortgage-related or mortgage-backed
securities at a premium, mortgage foreclosures and prepayments of principal
(which may be made at any time without penalty) may result in a loss of the
Fund's principal investment. The yield of the Fund may be affected by
reinvestment of prepayments at higher or lower rates than the original
investment. In addition, like other debt securities, the value of mortgage-
related securities, including government and government-related mortgage pools,
will generally fluctuate in response to market interest rates.

The Money Market Fund may invest up to 10% of its total assets in asset-backed
securities. Asset-backed securities are structured like mortgage-backed
securities, but instead of mortgage loans or interests in mortgage loans, the
underlying assets may include such items as motor vehicle installment sales or
installment loan contracts, leases of various types of real and personal
property, and receivables from credit card agreements. The ability of an issuer
of asset-backed securities to enforce its security interest in the underlying
assets may be limited.

REPURCHASE AGREEMENTS. All of the Funds may invest in repurchase agreements,
which are agreements to purchase underlying debt obligations from financial
institutions, such as banks and broker-dealers, subject to the seller's
agreement to repurchase the obligations at an established time and price.
Default by the seller would expose the Fund to possible loss because of adverse
market action or delay in connection with the disposition of the underlying
obligations. In addition, if bankruptcy proceedings are commenced with respect
to the seller of the obligations, the Fund may be delayed or limited in its
ability to sell the collateral. Investments by each of the Bond & Stock and
Northwest Funds in repurchase agreements, if any, are limited to 20% of each
Fund's total assets, respectively.

STRATEGIC TRANSACTIONS. Subject to the investment limitations and restrictions
for each of the Funds as stated elsewhere in the prospectus and SAI, each of the
Funds, except the Money Market Fund, may, but is not required to, utilize
various other investment strategies as described below to hedge various market
risks, to manage the effective maturity or

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<PAGE>

duration of fixed-income securities, or to seek potentially higher returns.
Utilizing these investment strategies, the Fund may purchase and sell, to the
extent not otherwise limited or restricted for such Fund, exchange-listed and
over-the-counter put and call options on securities, equity and fixed-income
indices and other financial instruments, purchase and sell financial futures
contracts and options thereon, enter into various interest rate transactions
such as swaps, caps, floors or collars, and enter into various currency
transactions such as currency forward contracts, currency futures contracts,
currency swaps or options on currencies or currency futures (collectively, all
the above are called "Strategic Transactions").

Strategic Transactions may be used to attempt to protect against possible
changes in the market value of securities held in or to be purchased for the
Fund's portfolio resulting from securities markets or currency exchange rate
fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the Fund's portfolio,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities. Some Strategic Transactions may
also be used to seek potentially higher returns. Any or all of these investment
techniques may be used at any time, as use of any Strategic Transaction is a
function of numerous variables including market conditions. The use of Strategic
Transactions involves special considerations and risks, for example (1) the
ability of the Fund to utilize these Strategic Transactions successfully will
depend on the ability of Composite to predict pertinent market movements; and
(2) there might be imperfect correlation, or even no correlation, between price
movements of Strategic Transactions and price movements of the related portfolio
positions. Strategic Transactions can reduce risk of loss by wholly or partially
offsetting the negative effect of unfavorable price movements or of unfavorable
currency fluctuations in the related portfolio or currency positions, but can
also reduce opportunity for gain by offsetting the positive effect of favorable
price movements in positions. The Fund will comply with applicable regulatory
requirements when utilizing Strategic Transactions. Strategic Transactions
involving financial futures and options thereon will be purchased, sold or
entered into only for bona fide hedging, risk management or portfolio management
purposes. For more information see the SAI.

U.S. GOVERNMENT SECURITIES. All of the Funds may invest in U.S. Government
securities, which include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes and bonds) and obligations directly issued or guaranteed
by U.S. Government agencies or instrumentalities. Some obligations issued or
guaranteed by agencies or instrumentalities of the U.S. Government are backed by
the full faith and credit of the U.S. Government (such as GNMA Bonds), others
are backed only by the right of the issuer to borrow from the U.S. Treasury
(such as securities of Federal Home Loan Banks) and still others are backed only
by the credit of the instrumentality (such as FNMA and FHLMC Bonds).

WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. In order to secure
yields or prices deemed advantageous at the time, each of the Bond & Stock and
the Northwest Funds may purchase or sell securities on a when-issued or a
delayed-delivery basis. The Funds will enter into a when-issued transaction for
the purpose of acquiring portfolio securities and not for the purpose of
leverage. Due to fluctuations in the value of securities purchased on a when-
issued or a delayed-delivery basis, the yields obtained on such securities may
be higher or lower than the yields available in the market on the dates when the
investments are actually delivered to the buyers. Similarly, the sale of
securities for delayed-delivery can involve the risk that the prices available
in the market when delivery is made may actually be higher than those obtained
in the transaction itself.

The use of when-issued transactions and forward commitments enables the Funds to
hedge against anticipated changes in interest rates and prices. However, if
Composite were to forecast incorrectly the direction of interest rate movements,
the Fund might be required to complete such when-issued or forward transactions
at prices inferior to then-current market values.

When-issued securities may include bonds purchased on a "when, as and if issued"
basis, under which the issuance of the securities depends on the occurrence of a
subsequent event. Any significant commitment of a Fund's assets to the purchase
of securities on a "when, as and if issued" basis may increase the volatility of
the Fund's NAV.

MANAGEMENT OF THE TRUST

-9-
<PAGE>

The funds are managed by Composite Research & Management Co., which is referred
to as Composite in this Prospectus.

In connection with its service as investment adviser to each Fund, Composite may
engage one or more sub-advisers to provide investment advisory services to any
of the Funds and may change or eliminate any such sub-adviser if it deems such
action to be in the best interest of a Fund and its shareholders.

Composite is an indirect wholly owned subsidiary of Washington Mutual, Inc.
("Washington Mutual"). Washington Mutual is a publicly owned financial services
company. As of June 30, 1997, Composite and its affiliates had total assets
under management of approximately $____ billion.

ADVISORY FEES. For investment advisory services, monthly fees are paid to
Composite by each Fund based upon a percentage of the average daily net assets
of such Fund. Advisory fees are calculated daily and paid monthly. The Money
Market Fund pays advisory fees at an annual rate of 0.50% of the first $500
million of the Fund's average daily net assets, and 0.40% of assets in excess of
$500 million. The Bond & Stock Fund pays advisory fees at an annual rate of
0.625% of the Fund's first $250 million of average daily net assets and 0.50% of
such assets in excess of $250 million. The Northwest Fund pays advisory fees at
the annual rate of 0.625% of the first $500 million of the Fund's average daily
net assets, 0.50% of the next $500 million of such assets and 0.375% of such
assets in excess of $1 billion.

TRUST EXPENSES. In addition to investment advisory expenses, each Fund pays all
expenses not assumed by Composite. Such expenses include or could include
investment-related expenses, such as brokers' commissions, transfer taxes and
fees related to the purchase, sale, or loan of securities; fees and expenses for
Trustees not affiliated with Composite; fees and expenses of its independent
auditors and legal counsel; costs of Trustee and shareholder meetings; SEC fees;
expenses of preparing and filing registration statements; the cost of the
printing and mailing to existing Contract owners of proxy statements,
prospectuses and statements of additional information; proxy solicitors' fees;
expenses of preparation, printing and mailing to Contract owners of semi-annual
shareholder reports; bank transaction charges and certain custodians' fees and
expenses; federal, state or local income or other taxes; costs of maintaining
the Trust's corporate existence; membership fees for the Investment Company
Institute and similar organizations; fidelity bond and Trustees' liability
insurance premiums; and any extraordinary expenses such as indemnification
payments or damages awarded in litigation or settlements made. All these
expenses will be passed on to the shareholders through a daily charge made to
the assets held in the Funds, which will be reflected in share prices.

PORTFOLIO TRANSACTIONS AND TURNOVER. All orders for the purchase or sale of
securities on behalf of a Fund are placed by Composite with broker-dealers that
it selects. A Fund may, at the discretion of Composite, utilize broker-dealers
affiliated with Composite in connection with a purchase or sale of securities,
in accordance with procedures adopted by Trustees and in accordance with the
1940 Act which require periodic review of these transactions.

Each Fund's turnover rate varies from year to year, depending on market
conditions and investment strategies. Higher portfolio turnover rates for the
Funds can result in corresponding increases in expenses such as brokerage
commissions and transaction costs. The Funds will not consider portfolio
turnover rate a limiting factor in making investment decisions consistent with
their respective objectives and policies. It is expected that the portfolio
turnover rate for the Bond & Stock and Northwest Funds for their first fiscal
year will not exceed ___% and ___%, respectively.

DISTRIBUTOR

Composite Funds Distributor, Inc. (the"Distributor") distributes the Funds'
shares to AGL's separate accounts, which purchase and redeem these shares at net
asset value without sales or redemption charges. The Distributor is located at
601 West Main Avenue, Suite 801, Spokane, Washington 99201-0613 and is a wholly-
owned subsidiary of Washington Mutual, the parent of Composite. The
Distributor, as principal underwriter, or insurance companies whose variable
products are funded by the Trust, will bear all of the Trust's marketing
expenses. This includes the cost of reproducing prospectuses, statements of
additional information or any other Trust documents (such as semi-annual
reports) used as sales materials.

-10-
<PAGE>

ADMINISTRATION

Murphey Favre Securities Services, Inc. serves as the administrator to the Trust
(the "Administrator") and has responsibility for the Trust's administrative
functions. Subject to the authority of the Board of Trustees, the Administrator
is responsible for all administrative and some record keeping functions of the
Trust. It provides office facilities and supplies; provides clerical, executive,
accounting and administrative services; prepares reports to shareholders and
filings with regulatory authorities; prepares materials for the Board of
Trustees' meetings; and provides securities accounting and calculates net
assets.

For its services, the Administrator is paid a monthly fee at an effective
annual rate of 0.18% of each Fund's average net assets.

GENERAL INFORMATION AND HISTORY

THE TRUST

The Trust is an open-end management investment company that offers diversified
and non-diversified series. It was organized on January 29, 1993 under the laws
of The Commonwealth of Massachusetts as a "Massachusetts business trust." The
Trust has the power to issue separate series of shares and has authorized the
following fifteen separate series: Balanced Portfolio, Bond & Stock Fund,
Capital Growth Portfolio, Corporate Income Fund, Emerging Growth Fund, Growth
and Income Fund, Growth Fund, Growth Portfolio, Income Portfolio, International
Growth Fund, Money Market Fund, Northwest Fund, Short Term High Quality Bond
Fund, U.S. Government Fund and Value Portfolio. The Trust offers shares of
beneficial interest, each without par value. Additional series may be
established.

Currently, the shares of the Funds are sold only to AGL and its separate
accounts to fund Contracts or to other series of the Trust, which are also sold
to AGL and its separate accounts. In the future, the Trust may offer its shares
to separate accounts funding variable annuities of insurance companies
affiliated or unaffiliated with AGL and to separate accounts which fund variable
life insurance or other variable funding arrangements. The Trust's Board of
Trustees will monitor potential conflicts between variable life insurance
policies and variable annuity contracts or among insurance company shareholders
and will determine what, if any, action should be taken to resolve any
conflicts. Until other insurance companies have made investments in the series
of the Trust, AGL directly or indirectly, will be the sole shareholder of the
Trust.

As a Massachusetts business trust, the Trust is not required to hold annual
shareholders' meetings. On occasion, however, special meetings may be called to
elect or remove trustees, change fundamental policies, approve management
contracts, or for other purposes. Generally, shares of the Trust vote by
individual series on all matters except when the 1940 Act permits shares of the
series to be voted in the aggregate. The shareholders of the Trust are the
insurance companies whose separate accounts invest in it. The Trust expects that
its shareholders will offer their Contract owners the opportunity to instruct
them as to how shares allocable to their Contracts will be voted with respect to
certain matters, such as approval of investment advisory agreements. AGL has
advised the Trust that, whenever a shareholder vote is taken, AGL will give
Contract owners and annuitants the opportunity to instruct them how to vote the
number of shares attributable to such Contracts. AGL also stated that it will
vote any shares that it is entitled to vote directly, because of their
attributable interests in the Trust, and any shares attributable to Contracts
for which instructions are not received, in the same proportion that Contract
owners vote.

Under Massachusetts law, in certain circumstances, shareholders may be held
personally liable as partners for the obligations of a business trust such as
the Trust. The Trust's Declaration of Trust contains provisions designed to
protect shareholders from such liability to the extent of the Trust's assets. As
a result, the risk of personal liability for the insurance company shareholders
is remote.

-11-
<PAGE>

TAXES

The tax consequences of your investment in the Funds depend upon the specific
provisions of your Contract. For more information, see the prospectus for that
Contract, which is attached to the front of this Prospectus.

PURCHASE AND REDEMPTION

You cannot purchase shares of the Trust directly, but only through a Contract
offered through an insurance company separate account. Please refer to the
prospectus for your Contract for information on how to make investments and
redemptions. The shares of the Funds are sold in a continuous offering to
insurance companies for their separate accounts to fund variable annuity
contracts and variable life insurance policies. Net purchase payments under the
contracts and policies are placed in one or more of the divisions of the
insurance company separate accounts and are invested in the shares of the Funds
corresponding to such divisions. Shares of the Funds are purchased and redeemed
by the insurance company at net asset value without sales or redemption charges.

For each day on which a Fund's net asset value is calculated, each separate
account transmits to the Trust any orders to purchase or redeem shares of the
Fund(s) based on the purchase payments, redemption (surrender) requests and
transfer requests from contract owners, policyholders, annuitants or
beneficiaries which are priced as of that day.

All purchase and redemption orders will be processed in accordance with
applicable regulations. The Trust may also suspend redemption, if permitted
under 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 or the SEC
declares that an emergency exists. Redemption may also be suspended during other
periods permitted by the SEC for the protection of the Trust's
shareholders.

PURCHASE THROUGH THE SAM PROGRAM

Owners of the Sierra Advantage Annuity may elect to participate in the Sierra
Asset Management Program ("SAM Program"). The SAM Program is an active
investment management service offered through Composite that allocates separate
account values across a number of investment divisions selected to meet
different long-term investment objectives. Depending on market conditions,
Composite from time to time changes or reallocates the combination of separate
account divisions, or the amount invested in each, to implement the various SAM
strategies. In addition, account balances of Contract owners participating in
the SAM Program will be periodically rebalanced to maintain the chosen
strategy's current asset allocation mix, if and when Fund performance unbalances
the strategy's mix. Normally, Composite will reallocate once a quarter.

From time to time, one or more of the separate account investment divisions may
experience relatively large investments or redemptions due to SAM Program
allocations or rebalancings recommended by Composite. These transactions will
affect the Funds that are available through the SAM Program, since Funds that
experience redemptions as a result of reallocations or rebalancings in the
separate account may have to sell portfolio securities and Funds that receive
additional cash will have to invest it. 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 Funds may be required to sell
securities or invest cash at times when they would not otherwise do so. These
transactions could also increase transaction costs. Composite is committed to
minimizing the impact of SAM Program transactions on the Funds to the extent it
is consistent with pursuing the investment objective of the SAM Program.
Although Composite is not compensated for sales of Trust shares, it is
compensated for sales of the Contracts. The SAM Program is currently being
offered at no additional cost to Contract owners, although Composite has
reserved the right to impose a charge for this service in the future. Both of
the Funds are available through the SAM Program.

Composite may restrict or terminate the participation of Sierra Advantage
Contract owners in the SAM Program at any time. In addition, AGL has reserved
the right to place restrictions on transactions permitted by the Sierra
Advantage Annuity that could result in restrictions or terminations of the SAM
Program.

NET ASSET VALUE

-12-
<PAGE>

The net asset value (the current market value of a Fund share) of each Fund's
shares is determined at the close of regular trading on the NYSE (currently 1:00
p.m., Pacific Time), each business day the NYSE is open, except as noted. The
NYSE is currently scheduled to be closed on New Year's Day, Martin Luther King,
Jr. Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day, and on the preceding Friday or
subsequent Monday when one of these holidays falls on a Saturday or Sunday,
respectively. In addition, net asset values will not be calculated on the Friday
following Thanksgiving. Net asset value per share is calculated for purchases
and redemptions of shares of each Fund by dividing the value of total Fund
assets, less liabilities (including Trust expenses, which are accrued daily), by
the total number of shares of that Fund outstanding. The net asset value per
share of each Fund is determined each business day at the close of business.
Values of assets in each Fund's portfolio (except certain short-term debt
securities, which are valued using the amortized cost method, which approximates
market value) are determined on the basis of their market values or valuations
determined as described in the SAI.

DIVIDENDS, DISTRIBUTIONS AND TAXES

The tax consequences of your investment in the Trust depend upon the specific
provisions of your Contract. For more tax information regarding your Contract,
see the attached prospectus for that Contract. The following discussion is only
a brief summary of the federal income tax consequences to the Funds and their
insurance company shareholders based on current tax laws and regulations, which
may be changed by subsequent legislative, judicial, or administrative
action.

Each Fund intends to qualify separately each year as a "regulated investment
company" ("RIC") as defined under Subchapter M of the Code. The requirements for
qualification may cause a Fund to restrict the extent of its short-term trading
or its transactions in options or futures contracts.

As a RIC, each Fund will not be subject to federal income tax on its net
investment income and net realized capital gains which are timely distributed to
its insurance company shareholders. Accordingly, each Fund intends to distribute
all or substantially all of its net investment income and net realized capital
gains to its shareholders. Very generally, an insurance company which is a
shareholder of a Fund will determine its federal income tax liability with
respect to distributions from that Fund pursuant to the special rules of
Subchapter L of the Code.

Although the Trust intends that it and the Funds will be operated so that they
will have no federal income tax liability, if any such liability is nevertheless
incurred, the investment performance of the Fund or Funds incurring such
liability will be adversely affected. In addition, Funds investing in foreign
securities and currencies may be subject to foreign taxes. These taxes would
reduce the investment performance of such Funds.

Because the Trust funds certain types of variable annuities, each Fund is also
subject to the investment diversification requirements of Subchapter L of the
Code. Were any Fund to fail to comply with those requirements, owners of annuity
contracts (other than certain tax-qualified retirement Contracts) funded through
the Trust would be taxed on investment earnings under their Contracts and would
thereby lose any benefit of tax deferral. Accordingly, the Trust will carefully
monitor compliance with the diversification requirements. For additional tax
information, see "Taxes" in the SAI.

The amounts of dividends of net investment income (i.e., all income other than
capital gains) and distributions of net realized gains on securities held for
less than one year, at least one year but less than 18 months, and longer than
18 months payable to shareholders will be determined separately for each Fund.
Dividends and distributions paid by a Fund will be automatically reinvested (at
current net asset value) in additional full and fractional shares of that Fund.
All Funds will distribute any net long-term capital gains annually.
Distributions of any net short-term capital gains earned by a Fund will be
distributed no less frequently than annually at the discretion of the Board of
Trustees.

-13-
<PAGE>

PERFORMANCE

The Trust may, from time to time, calculate the yield or total return of all
Funds, and may include such information in reports to shareholders. Performance
information should be considered in light of the Fund's investment objectives
and policies, characteristics and quality of the portfolios, and the market
conditions during the given time period, and should not be considered as a
representation of what may be achieved in the future.

Any quotations of yield will be based on all investment income per share earned
during a given 30-day period (including dividends and interest), less expenses
accrued during the period (net investment income), and will be computed by
dividing net investment income by the maximum public offering price per share on
the last day of the period. Quotations of average annual total return for a Fund
will be expressed in terms of the average annual compounded rate of return on a
hypothetical investment in the Fund over certain periods that will include
periods of 1, 5, and 10 years (up to the life of the Fund), will reflect the
deduction of a proportional share of Trust's expenses (on an annual basis), and
will assume that all dividends and distributions are reinvested when paid.

Total returns and yields quoted for the Funds include each Fund's expenses, but
may not include charges and expenses attributable to any particular insurance
product. Since shares of the Funds may only be purchased through variable
annuity and variable life insurance contracts, you should carefully review the
prospectus of the insurance product you have chosen for information on relevant
charges and expenses. Excluding these charges from quotations of each Fund's
performance has the effect of increasing the performance quoted. You should bear
in mind the effect of these charges when comparing a performance to that of
other mutual funds.

TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT A PREDICTION OF
FUTURE PERFORMANCE.

OBTAINING PERFORMANCE INFORMATION

Each Fund's strategies, performance, and holdings are detailed twice a year in
fund reports, which are sent to all shareholders. Shareholders may call 800-543-
8072 for performance information. [Shareholders may make inquiries regarding a
Fund, including current total return figures, to any Authorized Dealer, or by
calling the Distributor at 800-543-8972.]

For a description of the methods used to determine yield and total return for
the Funds, see the SAI.

-14-
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION
March 1, 1998

THE SIERRA VARIABLE TRUST
601 WEST MAIN AVENUE, SUITE 801
SPOKANE, WASHINGTON 99201-0613

o Money Market Fund
o Bond & Stock Fund
o Northwest Fund

This Statement of Additional Information ("SAI") is not a prospectus but
supplements the information contained in the Prospectus relating to the Money
Market Fund, the Bond & Stock Fund and the Northwest Fund of The Sierra Variable
Trust (the "Trust"), dated March 1, 1998, as revised from time to time. The SAI
should be read in conjunction with the Prospectus, as amended or supplemented
from time to time. The Trust's Prospectus may be obtained without charge by
writing to American General Life Insurance Company ("AGL"), Attention: Annuity
Administration, P.O. Box 1401, Houston, Texas 77251-1401 or by calling AGL at
800-247-6584.
<PAGE>

CONTENTS

For ease of reference, the same section headings are used in the Prospectus
and in this Statement of Additional Information, except as indicated below.

PAGE
----
<S> <C>
General Information and History......................... 3

Management of the Trust................................. 3

Investment Objectives and Policies of
the Funds .............................................. 8
(See the Prospectus "Highlights" and "Investment
Policies")

Purchase and Pricing of Shares.......................... 19
(See the Prospectus "Highlights" and "Purchase
and Redemption")

Net Asset Value......................................... 19

Performance............................................. 20

Taxes................................................... 24
(See the Prospectus "Dividends, Distributions
and Taxes")

Appendix - Description of Ratings....................... 26

Financial Statements.................................... 31

</TABLE>

2
<PAGE>

GENERAL INFORMATION AND HISTORY

The Sierra Variable Trust (the "Trust") is an open-end management investment
company. Some of the information required to be in this SAI is also included in
the Trust's current Prospectus relating to the Money Market Fund, the Bond &
Stock Fund and the Northwest Fund (the "Funds"). To avoid unnecessary
repetition, references is made to related sections of the Prospectus. Copies of
the Registration Statement as filed, including Part C, may be obtained from the
Securities and Exchange Commission (the "SEC") by paying the charges prescribed
under its rules and regulations.

MANAGEMENT OF THE TRUST

TRUSTEES AND OFFICERS OF THE TRUST

The names of the Trustees and executive officers of the Trust, together with
information as to their dates of birth and principal business occupations during
the past five years, are set forth below. Each Trustee who is an "interested
person" of the Trust, as defined in the Investment Act of 1940, as amended (the
"1940 Act"), is indicated by an asterisk.

TRUSTEES:

ARTHUR H. BERNSTEIN, ESQ. (6/8/25)
Trustee
11661 San Vincente Blvd., #405
Los Angeles, California 90049

Mr. Bernstein is President of Bancorp Capital Group, Inc. and President of
Bancorp Venture Capital, Inc. since 1988. He has been a Trustee of Sierra Trust
Funds since 1989.

DAVID E. ANDERSON (11/17/26)
Trustee
17960 Seabreeze Drive
Pacific Palisades, California 90272

Retired, Former President & CEO GTE California, Inc. Currently involved in
the following charitable organizations as a director on the following boards:
Board Chairman, Children's Bureau Foundation; Board member, Upward Bound House
of Santa Monica; Past Campaign Chairman of United Way; Past Chairman, Los
Angeles Area Chamber of Commerce. Holds BSEE degree from Iowa State.

EDMOND R. DAVIS, ESQ. (9/24/28)
Trustee
550 South Hope Street, 21st Floor
Los Angeles, California 90071-2604

Partner, Brobeck, Phleger & Harrison. Joined the firm as a Partner in 1987 and
is responsible for estate planning, and trusts and estate matters in the Los
Angeles office.

JOHN W. ENGLISH (3/27/33)
Trustee
50 H New England Ave.
P.O. Box 640
Summit, New Jersey 07902-0640

3
<PAGE>

Retired Vice President and Chief Investment Officer, the Ford Foundation (a non-
profit charitable organization). Chairman of the Board and Director, The China
Fund, Inc. (a closed-end mutual fund). Director, the Northern Trust Company's
Benchmark Funds (an open-end mutual fund).

ALFRED E. OSBORNE, JR. PH.D. (12/7/44)
Trustee
110 Westwood Plaza, Suite C305
Los Angeles, California 90095-1481

University professor, researcher and administrator at UCLA since 1972.
Director, Times Mirror Company, ReadiCare, Inc., United States Filter
Corporation, Nordstrom, Inc., Seda Specialty Packing Corporation and Greyhound
Lines, Inc. Independent general partner, Technology Funding Venture Partners V.
Governor of the National Association of Securities Dealers, Inc.

[WAYNE L. ATTWOOD, MD
Trustee
2931 S. Howard
Spokane, Washington 99203

Dr. Attwood is a retired doctor of internal medicine and gastroenterology in
Spokane, Washington.]

[KRISTIANNE BLAKE
Trustee
705 W. 7th, Suite D
Spokane, Washington 99204

Mrs. Blake is president of Kristianne Gates Blake, PS, an accounting services
firm specializing in personal financial planning and tax planning.]

[*ANNE V. FARRELL
Trustee
425 Pike Street, Suite 510
Seattle, Washington 98101

Mrs. Farrell is president and CEO of The Seattle Foundation (a charitable
foundation). In addition, she serves as a director of Washington Mutual,
Inc.]

[*MICHAEL K. MURPHY
Trustee
PO Box 3366
Spokane, Washington 99220-3366

Mr. Murphy is Chairman and CEO of CPM Development Corporation (a holding company
which includes Central Pre-Mix Concrete Company). In addition, he serves as a
director of Washington Mutual, Inc.]

[*WILLIAM G. PAPESH
President and Trustee
601 W. Main Avenue
Suite 300
Spokane, WA 99201

Mr. Papesh is president and a director of Composite and Murphey Favre Securities
Services, Inc. (the "Transfer Agent"), and an executive vice president and a
director of Composite Funds Distributor, Inc. (the "Distributor").]

4
<PAGE>

[DANIEL L. PAVELICH
Trustee
Two Prudential Plaza
180 North Stetson Avenue, Suite 4300
Chicago, Illinois 60601

Mr. Pavelich is Chairman and CEO of BDO Seidman, a leading national accounting
and consulting firm.]

[JAY ROCKEY
Trustee
2121 Fifth Avenue
Seattle, Washington 98121

Mr. Rockey is Chairman and CEO of The Rockey Company (a regional public
relations firm).]

[RICHARD C. YANCEY
Trustee
535 Madison Avenue
New York, New York 10022

Mr. Yancey is senior advisor to Dillon, Read & Co., Inc. (a registered broker-
dealer and investment banking firm), New York, New York.]

OFFICERS:

[KEITH B. PIPES (12/20/55), PRESIDENT, CHIEF EXECUTIVE OFFICER

As President, Chief Financial Officer and Secretary of SCMC, he is
responsible for its general accounting, financial planning, compliance
administration, systems development and advisory operations.]

[MICHAEL D. GOTH (8/13/45), SENIOR VICE PRESIDENT

Since January 1991, Mr. Goth has served as Chief Operating Officer and
Portfolio Manager of Sierra Investment Advisors Corporation ("Sierra
Advisors")].

[STEPHEN C. SCOTT (1/18/45), SENIOR VICE PRESIDENT

In August 1988 joined GW Securities to form Sierra Advisors and currently
serves as the President and Chief Investment Officer.]

[RICHARD W. GRANT (10/25/45), SECRETARY

Has been a Partner in the firm of Morgan, Lewis & Bockius LLP since 1989.]

[RICHARD H. ROSE (7/8/55), ASSISTANT TREASURER

Currently acts as Senior Vice President of First Data Investor Services
Group, Inc., a subsidiary of First Data Corp. (prior to May 6, 1994, a
subsidiary of The Boston Company Advisors, Inc. ("Boston Advisors")).]

[CRAIG M. MILLER (10/7/59), TREASURER, CHIEF FINANCIAL OFFICER

Joined SCMC in 1993 as Vice President and Controller. Prior to joining SCMC,
he acted as Audit Manager in the Boston office of Coopers & Lybrand,
L.L.P.]

5
<PAGE>

Each of the Trustees and officers of the Trust is also a trustee or officer
of Sierra Trust Funds ("STF"). Furthermore, with the exception of Mr. Rose, each
of the Trustees and officers of the Trust is also a trustee or officer of Sierra
Prime Income Fund ("SPIF") and Sierra Asset Management Portfolios ("SAMP"). STF,
SPIF and SAMP is each an investment company advised by Sierra Advisors or Sierra
Investment Services Corporation ("Sierra Services").

The address of each trustee and officer of the Trust affiliated with Sierra
Advisors or SISC is 9301 Corbin Avenue, Suite 333, Northridge, California
91324.

REMUNERATION. No director, officer or employee of Composite Research &
Management Co., the advisor to the Funds ("Composite") or of any affiliate of
Composite will receive any compensation from the Trust for serving as an officer
or Trustee of the Trust. The Trust pays each Trustee, who is not a director,
officer or employee of Composite, or any of its affiliates, a fee of $5,000 per
annum plus $1,250 per Board meeting attended and $1,000 per Audit and Nominating
Committee meeting attended (except that the Audit Committee chairman receives
$1,500 per committee meeting attended), and reimburses them for travel and out-
of-pocket expenses.

As of December 31, 1997, the Trustees and officers of the Trust owned, in the
aggregate, less than 1% of the outstanding shares of any of the Funds.

The following Compensation Table shows aggregate compensation paid to each of
the Fund's Trustees by the Fund and the Fund Complex, respectively, in the year
ended December 31, 1997.

COMPENSATION TABLE

(1) NAME OF PERSON, (2) AGGREGATED (3) PENSION OR (4) ESTIMATED ANNUAL (5) TOTAL COMPENSATION
TRUSTEE POSITION COMPENSATION FROM RETIREMENT BENEFITS BENEFITS UPON FROM REGISTRANT AND FUND
- --------------------------- REGISTRANT FOR THE ACCRUED AS PART OF RETIREMENT COMPLEX* PAID TO TRUSTEES
FISCAL YEAR ENDED FUND EXPENSES ------------------- FOR THE YEAR ENDED
DECEMBER 31, 1997 ----------------------- DECEMBER 31, 1997
----------------- ------------------------
<S> <C> <C> <C> <C>
F. BRIAN CERINI** $0 $0 $0 $______

(FORMERLY, CHAIRMAN OF THE
BOARD, PRESIDENT AND
TRUSTEE)

DAVID E. ANDERSON+# _______ $0 $0 $______
TRUSTEE

ARTHUR H. BERNSTEIN, _______ $0 $0 $______
ESQ.++#
TRUSTEE

EDMOND R. DAVIS, ESQ.# _______ $0 $0 $______
TRUSTEE

JOHN W. ENGLISH# _______ $0 $0 $______
TRUSTEE

ALFRED E. OSBORNE#, JR.++ _______ $0 $0 $______
TRUSTEE

WAYNE L. ATTWOOD#, M.D. _______ $0 $0 $______
(age)
Nominee

KRISTIANNE BLAKE (age)# _______ $0 $0 $______
Nominee

ANNE V. FARRELL (age)# _______ $0 $0 $______
Nominee

</TABLE>

6
<PAGE>

<TABLE>
<CAPTION>
COMPENSATION TABLE

MICHAEL K. MURPHY (age)# _______ $0 $0 $______
Nominee

WILLIAM G. PAPESH (age)# _______ $0 $0 $______
Nominee

DANIEL L. PAVELICH (age)# _______ $0 $0 $______
Nominee

JAY ROCKEY (age)# _______ $0 $0 $______
Nominee

RICHARD C. YANCEY# (age) _______ $0 $0 $______
Nominee

</TABLE>

* The Fund Complex consisted of the Trust, STF, Sierra Prime Income Fund
("SPIF"),

Sierra Asset Management Portfolios ("SAMP") (the "Sierra Funds") and
Composite U.S. Government Securities, Inc., Composite Income Fund,
Inc., Composite Growth and Income Fund, Inc., Composite Cash
Management Company: Money Market Portfolio, Composite Cash Management
Company: Tax-Exempt Portfolio, Composite Tax-Exempt Bond Fund, Inc.,
Composite Northwest Fund, Inc. and Composite Bond & Stock Fund, Inc.
(the "Composite Funds").

** A Trustee who is an "interested person" as defined in the 1940 Act.
+ Mr. Anderson was paid [$____] for Audit Committee Meetings held by the
Trust.
++ Mr. Bernstein was paid [$____] and [$____] for Audit Committee
Meetings held by STF and SPIF, respectively.
# A Trustee for the Sierra Funds for the year
ended 12/31/97.
## A Director or Trustee of the Composite Funds during the year ended
12/31/97.

INVESTMENT ADVISER, CUSTODIAN AND TRANSFER AGENT

Composite serves as investment adviser to each of the Funds. Certain of the
services provided by, and the fees paid to, Composite, are described in the
Prospectus under "Management - Investment Adviser." Composite (i) compensates
its respective Directors and pays the salaries of its respective officers and
employees employed by such companies, (ii) compensates its respective officers
and employees that are employed by the Trust, and (iii) maintains office
facilities for the Trust.

The assets of the Trust are held under bank custodianship in accordance with
the 1940 Act. Murphey Favre Securities Services, Inc. serves as the Trust's
administrator and Transfer Agent. Boston Safe Deposit and Trust Company serves
as Custodian for the Funds. In addition, the Trust may employ foreign sub-
custodians that are approved by the Board of Trustees to hold foreign
assets.

COUNSEL AND AUDITOR

Ropes & Gray serves as counsel to the Trust and also provides legal services
to Composite; Paul, Hastings, Janofsky & Walker serves as counsel to the
Trustees who are not "interested persons" of the Trust.

, independent accountants, located at
- ---------------- --------------------------
serves as auditor of the Trust.
- ------------------------

ORGANIZATION OF THE TRUST

The Trust is organized as an unincorporated business trust under the laws of
the Commonwealth of Massachusetts pursuant to an Agreement and Declaration of
Trust dated January 27, 1993, as amended from time

7
<PAGE>

to time (the "Declaration of Trust"). Certificates representing shares in the
Trust are not physically issued. The Trust's Custodian and the Trust's Transfer
Agent maintain a record of each shareholder's ownership of Trust shares. Shares
do not have cumulative voting rights, which means that holders of more than 50%
of the shares voting for the election of Trustees can elect all Trustees. Shares
are transferable but have no preemptive, conversion or subscription rights.
Shareholders generally vote by Fund, except with respect to the election of
Trustees and the selection of independent accountants.

Under normal circumstances, there will be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees holding office have been elected by shareholders, at which time
the Trustees then in office promptly will call a shareholders' meeting for the
election of Trustees. Under the 1940 Act, shareholders of record of no less than
two-thirds of the outstanding shares of the Trust may remove a Trustee through a
declaration in writing or by vote cast in person or by proxy at a meeting called
for that purpose. Under the Declaration of Trust, the Trustees are required to
call a meeting of shareholders for the purpose of voting upon the question of
removal of any such Trustee when requested in writing to do so by the
shareholders of record of not less than 10% of the Trust's outstanding shares.

The record owner of all the Trust's shares is Separate Account D of AGL.
However, Contract owners may be deemed to have beneficial ownership of shares
allocable to their Contracts. As of January 31, 1998, to the Trust's knowledge,
no Contract owner had shares allocable to Contracts equal to more than five
percent of any Fund.

Massachusetts law provides that the shareholders, under certain circumstances,
could be held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Trust and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or a
Trustee. The Declaration of Trust provides for indemnification from the Trust's
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust would be unable to meet its obligations, a possibility that
the Trust's management believes is remote. Upon payment of any liability
incurred by the Trust, the shareholder paying the liability will be entitled to
reimbursement from the general assets of the Trust. The Trustees intend to
conduct the operations of the Trust in such a way so as to avoid, to the extent
possible, ultimate liability of the shareholders for liabilities of the Trust.

INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS

The Prospectus discusses the investment objective or objectives of each of the
Funds and the policies to be employed to achieve such objectives. This section
contains supplemental information concerning the types of securities and other
instruments in which the Funds may invest, the investment policies and portfolio
strategies that the Funds may utilize and certain risks attendant to such
investments, policies and strategies.

STRATEGIES AVAILABLE TO ALL FUNDS
---------------------------------

BANK OBLIGATIONS. Domestic commercial banks organized under federal law are
supervised and examined by the Comptroller of the Currency and are required to
be members of the Federal Reserve System and to be insured by the Federal
Deposit Insurance Corporation (the "FDIC"). Domestic banks organized under state
law are supervised and examined by state banking authorities but are members of
the Federal Reserve System only if they elect to join. Most state banks are
insured by the FDIC (although such insurance may not be of material benefit to a
Fund, depending upon the principal amount of certificates of deposit ("CDs") of
each state bank held by a Fund) and are subject to federal examination and to a
substantial body of federal law and regulation. As a result of federal and state
laws and regulations, domestic branches of domestic banks are, among other
things, generally required to maintain specific levels of reserves, and are
subject to other supervision and regulation designed to promote financial
soundness.

Obligations of foreign branches of U.S. banks and of foreign branches of
foreign banks, such as CDs and time deposits ("TDs"), may be general obligations
of the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation and governmental regulation. Obligations of
foreign branches of U.S. banks and foreign banks are subject to the risks
associated with investing in foreign securities generally.

8
<PAGE>

Foreign branches of U.S. banks and foreign branches of foreign banks are not
necessarily subject to the same or similar regulatory requirements that apply to
U.S. banks, such as mandatory reserve requirements, loan limitations, and
accounting, auditing and financial recordkeeping requirements. In addition, less
information may be publicly available about a foreign branch of a U.S. bank or
about a foreign bank than about a U.S. bank.

Obligations of U.S. branches of foreign banks may be general obligations of
the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation and by federal and state regulation as well as
governmental action in the country in which the foreign bank has its head
office. A U.S. branch of a foreign bank may or may not be subject to reserve
requirements imposed by the Federal Reserve System or by the state in which the
branch is located if the branch is licensed in that state. In addition, branches
licensed by the Comptroller of the Currency and branches licensed by certain
states ("State Branches") may or may not be required to (1) pledge to the
regulator by depositing assets with a designated bank within the state an amount
of its assets equal to 5% of its total liabilities, or (2) maintain assets
within the state in an amount equal to a specified percentage of the aggregate
amount of liabilities of the foreign bank payable at or through all of its
agencies or branches within the state. The deposits of State Branches may not
necessarily be insured by the FDIC. In addition, there may be less publicly
available information about a U.S. branch of a foreign bank than about a U.S.
bank.

A Fund may purchase a CD, TD or bankers' acceptances issued by a bank, savings
and loan association or other banking institution with less than $1 billion in
assets (a "Small Issuer Bank Obligation") only so long as the issuer is a member
of the FDIC or supervised by the Office of Thrift Supervision (the "OTS"), and
so long as the principal amount of the Small Issuer Bank Obligation is fully
insured by the FDIC and is no more than $100,000. Each of the Funds will at any
one time hold only one Small Issuer Bank Obligation from any one issuer.

Savings and loan associations whose CDs, TDs and bankers' acceptances may be
purchased by the Funds are supervised by the OTS and insured by the Savings
Association Insurance Fund, which is administered by the FDIC and is backed by
the full faith and credit of the U.S. Government. As a result, such savings and
loan associations are subject to regulation and examination.

RATINGS AS INVESTMENT CRITERIA. In general, the ratings of NRSROs, such as
Moody's, S&P, Duff and Fitch, represent the opinions of these agencies as to the
quality of securities which they rate. It should be emphasized, however, that
such ratings are relative and subjective and are not absolute standards of
quality. These ratings will be used by the Funds as initial criteria for the
selection of portfolio securities, but the Funds will also rely upon the
independent advice of Composite to evaluate potential investments. The Appendix
to this SAI contains further information concerning the ratings of these
services and their significance.

To the extent that the rating given by a rating service for securities may
change as a result of changes in such organizations or their rating systems, the
Funds will attempt to use comparable ratings as standards for its investments in
accordance with the investment policies contained in the Prospectuses and in
this SAI.

U.S. GOVERNMENT SECURITIES. U.S. Government securities include debt
obligations of varying maturities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities. U.S. Government Securities include direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Housing Administration, Farmers Home Administration, Export-Import Bank
of the Untied States, Small Business Administration, Government National
Mortgage Association ("GNMA"), General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation ("FHLMC"), Federal Intermediate Credit Banks,
Resolution Trust Corporation, Federal Land Banks, Federal National Mortgage
Association ("FNMA"), Maritime Administration, Tennessee Valley Authority,
District of Columbia Armory Board and Student Loan Marketing Association. Direct
obligations of the U.S. Treasury include a variety of securities that differ in
their interest rates, maturities and dates of issuance. Because the U.S.
Government is not obligated by law to provide support to an instrumentality it
sponsors, a Fund will invest in obligations issued by such an instrumentality
only if Composite determines that the credit risk with respect to the
instrumentality does not make its securities unsuitable for investment by the
Fund .

9
<PAGE>

AMERICAN DEPOSITARY RECEIPTS ("ADRs"), EUROPEAN DEPOSITARY RECEIPTS ("EDRs"),
CONTINENTAL DEPOSITARY RECEIPTS ("CDRs") AND GLOBAL DEPOSITARY RECEIPTS ("GDRs")
ADRs are securities, typically issued by a U.S. financial institution (a
"depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depositary. ADRs
include American Depositary Shares and New York Shares. EDRs, which are
sometimes referred to as CDRs, are securities, typically issued by a non-U.S.
financial institution, that evidence ownership interests in a security or a pool
of securities issued by either a U.S. or foreign issuer. GDRs are issued
globally and evidence a similar ownership arrangement. Generally, ADRs are
designed for trading in the U.S. securities market, EDRs are designed for
trading in European securities market and GDRs are designed for trading in non-
U.S. securities markets. ADRs, EDRs, CDRs and GDRs may be available for
investment through "sponsored" or "unsponsored" facilities. A sponsored
facility is established jointly by the issuer of the security underlying the
receipt and a depositary, whereas an unsponsored facility may be established by
a depositary without participation by the issuer of the receipt's underlying
security. Holders of an unsponsored depositary receipt generally bear all the
costs of the unsponsored facility. The depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through to the
holders of the receipts voting rights with respect to the deposited securities.

STRATEGIC TRANSACTIONS. No Fund currently intends to enter into Strategic
Transactions, excluding Strategic Transactions that are "covered" or entered
into for bona fide hedging purposes, that are in the aggregate principal amount
in excess of 15% of the Fund's net assets.

Strategic Transactions have associated risks including possible default by the
other party to the transaction, illiquidity and, to the extent Composite's view
as to certain market movements is incorrect, losses greater than if they had not
been used. Use of put and call options, currency transactions or options and
futures transactions entails certain risks as described herein and in the
Appendix to the Prospectuses in sections relating to such investment or
instruments. Losses resulting from the use of Strategic Transactions would
reduce net asset value, and possibly income, and such losses can be greater than
if the Strategic Transactions had not been utilized.

The Funds may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple foreign currency
transactions (including forward foreign currency exchange contracts) and any
combination of futures, options and foreign currency transactions (each
separately, a "component" transaction), instead of a single transaction, as part
of a single strategy when, in the opinion of Composite, it is in the best
interest of the Fund to do so. A combined transaction may contain elements of
risk that are present in each of its component transactions.

The use of Strategic Transactions for portfolio management purposes involves
special considerations and risks. Additional risks pertaining to particular
strategies that make up Strategic Transactions are described in other sections
to this SAI. Successful use of most Strategic Transactions depends upon the
Composite's ability to predict movements of the overall securities and interest
rate markets, which requires different skills than predicting changes in the
prices of individual securities. There can be no assurance that any particular
strategy adopted will succeed. There may be imperfect correlation, or even no
correlation, between price movements of Strategic Transactions and price
movements of the related portfolio or currency positions. Such a lack of
correlation might occur due to factors unrelated to the value of the related
portfolio or currency positions, such as speculative or other pressures on the
markets in which Strategic Transactions are traded. Strategic Transactions, if
successful, can reduce risk of loss or enhance income, by wholly or partially
offsetting the negative effect of, or accurately predicting, unfavorable price
movements or currency fluctuations in the related portfolio or currency
position. However, Strategic Transactions can also reduce the opportunity for
gain by offsetting the positive effect of favorable price movements in the
positions. In addition, a Fund might be required to maintain assets as "cover,"
maintain segregated accounts or make margin payments when it takes positions in
Strategic Transactions involving obligations to third parties (i.e., Strategic
Transactions other than purchased options). These requirements might impair the
Fund's ability to sell a portfolio security or currency position or make an
investment at a time when it would otherwise be favorable to do so, or require
that the Fund sell a portfolio security or currency position at a
disadvantageous time.

STRATEGIES AVAILABLE TO BOND AND STOCK AND NORTHWEST FUNDS
- ----------------------------------------------------------

10
<PAGE>

FUTURES ACTIVITIES. The Funds may enter into futures contracts and options on
futures contracts that are traded on a U.S. exchange or board of trade. These
investments may be made by the Fund involved for the purpose of hedging against
changes in the value of its portfolio securities due to anticipated changes in
interest rates and market conditions. The ability of a Fund to trade in futures
contracts and options on futures contracts may be materially limited by the
requirement of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable to a regulated investment company. See "Taxes" below. In addition to
the uses of futures described above, the Funds may use futures for certain other
purposes. See "Strategic Transactions."

FUTURES CONTRACTS. An interest rate futures contract provides for the future
sale by one party and the purchase by the other party of a certain amount of a
specific financial instrument (debt security) at a specified price, date, time
and place. A bond index futures contract is an agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading day
of the contract and the price at which the index contract was originally
written. No physical delivery of the underlying securities in the index is made.

The purpose of entering into a futures contract by a Fund is to protect the
Fund from fluctuations in the value of its securities caused by anticipated
changes in interest rates or market conditions without necessarily buying or
selling the securities. Of course, since the value of portfolio securities will
far exceed the value of the futures contracts entered into by a Fund, an
increase in the value of the futures contract would only mitigate - but not
totally offset - the decline in the value of the portfolio.

No consideration is paid or received by a Fund upon entering into a futures
contract. Initially, a Fund would be required to deposit with the broker an
amount of cash or cash equivalents equal to approximately 1% to 10% of the
contract amount (this amount is subject to change by the board of trade on which
the contract is traded and members of such board of trade may charge a higher
amount). This amount is known as "initial margin" and is in its nature the
equivalent of a performance bond or good faith deposit on the contract, which is
returned to a Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Subsequent payments, known as
"variation margin," to and from the broker, will be made daily as the price of
the index or securities underlying the futures contract fluctuates, making the
long and short positions in the futures contract more or less valuable, a
process known as "marking-to-market." At any time prior to the expiration of a
futures contract, a Fund may elect to close the position by taking an opposite
position, which will operate to terminate the Fund's existing position in the
contract.

There are several risks in connection with the use of futures contracts as a
hedging device. Successful use of futures contracts by a Fund is subject to the
ability of Composite to correctly predict movements in the direction of interest
rates or changes in market conditions. These predictions involve skills and
techniques that may be different from those involved in the management of the
portfolio being hedged. In addition, there can be no assurance that there will
be a correlation between movements in the price of the underlying index or
securities and movements in the price of the securities which are the subject of
the hedge. A decision of whether, when and how to hedge involves the exercise
of skill and judgment, and even a well-conceived hedge may be unsuccessful to
some degree because of market behavior or unexpected trends in interest rates.

Although the Funds intend to enter into futures contracts only if there is an
active market for such contracts, there is no assurance that an active market
will exist for the contracts at any particular time. Most U.S. futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices would move to
the daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, and in the event of
adverse price movements, a Fund would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the
portion of the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. However, as described above, there is no
guarantee that the price of the securities being hedged will, in fact, correlate
with the price movements in a futures contract and thus provide an offset to
losses on the futures contract.

To ensure that transactions constitute bona fide hedges in instances involving
the purchase or sale of a futures contract, the Funds will be required to either
(i) segregate sufficient cash or other liquid assets to cover the

11
<PAGE>

outstanding position or (ii) cover the futures contract by either owning the
instruments underlying the futures contract or by holding a portfolio of
securities with characteristics substantially similar to the underlying index or
stock index comprising the futures contract or by holding a separate option
permitting it to purchase or sell the same futures contract. Because of the
imperfect correlation between the movements in the price of underlying indexes
or stock indexes of various futures contracts and the movement of the price of
securities in the Funds' portfolios, the Funds will periodically make
adjustments to its index futures contracts positions to appropriately reflect
the relationship between the underlying portfolio and the indexes. The Fund will
not maintain short positions in index or stock index futures contracts, options
written on index or stock index futures contracts and options written on indexes
or stock indexes, if in the aggregate, the value of these positions exceeds the
current market value of its securities portfolio plus or minus the unrealized
gain or loss on those positions, adjusted for the historical volatility
relationship between the portfolio and the index contracts.

OPTIONS ON FUTURES CONTRACTS. An option on a futures contract, as contrasted
with the direct investment in such a contract, gives the purchaser the right, in
return for the premium paid, to assume a position in the futures contract at a
specified exercise price at any time prior to the expiration date of the option.
Upon exercise of an option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account, which represents the
amount by which the market price of the futures contract exceeds, in the case of
a call, or is less than, in the case of a put, the exercise price of the option
on the futures contract. The potential loss related to the purchase of an option
on futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the price of the option to the purchaser is fixed at
the point of sale, there are no daily cash payments to reflect changes in the
value of the underlying contract; however, the value of the option does change
daily and that change would be reflected in the net asset value of the fund
holding the options.

The Funds may purchase and write put and call options on futures contracts
that are traded on a U.S. exchange or board of trade as a hedge against changes
in the value of its portfolio securities, and may enter into closing
transactions with respect to such options to terminate existing positions. There
is no guarantee that such closing transactions can be effected.

There are several risks relating to options on futures contracts. The ability
to establish and close out positions on such options will be subject to the
existence of a liquid market. In addition, the purchase of put or call options
will be based upon predictions as to anticipated interest rate and market trends
by Composite , which could prove to be inaccurate. Even if the expectations of
Composite are correct, there may be an imperfect correlation between the change
in the value of the options and the portfolio securities hedged. In addition to
the uses of options described above, all Funds except the Global Money Fund may
use options for certain other purposes. See "Strategic Transactions."

OPTIONS ON SECURITIES. The Funds may write covered put options and covered
call options on securities, purchase put and call options on securities and
enter into closing transactions. The Funds may not write put options with
respect to more than 50% of their total assets.

Options written by a Fund will normally have expiration dates between one and
nine months from the date written. The exercise price of the options may be
below, equal to or above the market values of the underlying securities at the
times the options are written. In the case of call options, these exercise
prices are referred to as "in-the-money," "at-the-money" and "out-of-the-money,"
respectively. A Fund may write (1) in-the-money call options when Composite
expects that the price of the underlying security will remain flat or decline
moderately during the option period, (2) at-the-money call options when
Composite expects that the price of the underlying security will remain flat or
advance moderately during the option period and (3) out-of-the-money call
options when Composite expects that the premiums received from writing the call
option plus the appreciation in the market price of the underlying security up
to the exercise price will be greater than the appreciation in the price of the
underlying security alone. In any of the preceding situations, if the market
price of the underlying security declines and the security is sold at this lower
price, the amount of any realized loss will be offset wholly or in part by the
premium received. Out-of-the-money, at-the-money and in-the-money put options
(the reverse of call options as to the relation of exercise price to market
price) may be utilized in the same market environments as such call options
described above.

12
<PAGE>

So long as the obligation of the Fund as the writer of an option continues,
the Fund may be assigned an exercise notice by the broker-dealer through which
the option was sold, requiring the Fund to deliver, in the case of a call, or
take delivery of, in the case of a put, the underlying security against payment
of the exercise price. This obligation terminates when the option expires or the
Fund effects a closing purchase transaction. The Fund can no longer effect a
closing purchase transaction with respect to an option once it has been assigned
an exercise notice. To secure its obligation to deliver the underlying security
when it writes a call option, or to pay for the underlying security when it
writes a put option, the Fund will be required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Options
Clearing Corporation (the "OCC") and of the securities exchange on which the
option is written.

An option may be closed out only when there exists a secondary market for an
option of the same series on a recognized securities exchange or in the over-
the-counter market (see "Over the Counter Options," below). In light of this
fact and current trading conditions, the Fund expects to purchase or write call
or put options issued by the OCC, as well as the following national securities
exchanges on which options are traded: The Chicago Board Options Exchange
(CBOE), The Board of Trade of the City of Chicago (CBT), American Stock Exchange
(AMEX), Philadelphia Stock Exchange (PHLX), Pacific Stock Exchange (PSE) and the
New York Stock Exchange (NYSE).

The Fund may realize a profit or loss upon entering into closing transactions.
In cases where the Fund has written an option, it will realize a profit if the
cost of the closing purchase transaction is less than the premium received upon
writing the original option, and will incur a loss if the cost of the closing
purchase transaction exceeds the premium received upon writing the original
option. Similarly, when the Fund has purchased an option and engages in a
closing sale transaction, the Fund will realize a profit or loss to the extent
that the amount received in the closing sale transaction is more or less than
the premium the Fund initially paid for the original option plus the related
transaction costs.

To facilitate closing transactions, the Fund will generally purchase or write
only those options for which Composite believes there is an active secondary
market although there is no assurance that sufficient trading interest to create
a liquid secondary market on a securities exchange will exist for any particular
option or at any particular time, and for some options no such secondary market
may exist. A liquid secondary market in an option may cease to exist for a
variety of reasons. In the past, for example, higher than anticipated trading
activity or order flow, or other unforeseen events, have at times rendered
certain of the facilities of the OCC and the securities exchanges inadequate and
resulted in the institution of special procedures, such as trading rotations,
restrictions on certain types of orders or trading halts or suspensions in one
or more options. There can be no assurance that similar events, or events that
may otherwise interfere with the timely execution of customers' orders, will not
recur. In such events, it might not be possible to effect closing transactions
in particular options. If as a covered call option writer the Fund is unable to
effect a closing purchase transaction in a secondary market, it will not be able
to sell the underlying security until the option expires or it delivers the
underlying security upon exercise.

Securities exchanges have established limitations governing the maximum number
of calls and puts of each class which may be held or written, or exercised
within certain time periods, by an investor or group of investors acting in
concert (regardless of whether the options are written on the same or different
securities exchanges or are held, written or exercised in one or more accounts
or through one or more brokers). It is possible that the particular Fund and
other clients of Composite and certain of their affiliates may be considered to
be such a group. A securities exchange may order the liquidation of positions
found to be in violation of these limits and it may impose certain other
sanctions.

In the case of options written by a Fund that are deemed covered by virtue of
the Fund's holding convertible or exchangeable preferred stock or debt
securities, the time required to convert or exchange and obtain physical
delivery of the underlying security with respect to which the Fund has written
options may exceed the time within which the Fund must make delivery in
accordance with an exercise notice. In these instances, the Fund may purchase or
temporarily borrow the underlying securities for purposes of physical delivery.
By so doing, the Fund will not bear any market risk, since the Fund will have
the absolute right to receive from the issuer of the underlying security an
equal number of shares to replace the borrowed stock. The Fund may however,
incur additional transaction costs or interest expenses in connection with any
such purchase or borrowing.

13
<PAGE>

Additional risks exist with respect to mortgage-backed U.S. Government
Securities for which the Fund may write covered call options. If a Fund writes
covered call options on a mortgage-backed security, the security that it holds
as cover may, because of scheduled amortization of unscheduled prepayments,
cease to be sufficient cover. The Fund will compensate by purchasing an
appropriate additional amount of mortgage-backed securities. In addition to the
uses of options described above, all Funds except the Global Money Fund may use
options for certain other purposes. See "Strategic Transactions."

OPTIONS ON SECURITIES INDEXES. In addition to options on securities, the Funds
may also purchase and sell call and put options on securities indexes. Such
options give the holder the right to receive a cash settlement during the term
of the option based upon the difference between the exercise price and the value
of the index.

Options on securities indexes entail risks in addition to the risks of options
on securities. Because exchange trading of options on securities indexes is
relatively new, the absence of a liquid secondary market to close out an option
position is more likely to occur, although the Fund generally will purchase or
write such an option only if Composite believes the option can be closed out.

Use of options on securities indexes also entails the risk that trading in
such options may be interrupted if trading in certain securities included in the
index is interrupted. The Fund will not purchase or write such options unless
Composite believes the market is sufficiently developed for the risk of trading
in such options to be no greater than the risk of trading in options on
securities.

Price movements in the Fund's portfolio may not correlate precisely with
movements in the level of an index and, therefore, the use of options on
securities indexes cannot serve as a complete hedge. Because options on
securities indexes require settlement in cash, the Fund may be forced to
liquidate portfolio securities to meet settlement obligations. In addition to
the uses of options described above, all Funds except the Global Money Fund may
use options for certain other purposes. See "Strategic Transactions."

OVER THE COUNTER OPTIONS. Over the Counter Options ("OTC Options") can be
closed out only by agreement with the primary dealer in the transaction, and
thus any OTC Options and their underlying securities or currencies are
considered illiquid. With OTC Options, terms such as expiration date, exercise
price and premium are agreed upon between the Fund and the transacting dealer,
without the intermediation of a third party such as the OCC. Any OTC Options
written by a Fund (other than OTC Currency Options) will be with a qualified
dealer pursuant to an agreement under which the Fund may repurchase the option
at a formula price at which the Fund would have the absolute right to repurchase
an OTC Option it has sold. OTC Options will be considered illiquid in an amount
equal to the formula price, less the amount by which the option is "in-the-
money."

WHEN-ISSUED SECURITIES AND DELAYED DELIVERY TRANSACTIONS. A segregated account
in the name of the Funds consisting of cash or liquid debt securities equal to
the amount of when-issued or delayed-delivery commitments will be established at
Boston Safe, the Trust's custodian. For the purpose of determining the adequacy
of the securities in the accounts, the deposited securities will be valued at
market or fair value. If the market or fair value of the securities declines,
additional cash or securities will be placed in the account daily so that the
value of the account will equal the amount of such commitments by the Fund. On
the settlement date, the Fund will meet its obligations from then-available cash
flow, the sale of securities held in the segregated account, the sale of other
securities or, although it would not normally expect to do so, from the sale of
securities purchased on a when-issued or delayed-delivery basis themselves
(which may have a greater or lesser value than the Fund's payment obligations).

LENDING OF PORTFOLIO SECURITIES. Each of the Funds will adhere to the
following conditions whenever its portfolio securities are loaned: (1) the Fund
must receive at least 100% cash collateral or equivalent securities from the
borrower; (2) the borrower must increase the collateral whenever the market
value of the securities rises above the level of the collateral; (3) the Fund
must be able to terminate the loan at any time; (4) the Fund must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions on the loaned securities and any increase in market value; (5) the
Fund may pay only reasonable custodian fees in connection with the loan; and (6)
voting rights on the loaned securities may pass to the borrower, provided that
if a material event adversely affecting the investment occurs, the Trust's Board
of Trustees must terminate the

14
<PAGE>

loan and regain the right to vote the securities. From time to time, the Funds
may pay a part of the interest earned from the investment of the collateral
received for securities loaned to the borrower and/or a third party that is
unaffiliated with the Trust and that is acting as a "finder."

STRATEGY AVAILABLE TO THE BOND & STOCK FUND
- -------------------------------------------

LOWER-RATED SECURITIES. The Bond & Stock Fund may invest up to 35% of its
total assets in non-investment grade securities (rated Ba and lower by Moody's
or BB and lower by Standard & Poor's) or unrated securities. Such securities
carry a high degree of risk (including the possibility of default or bankruptcy
of the issuer of such securities), generally involve greater volatility of price
and risk of principal and income, and may be less liquid, than securities in the
higher rating categories and are considered speculative. See the Appendix to
this SAI for a more complete description of the ratings assigned by ratings
organizations and their respective characteristics.

Economic downturn may disrupt the high yield market and impair the ability of
issuers to repay principal and interest. Also, an increase in interest rates
could further adversely affect the value of such obligations held by the Fund.
Prices and yields of high yield securities will fluctuate over time and may
affect the Fund's net asset value. In addition, investments in high yield zero
coupon or pay-in-kind bonds, rather than income-bearing high yield securities,
may be more speculative and may be subject to greater fluctuations in value due
to changes in interest rates.

The trading market for high yield securities may be thin to the extent that
there is no established retail secondary market or because of a decline in the
value of such securities. A thin trading market may limit the ability of the
Trustees to accurately value high yield securities in the Fund's portfolio and
to dispose of those securities. Adverse publicity and investor perceptions may
decrease the value and liquidity of high yield securities. These securities may
also involve special registration responsibilities, liabilities and costs.

Credit quality in the high yield securities market can change suddenly and
unexpectedly, and even recently-issued credit ratings may not fully reflect the
actual risks posed by a particular high yield security. For these reasons, it is
the policy of Composite not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and ongoing review of credit quality. The achievement of the Fund's investment
objectives by investment in such securities may be more dependent on Composite's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, the Composite will determine whether it is
in the best interest of the Fund to retain the security.

Prices for below investment grade securities may be affected by legislative
and regulatory developments. For example, new federal rules require savings and
loan institutions to gradually reduce their holdings of this type of security.
Also, Congress from time to time has considered legislation which would restrict
or eliminate the corporate tax deduction for interest payments on these
securities and would regulate corporate restructurings. Such legislation may
significantly depress the prices of outstanding securities of this type.

INVESTMENT RESTRICTIONS OF THE FUNDS

While many decisions of Composite depend on flexibility, there are several
principles so fundamental to each Fund's philosophy that neither they, nor the
investment objective, may be changed without a vote of a majority of the
outstanding shares of that Fund.

The Bond & Stock and Northwest Funds have adopted the investment restrictions
below. Each of the Bond & Stock and Northwest Funds may not:

. invest more than 5%* of its total assets in any single issuer other than
U.S. government securities, except that up to 25% of a Fund's assets may be
invested without regard to this 5% limitation;

. acquire more than 10%* of the voting securities of any one company;

. invest in real estate or commodities;

15
<PAGE>

. invest in oil, gas or other mineral leases;

. invest more than 25%* of its assets in any single industry;**

. buy securities on margin, mortgage or pledge its securities;

. act as underwriter of securities issued by others;

. borrow money for investment purposes (it may borrow up to 5% of its total
assets for emergency, non-investment purposes);

. lend money (except for the execution of repurchase agreements);

. issue senior securities.

* Percentage at the time the investment is made.

In addition, as a matter of non-fundamental policy, the Bond & Stock and
Northwest Funds may invest more than

15%* of its assets in illiquid securities;

The Money Market Fund has adopted the following investment restrictions. The
Fund may not:

1. Purchase the securities of any issuer (other than U.S. Government
Securities) if as a result more than 5% of the value of the Fund's total
assets would be invested in the securities of the issuer (the "5%
Limitation"), except that up to 25% of the value of the Fund's total assets
may be invested without regard to the 5% Limitation;

2. Purchase more than 10% of the securities of any class of any one issuer;
provided that this limitation shall not apply to investments in U.S.
Government Securities;

3. Purchase securities on margin, except that the Fund may obtain any short-
term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with futures contracts or related
options will not be deemed to be a purchase of securities on margin;

4. Make short sales of securities or maintaining a short position;

5. Borrow money, except that the Fund may (i) enter into Reverse Repurchase
Agreements or (ii) borrow from banks for temporary (not leveraging)
purposes, including the meeting of redemption requests that might otherwise
require the untimely disposition of securities or pending settlement of
securities transactions or for emergency or extraordinary purposes in an
aggregate amount not exceeding 30% of the value of the Fund's total assets
(including the amount borrowed) valued at market less liabilities (not
including the amount borrowed) at the time the borrowing is made;

6. Pledge, hypothecate, mortgage or otherwise encumber more than 30% of the
value of the Fund's total assets. For purposes of this restriction, (a) the
deposit of assets in escrow in connection with the writing of covered put
or call options and the purchase of securities on a when-issued or delayed-
delivery basis and (b) collateral arrangements with respect to (i) the
purchase and sale of options on securities, options on indexes and options
on foreign currencies, and (ii) initial or variation margin for futures
contracts will not be deemed to be pledges of a Fund's assets;

7. Underwrite the securities of other issuers, except insofar as the Fund may
be deemed an underwriter under the Securities Act of 1933, as amended (the
"Securities Act"), by virtue of disposing of portfolio securities;

8. Purchase or sell real estate or interests in real estate, except that the
Fund may purchase and sell securities that are secured, directly or
indirectly, by real estate and may purchase securities issued by companies
that invest or deal in real estate;

16
<PAGE>

9. Invest in commodities. The entry into forward foreign currency exchange
contracts is not and shall not be deemed to involve investing in
commodities;

10. Invest in oil, gas or other mineral exploration or development programs;

11. Make loans to others, except through the purchase of qualified debt
obligations, loans of portfolio securities and the entry into repurchase
agreements;

12. Purchase any securities that would cause more than 25% of the value of the
Fund's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the
same industry;

13. Purchase, write or sell puts, calls, straddles, spreads or combinations
thereof; nor is the Fund permitted to: (a) purchase, write and sell covered
put and call options on securities, (b) purchase, write and sell futures
contracts and options on futures contracts, and (c) purchase and write put
and call options on stock indexes;

14. [Purchase securities that are not readily marketable if more than 10% of
the total assets of the Fund would be invested in such securities,
including, but not limited to: (1) repurchase agreements with maturities
greater than seven calendar days; (2) time deposits maturing in more than
seven calendar days; (3) to the extent a liquid secondary market does not
exist for the instruments, futures contracts and options thereon; (4)
certain over-the-counter options, as described in this SAI; (5) certain
variable rate demand notes having a demand period of more than seven days;
and (6) certain Rule 144A restricted securities that are deemed to be
illiquid;]

15. Make investments for the purpose of exercising control or management; and

16. Purchase or sell interests in real estate limited partnerships;

With respect to the investment restrictions in items 14 through 16, the Trust
may change such restrictions by vote of a majority of the Board of Trustees.

The percentage limitations contained in the restrictions listed above apply at
the time a security is purchased and will not be considered violated unless an
excess or deficiency exists immediately after and as a result of each purchase.

PORTFOLIO TURNOVER

Portfolio turnover considerations for the Portfolios are addressed in the
Trust's prospectus.

Under certain market conditions, the Funds may experience increased portfolio
turnover as a result of such Fund's options activities. For instance, the
exercise of a substantial number of options written by the Fund (due to
appreciation of the underlying security in the case of call options or
depreciation of the underlying security in the case of put options) could result
in a turnover rate in excess of 100%. A portfolio turnover rate of 100% would
occur if all of the Fund's securities that are included in the computation of
turnover were replaced once during a period of one year. The portfolio turnover
rate is calculated by dividing the lesser of purchases or sales of portfolio
securities for the year by the monthly average value of portfolio securities.
Securities with remaining maturities of one year or less at the date of
acquisition are excluded from the calculation.

Certain other practices that may be employed by the Funds could result in high
portfolio turnover. For example, portfolio securities may be sold in
anticipation of a rise in interest rates (market decline) or purchased in
anticipation of a decline in interest rates (market rise) and later sold. In
addition, a security may be sold and another of comparable quality purchased at
approximately the same time to take advantage of what Composite believes to be a
temporary disparity in the normal yield relationship between the two securities.
These yield disparities may occur for reasons not directly related to the
investment quality of particular issues or the general movement of interest
rates, such as changes in the overall demand for, or supply of, various types of
securities.

PORTFOLIO TRANSACTIONS

Most of the purchases and sales of securities for a Fund, whether transacted
on a securities exchange or over-the-counter, will be effected in the primary
trading market for the securities. Decisions to buy and sell securities for a
Fund

17
<PAGE>

are made by Composite, which also is responsible for placing these transactions,
subject to the overall review of the Trust's Trustees. Although investment
decisions for each Fund are made independently from those of the other accounts
managed by Composite, those other accounts may make investments of the same type
as the Fund. When a Fund and one or more other accounts managed by the
Distributor are prepared to invest in, or desire to dispose of, the same
security, available investments or opportunities for sales will be allocated in
a manner believed by Composite to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by a Fund or the size
of the position obtained or disposed of by the Fund.

Transactions on U.S. exchanges involve the payment of negotiated brokerage
commissions. With respect to exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. There is generally no
stated commission in the case of securities traded in the over-the-counter
markets, but the prices of those securities include undisclosed commissions or
concessions, and the prices at which securities are purchased from and sold to
dealers include a dealer's mark-up or mark-down. U.S. Government securities may
be purchased directly from the U.S. Treasury or from the issuing agency or
instrumentality.

In selecting brokers or dealers to execute portfolio transactions on behalf of
a Fund, Composite seeks the best overall terms available. In assessing the best
overall terms available for any transaction, Composite will consider the factors
it deems relevant, including the breadth of the market in the security, the
price of the security, the financial condition and execution capability of the
broker or dealer and the reasonableness of the commission, if any, for the
specific transaction and on a continuing basis. In addition, each advisory
agreement between the Trust and Composite authorizes Composite, in selecting
brokers or dealers to execute a particular transaction and in evaluating the
best overall terms available, to consider the brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Exchange Act of
1934, as amended) provided to the Trust, the other Funds and/or other accounts
over which Composites or its affiliates exercise investment discretion. As a
result, Composite may cause a Fund to pay a broker-dealer, that provides
brokerage and research services to Composite, an amount of disclosed commission
for effecting a securities transaction in excess of the commission that another
broker-dealer would have charged for effecting that transaction. The fees under
the advisory agreement between the Trust and Composite are not reduced by reason
of the receipt by Composite of brokerage and research services. The Trust's
Trustees will periodically review the commissions paid by the Funds to determine
if the commissions paid over representative periods of time were reasonable in
relation to the benefits received by the Trust.

PURCHASE AND PRICING OF SHARES

Shares in the Portfolios and the Funds are purchased and redeemed and net
asset value is calculated in the manner described in the Prospectus.

REDEMPTIONS

The right of redemption of shares of a Portfolio or Fund may be suspended or
the date of payment postponed (1) for any periods during which the NYSE is
closed (other than for customary weekend and holiday closings), (2) when trading
in the markets the Fund (or underlying Fund of a Portfolio) normally utilizes is
restricted, or an emergency, as defined by the rules and regulations of the SEC,
exists making disposal of the Fund's investments or determination of its net
asset value not reasonably practicable or (3) for such other periods as the SEC
by order may permit for protection of the Fund's shareholders.

DISTRIBUTIONS IN KIND. If the Board of Trustees determines that it would be
detrimental to the best interests of the shareholders of a Portfolio or Fund to
make a redemption payment wholly in cash, the Trust may pay any portion of a
redemption by distribution in kind of portfolio securities in lieu of cash.
Securities issued in a distribution in kind will be readily marketable, although
shareholders receiving distributions in kind may incur brokerage commissions
when subsequently redeeming shares of those securities.

NET ASSET VALUE

The Trust will not calculate the net asset value of the Funds and Portfolios
on certain holidays. On those days, securities held by a Fund may nevertheless
be actively traded, and the value of the Fund's shares could be significantly
affected.

18
<PAGE>

The assets of each Fund and Portfolio are valued according to generally
accepted accounting principles and applicable law. Generally, a Fund's or
Portfolio's investments are valued at market value or, in the absence of a
market value with respect to any portfolio securities, at fair value as
determined by or under the direction of the Trust's Board of Trustees:

o A security that is primarily traded on a U.S. or foreign exchange
(including securities traded through the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ")) is valued
at the last sale price on that exchange or, if there were no sales during
the day, at the current quoted bid price.

o Securities that are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, except that when an occurrence subsequent to the
time a value was so established is determined by the Trust's Board of
Trustees or its delegates.

o Over-the-counter securities that are not reported on the NASDAQ System
and securities listed or traded on certain foreign exchanges whose
operations are similar to the U.S. over-the-counter market are valued on
the basis of the bid price at the close of business on each day.

o An option is generally valued at the last sale price or, in the absence
of a last sale price, the last offer price.

o Investments in U.S. Government securities (other than short-term
securities) are valued at the average of the quoted bid and asked prices
in the over-the-counter market.

o Short-term investments that mature in 60 days or less are valued at
amortized cost when the Board of Trustees determines that this constitutes
fair value; assets of the Money Market Fund are also valued at amortized
cost.

o The value of a futures contract equals the unrealized gain or loss on
the contract, which is determined by marking the contract to the current
settlement price for a like contract acquired on the day on which the
futures contract is being valued. A settlement price may not be used if
the market makes a limited move with respect to the security or index
underlying the futures contract. In such event, the futures contract will
be valued at a fair market price to be determined by or under the
direction of the Trust's Board of Trustees.

o Shares of open-end investment companies are valued at the net asset
value per share last or, contemporaneously calculated.

In carrying out the Board's valuation policies, First Data Investor Services
Group, Inc. ("FDISG"), a wholly-owned subsidiary of First Data Corporation, as
sub-administrator, may consult with one or more independent pricing services
("Pricing Services") retained by the Trust. Debt securities of U.S. issuers
(other than U.S. Government securities and short-term investments) are valued by
FDISG, as sub-administrator, after consultation with the Pricing Service. The
procedures of the Pricing Service are reviewed periodically by the officers of
the Trust under the general supervision and responsibility of the Board of
Trustees.

VALUATION OF THE MONEY MARKET FUND. The valuation of the portfolio securities
of the Money Market Fund is based upon amortized costs, which does not take into
account unrealized capital gains or losses. Amortized cost valuation involves
initially valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price the
Fund would receive if it sold the instrument.

The use by the Money Market Fund of the amortized cost method of valuing its
respective portfolio securities is permitted by a rule adopted by the SEC.
Under this rule, the Money Market Fund must maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of thirteen months or less and invest only in securities
determined by the Board of Trustees of the Trust to present minimal credit risks
and meet certain rating criteria described in the Prospectus above. Pursuant to
the rule, the Board of Trustees also has established procedures designed to
stabilize, to the extent reasonably possible, the Fund's price per share as
computed for the purpose of sales and redemptions at $1.00. Such procedures
include review of the Fund's portfolio holdings by the Board of Trustees, at
such intervals as it may deem appropriate, to determine whether the Fund's net
asset values

19
<PAGE>

calculated by using available market quotations or market equivalents deviates
from $1.00 per share based on amortized cost.

The rule also provides that the extent of any deviation between the Fund's net
asset values based upon available market quotations or market equivalents and
the $1.00 per share net asset values based on amortized cost must be examined by
the Board of Trustees. In the event the Board of Trustees determines that a
deviation exists which may result in material dilution or other unfair results
to investors or existing shareholders, pursuant to the rule the Board of
Trustees must cause the Trust to take such corrective action as the Board deems
necessary and appropriate including: selling portfolio instruments prior to
maturity to realize capital gains or losses or shorten average portfolio
maturity; withholding dividends or paying distributions from capital or capital
gains; redeeming shares in kind; or establishing a net asset value per share by
using available market quotations.

PERFORMANCE

From time to time, the Trust may quote the performance of a Portfolio or Fund
in terms of yield, effective yield, actual distributions, total return or
capital appreciation in reports or other communications to shareholders or in
advertising material. Fund or Portfolio performance will be advertised only if
accompanied by the comparable performance for the corresponding separate
account.

ANNUITY CONTRACT OWNER VALUES WILL DEPEND NOT ONLY ON THE PERFORMANCE OF THE
FUNDS OR PORTFOLIOS, BUT ALSO ON THE MORTALITY AND EXPENSE RISK CHARGES, THE
ADMINISTRATIVE CHARGES, AND ANY APPLICABLE SALES CHARGES UNDER THE ANNUITY
CONTRACTS. THE TOTAL RETURNS OF THE FUNDS REFLECT THE AGREEMENT OF THE FUNDS'
INVESTMENT ADVISER TO VOLUNTARILY WAIVE FEES AND BEAR CERTAIN EXPENSES. TOTAL
RETURNS WOULD HAVE BEEN LOWER IF THESE FEES AND EXPENSES HAD NOT BEEN WAIVED.

MONEY MARKET FUND YIELD INFORMATION

The "yield" of the Money Market Fund refers to the income generated by an
investment in the Fund over a 7-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the investment.
The "effective yield" is calculated similarly but, when annualized, the income
earned by an investment in a Fund is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment.

The yield for the Money Market Fund is computed by: (1) determining the net
change, exclusive of capital changes, in the value of a hypothetical pre-
existing account in the Fund having a balance of one share at the beginning of a
seven calendar day period for which yield is to be quoted, (2) subtracting a
hypothetical charge reflecting deductions from shareholder accounts, (3)
dividing the net change by the value of the account at the beginning of the
period to obtain the base period return, and (4) annualizing the results (i.e.,
multiplying the base period return by 365/7). The net change in the value of
the account reflects the value of additional share purchased with dividends
declared on the original share and any such additional shares and income
received or accrued but not declared as a dividend, but does not include
realized gains and losses or unrealized appreciation or depreciation. In
addition, the Money Market Fund may calculate a compounded effective annualized
yield by adding 1 to the base period return (calculated as described above),
raising the sum to a power equal to 365/7 and subtracting 1.

Based upon the foregoing calculation, for the 7-day period ended December 31,
1997, the yield for the Money Market Fund was ____%, and the effective yield for
the Money Market Fund for the same period was ____%.

The Money Market Fund yield may be compared with the yields of other
investments. It should not, however, be compared to the return on fixed rate
investments which guarantee rates of interest for specified periods, such as the
interest guarantees in an annuity contract or bank deposits.

TOTAL RETURN INFORMATION

From time to time, a Fund, other than the Money Market Fund, may advertise its
"average annual total return" or "aggregate total return" over various periods
of time. Such average annual total return figures show the average

20
<PAGE>

percentage change in value of an investment in the Fund from the beginning date
of the measuring period to the end of the measuring period. These figures
reflect changes in the price of the Fund's shares and assume that any income
dividends and/or capital gains distributions made by the Fund during the period
were reinvested in shares of that Fund. Figures will be given for recent one-,
five-and ten-year periods (if applicable), and may be given for other periods as
well (such as from commencement of the Fund's operations, or on a year-by-year
basis).

When considering "average" total return figures for periods longer than one
year, it is important to note that the relevant Fund's annual total return for
any one year in the period might have been greater or less than the average for
the entire period. A Fund may also use "aggregate" total return figures for
various periods representing the cumulative change in value of an investment in
the Fund for a specific period (again reflecting changes in the Fund's share
prices and assuming reinvestment of dividends and distributions). Aggregate
total returns may be shown by means of schedules, charts or graphs and may
indicate subtotals of the various components of total return (i.e., change in
value of initial investment, income dividends and capital gains distributions).

Average annual total return is computed according to a formula prescribed by
the SEC. The formula can be expressed as follows: P(1 + T)n = ERV, where P = a
hypothetical initial payment of $1,000; T = average annual total return; n =
number of years; and ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the designated time period as of the end of
such period or the life of the fund. The formula for calculating aggregate
total return can be expressed as (ERV/P)-1.

21
<PAGE>

Based on the foregoing, the average annual total returns for the fiscal year
ended December 31, 1997 and from inception through December 31, 1997 and the
aggregate total returns for the Funds from inception through December 31, 1997,
were as follows*:

<TABLE>
<S> <C> <C> <C>
AVERAGE ANNUAL
TOTAL RETURN AVERAGE AGGREGATE
FOR FISCAL ANNUAL TOTAL TOTAL RETURN
YEAR ENDED RETURN SINCE SINCE
FUND* 12/31/97 INCEPTION INCEPTION
------------------------------- ----------------- -------------- -------------
Global Money Fund -- % -- % -- %(a)
</TABLE>
- -------------------

* As of December 31, 1997, the Bond & Stock and Northwest Funds had not yet
commenced operations.

(a) Commenced operations on May 10, 1993.

The total returns shown for the Funds are not an estimate or guarantee of
future performance and do not take into account charges at the annuity and
separate account level.

The performance of any or all of the Funds may be compared in advertisements
and sales literature to the performance of other variable annuity issuers in
general and to the performance of particular types of variable annuities
investing in mutual funds, or series of mutual funds, with investment objectives
similar to each of the Funds. Lipper Analytical Services, Inc. ("Lipper") and
the Variable Annuity Research and Data Service ("VARDS(R)") are independent
services which monitor and rank the performance of variable annuity issuers in
each of the major categories of investment objectives on an industry-wide basis.
Lipper's rankings include variable life issuers as well as variable annuity
issuers. VARDS(R) rankings compare only variable annuity issuers. The
performance analyses prepared by Lipper and VARDS(R) rank such issuers on the
basis of total return, assuming reinvestment of dividends and distributions, but
do not take sales charges, redemption fees or certain expense deductions at the
separate account level into consideration. In addition, VARDS(R) prepares risk
adjusted rankings, which consider the effects of market risk on total return
performance.

In addition, performance of each Fund may be compared in advertisements and
sales literature to the following benchmarks: (1) the Standard & Poor's 500
Index, which represents an unmanaged weighted index of 500 industrial,
transportation, utility and financial companies that represent approximately 80%
of the market capitalization of the U.S. equity markets, widely regarded by
investors as representative of the stock market; (2) the Consumer Price Index,
published by the U.S. Bureau of Labor Statistics, a statistical measure of
change, over time, in the prices of goods and services in major expenditure
groups and generally considered to be a measure of inflation; (3) the Lehman
Brothers Mutual Fund Short World Multi-Market Index, which includes all debt
instruments of the United States and 12 major countries (determined by Lehman)
denominated in dollars with maturities of one to five years; (4) the Lehman
Brothers Mutual Fund U.S. Mortgage Index, which includes all agency mortgage-
backed securities; (5) the Lehman Brothers Mutual Fund Debt BBB-Rated Index,
which represents all investment-grade corporate debt securities; (6) the Morgan
Stanley Capital International EAFE (Europe, Australia, Far East) Index, which
includes 1050 companies representing the stock markets of Europe, Australia, New
Zealand and the Far East; and (7) the U.S. Government 90-Day Treasury Bill rate.
Generally, an index represents the market value of an unmanaged group of
securities, regarded by investors as representative of a particular market. An
index does not reflect any asset-based charges for investment management or
other expenses. The performance information may also include evaluations of the
funds published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as Business Week, Forbes,
Institutional Investor, Money and The Wall Street Journal.

TAXES

The following discussion of federal income tax consequences is based on the
Code and the regulations issued thereunder as in effect on the date of this SAI.
New legislation, as well as administrative changes or court decisions, may
significantly change the conclusions expressed herein and may have a retroactive
effect with respect to the transactions contemplated herein.

22
<PAGE>

Each of the Funds intends to qualify as a "regulated investment company"
("RIC") under Subchapter M of the Code. A Fund that is a RIC and distributes to
its shareholders at least 90% of its taxable net investment income (including,
for this purpose, its net realized short-term capital gains) and 90% of its tax-
exempt interest income (reduced by certain expenses), will not be liable for
federal income taxes to the extent its taxable net investment income and its net
realized long-term and short-term capital gains, if any, are distributed to its
shareholders.

A number of technical rules are prescribed for computing net investment income
and net capital gains. For example, the Fund is generally treated as receiving
dividends on the ex-dividend date. Also, certain foreign currency losses and
capital losses arising after October 31 of a given year may be treated as if
they arise on the first day of the next taxable year.

In order to qualify as a RIC under the Code, in addition to satisfying the
distribution requirement described above, each Fund must (a) derive at least 90%
of its gross income each taxable year from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of stock,
securities, or foreign currencies, and certain other related income, including,
generally, certain gains from options, futures, and forward contracts; (b)
derive less than 30% of its gross income each taxable year from the sale or
other disposition of the following items if held for less than three months: (i)
stock or securities, (ii) options, futures or forward contracts (other than
options futures, or forward contracts on foreign currencies), and (iii) foreign
currencies (or options, futures, or forward contracts on foreign currencies)
that are not directly related to the company's business of investing in stock or
securities; and (c) diversify its holdings so that, at the end of each fiscal
quarter of the Fund's taxable year, (i) at least 50% of the market value of the
Fund's assets is represented by cash and cash items, U.S. Government Securities,
securities of other Registered Investment Companies ("RICs"), and other
securities, with such other securities limited, in respect of any one issuer, to
an amount that does not exceed 10% of the voting securities of such issuer or 5%
of the value of the Fund's total assets; and (ii) not more than 25% of the value
of its assets is invested in the securities (other than U.S. Government
Securities and securities of other RICs) of any one issuer or two or more
issuers which the Fund controls and which are engaged in the same, similar or
related trades or businesses.

If a Fund fails to qualify as a RIC for any year, all of its income will be
subject to tax at corporate rates, and its distributions (including capital gain
distributions) will be taxable as ordinary income dividends to its shareholders
to the extent of the Fund's current and accumulated earnings and profits.

In addition to qualifying under subchapter M by meeting the requirements
described above, each Fund intends to qualify as diversified under Subchapter L
so that non-qualified variable annuity contracts funded by the Trust will not
fail to qualify as annuities for tax purposes. In general, for a Fund to meet
the investment diversification requirements of Subchapter L of the Code,
Treasury regulation 1.817-5 requires that no more than 55% of the total value of
the assets of the Fund be represented by any one investment, no more than 70% by
any two investments, no more than 80% by three investments and no more than 90%
by four investments. Generally, for purposes of the regulations, all securities
of the same issuer are treated as one investment. In the context of U.S.
Government securities (including any security that is issued, guaranteed or
insured by the United States or an instrumentality of the United States), each
U.S. Government agency or instrumentality is treated as a separate issuer. In
the context of shares of registered investment companies (including shares of
the Trust), each series, fund or portfolio is treated as a separate issuer.
Compliance with the Subchapter L regulations is tested on the last day of each
calendar year quarter.

Notwithstanding the distribution requirement described above, which only
requires a Fund to distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital
gain, a regulated investment company is generally subject to a nondeductible 4%
excise tax to the extent it fails to distribute by the end of any calendar year
at least 98% of its ordinary income for that year and 98% of its capital gain
net income for the one-year period ending on October 31 of that year, plus
certain other amounts.

The excise tax is inapplicable to any RIC all of the shareholders of which are
either tax-exempt pension trusts or separate accounts of life insurance
companies funding variable contracts. Although each Fund believes that it is
not subject to the excise tax, each Fund intends to make the distributions
required to avoid the imposition of the tax, provided such payments and
distributions are determined to be in the best interest of such Fund's
shareholders.

Dividends declared by a Fund in October, November, or December of any year and
payable to shareholders of record on a date in such month will be deemed to have
been paid by the Fund and received by the shareholders on December 31 of that
year if paid by the Fund at any time during the following January.

23
<PAGE>

DESCRIPTION OF S&P, MOODY'S, DUFF AND FITCH RATINGS

DESCRIPTION OF S&P CORPORATE BOND RATINGS

AAA-Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA-Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated debt only in small degree.

A-Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.

BBB-Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.

BB, B, CCC, CC or C-Debt rated BB, B, CCC, CC or C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of speculation and
C the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.

BB Debt rated 'BB' has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions that could
lead to inadequate capacity to meet timely interest and principal payments.
The 'BB' rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied 'BBB-' rating.

B Debt rate 'B' has greater vulnerability to default but presently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions would likely impair capacity or
willingness to pay interest and repay principal. The 'B' rating category
also is used for debt subordinated to senior debt that is assigned an actual
or implied 'BB' or 'BB-' rating.

CCC Debt rated 'CCC' has a current identifiable vulnerability to default,
and is dependent on favorable business, financial, and economic conditions
to meet timely payment of interest and repayment of principal. In the event
of adverse business, financial, or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The 'CCC' rating
category also is used for debt subordinated to senior debt that is assigned
an actual or implied 'B' or 'B-' rating.

CC The rating 'CC' is typically applied to debt subordinated to senior debt
which is assigned an actual or implied 'CCC' rating.

C The rating 'C' is typically applied to debt subordinated to senior debt
which is assigned an actual or implied 'CCC-' debt rating. The 'C' rating
may be used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued.

C1-Debt rated C1 is reserved for income bonds on which no interest is being
paid.

D-Debt is rated D when the issue is in payment default, or the obligor has
filed for bankruptcy. The D rating is used when interest or principal
payments are not made on the date due, even if the applicable grace period
has not expired, unless S&P believes that such payments will be made during
such grace period.

Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS

24
<PAGE>

Aaa-Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt-
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa-Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the Aaa securities.

A-Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.

Baa-Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba-Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B-Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa-Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca-Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C-Bonds which are rated C are the lowest class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.

Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the security ranks in the lower end of its generic rating
category.

DESCRIPTION OF DUFF CORPORATE BOND RATINGS

AAA-Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.

AA-High credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions.

A-Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of economic stress.

BBB-Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles.

BB+ Below investment grade but deemed likely to meet obligations when due.

25
<PAGE>

BB Present or prospective financial protection factors fluctuate according
to industry conditions or company fortunes.

BB- Overall quality may move up or down frequently within this category.

B+ Below investment grade and possessing risk that obligations will not be
met when due.

B Financial protection factors will fluctuate widely according to economic
cycles, industry conditions and/or company fortunes.

B- Potential exists for frequent changes in the rating within this category
or into a higher or lower rating grade.

CCC Well below investment grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.

DD Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.

DP Preferred stock with dividend arrearages.

DESCRIPTION OF FITCH CORPORATE BOND RATINGS

AAA-Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

AA-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.

A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and to repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB-Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and to repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.

BB Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.

B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic activity
throughout the life of the issue.

CCC Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.

CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C Bonds are in imminent default in payment of interest or principal.

DDD, DD, and D

26
<PAGE>

Bonds are in default on interest and/or principal payments. Such bonds are
extremely speculative and should be valued on the basis of their ultimate
recovery value in liquidation or reorganization of the obligor. 'DDD' represents
the highest potential for recovery on these bonds, and 'D' represents the lowest
potential for recovery.

PLUS (+) MINUS (-)

Plus and minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the DDD, DD, or D categories.

DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS

A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Debt determined to possess extremely strong safety
characteristics is denoted with a plus sign (+) designation.

A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated 'A-1'.

A-3 Debt carrying this designation has an adequate capacity for timely
payment. It is, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.

B Debt rated 'B' is regarded as having only speculative capacity for
timely payment.

C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.

D This rating indicates that the obligation is in payment default.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS

PRIME-1 Issuers rated Prime-1 (or supporting institutions) have superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:

- -- Leading market positions in well established industries. -- High
rates of return on funds employed. -- Conservative capitalization structure
with moderate reliance on debt and ample asset protection. -- Broad margins
in earnings coverage of fixed financial charges and high internal cash
generation. -- Well-established access to a range of financial markets and
assured sources of alternate liquidity.

PRIME-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

PRIME-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.

NOT PRIME Issuers rate Not Prime do not fall within any of the Prime rating
categories.

DESCRIPTION OF DUFF'S COMMERCIAL PAPER RATINGS

Duff 1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations.

Duff 1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors
are minor.

27
<PAGE>

Duff 1- High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small.

GOOD GRADE

Duff 2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.

SATISFACTORY GRADE

Duff 3 Satisfactory liquidity and other protection factors qualify
issue as to investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected.

NON-INVESTMENT GRADE

Duff 4 Speculative investment characteristics. Liquidity is not
sufficient to insure against disruption in debt service. Operating factors
and market access may be subject to a high degree of variation.

DEFAULT

Duff 5 Issuer failed to meet scheduled principal and/or interest
payments.

DESCRIPTION OF FITCH'S COMMERCIAL PAPER RATINGS

F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
'F-1+'.

F-2 Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as for issues assigned 'F-1+' and 'F-1' ratings.

F-3 Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate,
however, near-term adverse changes could cause these securities to be rated
below investment grade.

F-S Weak Credit Quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are
vulnerable to near-term adverse changes in financial and economic
conditions.

D Default. Issues assigned this rating are in actual or imminent payment
default.

LOC The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.

28
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THE SIERRA VARIABLE TRUST

PART C

Item 24. Financial Statements and Exhibits

(a) Financial Statements

Audited Financial Highlights for the fiscal year ended December
31, 1997, relating to the Money Market Fund.

Financial Statements (Money Market Fund)

Statement of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Notes to Financial Statements

(b) Exhibits:

* Filed herewith

1(a) Agreement and Declaration of Trust, dated January 29,
1993, originally filed as exhibit to Registration Statement on
Form N-1A February 2, 1993, is incorporated by reference to Post-
Effective Amendment No. 7 filed on February 28, 1997.

1(b)-1 Amendment No. 1 to the Trust's Agreement and
Declaration of Trust, dated April 27, 1993, originally filed as
an exhibit to Post-Effective Amendment No. 1 October 13, 1993, is
incorporated by reference to Post-Effective Amendment No. 7 filed
on February 28, 1997.

1(b)-2 Amendment No. 2 to the Trust's Agreement and Declaration of
Trust, dated September 22, 1993, originally filed as an exhibit
to Post-Effective Amendment No. 1 October 13, 1993, is
incorporated by reference to Post-Effective Amendment No. 7 filed
on February 28, 1997.

1(c)-1 Not applicable.

2 By-Laws of the Trust, originally filed as exhibit to
Registration Statement on Form N-1A February 2, 1993, is
incorporated by reference to Post-Effective Amendment No. 7 filed
on February 28, 1997.

3 Not Applicable.

4 Not Applicable.

5(a)-1 Management Agreement, dated as of _______, 1998, between the
Trust and Composite Research & Management Co. ("Composite")

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<PAGE>

with respect to the Bond & Stock Fund and the Northwest Fund.*

5(a)-8 Not applicable.

6(a) Form of Distribution Agreement, dated _______, 1998, between
the Trust and Composite Funds Distributor, Inc. -- to be filed
by amendment.

6(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, originally filed as an
exhibit to Post-Effective Amendment No. 2 on April 22, 1994,
is incorporated by reference to Exhibit 6(b) of
Post-Effective No. 7 filed on February 28, 1997.

8(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 filed on February 28, 1997.

8(b) Form of Transfer Agency and Services Agreement, dated as of
________ 1998, between the Trust and Murphy Favre Securities
Services, Inc.*

9(a)-1 Administration Agreement, dated April 19, 1993, between the
Trust and Sierra Fund Administration Corporation ("Sierra
Administration") originally filed as Exhibit 9(a) to Post-
Effective Amendment No. 1 on October 13, 1993, is incorporated
by reference to Post-Effective Amendment No. 7 filed on February
28, 1997.

9(a)-3 Form of Administration Agreement dated [_______, 1998]
between the Trust and Murphey Favre Securities Services -- to be
filed by amendment.

10 Consent and Opinion of Counsel with Rule 24f-2 Notice filed
with the Securities and Exchange Commission on February 24,
1997.

11(a)-1 Powers of Attorney with respect to Registration Statements
and Amendments thereto signed by the following persons in their
capacities as Trustees and, where applicable, officers of the
Trust: David E. Anderson, Arthur H. Bernstein, F. Edmond R.
Davis, Alfred E. Osborne, Jr., and Keith B. Pipes, originally
filed as an exhibit to Pre-Effective Amendment No. 1 on March
29, 1993, is incorporated by reference to Post-Effective
Amendment No. 7 on February 28, 1997.

11 Not Applicable.

12 Not Applicable.

13 Not Applicable.

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<PAGE>

14 Not Applicable.

15 Not Applicable.

16 Schedule for Computation of Performance
Information -- to be filed by amendment.

17 Financial Data Schedules for Money Market
Fund -- to be filed by amendment.

Item 25. Persons Controlled by or Under Common Control with Registrant

The Trust is a business trust organized under the laws of the
Commonwealth of Massachusetts. Separate Account D of American General Life
Insurance Company is the sole shareholder of, and may be deemed to control, the
Trust. American General Life Insurance Company is a subsidiary of American
General Corporation.

The list of American General Corporation's active subsidiaries is
hereby incorporated by reference to Item 26 of the Form N-4 registration
statement of American General Life Insurance Company and its Separate Account D,
File Nos. 33-57730 and 811-2441.

The Registrant is operated under the supervision of Composite.
Composite is affiliated with [Murphey Favre Securities Services, Inc., which
serves as transfer agent for the Registrant]. An affiliate of Composite,
Composite Funds Distributor, Inc. serves as the principal underwriter and
distributor for the Registrant. Composite, [Murphey Favre Securities Services,
Inc.] and Composite Funds Distributor, Inc. serve in their same capacities for
the four other registered investment companies (constituting [36] portfolios).

Composite, Murphey Favre Securities Services, Inc. and Composite
Funds Distributor, Inc. are all wholly-owned subsidiaries of Washington Mutual,
Inc. and are all incorporated under the laws of the State of Washington.

Item 26. Number of Holders of Securities

Not Applicable.

Item 27. Indemnification

Article VIII of the Registrant's Agreement and Declaration of Trust
provides in relevant part:

The Trust shall indemnify each of its Trustees and officers (including
persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any interest as
a shareholder, creditor or otherwise) (hereinafter referred to as a
"Covered Person") against all liabilities and expenses, including but
not limited to amounts paid in satisfaction of judgments, in compromise
or as fines and penalties, and counsel fees reasonably incurred by any
Covered Person in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which such Covered

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<PAGE>

Person may be or may have been involved as a party or otherwise or with
which such Covered Person may be or may have been threatened, while in
office or thereafter, by reason of being or having been such a Covered
Person except with respect to any matter as to which such Covered
Person shall have been finally adjudicated in any such action, suit or
other proceeding to be liable to the Trust or its Shareholders by
reason of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered
Person's office. Expenses, including counsel fees so incurred by any
such Covered Person (but excluding amounts paid in satisfaction of
judgments, in compromise or as fines or penalties), shall be paid from
time to time by the Trust in advance of the final disposition of any
such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such Covered Person to repay amounts so paid to the Trust if
it is ultimately determined that indemnification of such expenses is
not authorized under this Article; provided, however, that either (a)
such Covered Person shall have provided appropriate security for such
undertaking, (b) the Trust shall be insured against losses arising from
any such advance payments or (c) either a majority of the disinterested
Trustees acting on the matter (provided that a majority of the
disinterested Trustees then in office act on the matter), or
independent legal counsel in a written opinion, shall have determined,
based upon a review of readily available facts (as opposed to a full
trial type inquiry) that there is reason to believe that such Covered
Person will be found entitled to indemnification under this Article.

As to any matter disposed of (whether by a compromise payment, pursuant
to a consent decree or otherwise) without an adjudication by a court,
or by any other body before which the proceeding was brought, that such
Covered Person is liable to the Trust or its Shareholders by reason of
wilful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office,
indemnification shall be provided if (a) approved, after notice that it
involves such indemnification, by at least a majority of the
disinterested Trustees acting on the matter (provided that a majority
of the disinterested Trustees then in office act on the matter) upon a
determination, based upon a review of readily available facts (as
opposed to a full trial type inquiry) that such Covered Person is not
liable to the Trust or its Shareholders by reasons of wilful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office, or (b) there has
been obtained an opinion in writing of independent legal counsel, based
upon a review of readily available facts (as opposed to a full trial
type inquiry) to the effect that such indemnification would not protect
such Person against any liability to the Trust to which he or she would
otherwise be subject by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office. Any approval pursuant to this Section shall not prevent
the recovery from any Covered Person of any amount paid to such Covered
Person in accordance with this Section as indemnification if such
Covered Person is subsequently adjudicated by a court of competent
jurisdiction to have been liable to the Trust or its Shareholders by
reason of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered

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<PAGE>

Person's office.

Item 28(a). Business and Other Connections of Investment Adviser --

Registrant's Investment Adviser is Composite, a wholly-owned subsidiary of
Washington Mutual, Inc., a Washington corporation. Composite serves in that
capacity for other registered investment companies (constituting [_]
portfolios).

Item 29. Principal Underwriter

(a) Composite Funds Distributor, Inc., the Distributor of the Trust,
currently acts as distributor for The Sierra Trust Funds.

Item 30. Location of Accounts and Records

All accounts, books and other documents required to be maintained by
Section 3(a) of the Investment Company Act of 1940, as amended, and
the rules thereunder are maintained at the offices of the Trust, 9301
Corbin Avenue, Northridge, CA and 601 West Main Avenue, Suite 801,
Spokane, Washington 99201.

Item 31. Management Services

Not applicable.

Item 32. Undertakings

(a) Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
Shareholders, upon request and without charge.

**********

NOTICE

**********

A copy of the Agreement and Declaration of Trust of The Sierra Variable
Trust (the "Trust") is on file with the Secretary of State of the Commonwealth
of Massachusetts and notice is hereby given that this Registration Statement has
been executed on behalf of the Trust by an officer of the Trust as an officer
and by its Trustees as trustees and not individually and the obligations of or
arising out of this Registration Statement are not binding upon any of the
Trustees, officers or shareholders individually but are binding only upon the
assets and property of the Trust.

-5-
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and the Investment Company Act of 1940, as amended, the Registrant
has duly caused this Post-Effective Amendment No. 11 to the Registrant's
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Northridge, in the State of California on the
12th of December, 1997.

THE SIERRA VARIABLE TRUST

By: /s/ Keith B. Pipes
------------------------------------
Keith B. Pipes
President

Pursuant to the requirements of the 1933 Act, as amended, this Post-
Effective Amendment No. 11 has been signed below by the following persons in
their capacities and on the date(s) indicated.
<TABLE>
<CAPTION>

Signature Title Date
--------- ----- ----
<S> <C> <C>

/s/ KEITH B. PIPES
- ------------------------------------- President and Trustee December 12, 1997
Keith B. Pipes
(Principal Executive Officer)

CRAIG M. MILLER
- ------------------------------------- Treasurer and Chief December 12, 1997
Craig M. Miller* Financial Officer
(Principal Financial and Accounting
Officer)

DAVID E. ANDERSON
- ------------------------------------- Trustee December 12, 1997
David E. Anderson*

ARTHUR H. BERNSTEIN
- ------------------------------------- Trustee December 12, 1997
Arthur H. Bernstein*

EDMOND R. DAVIS
- ------------------------------------- Trustee December 12, 1997
Edmond R. Davis*

JOHN W. ENGLISH
- ------------------------------------- Trustee December 12, 1997
John W. English*

ALFRED E. OSBORNE, JR. PH.D.
- ------------------------------------- Trustee December 12, 1997
Alfred E. Osborne, Jr., Ph.D.*

*By: /s/ KEITH B. PIPES
---------------------------------
Keith B. Pipes
Attorney-in-Fact
</TABLE>

-6-
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.
<S> <C>
5 Management Agreement, dated as of _________, 1998 between
the Trust and Composite with respect to the Bond & Stock Fund
and the Northwest Fund.

8(b) Form of Transfer Agency and Services Agreement, dated as of
___________, 1998 between the Trust and Murphey Favre Securities
Services, Inc.
</TABLE>

-7-

<PAGE>

Sierra Variable Trust

INVESTMENT MANAGEMENT AGREEMENT
-------------------------------

INVESTMENT MANAGEMENT AGREEMENT (this "Agreement"), dated _______________,
1997, between The Sierra Variable Trust, a Massachusetts business trust, (the
"Trust"), on behalf of each of its series which are listed on the signature page
of this Agreement (each referred to herein as a "Fund") and Composite Research &
Management Co., a Washington corporation (the "Manager").

W I T N E S S E T H
-------------------

WHEREAS, the Trust is an open-end series management investment company,
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and

WHEREAS, each Fund, as a separate series of the Trust, desires to retain
the Manager to render investment management services to the Fund, and the
Manager is willing to render such services;

NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereto agree as follows:

1. Appointment. The Fund hereby appoints the Manager to act as investment
-----------
manager to the Fund for the period and on the terms set forth in this Agreement.
The Manager accepts such appointment and agrees to render the services herein
described, for the compensation herein provided.

2. Management. Subject to the supervision of the Board of Trustees of the
----------
Trust, the Manager shall manage the investment operations of the Fund and the
composition of the Fund's portfolio, including the purchase, retention and
disposition of securities therefor, in accordance with the Fund's investment
objectives, policies and restrictions as stated in the Prospectus and Statement
of Additional Information (as such terms are hereinafter defined) and
resolutions of the Trust's Board of Trustees and subject to the following
understandings:

(a) The Manager shall provide supervision of the Fund's investments,
furnish a continuous investment program for the Fund's portfolio and
determine from time to time what securities will be purchased, retained, or
sold by the Fund, and what portion of the assets will be invested or held
as cash.

(b) The Manager, in the performance of its duties and obligations under
this Agreement, shall act in conformity with the Declaration of Trust (as
hereinafter defined) of the Trust and the investment policies of the Fund
as determined by the Board of Trustees of the Trust.

(c) The Manager shall determine the securities to be purchased or sold by
the Fund and shall place orders for the purchase and sale of portfolio
securities pursuant to its determinations with brokers or dealers selected
by the Manager. In executing portfolio transactions and selecting brokers
or dealers, the Manager shall use its best efforts to seek on behalf of the
Fund the best overall terms available. In assessing the best overall
<PAGE>

terms available for any transaction, the Manager may consider all factors
it deems relevant, including the breadth of the market in the security, the
price of the security, the size of the transaction, the timing of the
transaction, the reputation, financial condition, experience, and execution
capability of a broker or dealer, the amount of commission, and the value
of any brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934, as amended) provided
by a broker or dealer. The Manager is authorized to pay to a broker or
dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for the Fund which is in excess of the
amount of commission another broker or dealer would have charged for
effecting the transaction if the Manager determines in good faith that such
commission was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer, viewed in terms of
that particular transaction or in terms of the overall responsibilities of
the Manager to the Fund and/or other accounts over which the Manager
exercises investment discretion.

(d) On occasions when the Manager deems the purchase or sale of a security
to be in the best interest of the Fund as well as other fiduciary accounts
for which it has investment responsibility, the Manager, to the extent
permitted by applicable laws and regulations, may aggregate the securities
to be so sold or purchased in order to obtain the best execution, most
favorable net price or lower brokerage commissions.

(e) Subject to the provisions of the Agreement and Declaration of Trust of
the Trust and the Investment Company Act of 1940, as amended (the "1940)
Act"), the Manager, at its expense, may select and contract with one or
more investment advisers (the "Subadviser") for the Fund to perform some or
all of the services for which it is responsible pursuant to this Section 2.
The Manager shall be solely responsible for the compensation of any
Subadviser of the Fund for its services to the Fund. The Manager may
terminate the services of any Subadviser at any time in its sole
discretion, and shall at such time assume the responsibilities of such
Subadviser unless and until a successor Subadviser is selected. To the
extent that more than one Subadviser is selected, the Manager shall, in its
sole discretion, determine the amount of the Fund's assets allocated to
each such Subadviser.

3. Services Not Exclusive. The investment management services rendered by the
----------------------
Manager hereunder to the Fund are not to be deemed exclusive, and the Manager
shall have the right to render similar services to others, including, without
limitation, other investment companies.

4. Expenses. During the term of this Agreement, the Manager shall pay all
--------
expenses incurred by it in connection with its activities under this Agreement
including the salaries and expenses of any of the officers or employees of the
Manager who act as officers, Trustees or employees of the Trust but excluding
the cost of securities purchased for the Fund and the amount of any brokerage
fees and commissions incurred in executing portfolio transactions for the Fund,
and shall provide the Fund with suitable office space. Other expenses to be
incurred in the operation of the Fund (other than those borne by any third
party), including without limitation, taxes, interest, brokerage fees and
commissions, fees of Trustees who are not officers, directors, or employees of
the Manager, federal registration fees and state Blue Sky qualification fees,
administration fees, bookkeeping, charges of custodians, transfer and dividend

2
<PAGE>

disbursing agents' fees, certain insurance premiums, industry association fees,
outside auditing and legal expenses, costs of maintaining the Fund's or the
Trust's existence, costs of independent pricing services, costs attributable to
investor services (including, without limitation, telephone and personnel
expenses), costs of preparing, printing and distributing prospectuses to
existing shareholders, costs of stockholders' reports and meetings of
shareholders and Trustees of the Fund or the Trust, as applicable, and any
extraordinary expenses will be borne by the Fund.

5. Compensation. For the services provided pursuant to this Agreement, each
------------
Fund shall pay to the Manager as full compensation therefor a monthly fee
computed on the average daily net assets of the Fund as stated in Schedule A
attached hereto. The Fund acknowledges that the Manager, as agent for the Fund,
will allocate a portion of the fee equal to the sub-advisory fee payable to the
sub-advisor, if any, under its sub-advisory agreement to the sub-advisor for
sub-advisory services. The Fund acknowledges that the Manager, as agent for the
Fund, will allocate a portion of the fee to Murphey Favre Securities Services,
Inc. for administrative services, portfolio accounting and regulatory compliance
systems. The Manager also from time to time and in such amounts as it shall
determine in its sole discretion may allocate a portion of the fee to Composite
Funds Distributor, Inc. for facilitating distribution of the Fund. This payment
would be made from revenue which otherwise would be considered profit to the
Manager for its services. This disclosure is being made to the Fund solely for
the purpose of conforming with requirements of the Washington Department of
Revenue for exclusion of revenue from the Washington Business and Occupation
Tax.

6. Limitation of Liability. The Manager shall not be liable for any error of
-----------------------
judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement.

7. Delivery of Documents. The Trust has heretofore delivered to the Manager
---------------------
true and complete copies of each of the following documents and shall promptly
deliver to it all future amendments and supplements thereto, if any:

(a) Agreement and Declaration of Trust (such Agreement and Declaration as
presently in effect and as amended from time to time, the "Declaration of
Trust");

(b) Bylaws of the Trust;

(c) Registration Statement under the Securities Act of 1933 and under the
1940 Act of the Trust on Form N-1A, and all amendments thereto, as filed
with the Securities and Exchange Commission (the "Registration Statement")
relating to the Fund and the shares of the Fund;

(d) Notification of Registration of the Trust under the 1940 Act on Form
N-8A;

(e) Prospectuses of the Fund (such prospectuses as presently in effect
and/or as amended or supplemented from time to time, the "Prospectus"); and

3
<PAGE>

(f) Statement of Additional Information of the Fund (such statement as
presently in effect and/or as amended or supplemented from time to time,
the "Statement of Additional Information").

8. Duration and Termination. This Agreement shall become effective as of the
------------------------
date first above-written for an initial period of two years and shall continue
thereafter so long as such continuance is specifically approved at least
annually (a) by the vote of the Board of Trustees including a majority of those
members of the Trust's Board of Trustees who are not parties to this Agreement
or "interested persons" of any such party, cast in person at a meeting called
for that purpose, or by vote of a majority of the outstanding voting securities
of the Fund. Notwithstanding the foregoing, (a) this Agreement may be
terminated at any time, without the payment of any penalty, by either the Fund
(by vote of the Trust's Board of Trustees or by vote of a majority of the
outstanding voting securities of the Fund) or the Manager, on sixty (60) days
prior written notice to the other and (b) shall automatically terminate in the
event of its assignment. As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested persons" and "assignment" shall have
the meanings assigned to such terms in the 1940 Act.

9. Amendments. No provision of this Agreement may be amended, modified,
----------
waived or supplemented except by a written instrument signed by the party
against which enforcement is sought. No amendment of this Agreement shall be
effective until approved in accordance with any applicable provisions of the
1940 Act.

10. Use of Name and Logo. The Fund agrees that it shall furnish to the
--------------------
Manager, prior to any use or distribution thereof, copies of all prospectuses,
statements of additional information, proxy statements, reports to stockholders,
sales literature, advertisements, and other material prepared for distribution
to stockholders of the Fund or to the public, which in any way refer to or
describe the Manager or which include any trade names, trademarks or logos of
the Manager or of any affiliate of the Manager. The Fund further agrees that it
shall not use or distribute any such material if the Manager reasonably objects
in writing to such use or distribution within five (5) business days after the
date such material is furnished to the Manager.

The Manager and/or its affiliates own the names "Sierra", "Composite" and
any other names which may be listed from time to time on a Schedule B to be
attached hereto that they may develop for use in connection with the Fund, which
names may be used by the Fund or the Trust only with the consent of the Manager
and/or its affiliates. The Manager, on behalf of itself and/or its affiliates,
consents to the use by the Trust and by the Fund of such names or any other
names embodying such names, but only on condition and so long as (i) this
Agreement shall remain in full force, (ii) the Fund and the Trust shall fully
perform, fulfill and comply with all provisions of this Agreement expressed
herein to be performed, fulfilled or complied with by it, and (iii) the Manager
is the manager of the Fund and the Trust. No such name shall be used by the
Fund or the Trust at any time or in any place or for any purposes or under any
conditions except as provided in this section. The foregoing authorization by
the Manager, on behalf of itself and/or its affiliates, to the Fund and the
Trust to use such names as part of a business or name is not exclusive of the
right of the Manager and/or its affiliates themselves to use, or to authorize
others to use, the same; the Fund and the Trust acknowledge and agree that

4
<PAGE>

as between the Manager and/or its affiliates and the Fund or the Trust, the
Manager and/or its affiliates have the exclusive right so to use, or authorize
others to use, such names, and the Fund and the Trust agree to take such action
as may reasonably be requested by the Manager, on behalf of itself and/or its
affiliates, to give full effect to the provisions of this section (including,
without limitation, consenting to such use of such names). Without limiting the
generality of the foregoing, the Fund and the Trust agree that, upon (i) any
violation of the provisions of this Agreement by the Fund or the Trust or (ii)
any termination of this Agreement, by either party or otherwise, the Fund and
the Trust will, at the request of the Manager, on behalf of itself and/or its
affiliates, made within six months after such violation or termination, use its
best efforts to change the name of the Fund and the Trust so as to eliminate all
reference, if any, to such names and will not thereafter transact any business
in a name containing such names in any form or combination whatsoever, or
designate itself as the same entity as or successor to an entity of such names,
or otherwise use such names or any other reference to the Manager and/or its
affiliates, except as may be required by law. Such covenants on the part of the
Fund and the Trust shall be binding upon it, its Trustees, officers,
shareholders, creditors and all other persons claiming under or through it.

The provisions of this section shall survive termination of this Agreement.

11. Notices. Any notice or other communication required to be given pursuant
-------
to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, if to the Fund: 601 W. Main Ave., Suite 300,
Spokane, Washington 99201; or if to the Manager: 1201 Third Avenue, Suite
1220, Seattle, Washington 98101; or to either party at such other address as
such party shall designate to the other by a notice given in accordance with the
provisions of this section.

12. Miscellaneous.
-------------

(a) Except as otherwise expressly provided herein or authorized by the
Board of Trustees of the Trust from time to time, the Manager for all
purposes herein shall be deemed to be an independent contractor and shall
have no authority to act for or represent the Fund in any way or otherwise
be deemed an agent of the Fund.

(b) The Trust shall furnish or otherwise make available to the Manager
such information relating to the business affairs of the Fund as the
Manager at any time or from time to time reasonably requests in order to
discharge its obligations hereunder.

(c) This Agreement shall be governed by and construed in accordance with
the laws of The Commonwealth of Massachusetts and shall inure to the
benefit of the parties hereto and their respective successors.

(d) If any provision of this Agreement shall be held or made invalid or by
any court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.

13. Declaration of Trust and Limitation of Liability. A copy of the
------------------------------------------------
Declaration of Trust of the Trust is on file with the Secretary of State of The
Commonwealth of Massachusetts, and

5
<PAGE>

notice is hereby given that this Agreement is executed by an officer of the
Trust on behalf of the Trustees of the Trust, as trustees and not individually,
on further behalf of the Fund, and that the obligations of this Agreement shall
be binding upon the assets and properties of the Fund only and shall not be
binding upon the assets and properties of any other series of the Trust or upon
any of the Trustees, officers, employees, agents or shareholders of the Fund or
the Trust individually.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first above-written.

SIERRA VARIABLE TRUST, on behalf of its
series SHORT TERM HIGH QUALITY BOND FUND,
GROWTH FUND,
EMERGING GROWTH FUND
INTERNATIONAL GROWTH FUND
GLOBAL MONEY FUND
U.S. GOVERNMENT FUND
CORPORATE INCOME FUND
GROWTH AND INCOME FUND
BOND & STOCK FUND
NORTHWEST FUND
CAPITAL GROWTH PORTFOLIO
GROWTH PORTFOLIO
BALANCED PORTFOLIO
VALUE PORTFOLIO

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

By:
-----------------------------------
Name:
Title:
COMPOSITE RESEARCH &
MANAGEMENT CO.

By:
-----------------------------------
William G. Papesh
President
Attest:

By:
-----------------------------------
Sharon L. Howells
Secretary

6
<PAGE>

SCHEDULE A

Composite Research & Management Co.
Advisory Fees

The fees to be charged to Sierra Variable Trust Funds for advisory services
(including any sub-advisory fees) are as follows:

<TABLE>
<CAPTION>
Up to Over
$500m $500m
----- -----
<S> <C> <C>
Global Money Fund 0.500% 0.400%
U.S. Government Fund 0.600% 0.500%
Corporate Income Fund 0.650% 0.500%

Up to Over
$25m $25m
---- ----
Growth Fund 0.950% 0.875%

<CAPTION>
Up to $200m- Over
$200m $500m $500m
----- ----- -----
<S> <C> <C> <C>
Short-term High Quality Bond Fund 0.500% 0.450% 0.400%

<CAPTION>
Up to $25m- Over
$25m $500m $500m
---- ----- -----
<S> <C> <C> <C>
Emerging Growth Fund 0.900% 0.850% 0.750%

<CAPTION>
Up to $50m- Over
$50m $125m $125m
---- ----- -----
<S> <C> <C> <C>
International Growth Fund 0.950% 0.850% 0.750%

<CAPTION>
Up to $100m- $200m- $400m- Over
$100m $200m $400m $500m $500m
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Growth & Income Fund 0.800% 0.750% 0.700% 0.650% 0.575%
</TABLE>
<PAGE>

<S> <C> <C>
Up to Over
$500M $500M
------ ------
Bond & Stock Fund 0.625% 0.500%
Northwest Fund 0.625% 0.500%
</TABLE>

<TABLE>
<CAPTION>
All Asset
Levels
------
<S> <C>
Capital Growth Portfolio 0.10%

Growth Portfolio 0.10%

Balanced Portfolio 0.10%

Value Portfolio 0.10%
</TABLE>

<PAGE>

TRANSFER AGENT CONTRACT
-----------------------

TRANSFER AGENT CONTRACT (this "AGREEMENT"), dated, ___________, 1997,
between The Sierra Variable Trust (the "Trust"), a Massachusetts business trust,
and Murphey Favre Securities Services, Inc. (the "Transfer Agent"), a Washington
corporation.

W I T N E S S E T H
-------------------

WHEREAS, the Trust is authorized to issue shares in separate series, with
each series representing a separate portfolio of securities and other assets;

WHEREAS, the Trust initially intends to offer shares in those Portfolios
identified in the attached Exhibit 1, with each such Portfolio, together with
all other Portfolios subsequently established by the Trust, being subject to
this Agreement in accordance with Section 8;

WHEREAS, the Trust desires the Transfer Agent to perform the services set
forth in Schedule A attached hereto and incorporated herein by reference, and
the Transfer Agent is willing to perform such services;

NOW THEREFORE, in consideration of the premises and the mutual agreements
set forth herein, the parties hereto agree as follows:

1. The Transfer Agent shall perform for the Trust the services set
forth in Schedule A without a fee being charged as the administrative costs are
expected to be de minimus.

2. The Trust agrees to reimburse the Transfer Agent for postage, the
procurement and/or printing of statements, envelopes, checks, reports, tax
forms, proxies, or other forms of printed material required in the performance
of its services to the Trust under this Agreement.

3. The Trust agrees to reimburse the Transfer Agent for all freight and
other delivery charges and insurance or bonding charges incurred by the Transfer
Agent in delivering materials to and from the Trust and its shareholders
("Shareholders"), including those expenses described in Schedule B.

4. The Trust agrees to reimburse the Transfer Agent for all direct
telephone expenses incurred by the Trust in calling Shareholders regarding their
Trust transactions, accounts, and for any other Trust business.

5. The Trust agrees that all computer programs and procedures developed
to perform services required under this Agreement are the property of the
Transfer Agent and the Transfer Agent agrees that all records and other data,
except computer programs and procedures, are the property of the Trust. The
Transfer Agent agrees that it will
<PAGE>

furnish all records and other data as may be requested to the Trust immediately
upon termination of this Agreement for any reason whatsoever.

6. The Transfer Agent agrees to treat all records and other information
relative to the Trust with utmost confidence and further agrees that all records
maintained by the Transfer Agent for the Trust shall be open to inspection and
audit at reasonable times by the officers, agents or auditors employed by the
Trust and that such records shall be preserved and retained by the Transfer
Agent so long as this agreement shall remain in effect.

7. The Transfer Agent shall not be liable for any damage, loss of data,
delay or any other loss caused by any such power failure or machine breakdown,
except that the Transfer Agent shall be liable for actual out-of-pocket costs
caused by any such power failure or machine breakdown, and the Transfer Agent
shall recover the data in process that is assumed lost during any power failure
or machine breakdown.

8. In the event that the Trust establishes one or more Portfolios in
addition to those identified in Exhibit 1, with respect to which the Trust
desires to have Transfer Agent render services as transfer agent under the terms
hereof, the Trust shall so notify Transfer Agent in writing, and Exhibit 1 shall
be amended to include such additional Portfolios.

9. The Transfer Agent will maintain in force through the duration of
this Agreement a fidelity bond in a face amount not less than $1,000,000 written
by a reputable insurance company, covering theft, embezzlement, forgery and
other acts of malfeasance by the Transfer Agent, its employees, or agents in
connection with services performed for the Trust.

10. This agreement may be terminated without the payment of any penalty
by either party upon (180) days' written notice thereof given by the Trust to
the Transfer Agent and upon one hundred eighty (180) days' written notice
thereof given by the Transfer Agent to the Trust.

11. Any notice shall be officially given when sent by registered or
certified mail by either party to the foregoing addresses, provided that either
party may notify the other by regular mail of any changed address to which such
notices should be sent.

12. This Agreement constitutes the entire Agreement between the parties
and shall be governed by, and construed in accordance with, the laws of the
Commonwealth of Massachusetts and shall inure to the benefit of the parties
hereto and their respective successors.

13. A copy of the Declaration of Trust of the Trust is on file with the
Secretary of State of the Commonwealth of Massachusetts, and notice is hereby
given that this Agreement is executed by an officer of the Trust on behalf of
the trustees of the Trust, as trustees and not individually, on further behalf
of the Trust, and that the obligations of this Agreement shall be binding upon
the assets and properties of the Trust only and shall not be binding upon the
assets and properties of any other series of the

2
<PAGE>

Trust or upon any of the trustees, officers, employees, agents or shareholders
of the Trust or the Trust individually.

IN WITNESS WHEREOF, the parties hereto cause this Agreement to be executed
by their officers designated below as of the date first above-written.

THE SIERRA VARIABLE TRUST

By:
------------------------------------
Executive Vice President

MURPHEY FAVRE SECURITIES SERVICES, INC.

By:
------------------------------------
President

3
<PAGE>

SCHEDULE A

I. Shareholder Services

A. Maintain all Shareholder records on electronic data processing
equipment, including:

1. Share balances

2. Account transaction history

3. Names and addresses

4. Distribution records

5. Transfer records

6. Overall control records

B. New Accounts

1. Deposit all monies received into a Trust custody account
maintained by the Trust's custodian.

2. Set up account according to Shareholders' instructions

3. Issue and mail shareholder confirmations

C. Additional Purchases

1. Deposit monies received into a Trust custody account maintained
by the Trust's custodian.

2. Issue Shareholder confirmations

D. Redemptions

1. Liquidate shares upon Shareholder request

2. Make payments of redemption proceeds in accordance with the
Trust's then current prospectus.

3. Issue and mail Shareholder confirmation

E. Transfer shares as requested, including obtaining necessary papers
and documents to satisfy transfer requirements. On irregular
transfers requiring

4
<PAGE>

special legal opinions, such special legal fees, if any, are to be
paid for by the Trust.

F. Process changes, corrections of addresses and registrations

G. Maintain service with Shareholders as follows:

1. Activity required to receive, process and reply to
Shareholders' correspondence regarding account matters

2. Refer correspondence regarding investment matters to the Trust
with sufficient account data to answer

3. Contact Shareholders directly to settle problems and answer
questions

H. Compute distributions, dividends and capital gains

1. Make payment or reinvest in additional shares as directed by
shareholders according to provisions of the Trust's then
current prospectus

2. Advise each Shareholder of the amount of dividends received and
tax status annually

I. Produce transcripts of shareholder account history as required

J. Maintain the controls associated with the computer programs and
manual systems to arrive at the Trust's total shares outstanding

K. Receive mail and perform other administrative functions relating to
transfer agent work

II. Other Services

A. Mailing services to shareholders

B. Services in connection with any stock splits

C. Develop special reports for Trust officers regarding statistical and
accounting data pertaining to the Trust. Trust shall pay for out-of-
pocket expenses charged by vendors to develop such reports or
portions thereof

D. Voice response unit

E. NSCC support

5
<PAGE>

SCHEDULE B

OUT-OF-POCKET EXPENSES

The Trust shall reimburse the Transfer Agent monthly for applicable out-of-
pocket expenses, including, but not limited to the following items:

. NSCC charges
. Banking fees
. Voice response unit
. Microfiche/Microfilm/Image production
. Magnetic media tapes and freight
. Printing costs, including certificates, envelopes, checks and stationery
. Postage (bulk, presort, ZIP+4, bar coding, first class) direct pass through
to the Funds
. Due diligence mailings
. Telephone and telecommunication costs, including all lease, maintenance and
line costs
. Ad hoc reports
. Shareholder transcripts
. Proxy solicitations, mailings and tabulations
. Daily & Distribution advice mailings
. Shipping, Certified and Overnight mail and insurance
. Year-end form production and mailings
. Terminals, communication lines, printers and other equipment and any
expenses incurred in connection with such terminals and lines
. Duplicating services
. Courier services
. Incoming and outgoing wire charges
. Federal Reserve charges for check clearance
. Overtime, as approved by the Funds
. Temporary staff, as approved by the Funds
. Travel and entertainment, as approved by the Funds
. Record retention, retrieval and destruction costs, including, but not
limited to exit fees charged by third party record keeping vendors
. Third party audit reviews
. Ad hoc programming time
. Insurance
. Such other miscellaneous expenses reasonably incurred by the Transfer Agent
in performing its duties and responsibilities under this Agreement

6
<PAGE>

EXHIBIT 1

LIST OF PORTFOLIOS
------------------

Global Money Fund
US Government Fund
Growth and Income Fund
Corporate Income Fund
Emerging Growth Fund
International Growth Fund
Short Term Global Government Fund
Growth Fund
Short Term High Quality Bond Fund
Bond & Stock Fund
Northwest Fund