File No. 33-14954
File No. 811-5199
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 13 /X/
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 15 /X/
(check appropriate box or boxes)
STEINROE VARIABLE INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
Federal Reserve Plaza,
600 Atlantic Avenue, Boston, Massachusetts 02210
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code:
(617) 722-6000
It is proposed that this filing become effective (check
appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule
485
[X] on May 1, 1998 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(i) of Rule
485
[ ] on [ ] pursuant to paragraph (a)(i) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(ii) of Rule
485
[ ] on [ ] pursuant to paragraph (a)(ii) of Rule 485
JOHN A. BENNING, ESQ.
Senior Vice President and General Counsel
Liberty Financial Companies, Inc.
Federal Reserve Plaza
600 Atlantic Avenue
Boston, MA 02210
(Name and Address of Agent for Service)
The Registrant has registered an indefinite number of shares of
beneficial interest of all existing and subsequently created
Series of the Trust under the Securities Act of 1933 pursuant to
Rule 24f-2.
<PAGE>
STEINROE VARIABLE INVESTMENT TRUST
CROSS REFERENCE SHEET
(as required by Rule 481(a))
PART A
FORM N-1A LOCATION
1. Cover Page Cover Page
2. Synopsis The Trust
3. Condensed Financial Financial Highlights;
Information Investment Return
4. General Description of Cover Page; The Trust; How
Registrant the Funds Invest; Investment
Techniques and Restrictions;
Portfolio Turnover; How the
Funds are Managed; Organization
and Description of Shares;
Appendix A: Investment
Techniques and Securities
5. Management of the Fund How the Funds are Managed
5A. Management's Discussion of Information required by
Fund Performance Item 5A is included in the
Registrant's Annual Report for
the year ended December 31,
1997. As required by said Item
5A, the Registrant undertakes
under "Financial Highlights" in
the Prospectuses to provide
free of charge a copy of said
Annual Report to persons
requesting the same.
6. Capital Stock and Other The Trust; Purchases and
Securities Redemptions; Net Asset Value;
Taxes; Dividends and
Distributions; Shareholder
Communications; Organization
and Description of Shares;
Appendix A: Investment
Techniques and Securities
7. Purchase of Securities How the Funds are Managed;
Being Offered Purchases and Redemptions; Net
Asset Value
8. Redemption or Repurchase Purchases and Redemptions
9. Pending Legal Proceedings Not Applicable
PART B
FORM N-1A LOCATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and Commencement of Operations; Mixed
History and Shared Funding
13. Investment Objectives and Investment Restrictions; Appendix
Policies A: Investment Techniques and
Securities
14. Management of the Fund Trustees and Officers; Management
Arrangements
15. Control Persons and Record Shareholders
Principal Holders of Securities
16. Investment Advisory and Management Arrangements;
Other Services Custodian; Independent Auditors
and Financial Statements
17. Brokerage Allocation and Portfolio Transactions
other Practices
18. Capital Stock and Other Investment Restrictions;
Securities Purchases and Redemptions; Net
Asset Value; Appendix A:
Investment Techniques and
Securities
19. Purchase, Redemption and Investment Restrictions;
Pricing of Securities Purchases and Redemptions; Net
Being Offered Asset Value; Investment
Performance
20. Tax Status Taxes (Part A)
21. Underwriters Purchases and Redemptions
(Part A)
22. Calculation of Investment Performance
Performance Data
23. Financial Statements The financial statements required
by Item 23 are incorporated by
reference from the Registrant's
Annual Report for the year ended
December 31, 1997 and are
included in Part B.
PART C
Information required to be set forth in Part C is set forth under
the appropriate item, so numbered, in Part C of the Registration
Statement.
<PAGE>
STEINROE VARIABLE INVESTMENT TRUST
Federal Reserve Plaza
600 Atlantic Avenue
Boston, Massachusetts 02210
- --------------------------------------------------------------------------------
SteinRoe Variable Investment Trust (Trust) is an open-end, diversified
management investment company that currently includes five separate Funds, each
with its own investment objective and policies. The five Funds and their
investment objectives are:
Stein Roe Special Venture Fund, Variable Series
[bullet] Capital growth by investing primarily in common stocks, convertible
securities, and other securities selected for prospective capital
growth.
Stein Roe Growth Stock Fund, Variable Series
[bullet] Long-term growth of capital through investment primarily in common
stocks.
Stein Roe Balanced Fund, Variable Series
[bullet] High total investment return through investment in a changing mix of
securities.
Stein Roe Mortgage Securities Fund, Variable Series
[bullet] Highest possible level of current income consistent with safety of
principal and maintenance of liquidity through investment primarily in
mortgage-backed securities.
Stein Roe Money Market Fund, Variable Series
[bullet] High current income from short-term money market instruments while
emphasizing preservation of capital and maintaining excellent liquidity. (The
Money Market Fund attempts to maintain its net asset value at $1.00 per share,
but there can be no assurance that it will be able to do so. An investment in
the Fund is neither insured nor guaranteed by the U.S. Government.)
There is no assurance that the objectives of the Funds will be realized.
Other Funds may be added or deleted from time to time.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
This Prospectus contains information about the Funds that a prospective investor
should know before applying for certain variable annuity contracts and variable
life insurance policies offered by separate accounts of insurance companies
investing in the Trust. Please read it carefully and retain it for future
reference.
Additional facts about the Funds are included in a Statement of Additional
Information dated May 1, 1998, incorporated herein by reference, which has been
filed with the Securities and Exchange Commission. For a free copy write to
Keyport Financial Services Corp. at 125 High Street, Boston, Massachusetts 02110
or the broker-dealer offering the variable annuity contracts and variable life
insurance policies of Participating Insurance Companies (as such term is defined
in this Prospectus).
- --------------------------------------------------------------------------------
SHARES OF THE TRUST ARE AVAILABLE AND ARE BEING MARKETED EXCLUSIVELY AS A POOLED
FUNDING VEHICLE FOR VARIABLE ANNUITY CONTRACTS (VA CONTRACTS) AND VARIABLE LIFE
INSURANCE POLICIES (VLI POLICIES) OF PARTICIPATING INSURANCE COMPANIES.
- --------------------------------------------------------------------------------
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE APPROPRIATE
VA CONTRACT OR VLI POLICIES OF THE APPLICABLE PARTICIPATING INSURANCE COMPANY.
BOTH PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
The date of this prospectus is May 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
The Trust ................................................. 3
Financial Highlights ...................................... 4
How the Funds Invest ...................................... 9
Investment Techniques and Restrictions .................... 11
Portfolio Turnover ........................................ 12
How the Funds are Managed ................................. 12
Purchases and Redemptions ................................. 14
Investment Return ......................................... 14
</TABLE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Net Asset Value ........................................... 14
Taxes ..................................................... 15
Dividends and Distributions ............................... 16
Shareholder Communications ................................ 16
Organization and Description of Shares .................... 16
Additional Information .................................... 17
Appendix A: Investment Techniques and Securities .......... A-1
Appendix B: Description of Ratings ........................ B-1
</TABLE>
2
<PAGE>
THE TRUST
The SteinRoe Variable Investment Trust (Trust) is an open-end, diversified
management investment company currently consisting of five Funds with differing
investment objectives, policies and restrictions. Currently, the Trust consists
of Stein Roe Special Venture Fund, Variable Series (Special Venture Fund), Stein
Roe Growth Stock Fund, Variable Series (Growth Stock Fund), Stein Roe Balanced
Fund, Variable Series (Balanced Fund), Stein Roe Mortgage Securities Fund,
Variable Series (Mortgage Securities Fund), and Stein Roe Money Market Fund,
Variable Series (Money Market Fund) (individually referred to as a Fund or by
the defined name indicated, or collectively as the Funds). The Trust issues
shares of beneficial interest in each Fund that represent interests in a
separate portfolio of securities and other assets. The Trust may add or delete
Funds from time to time.
The Trust is the funding vehicle for variable annuity contracts (VA contracts)
and variable life insurance policies (VLI policies) offered by the separate
accounts of life insurance companies (Participating Insurance Companies).
Certain Participating Insurance Companies are affiliated with the adviser to the
Funds (Affiliated Participating Insurance Companies). As of the date of this
Prospectus, such Affiliated Participating Insurance Companies are Keyport Life
Insurance Company (Keyport), Independence Life & Annuity Company (Independence),
American Benefit Life Insurance Company (American Benefit) and Liberty Life
Assurance Company of Boston (Liberty Life). Shares of the Funds from time to
time may be sold to other unaffiliated Participating Insurance Companies.
The Participating Insurance Companies and their separate accounts are the
shareholders or investors (shareholders) of the Funds. Owners of VA contracts
and owners of VLI policies invest in sub-accounts of separate accounts of the
Participating Insurance Companies that, in turn, invest in the Funds.
The prospectuses issued by the Participating Insurance Company describe which
Funds are available to the separate accounts offering the VA contracts and VLI
policies. The Trust assumes no responsibility for those prospectuses. However,
the Board of Trustees of the Trust (Board) does monitor events to identify any
material conflicts that may arise between the interests of the Participating
Insurance Companies or between the interests of owners of VA contracts and VLI
policies. The Trust currently does not foresee any disadvantages to the owners
of VA contracts and VLI policies arising from the fact that certain interests of
the owners may differ. The Statement of Additional Information contains
additional information regarding such differing interests and related risks.
Stein Roe & Farnham Incorporated (the Adviser) provides investment advisory
services to the Funds. The Adviser also provides administrative services to the
Funds, and an affiliate of the Adviser provides transfer agency services to the
Funds. Keyport Financial Services Corp. (the Underwriter) serves as the
principal underwriter of the Trust with respect to sales of shares to Affiliated
Participating Insurance Companies. The Adviser, the Underwriter, Keyport,
Independence and American Benefit are subsidiaries of Liberty Financial
Companies, Inc. (LFC). As of March 31, 1998, approximately 72.3% of the combined
voting power of LFC's outstanding voting stock was held, indirectly, by Liberty
Mutual Life Insurance Company (Liberty Mutual). Liberty Life is a subsidiary of
Liberty Mutual.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The tables below present certain financial information for each Fund in the
Trust for the period beginning January 1, 1989 and ending December 31, 1997. The
information has been audited and reported on by the Trust's independent
auditors, KPMG Peat Marwick LLP. The report of KPMG Peat Marwick LLP for periods
beginning on January 1, 1993 appears in the Trust's annual report to
shareholders for the fiscal year ended December 31, 1997 (which may be obtained
without charge from the Underwriter or from the Participating Insurance Company
issuing the applicable VA contract or VLI policy), and is incorporated by
reference into the Statement of Additional Information. The Funds' total returns
presented below do not reflect the cost of insurance and other insurance company
separate account charges which vary with the VA contracts and VLI policies
offered through Participating Insurance Companies.
Special Venture Fund
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------
1997 1996 1995 1994
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Per share operating
performance:
Net asset value, beginning
of year $ 20.73 $ 16.33 $ 14.74 $ 16.53
-------- -------- -------- ---------
Net investment income 0.01 0.04 0.04 0.06
Net realized and unrealized
gains (losses) on
investments 1.25 4.36 1.69 0.09
-------- -------- -------- ---------
Total from investment
operations 1.26 4.40 1.73 0.15
-------- -------- -------- ---------
Less distributions:
Distributions from and in
excess of net
investment income (0.03) -- (0.04) (0.07)
Distributions from and in
excess of net realized
gains on investments (3.96) -- (0.10) (1.87)
Return of capital -- -- -- --
--------- --------- -------- ---------
Total distributions (3.99) -- (0.14) (1.94)
--------- --------- -------- ---------
Net asset value, end of year $ 18.00 $ 20.73 $ 16.33 $ 14.74
========= ========= ======== =========
Total return:
Total investment return 7.81% 26.94% 11.75% 1.19%(b)
Ratios/supplemental data:
Net assets, end of year
(000s) $200,590 $196,219 $143,248 $134,078
Ratio of expenses to average
net assets 0.73% 0.75% 0.76% 0.80%(a)
Ratio of net investment
income to average net
assets 0.04% 0.20% 0.26% 0.44%(b)
Portfolio turnover ratio 93% 100% 132% 144%
Average commissions
(per share) $ 0.0453 $ 0.0251 -- --
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------
1993 1992 1991 1990 1989
---------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Per share operating
performance:
Net asset value, beginning
of year $ 15.34 $ 15.32 $ 12.07 $ 14.79 $ 13.62
--------- ------- ------- ------- -------
Net investment income 0.03 -- 0.21 0.19 0.23
Net realized and unrealized
gains (losses) on
investments 5.22 2.17 4.19 (1.53) 3.90
--------- ------- ------- ------- -------
Total from investment
operations 5.25 2.17 4.40 (1.34) 4.13
--------- ------- ------- ------- -------
Less distributions:
Distributions from and in
excess of net
investment income (0.02) -- (0.15) (0.28) (0.22)
Distributions from and in
excess of net realized
gains on investments (4.04) (2.15) (1.00) (1.10) (2.25)
Return of capital -- -- -- -- (0.49)
--------- ------- ------- ------- -------
Total distributions (4.06) (2.15) (1.15) (1.38) (2.96)
--------- ------- ------- ------- -------
Net asset value, end of year $ 16.53 $ 15.34 $ 15.32 $ 12.07 $ 14.79
========= ======= ======= ======= =======
Total return:
Total investment return 35.68%(b) 14.48% 37.25% (8.91)% 30.84%
Ratios/supplemental data:
Net assets, end of year
(000s) $96,544 $52,135 $41,179 $33,238 $32,176
Ratio of expenses to average
net assets 0.84%(a) 1.01% 1.03% 1.14% 1.08%
Ratio of net investment
income to average net
assets 0.13%(b) (0.01)% 1.35% 1.43% 1.14%
Portfolio turnover ratio 112% 85% 36% 121% 153%
Average commissions
(per share) -- -- -- -- --
</TABLE>
- ----------
(a) These ratios were not materially affected by the reimbursement of certain
expenses by the Adviser and its affiliates.
(b) Computed giving effect to the expense limitation undertaking of the Adviser
and its affiliates.
4
<PAGE>
Growth Stock Fund
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1997 1996 1995 1994
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Per share operating
performance:
Net asset value, beginning
of year $ 28.61 $ 23.59 $ 18.11 $ 20.65
-------- -------- -------- -------
Net investment income 0.10 0.13 0.15 0.15
Net realized and unrealized
gains (losses) on
investments 8.84 4.89 6.68 (1.46)
-------- -------- -------- -------
Total from investment
operations 8.94 5.02 6.83 (1.31)
-------- -------- -------- -------
Less distributions:
Distributions from and in
excess of net
investment income (0.12) -- (0.15) (0.17)
Distributions from and in
excess of net realized
gains on investments (1.30) -- (1.20) (1.06)
Return of capital -- -- -- --
--------- --------- -------- -------
Total distributions (1.42) -- ( 1.35) (1.23)
--------- --------- -------- -------
Net asset value, end of year $ 36.13 $ 28.61 $ 23.59 $ 18.11
========= ========= ======== =======
Total return:
Total investment return 32.28% 21.28% 37.73% (6.35)%
Ratios/supplemental data:
Net assets, end of year
(000s) $213,399 $161,879 $136,834 $98,733
Ratio of expenses to average
net assets 0.71% 0.73% 0.74% 0.77%
Ratio of net investment
income to average net
assets 0.32% 0.49% 0.72% 0.75%
Portfolio turnover ratio 28% 35% 41% 72%
Average commissions
(per share) $ 0.0583 $ 0.0534 -- --
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------
1993 1992 1991 1990 1989
------------ ----------- ----------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Per share operating
performance:
Net asset value, beginning
of year $ 20.10 $ 19.47 $ 13.44 $ 13.88 $ 10.75
-------- ------- ------- ------- -------
Net investment income 0.13 0.11 0.17 0.19 0.17
Net realized and unrealized
gains (losses) on
investments 0.86 1.18 6.25 (0.42) 3.19
-------- ------- ------- ------- -------
Total from investment
operations 0.99 1.29 6.42 (0.23) 3.36
-------- ------- ------- ------- -------
Less distributions:
Distributions from and in
excess of net
investment income (0.12) (0.10) (0.18) (0.21) (0.18)
Distributions from and in
excess of net realized
gains on investments (0.32) (0.56) (0.21) -- --
Return of capital -- -- -- -- (1.05)
-------- ------- ------- ------- -------
Total distributions (0.44) (0.66) (0.39) (0.21) (0.23)
-------- ------- ------- ------- -------
Net asset value, end of year $ 20.65 $ 20.10 $ 19.47 $ 3.44 $ 13.88
======== ======= ======= ======= =======
Total return:
Total investment return 4.97% 6.63% 48.03% (1.65)%(b) 31.30%(b)
Ratios/supplemental data:
Net assets, end of year
(000s) $111,561 $64,402 $38,481 $17,383 $13,257
Ratio of expenses to average
net assets 0.83% 0.97% 1.15% 1.50%(a) 1.60%(a)
Ratio of net investment
income to average net
assets 0.77% 0.63% 1.15% 1.51%(b) 1.35%(b)
Portfolio turnover ratio 77% 20% 40% 39% 77%
Average commissions
(per share) -- -- -- -- --
</TABLE>
- ----------
(a) If the Fund had paid all of its expenses and there had been no reimbursement
from the Adviser and its affiliates, these ratios would have been 1.54% and
1.63% for the years ended December 31, 1990 and 1989, respectively.
(b) Computed giving effect to the expense limitation undertaking of the Adviser
and its affiliates.
5
<PAGE>
Balanced Fund
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1997 1996 1995 1994
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Per share operating
performance:
Net asset value, beginning of year $ 16.28 $ 14.08 $ 12.18 $ 13.11
-------- -------- -------- --------
Net investment income 0.53 0.57 0.48 0.51
Net realized and unrealized gains
(losses) on investments and
foreign currency transactions 1.96 1.63 2.61 (0.93)
-------- -------- -------- --------
Total from investment operations 2.49 2.20 3.09 (0.42)
-------- -------- -------- --------
Less distributions:
Distributions from and in excess
of net investment income (0.56) -- (0.48) (0.51)
Distributions from and in excess
of net realized gains on
investments (1.40) -- (0.71) --
Return of capital -- -- -- --
--------- --------- -------- --------
Total distributions (1.96) -- (1.19) (0.51)
--------- --------- -------- --------
Net asset value, end of year $ 16.81 $ 16.28 $ 14.08 $ 12.18
========= ========= ======== ========
Total return:
Total investment return 16.82% 15.63% 25.43% (3.19)%
Ratios/supplemental data:
Net assets, end of year (000s) $325,033 $299,184 $277,014 $196,278
Ratio of expenses to average
net assets 0.66% 0.67% 0.66% 0.68%
Ratio of net investment income to
average net assets 3.25% 3.68% 3.12% 4.01%
Portfolio turnover ratio (a) 44% 76% 66% 71%
Average commissions (per share) $0.0539 $ 0.0547 -- --
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------
1993 1992 1991 1990 1989
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Per share operating
performance:
Net asset value, beginning of year $ 12.54 $ 12.54 $ 10.26 $ 11.38 $ 10.25
-------- -------- ------- ------- -------
Net investment income 0.38 0.45 0.52 0.62 0.53
Net realized and unrealized gains
(losses) on investments and
foreign currency transactions 0.78 0.49 2.31 (0.70) 1.75
-------- -------- ------- ------- -------
Total from investment operations 1.16 0.94 2.83 (0.08) 2.28
-------- -------- ------- ------- -------
Less distributions:
Distributions from and in excess
of net investment income (0.36) (0.46) (0.44) (0.74) (0.52)
Distributions from and in excess
of net realized gains on
investments (0.23) (0.48) (0.11) (0.30) (0.46)
Return of capital -- -- -- -- (0.17)
-------- -------- ------- ------- -------
Total distributions (0.59) (0.94) (0.55) (1.04) (1.15)
-------- -------- ------- ------- -------
Net asset value, end of year $ 13.11 $ 12.54 $ 12.54 $ 10.26 $ 11.38
======== ======== ======= ======= =======
Total return:
Total investment return 9.29% 7.53% 27.93% (0.69)% 22.38%
Ratios/supplemental data:
Net assets, end of year (000s) $197,132 $113,572 $82,710 $58,368 $59,068
Ratio of expenses to average
net assets 0.69% 0.66% 0.71% 0.75% 0.78%
Ratio of net investment income to
average net assets 3.55% 3.98% 4.57% 5.30% 4.64%
Portfolio turnover ratio (a) 47% 70% 82% 111% 109%
Average commissions (per share) -- -- -- -- --
</TABLE>
- ----------
(a) The portfolio turnover ratio includes dollar roll transactions.
6
<PAGE>
Mortgage Securities Fund
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------
1997 1996 1995 1994
----------- ---------------- ------------ ------------------
<S> <C> <C> <C> <C>
Per share operating
performance:
Net asset value, beginning of year $ 9.84 $ 10.16 $ 9.28 $ 10.17
------- ------- -------- -------
Net investment income 0.68 0.78 0.57 0.73
Net realized and unrealized gains
(losses) on investments 0.21 (0.30) 0.89 (0.89)
------- ------- -------- -------
Total from investment operations 0.89 0.48 1.46 (0.16)
------- ------- -------- -------
Less distributions:
Distributions from and in
excess of net investment
income -- (0.80) (0.58) (0.73)
Distributions from and in
excess of net realized gains
on investments -- -- -- --
Return of capital -- -- -- --
------- ------- -------- -------
Total distributions -- (0.80) (0.58) (0.73)
------- ------- -------- -------
Net asset value, end of year $ 10.73 $ 9.84 $ 10.16 $ 9.28
======= ======= ======== =======
Total return:
Total investment return 9.04% 4.70% 15.74% (1.57)%(b)
Ratios/supplemental data:
Net assets, end of year (000s) $77,173 $76,009 $101,778 $72,420
Ratio of expenses to average
net assets 0.70% 0.70%(a) 0.69% 0.70%(a)
Ratio of net investment income to
average net assets 6.59% 6.71%(b) 6.76% 6.71%(b)
Portfolio turnover ratio (c) 29% 72% 112% 241%
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------------
1993 1992 1991 1990 1989
---------------- ----------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Per share operating
performance:
Net asset value, beginning of year $ 10.26 $ 10.42 $ 9.74 $ 9.69 $ 9.39
------- ------- ------- --------- ---------
Net investment income 0.65 0.63 0.67 0.80 0.76
Net realized and unrealized gains
(losses) on investments (0.01) (0.01) 0.73 0.08 0.45
------- ------- ------- --------- ---------
Total from investment operations 0.64 0.62 1.40 0.88 1.21
------- ------- ------- --------- ---------
Less distributions:
Distributions from and in
excess of net investment
income (0.65) (0.62) (0.66) (0.83) (0.76)
Distributions from and in
excess of net realized gains
on investments (0.08) (0.16) (0.06) -- --
Return of capital -- -- -- -- (0.15)
------- ------- ------- --------- ---------
Total distributions (0.73) (0.78) (0.72) (0.83) (0.91)
------- ------- ------- --------- ---------
Net asset value, end of year $ 10.17 $ 10.26 $ 10.42 $ 9.74 $ 9.69
======= ======= ======= ========= =========
Total return:
Total investment return 6.26%(b) 5.95% 14.48% 9.10%(b) 12.84%(b)
Ratios/supplemental data:
Net assets, end of year (000s) $91,195 $67,353 $48,559 $29,992 $21,067
Ratio of expenses to average
net assets 0.76%(a) 0.90% 0.99% 1.00%(a) 1.10%(a)
Ratio of net investment income to
average net assets 6.64%(b) 6.72% 7.26% 8.09%(b) 7.85%(b)
Portfolio turnover ratio (c) 187% 169% 133% 81% 101%
</TABLE>
- ----------
(a) If the Fund had paid all of its expenses and there had been no reimbursement
from the Adviser and its affiliates, this ratio would have been 0.72%,
0.71%, 0.76%, 1.22% and 1.25% for the years ended December 31, 1996, 1994,
1993, 1990 and 1989, respectively.
(b) Computed giving effect to the expense limitation undertaking of the Adviser
and its affiliates.
(c) The portfolio turnover ratio includes dollar roll transactions.
7
<PAGE>
Money Market Fund
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1997 1996 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------
Net investment income 0.050 0.049 0.055 0.037
-------- -------- -------- --------
Less distributions:
Distributions from net investment
income (0.050) (0.049) (0.055) (0.037)
-------- -------- -------- --------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total return:
Total investment return 5.18% 5.01% 5.62% 3.81%
Ratios/supplemental data:
Net assets, end of year (000s) $67,137 $65,461 $64,992 $78,698
Ratio of expenses to average
net assets - 0.65% 0.65% 0.63% 0.62%
Ratio of net investment income
to average net assets 5.05% 4.90% 5.48% 3.73%
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Net investment income 0.027 0.034 0.056 0.076 0.087
-------- -------- -------- -------- --------
Less distributions:
Distributions from net investment
income (0.027) (0.034) (0.056) (0.076) (0.087)
-------- -------- -------- -------- --------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return:
Total investment return 2.70% 3.48% 5.79% 7.89% 9.07%
Ratios/supplemental data:
Net assets, end of year (000s) $83,049 $70,821 $77,676 $94,462 $94,313
Ratio of expenses to average
net assets 0.65% 0.67% 0.67% 0.66% 0.66%
Ratio of net investment income
to average net assets 2.68% 3.42% 5.67% 7.61% 8.68%
</TABLE>
8
<PAGE>
Further information about the performance of the Funds is contained in the
Trust's annual report to shareholders for the fiscal year ended December 31,
1997, which may be obtained without charge from the Underwriter or from the
Participating Insurance Company issuing the applicable VA contract or VLI
policy.
HOW THE FUNDS INVEST
All investments, including mutual funds, have risks, and no one mutual fund is
suitable for all investors. No one Fund by itself constitutes a complete
investment program. The net asset value of the shares of the Funds, other than
Money Market Fund, will vary with market conditions and there can be no
guarantee that any Fund will achieve its investment objective. Although Money
Market Fund attempts to stabilize its net asset value at $1.00 per share, there
can be no assurance that it will be able to do so.
Each Fund and its investment objectives and policies are described below.
Certain additional investment policies and techniques common to some or all of
the Funds are described under "INVESTMENT TECHNIQUES AND RESTRICTIONS" below.
The investment objectives are fundamental and may be changed only by a vote of
the Board and of the shareholders.
More information about the portfolio securities in which the Funds invest,
including certain risks and investment limitations, is provided in Appendix A to
this Prospectus and Appendix A in the Statement of Additional Information.
Appendix B in this Prospectus provides a description of bond ratings.
Special Venture Fund
Special Venture Fund seeks to provide shareholders with growth of capital. It
pursues this objective by investing primarily in common stocks, securities
convertible into common stocks and securities having common stock
characteristics, including rights and warrants, selected primarily for
prospective capital growth. The Fund invests in both domestic and foreign
companies.
Investments in newer and smaller companies, particularly those believed to be in
the earlier phases of growth, are emphasized. The Fund may also invest in
securities of larger, more established companies that the Adviser believes
possess some of the same characteristics as smaller companies. While income is
not an objective, securities appearing to offer attractive pos-sibilities for
future growth of income may be included in the Fund's portfolio.
Investor Considerations. The type of securities in which the Fund invests may be
expected to experience wide fluctuations in price in both rising and declining
markets. The Fund may be expected to experience a greater degree of market and
financial risk than other equity portfolios. The Fund's portfolio may include
securities that are not widely traded or new issues of securities. The foreign
companies in which the Fund invests may include companies whose operations are
limited to a single country or group of countries. The value of such investments
may be significantly impacted by factors (both positive and negative) affecting
the local economy of such country or countries.
Growth Stock Fund
Growth Stock Fund seeks long-term growth of capital. It is expected that under
ordinary circumstances at least 65% of the total assets of the Fund will be
invested in the common stock of growth companies, including foreign companies,
whose earnings are expected to increase more rapidly than most public companies.
A growth company is one that the Adviser believes has demonstrated an ability to
increase its earnings at an above-average rate with reasonable consistency and
that has given indications of being able to continue this pattern in the
future--i.e., companies that create wealth over a long period of time. In
general, these companies should: be well managed; employ sound financial and
accounting policies; demonstrate effective research; have successful product
development and marketing; provide efficient service; possess pricing
flexibility; and earn an above average return on investment. Up to 25% of the
Fund's investments in growth companies may be in small capitalization companies
with total common stock outstanding of less than $500,000,000.
Up to 35% of the total assets of the Fund may be invested in debt securities and
securities convertible into common stock.
Investor Considerations. Investors should be aware of the possibility that
during periods of adverse economic and market conditions, the per share value of
the Fund may not move in relation to the favorable long-term earnings trend of
its portfolio companies. The foreign companies in which the Fund invests
typically are companies with global operations. Thus, in contrast to Special
Venture Fund, the Fund generally is less likely to be impacted by
country-specific risks with respect to foreign investments.
Balanced Fund
Balanced Fund seeks to provide a high total investment return. The Fund's assets
are allocated among equities, debt securities and cash. The portfolio manager
determines those allocations using the views of the Adviser's investment
strategists regarding economic, market, and other factors relative to investment
opportunities. The equity portion of the Fund's portfolio is invested primarily
in well-established companies having market capitalizations in excess of $1
billion. Under normal market
9
<PAGE>
conditions, debt securities will make up at least 25% of the Fund's total
assets. Investments in debt securities are limited to those that are within the
four highest grades (generally referred to as "investment grade") assigned by a
nationally recognized statistical rating organization, or, if unrated,
determined by the Adviser to be of comparable quality. The cash portion of the
portfolio is invested in securities similar to those permitted by the policies
of Money Market Fund.
The Adviser expects that over longer periods a larger portion of the Fund's
portfolio will consist of equity securities.
Investor Considerations. Although the Fund seeks to reduce both financial and
market risks associated with any one investment medium, performance of the Fund
will depend significantly on the additional factors of timing and mix and the
ability of the Adviser to judge and react to changing market conditions. (See
"PORTFOLIO TURNOVER.") In making asset allocation decisions, the Fund does not
attempt to make short-term market timing shifts.
Mortgage Securities Fund
Mortgage Securities Fund seeks to provide the highest possible level of current
income, consistent with safety of principal and maintenance of liquidity, by
investing under ordinary circumstances at least 65% of its total assets in
various types of investments known as Mortgage Backed Securities representing
beneficial interests in mortgage pools.
The Mortgage Backed Securities in which the Fund invests include but are not
limited to: (i) Mortgage Pass-Through Certificates, including Government
National Mortgage Association (GNMA) Mortgage Pass-Through Certificates (GNMA
Certificates), Federal National Mortgage Association (FNMA) Mortgage
Pass-Through Certificates (FNMA Certificates), Federal Home Loan Mortgage
Corporation (FHLMC) Mortgage Pass-Through Certificates (FHLMC Certificates) and
Non-Governmental Mortgage Pass-Through Certificates, (ii) Commerical Mortgage
Backed Securities, (iii) Collateralized Mortgage Obligations (CMOs) and (iv)
Real Estate Mortgage Investment Conduits (REMICs). See "APPENDIX A: INVESTMENT
TECHNIQUES AND SECURITIES" for a description of these Mortgage Backed Securities
and related risks.
The Fund may invest in instruments rated investment grade or, if unrated,
believed by the Adviser to be of comparable quality. Normally, the portion of
the Fund's portfolio invested in Mortgage Backed Securities which are not
guaranteed by the full faith and credit of the U.S. Government or an agency or
instrumentality thereof will be invested primarily in instruments rated within
the two highest grades (AAA or AA), as determined by Standard & Poor's
Corporation (S&P), or rated with a comparable rating from another nationally
recognized statistical rating organization, or, if unrated, determined by the
Adviser to be of comparable quality.
While the Fund may invest in securities of any maturity, it is currently
expected, under normal circumstances, that the weighted average maturity of the
Fund's portfolio will exceed ten years.
Investor Considerations. The value of the Fund's securities generally fluctuates
inversely with changes in interest rates. Prepayment of high interest rate
Mortgage Backed Securities when interest rates are declining will affect the
performance of the Fund and could result in losses if a premium was paid for
such securities.
Money Market Fund
Money Market Fund seeks high current income from investment in short-term money
market instruments while emphasizing preservation of capital and maintaining
excellent liquidity.
The Fund pursues this objective by investing all of its assets in U.S. dollar
denominated money market instruments maturing in thirteen months or less from
time of investment. Each security must be rated (or be issued by an issuer that
is rated with respect to its short-term debt) within the highest rating category
for short-term debt by at least two nationally recognized statistical rating
organizations ("NRSRO"), or, if unrated, determined by or under the direction of
the Board of Trustees to be of comparable quality. These securities may include:
(1) Securities issued or guaranteed by the U.S. Government or by its agencies
or instrumentalities ("U.S. Government Securities").
(2) Securities issued or guaranteed by the government of any foreign country
that have a long-term rating at time of purchase of A or better (or
equivalent rating) by at least one NRSRO.
(3) Certificates of deposit, bankers' acceptances and time deposits of any
bank (U.S. or foreign) having total assets in excess of $1 billion, or the
equivalent in other currencies (as of the date of the most recent
available financial statements) or of any branches, agencies or
subsidiaries (U.S. or foreign) of any such bank.
(4) Commercial paper of U.S. or foreign issuers, including variable rate
demand notes.
(5) Notes, bonds, and debentures having a long-term rating at time of purchase
of A or better (or equivalent rating) by at least one NRSRO.
(6) Repurchase agreements involving securities listed in (1) above.
(7) Other high-quality short-term obligations.
Under normal market conditions the Fund will invest at least 25% of its total
assets in securities of issuers in the financial ser-
10
<PAGE>
vices industry (which includes, but is not limited to, banks, personal credit
and business credit institutions, and other financial service institutions).
The remaining maturity of each of the Fund's investments at the time of
investment is 13 months or less. The weighted average maturity of its investment
portfolio varies with money market conditions, but is always 90 days or less.
Although there can be no assurance that it will always be able to do so, the
Fund follows procedures designed to maintain its price per share at $1.00. (See
"NET ASSET VALUE.")
Investor Considerations. The yield from short-term investments may be lower than
yields from longer-term securities. The value of the Fund's securities
fluctuates inversely with changes in interest rates. Both the risk of an
issuer's inability to pay interest and principal on a given security (financial
risk) and the price volatility (market risk) of investment in the Fund may be
expected to be less than for certain other Funds.
Because of the Fund's policy of investing at least 25% of its assets in
securities of issuers in the financial services industry, the Fund may be more
adversely affected by changes in market or economic conditions and other
circumstances affecting the financial services industry.
INVESTMENT TECHNIQUES AND RESTRICTIONS
Techniques
Each Fund may invest up to 25% of its total assets in securities of foreign
issuers as more fully described in Appendix A to this Prospectus. Special
Venture Fund, Growth Stock Fund and Balanced Fund typically hold foreign
companies in their portfolios. Mortgage Securities Fund and Money Market Fund
are less likely to invest in foreign securities to any material extent.
When the Adviser believes that the currency of a particular foreign country may
suffer a substantial decline against the U.S. dollar, it may cause a Fund (other
than Money Market Fund) to enter into forward contracts to sell an amount of
foreign currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency. The Adviser may also cause a
Fund to enter into forward foreign currency contracts to protect against loss
between trade and settlement dates resulting from changes in foreign currency
exchange rates. Such contracts will also have the effect of limiting any gains
to the Fund that would have resulted from advantageous changes in such rates.
It is the policy of each Fund that when the Adviser deems a temporary defensive
position advisable, each Fund may invest, without limitation (i.e., up to 100%
of its assets), in high-quality fixed-income securities, or hold assets in cash
or cash equivalents, to the extent the Adviser believes such alternative
investments to be less risky than those securities in which the Fund normally
invests.
Each Fund may invest in securities purchased on a when-issued or
delayed-delivery basis. Although the payment terms of these securities are
established at the time the Fund enters into the commitment, the securities may
be delivered and paid for a month or more after the date of purchase, when their
value may have changed and (with particular reference to debt securities) the
yields then available in the market may be greater. The Funds will make such
commitments only with the intention of actually acquiring the securities, but
may sell the securities before settlement date if it is deemed advisable for
investment reasons.
Each Fund may also invest in securities purchased on a standby commitment basis,
which is a delayed delivery agreement in which the Fund binds itself to accept
delivery of a security at the option of the other party to the agreement. The
Fund usually receives a commitment fee in consideration for its standby
commitment.
Except for Money Market Fund, each Fund may make loans of its portfolio
securities to broker-dealers and banks subject to certain restrictions described
in Appendix A to this Prospectus and in the Statement of Additional Information.
Each Fund other than Money Market Fund may invest in options, futures contracts
and other derivatives as described in Appendix A to this Prospectus and in the
Statement of Additional Information.
Restrictions on the Funds' Investments
No Fund will (1) with respect to 75% of the value of its total assets, invest
more than 5% of its total assets in the securities of any one issuer (except
that this restriction does not apply to (i) U.S. Government Securities or (ii)
[as to Money Market Fund only] certificates of deposit, bankers' acceptances or
repurchase agreements); (2) invest more than 25% of its total assets (at market)
in the securities of issuers in any particular industry (except that this
restriction does not apply to (i) U.S. Government Securities, (ii) [as to Money
Market Fund only] certificates of deposit, bankers' acceptances or repurchase
agreements or (iii) [as to Money Market Fund only] securities of issuers in the
financial services industry); (3) acquire more than 10% of the outstanding
voting securities of any one issuer; or (4) borrow money, except as a temporary
measure for extraordinary or emergency purposes, and then the aggregate
borrowings at any one time (including any reverse repurchase agreements) may not
exceed 33 1/3% of its assets (at market). No Fund will purchase additional
securities when its borrowings, less proceeds receivable from sales of portfolio
securities, exceed 5% of total assets. The Funds may invest in repurchase
agreements, pro-
11
<PAGE>
vided that no Fund will invest more than 15% [except as to Money Market Fund,
for which the limitation is 10%] of its net assets in repurchase agreements
maturing in more than seven days and any other illiquid securities. In each
case, if a percentage limit is satisfied at the time of investment or borrowing,
a later increase or decrease resulting from a change in the value of a security
or decrease in a Fund's assets will not constitute a violation of the limit.
All of the investment restrictions are set forth in the Statement of Additional
Information.
PORTFOLIO TURNOVER
Although no Fund purchases securities with a view to rapid turnover, there are
no limitations on the length of time that portfolio securities must be held and
a Fund's portfolio turnover rate may vary significantly from year to year. A
high rate of turnover of a Fund, if it should occur, would result in increased
transaction expenses for that Fund, which must be borne by the Fund. The
turnover rate of each Fund may exceed 100%. Special Venture Fund, Balanced Fund
and Mortgage Securities Fund may have a higher rate of turnover than the other
Funds and alternative investment funds because of the flexibility of their
investment policies permitting shifts between different types of investments (in
the case of Balanced Fund), purchase of securities on a delayed delivery basis
(in the case of Mortgage Securities Fund) and the use of aggressive strategies
and investments (in the case of Special Venture Fund). The portfolio turnover
rates of the Funds (other than Money Market Fund) are shown under "FINANCIAL
HIGHLIGHTS" above.
In selecting broker-dealers for the purchase and sale of portfolio securities,
the Adviser may consider research and brokerage services furnished by such
broker-dealers to the Adviser and its affiliates. Subject to seeking best
execution, the Adviser may consider sales of shares of a Fund (and of other
mutual funds advised by it and its affiliates), in selecting broker-dealers for
portfolio security transactions.
HOW THE FUNDS ARE MANAGED
The Trustees
The business of the Trust and the Funds is supervised by the Trust's Board of
Trustees. The Statement of Additional Information contains the names of and
biographical information for the Trustees.
Stein Roe & Farnham Incorporated
The investment portfolio of each Fund is managed, subject to the direction of
the Board of Trustees, by Stein Roe & Farnham Incorporated (the Adviser), One
South Wacker Drive, Chicago, Illinois 60606, pursuant to a separate Advisory
Agreement dated May 1, 1993 with each Fund other than Money Market Fund, and an
Advisory Agreement dated December 9, 1988 with Money Market Fund. The Adviser
has provided investment advisory and administrative services since 1932. The
Adviser is a wholly owned indirect subsidiary of LFC.
The Adviser places orders for the purchase and sale of securities for each Fund.
In doing so, the Adviser seeks to obtain the best combination of price and
execution, which involves a number of judgmental factors.
Richard B. Peterson has been co-portfolio manager of Special Venture Fund since
1991. Mr. Peterson is a Senior Vice President of the Adviser.
John S. McLandsborough has been co-portfolio manager of Special Venture Fund
since June, 1997. He joined the Adviser as a portfolio manager in 1996 and
became a Vice President in 1998. Mr. McLandsborough was a securities analyst
with CS First Boston from 1993 to 1995.
Growth Stock Fund is managed by Erik P. Gustafson. Mr. Gustafson joined the
Adviser in 1992 and became a Vice President of the Adviser in 1994 and a Senior
Vice President in 1996.
Harvey B. Hirschhorn is the portfolio manager for Balanced Fund. Associated with
the Adviser since 1973, Mr. Hirschhorn is an Executive Vice President of the
Adviser and its Chief Economist and Investment Strategist.
William M. Wadden IV has been portfolio manager of the Mortgage Securities Fund
since March, 1998. Mr. Wadden has been a Senior Vice President of the Adviser
since 1995. From 1993 to 1995, he was an Executive Vice President of CSZ Asset
Management, Inc.
The Adviser also provides each of the Funds with administrative services
pursuant to an Administration Agreement with the Trust on behalf of each Fund
dated as of January 3, 1995. These services include financial statement
preparation, the provision of office space and equipment and facilities in
connection with the maintenance of the Trust's headquarters, preparation and
filing of required reports and tax returns, arrangements for meetings,
maintenance of the Trust's corporate books and records, communication with
shareholders, provision of internal legal services and oversight of custodial,
accounting and other services provided to the Funds by others. The Adviser may,
in its discretion, arrange for such services to be provided to the Trust by LFC
or by any of LFC's majority or greater owned subsidiaries.
12
<PAGE>
Under separate agreements, the Adviser also acts as the agent of the Funds for
the transfer of shares, disbursement of dividends and maintenance of shareholder
account records, and provides certain pricing and other record keeping services
to the Funds.
The Adviser pays all compensation of the Trust's officers who are employees of
the Adviser.
Advisory and Administrative Fees
The Funds pay the Adviser annual fees for investment advisory and administrative
services based on the following schedules. All fees are computed and accrued
daily and paid monthly.
Special Venture and Growth Stock Funds: Fees at the annual rate of 0.50% (for
investment advisory services) and 0.15% (for administrative services) of average
daily net assets.
Balanced Fund: Fees at the annual rate of .45% (for investment advisory
services) and .15% (for administrative services) of average daily net asset
value.
Mortgage Securities Fund: Fees at the annual rate of 0.40% (for investment
advisory services) and 0.15% (for administrative services) of average daily net
asset value.
Money Market Fund: Fees at the annual rates of .35% (for investment advisory
services) and .15% (for administrative services) of average daily net asset
value.
In addition, each Fund pays the Adviser an additional fee for accounting and
bookkeeping services in the annual amount of $25,000 plus .0025 percent of
average daily net assets in excess of $50,000,000.
LFC and Liberty Mutual
LFC is a diversified and integrated asset management company providing insurance
and investment products to individuals and institutions through multiple
distribution channels. LFC's operating units include Keyport, the Adviser, The
Colonial Group, Inc., sponsor of the Colonial family of mutual funds, Newport
Pacific Management, Inc., a specialist in the Asian equity markets, Liberty
Asset Management Company, a sponsor of closed-end funds employing a
multi-managed investment approach, and Independent Financial Marketing Group,
Inc., a specialist in the design and implementation of bank marketing programs
for insurance and investment products.
Liberty Mutual is an international multi-line insurance writer and, with its
affiliates, is one of the largest writers of property-casualty insurance in the
United States.
Custodian
State Street Bank and Trust Company (State Street), Boston, Massachusetts, is
the custodian for the Funds. Foreign securities are maintained in the custody of
foreign banks and trust companies that are members of the State Street's Global
Custody Network or foreign depositories used by such members.
Expenses of the Funds
The Funds generally will pay all their expenses, other than those borne by the
Adviser. The Adviser has voluntarily agreed until April 30, 1999 to reimburse
all expenses, including management fees, incurred by the Funds as follows:
<TABLE>
<CAPTION>
Fund Expenses Exceeding
- --------------------------- ----------------------------
<S> <C>
Special Venture and Growth
Stock Funds 0.80% of average net assets
Balanced Fund 0.75% of average net assets
Mortgage Securities Fund 0.70% of average net assets
Money Market Fund 0.65% of average net assets
</TABLE>
The Adviser would not, however, be required to reimburse expenses to an extent
which would result in a Fund's inability to qualify as a regulated investment
company under the Internal Revenue Code.
It is the policy of the Trust that expenses directly charged or attributable to
any particular Fund will be paid from the assets of that Fund. General expenses
of the Trust will be allocated among and charged to the assets of each of the
Funds on a basis that the Trustees deem fair and equitable, which may be based
on the relative assets of each Fund or the nature of the services performed and
their relative applicability to each Fund.
13
<PAGE>
PURCHASES AND REDEMPTIONS
The Participating Insurance Companies place daily orders to purchase and redeem
shares of each Fund based on, among other things, the net amount of purchase
payments to be invested and surrender and transfer requests to be effected on
that day pursuant to the VA contracts and VLI policies. Shares are purchased and
redeemed as a result of certain other transactions pursuant to the VA contracts
and VLI policies, including deductions for fees and charges by the applicable
insurance company separate account. The Trust continuously offers and redeems
shares at net asset value without the addition of any selling commission, sales
load or redemption charge. Shares are sold and redeemed at their net asset value
as next determined after receipt of purchase payments or redemption requests,
respectively, by the separate accounts. Similarly, shares are sold or redeemed
as a result of such other transactions under the VA contracts and VLI policies
at the net asset value computed for the day on which such transactions are
effected by the separate accounts. The right of redemption may be suspended or
payments postponed whenever permitted by applicable law and regulations.
Keyport Financial Services Corp. (KFSC), a subsidiary of Keyport, serves
pursuant to an Underwriting Agreement as principal underwriter for the Trust
with respect to sales of shares to Keyport and to other Affiliated Participating
Insurance Companies. KFSC is registered as a broker-dealer under the Securities
Exchange Act of 1934 and is a member of the National Association of Securities
Dealers, Inc. KFSC's address is 125 High Street, Boston, Massachusetts 02110.
INVESTMENT RETURN
The total return from an investment in a Fund is measured by the distributions
received (assuming reinvestment of all distributions) plus or minus the change
in the net asset value per share for a given period. A total return percentage
is calculated by first dividing the value of a share at the end of the period
(including reinvestment of distributions) by the value of the share at the
beginning of the period and then subtracting 1.0. A Fund's average annual total
return is determined by computing the annual percentage change in value of a
$1,000 investment in such Fund for a specified period, assuming reinvestment of
all dividends and distributions.
Because Money Market Fund seeks to maintain a $1.00 per share value, its return
is usually quoted as a current seven-day yield, calculated by totaling the
dividends on a share of the Fund for the previous seven days and restating that
yield as an annual rate, or as an effective yield, calculated by adjusting the
current yield to assume daily compounding.
Total return information describes a Fund's performance for the period shown and
does not predict future performance. Comparison of a Fund's yield or total
return with those of alternative investments should consider differences between
the Fund and the alternative investments, the periods and methods used in
calculation of the return being compared, and the impact of taxes on alternative
investments. A Fund's investment return figures do not reflect the cost of
insurance and other insurance company separate account charges which vary with
the VA contracts and VLI policies offered through the separate accounts of the
Participating Insurance Companies, and which will decrease the return realized
by a contract or policyholder.
NET ASSET VALUE
The Adviser determines net asset value per share of each Fund as of the close of
regular trading on the New York Stock Exchange (NYSE) (currently 4:00 p.m., New
York time). Net asset value per share is calculated for each Fund by dividing
the current market value (amortized cost value in the case of the Money Market
Fund) of total portfolio assets, less all liabilities (including accrued
expenses), by the total number of shares outstanding. Net asset value is
determined on each day when the NYSE is open, except on such days in which no
order to purchase or redeem shares is received. The NYSE is scheduled to be open
Monday through Friday throughout the year except for certain Federal and other
holidays.
Money Market Fund
The valuation of the Money Market Fund's securities is based on their amortized
cost, which does not take into account unrealized gains or losses, in an attempt
to maintain its net asset value at $1.00 per share. The extent of any deviation
between the Fund's net asset value based upon market quotations or equivalents
and $1.00 per share based on amortized cost will be examined by the Board. If
such deviation were to exceed 1/2 of 1%, the Board would consider what action,
if any, should be taken, including selling portfolio securities, increasing,
reducing, or suspending distributions or redeeming shares in kind. Assets and
securities of the Fund for which this valuation method does not produce a fair
value are valued at a fair value determined in good faith by the Board.
Other Funds
U.S. Securities. Each security traded on a national securities exchange is
valued at its last sale price on that exchange on the day of valuation or, if
there are no sales that day, at the latest bid quotation. Each over-the-counter
security for which the last
14
<PAGE>
sale price on the day of valuation is available from Nasdaq is valued at that
price. All other over-the-counter securities for which reliable quotations are
available are valued at the latest bid quotation, except that securities
convertible into stock are valued at the valuations provided by a pricing
service approved by the Board.
The Board has determined to value long-term debt obligations primarily on the
basis of valuations furnished by a pricing service which may employ electronic
data processing techniques, including a so-called "matrix" system, to determine
valuations, as well as dealer-supplied quotations. Long-term debt obligations
for which reliable pricing services are, in the opinion of the Adviser, not
available will be valued at their respective values as determined in good faith
by, or under procedures established by, the Board.
Foreign Securities. The values of foreign portfolio securities are generally
based upon market quotations which, depending upon local convention or
regulation, may be the last sales price, the last bid or asked price, or the
mean between the last bid and asked prices as of, in each case, the close of the
appropriate exchange or other designated time. Trading in securities on European
and Far Eastern securities exchanges and over-the-counter markets is normally
completed at various times before the close of business on each day on which the
NYSE is open. Trading of these securities may not take place on every NYSE
business day. In addition, trading may take place in various foreign markets on
Saturdays or on other days when the NYSE is not open and on which a Fund's net
asset value is not calculated. Therefore, such calculation does not take place
contemporaneously with the determination of the prices of many of the portfolio
securities used in such calculation and the value of a Fund's portfolio may be
significantly affected on days when shares of the Fund may not be purchased or
redeemed.
Other assets and securities of a Fund are valued at a fair value as determined
in good faith by, or under procedures established by, the Board.
TAXES
Each Fund has elected to be treated and to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986 (Code). As a
result of such election, for any tax year in which a Fund meets the investment
limitations and the distribution, diversification and other requirements
referred to below, that Fund will not be subject to Federal income tax, and the
income of the Fund will be treated as the income of its shareholders. Under
current law, since the shareholders are life insurance company "segregated asset
accounts," they will not be subject to income tax currently on this income to
the extent such income is applied to increase the values of VA contracts and VLI
policies.
Among the conditions for qualification and avoidance of taxation at the Trust
level, Subchapter M imposes investment limitations, distribution requirements,
and requirements relating to the diversification of investments. The
requirements of Subchapter M may affect the investments made by each Fund. Any
of the applicable diversification requirements could require a sale of assets of
a Fund that would affect the net asset value of the Fund.
Pursuant to the requirements of Section 817(h) of the Code, the only
shareholders of the Trust and its Funds will be Participating Insurance
Companies and their separate accounts that fund VA contracts, VLI policies and
other variable insurance contracts. The prospectus that describes a particular
VA contract or VLI policy discusses the taxation of both separate accounts and
the owner of such contract or policy.
Each Fund intends to comply with the requirements of Section 817(h) and the
related regulations issued thereunder by the Treasury Department. These
provisions impose certain diversification requirements affecting the securities
in which the Funds may invest and other limitations. The diversification
requirements of Section 817(h) of the Code are in addition to the
diversification requirements under Subchapter M and the Investment Company Act
of 1940. The consequences of failure to meet the requirements of Section 817(h)
could result in taxation of the Participating Insurance Companies offering the
VA contracts and VLI policies and immediate taxation of all owners of the
contracts and policies to the extent of appreciation on investment under the
contracts. The Trust believes it is in compliance with these requirements.
The Secretary of the Treasury may issue additional rulings or regulations that
will prescribe the circumstances in which an owner of a variable insurance
contract's control of the investments of a segregated asset account may cause
such owner, rather than the insurance company, to be treated as the owner of the
assets of a segregated asset account. It is expected that such regulations would
have prospective application. However, if a ruling or regulation were not
considered to set forth a new position, the ruling or regulation could have
retroactive effect.
The Trust therefore may find it necessary, and reserves the right to take action
to assure, that a VA contract or VLI policy continues to qualify as an annuity
or insurance contract under Federal tax laws. The Trust, for example, may be
required to alter the investment objectives of any Fund or substitute the shares
of one Fund for those of another. No such change of investment objectives or
substitution of securities will take place without notice to the contract and
policy owners with interests invested in the affected Fund and without prior
approval of the Securities and Exchange Commission, or the approval of a
majority of such owners, to the extent legally required.
To the extent a Fund invests in foreign securities, investment income received
by the Fund from sources within foreign countries may be subject to foreign
income taxes withheld at the source. The United States has entered into tax
treaties with many foreign countries which entitle a Fund to a reduced rate of
tax or exemption from tax on such income.
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Gains and losses from foreign currency dispositions, foreign-currency
denominated debt securities and payables or receivables, and foreign currency
forward contracts are subject to special tax rules that generally cause them to
be recharacterized as ordinary income and losses, and may affect the timing and
amount of the Fund's recognition of income, gain or loss.
It is impossible to determine the effective rate of foreign tax in advance since
the amount of a Fund's assets, if any, to be invested within various countries
will fluctuate and the extent to which tax refunds will be recovered is
uncertain. The Funds intend to operate so as to qualify for treaty-reduced tax
rates where applicable.
The preceding is a brief summary of some relevant tax considerations. This
discussion is not intended as a complete explanation or a substitute for careful
tax planning and consultation with individual tax advisors.
DIVIDENDS AND DISTRIBUTIONS
Each Fund intends to declare and distribute, as dividends or capital gains
distributions, at least annually, substantially all of its net investment income
and net profits realized from the sale of portfolio securities, if any, to its
shareholders (Participating Insurance Companies' separate accounts). The net
investment income of each Fund consists of all dividends or interest received by
such Fund, less estimated expenses (including the investment advisory and
administrative fees). Income dividends will be declared and distributed annually
in the case of each Fund other than Money Market Fund. With respect to Money
Market Fund, the dividends are declared daily and are reinvested monthly in
shares of Money Market Fund at the net asset value per share of $1.00. All net
short-term and long-term capital gains of each Fund, net of carry-forward
losses, if any, realized during the fiscal year, are declared and distributed
periodically, no less frequently than annually. All dividends and distributions
are reinvested in additional shares of the Fund at net asset value, as of the
record date for the distributions.
SHAREHOLDER COMMUNICATIONS
Owners of VA contracts and VLI policies, issued by a Participating Insurance
Company or for which shares of one or more Funds are the investment vehicles,
receive from the Participating Insurance Company unaudited semi-annual financial
statements and audited year-end financial statements of such Funds certified by
the Trust's independent auditors. Each report shows the investments owned by
each Fund and provides other information about the Trust and its operations.
Copies of such reports may be obtained from the Participating Insurance Company
or the Secretary of the Trust.
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a diversified open-end management investment company as defined in
the Investment Company Act of 1940 (1940 Act) organized under an Agreement and
Declaration of Trust (Declaration of Trust) as a Massachusetts business trust on
June 9, 1987. The Declaration of Trust may be amended by a vote of either the
Trust's shareholders or the Board. The Trust is authorized to issue an unlimited
number of shares of beneficial interest without par value, in one or more series
as the Board may authorize. Each Fund is a separate series of the Trust.
Each share of a Fund is entitled to participate pro rata in any dividends and
other distributions declared by the Board with respect to that Fund, and all
shares of a Fund have equal rights in the event of liquidation of that Fund.
Shareholders of a Fund are entitled to one vote for each share of that Fund held
on any matter presented to shareholders. Shares of the Funds will vote
separately as individual series when required by the 1940 Act or other
applicable law or when the Board determines that the matter affects only the
interests of one or more Funds, such as, for example, a proposal to approve an
amendment to that Fund's Advisory Agreement, but shares of all the Funds vote
together, to the extent required by the 1940 Act, in the election or selection
of Trustees and independent accountants.
The shares do not have cumulative voting rights, which means that the holders of
more than 50% of the shares of the Funds voting for the election of Trustees can
elect all of the Trustees, and, in such event, the holders of the remaining
shares will not be able to elect any Trustees.
The Funds are not required by law to hold regular annual meetings of their
shareholders and do not intend to do so. However, special meetings may be called
for purposes such as electing or removing Trustees or changing fundamental
policies.
The Trust is required to hold a shareholders' meeting to elect Trustees to fill
vacancies in the event that less than a majority of Trustees were elected by
shareholders. Trustees may also be removed by the vote of two-thirds of the
outstanding shares at a meeting called at the request of shareholders whose
interests represent 10% or more of the outstanding shares.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Trust's Declaration of Trust disclaims liability of the
shareholders, the Trustees, or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust (or
the applicable Fund thereof) and requires that notice of such disclaimer be
given in each agreement, obligation, or contract entered into or executed by the
Trust or the Board. The Declaration of Trust provides for indemnification out of
the Trust's assets (or the applicable Fund) 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
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account of shareholder liability is believed to be remote because it is
limited to circumstances in which the disclaimer is inoperative and the Trust
itself is unable to meet its obligations. The risk to any one Fund of sustaining
a loss on account of liabilities incurred by another Fund also is believed to be
remote.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information set
forth in the Registration Statement filed by the Trust with the Securities and
Exchange Commission under the Securities Act of 1933. Copies of the Registration
Statement may be obtained from the Commission or may be examined at the office
of the Commission in Washington, D.C.
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APPENDIX A
INVESTMENT TECHNIQUES
AND SECURITIES
OPTIONS, FUTURES AND OTHER DERIVATIVES
Consistent with its objective, except for Money Market Fund, each Fund may
purchase and write both call options and put options on securities, indexes and
foreign currencies, enter into interest rate, index and foreign currency futures
contracts and options on such futures contracts, and purchase other types of
forward or investment contracts linked to individual securities, interest rates,
foreign currencies, indexes or other benchmarks ("derivative products") in order
to achieve its desired investment objective, to provide additional revenue, or
to hedge against changes in security prices, interest rates or currency
fluctuations. A Fund may write a call or put option only if the option is
covered. There can be no assurance that a liquid market will exist when a Fund
seeks to close out a derivative product position. In addition, because of low
margin deposits required, the use of futures contracts involves a high degree of
leverage, and may result in losses in excess of the amount of the margin
deposit. Successful use of derivative products depends on the Adviser's ability
to predict correctly changes in the level and the direction of security prices,
interest rates, currency exchange rates and other market factors, but even a
well conceived transaction may be unsuccessful because of an imperfect
correlation between the cash and the derivative product markets. For additional
information, with respect to these matters, please refer to the Statement of
Additional Information.
FOREIGN INVESTMENTS
Each Fund may invest up to 25% of its total assets in securities of foreign
issuers that are not publicly traded in the U.S., which for this purpose do not
include securities represented by American Depositary Receipts (ADRs) or
securities guaranteed by a U.S. person.
Foreign Securities
While investment in foreign securities is intended to reduce risk by providing
further diversification, such investments involve risks in addition to the
credit and market risks normally associated with domestic securities. These
include sovereign risks and risks pertaining to the local economy in the country
or countries in which the foreign company conducts business. Foreign investments
may be affected favorably or unfavorably by changes in currency rates and
exchange control regulations. There may be less publicly available information
about a foreign company than about a U.S. company, and foreign companies may not
be subject to accounting, auditing and financial reporting standards and
requirements comparable to those applicable to U.S companies. Securities of some
foreign companies are less liquid or more volatile than securities of U.S.
companies, and foreign brokerage commissions and custodian fees are generally
higher than in the U.S. Investments in foreign securities may also be subject to
other risks different from those affecting U.S. investments, including local
political developments, expropriation or nationalization of assets, imposition
of withholding taxes on dividend or interest payments, currency blockage (which
would prevent cash from being brought back to the U.S.), and sometimes less
advantageous legal, operational, and financial protection applicable to foreign
sub-custodial arrangements. These risks are carefully considered by the Adviser
prior to the purchase of these securities.
Foreign Currency Transactions
When a Fund invests in foreign securities, such securities usually will be
denominated in, or salable for, foreign currencies, and the Fund temporarily may
hold funds in foreign currencies. Thus, the value of Fund shares will be
affected by changes in exchange rates.
As one way of managing exchange rate risk, each Fund may enter into forward
currency exchange contracts (agreements to purchase or sell currencies at a
specified price and date). The exchange rate for the transaction (the amount of
currency a Fund will deliver or receive when the contract is completed) is fixed
when the Fund enters into the contract. A Fund usually will enter into these
contracts to stabilize the U.S. dollar value of a security it has agreed to buy
or sell. Each Fund intends to use these contracts to hedge the U.S. dollar value
of a security it already owns or intends to purchase, particularly if a Fund
expects a decrease in the value of the currency in which the foreign security is
denominated. Although the Fund will attempt to benefit from using forward
contracts, the success of its hedging strategy will depend on the Adviser's
ability to predict accurately the future exchange rates between foreign
currencies and the U.S. dollar. The value of each Fund's investments denominated
in foreign currencies will depend on the relative strength of those currencies
and the U.S. dollar, and the Fund may be affected favorably or unfavorably by
changes in the exchange rates or exchange control regulations between foreign
currencies and the dollar. Changes in foreign currency exchange rates also may
affect the value of dividends and interest earned, gains and losses realized on
the sale of securities, and net investment income and gains, if any, to be
distributed to shareholders by a Fund.
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U.S. GOVERNMENT SECURITIES
Each Fund may invest in certain U.S. Government Securities. Securities issued or
guaranteed by the U.S. Government include a variety of Treasury securities that
differ only in their interest rates, maturities and dates of issuance. Treasury
bills have maturities of one year or less. Treasury notes have maturities of one
to ten years and Treasury bonds generally have maturities of greater than ten
years at the date of issuance.
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities include, but are not limited to, direct obligations of the
Treasury and securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association,
General Services Administration, Central Bank for Cooperatives, Federal Home
Loan Banks, Federal Loan Mortgage Corporation, Federal Intermediate Credit
Banks, Federal Land Banks, Maritime Administration, The Tennessee Valley
Authority, District of Columbia Armory Board, Resolution Funding Corp. and
Federal National Mortgage Association.
Some obligations of U.S. Government agencies and instrumentalities, such as
Government National Mortgage Association Pass-Through Certificates, are
supported by the full faith and credit of the U.S.; others, such as securities
of Federal Home Loan Banks, are supported by the right of the issuer to borrow
from the Treasury; still others, such as bonds issued by the Federal National
Mortgage Association, a private corporation, are supported only by the credit of
the instrumentality. Because the U.S. Government is not obligated by law to
provide support to an instrumentality it sponsors, a Fund will invest in the
securities issued by such an instrumentality only when the Adviser determines
that the credit risk with respect to the instrumentality does not make its
securities unsuitable investments for the Fund. U.S. Government Securities do
not include international agencies or instrumentalities in which the U.S.
Government, its agencies or instrumentalities participate, such as the World
Bank, the Asian Development Bank or issues insured by the Federal Deposit
Insurance Corporation or the Federal Savings and Loan Insurance Corporation.
MONEY MARKET INSTRUMENTS
Each Fund may invest in the money market instruments described below, in
addition to money market instruments such as certificates of deposit of U.S.
banks and bankers' acceptances.
Obligations of Foreign Branches of United States Banks
The obligations of foreign branches of U.S. 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 government regulation. Payment of interest
and principal upon these may also be affected by governmental action in the
country of domicile of the branch (generally referred to as sovereign risk). In
addition, evidences of ownership of such securities may be held outside the U.S.
and a Fund may be subject to the risks associated with the holding of such
property overseas. (See "FOREIGN INVESTMENTS--Foreign Securities" above.)
Obligations of United States Branches of Foreign Banks
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 by
governmental action in the country in which the foreign bank has its head
office. In addition, there may be less publicly available information about a
U.S. branch of a foreign bank than about a domestic bank.
Obligations of Foreign Banks
Obligations of foreign banks and branches of foreign banks are similar to the
obligations of U.S. banks but involve risks that are different in some respects.
Such risks may include future political and economic developments, the possible
imposition of foreign withholding taxes on interest income payable on the
obligations, possible seizure or nationalization of foreign deposits, the
possible establishment of exchange controls, or the adoption of other foreign
government restrictions that might adversely affect the payment of principal and
interest on the obligations. Additionally, there may be less public information
available about foreign banks and their branches. Foreign banks and foreign
branches of foreign banks are not regulated by U.S. banking authorities, and
generally are not bound by accounting, auditing, and financial reporting
standards comparable to U.S. banks.
Master Demand Notes
Master demand notes are unsecured obligations that permit the investment of
fluctuating amounts by a Fund at varying rates of interest pursuant to direct
arrangements between the Fund, as lender, and the issuer, as borrower. Master
demand notes may permit daily fluctuations in the interest rate and daily
changes in the amount borrowed. The Fund has the right to increase the
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amount under the note at any time up to the full amount provided by the note
agreement or to decrease the amount, and the borrower may repay up to the full
amount of the note without penalty. Notes purchased by a Fund must permit the
Fund to demand payment of principal and accrued interest at any time (on not
more than seven days' notice) and to resell the note at any time to a third
party. The notes may have maturities of more than one year, provided that (i)
the Fund is entitled to payment of principal and accrued interest upon not more
than seven days' notice, and (ii) the rate of interest on such notes is adjusted
automatically at periodic intervals which normally will not exceed 31 days but
may extend up to one year. The notes will be deemed to have a maturity equal to
the longer of the period remaining to the next interest rate adjustment or the
demand notice period. Because these types of notes are direct lending
arrangements between the lender and borrower, such instruments are not normally
traded, and there is no secondary market for these notes, although they are
redeemable and thus repayable by the borrower at face value plus accrued
interest at any time. Accordingly, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. These notes
are not typically rated by credit rating agencies. A Fund may invest in such
notes only if rated or at the time of an investment the issuer meets the
criteria established for commercial paper.
Repurchase Agreements
Each Fund may enter into repurchase agreements with member banks of the Federal
Reserve System that have at least $1 billion in deposits, primary dealers in
U.S. Government Securities or other financial institutions believed by the
Adviser to be creditworthy. Under such agreements, the bank, primary dealer or
other financial institution agrees upon entering into the contract to repurchase
the security at a mutually agreed upon date and price, thereby determining the
yield during the term of the agreement. This results in a fixed rate of return
insulated from market fluctuations during such period. The seller under a
repurchase agreement will be required to maintain the value of the securities
subject to the agreement at not less than the repurchase price, and such value
will be determined on a daily basis by marking the underlying securities to
their market value. Although the securities subject to the repurchase agreement
might bear maturities exceeding a year, each Fund intends to enter only into
repurchase agreements which provide for settlement within a year and usually
within seven days. Securities subject to repurchase agreements will be held by
the Fund's custodian or in the Federal Reserve book-entry system. A Fund does
not bear the risk of a decline in the value of the underlying security unless
the seller defaults under its repurchase obligation. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and losses
including (a) possible declines in the value of the underlying securities during
the period while the Fund seeks to enforce its rights thereto; (b) possible
subnormal levels of income and lack of access to income during this period; and
(c) expenses of enforcing its rights. The Board has established procedures to
evaluate the creditworthiness of each party with whom a Fund enters into
repurchase agreements by setting guidelines and standards of review for the
Adviser and monitoring the Adviser's actions with regard to repurchase
agreements.
REVERSE REPURCHASE AGREEMENTS
Each Fund may enter into reverse repurchase agreements. Under a reverse
repurchase agreement, a Fund would sell securities and agree to repurchase them
at a mutually agreed upon date and price. Each Fund intends to enter into
reverse repurchase agreements to avoid otherwise having to sell securities
during unfavorable market conditions in order to meet redemptions. At the time
the Fund enters into a reverse repurchase agreement, it will establish a
segregated account with its custodian containing liquid assets having a value
not less than the repurchase price (including accrued interest) and will
subsequently monitor the account to maintain such value. Reverse repurchase
agreements involve the risk that the market value of the securities which a Fund
is obligated to repurchase may decline below the repurchase price. In the event
the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
obligation to repurchase the securities, and its use of the proceeds of the
reverse repurchase agreement may effectively be restricted pending such
decision. The Staff of the Securities and Exchange Commission has taken the
position that the 1940 Act treats reverse repurchase agreements as borrowings by
a fund.
STANDBY COMMITMENTS
Each Fund may invest in securities purchased on a standby commitment basis, as
described below.
A standby commitment is a delayed delivery agreement in which the Fund binds
itself to accept delivery of a security at the option of the other party to the
agreement. The Fund usually receives a commitment fee in consideration for its
standby commitment. At the time a Fund enters into a binding obligation to
purchase securities on a standby commitment basis, liquid assets of the Fund
having a value of at least as great as the purchase price of the securities to
be purchased will be segregated on the books of the Fund and held by the
custodian throughout the period of the obligation.
If the value of the securities that the Fund has committed to purchase
increases, the other party may exercise its right not to
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deliver the securities, in which case the Fund only would retain its commitment
fee and forego any appreciation of those securities. If the value of the
securities that the Fund has committed to purchase decreases, the other party
would probably deliver the securities, in which case the Fund would absorb the
loss between the purchase price and the decreased market value, which loss may
significantly exceed the commitment fee.
LENDING PORTFOLIO SECURITIES
Each Fund, except Money Market Fund, may lend portfolio securities in limited
amounts, as described below.
The Fund may lend securities to brokers, dealers and financial institutions
pursuant to agreements requiring that the loans be continuously secured by
liquid assets as collateral equal at all times in value to at least the market
value of the securities loaned. Such securities loans will not be made with
respect to a Fund if as a result the aggregate of all outstanding securities
loans exceeds 15% of the value of its total assets taken at their current value.
The Fund continues to receive interest or dividends on the securities loaned and
would also receive an additional return that may be in the form of a fixed fee
or a percentage of the collateral. The Fund would have the right to call the
loan and obtain the securities loaned at any time on notice of not more than
five business days. The Fund would not have the right to vote the securities
during the existence of the loan but would call the loan to permit voting of the
securities if, in the Adviser's judgment, a material event requiring a
shareholder vote would otherwise occur before the loan was repaid. In the event
of bankruptcy or other default of the borrower, the Fund could experience both
delays in liquidating the loan collateral or recovering the loaned securities
and losses including (a) possible decline in the value of the collateral or in
the value of the securities loaned during the period while the Fund seeks to
enforce its rights thereto, (b) possible subnormal levels of income and lack of
access to income during this period, and (c) expenses of enforcing its rights.
However, loans may be made only to borrowers approved by the Board, when the
income to be earned from the loan, in the opinion of the Adviser, justifies the
attendant risks.
MORTGAGE BACKED SECURITIES
General
The types of mortgage loans that are generally available and that can be placed
in mortgage pools underlying Mortgage Backed Securities (i.e., fixed interest
rate mortgage loans, adjustable interest rate mortgage loans or ARMS, graduated
payment mortgage loans, etc.) can be expected to change periodically as a result
of changing factors. There can be no assurance that Mortgage Backed Securities
will be available at all times. The availability of these investments may depend
on economic and market conditions, and fiscal and other policies of the Federal
government that affect the residential housing market and the ability of
mortgage lenders to assemble mortgage pools for purchase.
Returns available on Mortgage Backed Securities are affected by money market
conditions generally as well as by monetary and fiscal policies of the Federal
government and the Board of Governors of the Federal Reserve System. The
potential returns on future investments could be adversely affected by an
increase in the availability of investment funds or changes in market conditions
or fiscal policies. If for economic or other reasons mortgagors make prepayments
on the underlying mortgage loans backing particular Mortgage Backed Securities,
the yield may be less than if no prepayments are made, although the proceeds
from such prepayments will be reinvested. Such impact on yield would result if
mortgagors repaid underlying mortgage loans because of their ability to
refinance such loans at lower interest rates.
These risks apply to all Mortgage Backed Securities, regardless of whether they
represent interests in pools of fixed or adjustable interest rate mortgage
loans. Adjustable interest rate mortgage loans also involve a somewhat greater
risk that an increase in interest rates could increase home owner defaults
(although there are generally limits on the amount the interest rate on such
loans may increase). The yield on Mortgage Backed Securities backed by
adjustable interest rate mortgage loans may decrease (or increase) while the
yield on Mortgage Backed Securities backed by fixed interest rate mortgage loans
should be more constant (although the market value of Mortgage Backed Securities
representing interests in a pool of adjustable interest rate mortgage loans
should be more constant than the market value of Mortgage Backed Securities
representing interests in pools of fixed interest rate mortgage loans).
Mortgage Pass-Through Certificates
Mortgage Pass-Through Certificates are securities representing interests in
pools of mortgages. Principal and interest payments made on the mortgages in the
pools are passed through to the holder of such securities. Payment of principal
and interest on some Mortgage Pass-Through Certificates (but not the market
value of the securities themselves) may be guaranteed by the full faith and
credit of the U.S. Government (in the case of GNMA Certificates), or guaranteed
by agencies or instrumentalities of the U.S. Government (in the case of FNMA
Certificates and FHLMC Certificates). Non-Governmental Mortgage Pass- Through
Certificates are created by non-governmental issuers (such as commercial banks,
savings and loan institutions, private mortgage insurance companies, mortgage
bankers and other secondary market issuers).
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It is expected that of the various types of Mortgage Pass-Through Certificates
available, Non-Governmental Mortgage Pass-Through Certificates (Non-Governmental
Certificates) normally will offer the highest yields at a given point in time.
Although Non-Governmental Certificates may provide the most attractive
investment, they also involve particular risks. Non-Governmental Certificates
are not guaranteed by the U.S. Government or any government agency.
Non-Governmental Certificates do not represent an interest in or obligation of
the issuing or servicing entity. In certain jurisdictions such mortgage loans
are not personal obligations of the mortgagor (the home owner). Some of the
underlying mortgage loans may become delinquent and eventually may be foreclosed
with the possibility of loss of interest and/or principal. To protect against
these risks, the underlying mortgage loans generally will have some type of
credit enhancement, either mortgage pool insurance or a senior/subordinated
structure whereby a class or classes of securities absorb losses prior to the
senior class or classes. The percentage of loss protected against is based on
historical loss experience for mortgage loans originated by the mortgage
lenders. However, such loss experience relates to an inflationary period for
real estate values and is based primarily on fixed interest rate mortgage loans
without adjustable rate features and, accordingly, there can be no assurance
that adherence to such loan-to-value ratios and such mortgage insurance will be
sufficient to cover credit which mortgage pools may experience in the future.
Policies of standard and special hazard insurance typically will be obtained
with respect to a variety of risks of physical damage to the mortgage
properties. However, there can be no assurance that the amounts of such policies
or the risks against which they insure will cover the full losses as a result of
physical damage to a mortgage property. Mortgage guaranty insurance policies may
be obtained for mortgage pools but they will not cover the entire pool. Losses
that are not covered by any of these insurance policies will ultimately be borne
by the investor.
The Funds also may invest in certificates representing undivided interests in
the interest or principal of Mortgage Backed Securities (interest only/principal
only securities). These securities tend to be more volatile than other types of
debt securities. The interest only class involves the risk of loss of the entire
value of the investment if the underlying mortgages are prepaid. In the case of
principal only class securities, a Fund recognizes (accrues) as income for
accounting purposes a portion of the difference between purchase price and face
value. Because the Fund includes this accrued income in calculating its dividend
even though it has not received payment, the Fund may have to sell other
investments to obtain cash needed to make income distributions.
Commercial Mortgage Backed Securities
The Funds may invest in Mortgage Backed Securities consisting of Commercial
Mortgage Backed Securities if the Adviser believes such investments offer
attractive yields relative to other eligible investments. Commercial Mortgage
Backed Securities are secured by loans on commercial real estate (i.e.,
multi-family housing, office buildings, shopping centers, shopping malls, etc.).
Some of the underlying loans may become delinquent and may be foreclosed with
the possibility of loss of interest and/or principal. To protect against these
risks, the loans generally have loan-to-value ratios at the time of origination
of 75% or less. These securities also generally have some type of credit
enhancement, usually a senior/subordinated structure whereby a class or classes
of securities absorb losses prior to the senior class or classes.
Collateralized Mortgage Obligations (CMOs)
and Real Estate Mortgage Investment Conduits (REMICs)
CMOs and REMICs are debt securities issued by special purpose trusts
collateralized by underlying mortgage loans, pools of Mortgage Pass-Through
Certificates guaranteed by GNMA, FNMA or FHLMC, or pools of mortgages sponsored
by non-governmental agencies. CMOs and REMICs may be issued by agencies or
instrumentalities of the U.S. Government, or by private originators of, or
investors in mortgage loans, including depository institutions, mortgage banks,
investment banks and special-purpose subsidiaries of the foregoing.
CMOs and REMICs are not, however, Mortgage Pass-Through Certificates, such as
those described above under "Mortgage Pass-Through Certificates." Rather, they
are pay-through securities, i.e., securities backed by the cash flow from the
underlying mortgages. Investors in CMOs and REMICs are not owners of the
underlying mortgages, which serve as collateral for such debt securities, but
are simply owners of a fixed-income security backed by such pledged assets. CMOs
and REMICs typically are structured into multiple classes, with each class
bearing a different stated maturity and having different payment streams. One
class (the Residual) is in the nature of equity. The Funds will not invest in
the Residual class. Although the structures of CMOs and REMICs vary greatly,
monthly payments of principal, including prepayments, typically are first
returned to the investors holding the shortest maturity class; investors holding
longer maturity classes typically receive principal payments only after the
shorter class or classes have been retired. A Fund may experience costs and
delays in liquidating the collateral if the issuer defaults or enter bankruptcy
and may incur a loss.
Dollar Roll Transactions
The Funds may enter into dollar roll transactions pertaining to Mortgage Backed
Securities. A dollar roll transaction involves a sale by a Fund of Mortgage
Backed Securities that it holds with an agreement by the Fund to repurchase
substantially similar
A-5
<PAGE>
securities at an agreed upon price and date. During the period between the sale
and repurchase, the Fund will not be entitled to accrue interest and receive
principal payments on the securities sold. Dollar roll transactions involve the
risk that the market value of the securities sold by the Fund may decline below
the repurchase price of those securities. In the event the buyer of securities
under a dollar roll transaction files for bankruptcy or becomes insolvent, the
Fund's use of proceeds of the transaction may be restricted pending a
determination by or with respect to the other party.
EQUIPMENT TRUST CERTIFICATES
Balanced Fund may invest in Equipment Trust Certificates. Equipment Trust
Certificates are a mechanism for financing the purchase of transportation
equipment, such as railroad cars and locomotives, trucks, airplanes and oil
tankers, and are described in more detail in the Statement of Additional
Information.
A-6
<PAGE>
APPENDIX B
DESCRIPTION OF RATINGS
RATINGS IN GENERAL
A rating of a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer. Consequently, the Adviser believes that the quality of debt securities
in which a Fund invests should be continuously reviewed and that individual
analysts give different weightings to the various factors involved in credit
analysis. A rating is not a recommendation to purchase, sell or hold a security
because it does not take into account market value or suitability for a
particular investor. Ratings are based on current information furnished by the
issuer or obtained by the rating services from other sources that they consider
reliable. Ratings may be changed, suspended or withdrawn as a result of changes
in or unavailability of such information, or for other reasons.
The following is a description of the characteristics of ratings used by
Moody's Investors Service, Inc. (Moody's) and Standard & Poor's Corporation
(S&P), each of which is a NRSRO.
BOND RATINGS
Ratings by Moody's
Aaa. Bonds rated Aaa are judged to be 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 an exceptionally stable margin and
principal is secure. Although 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 bonds.
Aa. Bonds 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 bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa bonds.
A. Bonds 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 sometime in the future.
Baa. Bonds 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 risk 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 rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
NOTE: 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 issue ranks in the lower end of its generic rating
category.
Ratings by S&P
AAA. Debt rated AAA has the highest rating. 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 issues 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 the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
B-1
<PAGE>
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 for debt in higher rated categories.
BB, B, CCC, CC. Debt rated BB, B, CCC, or CC is regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC 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.
C. This rating is reserved for income bonds on which no interest is being paid.
D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
NOTE: The ratings from AA to B may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
COMMERCIAL PAPER RATINGS
Ratings By Moody's
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated issuers:
<TABLE>
<S> <C>
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
</TABLE>
If an issuer represents to Moody's that its commercial paper obligations are
supported by the credit of another entity or entities, Moody's, in assigning
ratings to such issuers, evaluates the financial strength of the indicated
affiliated corporations, commercial banks, insurance companies, foreign
governments or other entities, but only as one factor in the total rating
assessment.
Ratings by S&P
A brief description of the applicable rating symbols and their meaning follows:
A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree of safety.
A-1. This designation indicates that the degree of safety regarding timely
payment is very strong. Those issues determined to possess overwhelming safety
characteristics will be denoted with a plus (+) sign designation.
B-2
<PAGE>
STEINROE VARIABLE INVESTMENT TRUST
STEIN ROE SPECIAL VENTURE FUND, VARIABLE SERIES
Federal Reserve Plaza
600 Atlantic Avenue
Boston, Massachusetts 02210
Stein Roe Special Venture Fund, Variable Series (Fund) is a
series fund in the SteinRoe Variable Investment Trust (Trust), an
open-end, diversified management investment company that
currently includes five separate funds, each with its own
investment objective and policies. The investment objective of
the Fund is capital growth by investing primarily in common
stocks, convertible securities, and other securities selected for
prospective capital growth. There is no assurance that the
objective of the Fund will be achieved.
_______________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_______________________________________________________________
This Prospectus contains information about the Fund that a
prospective investor should know before applying for certain
variable annuity contracts and variable life insurance policies
offered by separate accounts of insurance companies investing in
shares of the Fund. Please read it carefully and retain it for
future reference.
Additional facts about the Trust (including the Fund) are
included in a Statement of Additional Information dated May 1,
1998, incorporated herein by reference, which has been filed with
the Securities and Exchange Commission. For a free copy call or
write to the broker-dealer offering the Participating Insurance
Company's variable annuity contracts.
______________________________________________________________
SHARES OF THE FUND ARE AVAILABLE AND ARE BEING MARKETED
EXCLUSIVELY AS A POOLED FUNDING VEHICLE FOR VARIABLE ANNUITY
CONTRACTS ("VA CONTRACTS") AND VARIABLE LIFE INSURANCE POLICIES
("VLI POLICIES") OF PARTICIPATING INSURANCE COMPANIES.
______________________________________________________________
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR
THE APPROPRIATE VA CONTRACT OR VLI POLICIES OF THE APPLICABLE
PARTICIPATING INSURANCE COMPANY. BOTH PROSPECTUSES SHOULD BE
READ AND RETAINED FOR FUTURE REFERENCE.
The date of this prospectus is May 1, 1998
TABLE OF CONTENTS
Page
The Trust.........................................3
Financial Highlights..............................3
How the Fund Invests..............................4
Investment Techniques and Restrictions............5
Portfolio Turnover................................6
How the Fund is Managed...........................7
Purchases and Redemptions.........................9
Investment Return.................................9
Net Asset Value...................................9
Taxes............................................10
Dividends and Distributions......................12
Shareholder Communications.......................12
Organization and Description of Shares...........12
Additional Information...........................13
Appendix A: Investment Techniques and Securities.14
<PAGE>
THE TRUST
Stein Roe Special Venture Fund, Variable Series (Fund) is a
series fund of the SteinRoe Variable Investment Trust (Trust), an
open-end, diversified management investment company currently
consisting of five funds with differing investment objectives,
policies and restrictions. (The Trust's series funds other than
the Fund are referred to herein as the "Other Funds"). The Trust
issues shares of beneficial interest in each of its series funds
that represent interests in a separate portfolio of securities
and other assets. The Trust may add or delete series funds from
time to time.
The Trust is the funding vehicle for variable annuity
contracts (VA contracts) and variable life insurance policies
(VLI policies) offered by the separate accounts of life insurance
companies (Participating Insurance Companies). Certain
Participating Insurance Companies are affiliated with the Adviser
to the Fund (Affiliated Participating Insurance Companies). As
of the date of this Prospectus, such Affiliated Participating
Insurance Companies are Keyport Life Insurance Company (Keyport),
Independence Life & Annuity Company (Independence), American
Benefit Life Insurance Company (American Benefit), and Liberty
Life Assurance Company of Boston (Liberty Life). Shares of the
Fund from time to time may be sold to other unaffiliated
Participating Insurance Companies.
The Participating Insurance Companies and their separate
accounts are the shareholders or investors (shareholders) of the
Fund. Owners of VA contracts and owners of VLI policies invest
in sub-accounts of separate accounts of the Participating
Insurance Companies that, in turn, invest in the Fund.
The prospectuses issued by the Participating Insurance
Companies describe which underlying funds are available to the
separate accounts offering the VA contracts and VLI policies.
The Trust assumes no responsibility for those prospectuses.
However, the Board of Trustees of the Trust (Board) does monitor
events to identify any material conflicts that may arise between
the interests of the Participating Insurance Companies or between
the interests of owners of VA contracts and VLI policies. The
Trust currently does not foresee any disadvantages to the owners
of VA contracts and VLI policies arising from the fact that
certain interests of the owners may differ. The Statement of
Additional Information contains additional information regarding
such differing interests and related risks.
Stein Roe & Farnham Incorporated (the Adviser) provides
investment advisory services to the Fund. The Adviser also
provides administrative and transfer agent services to the Fund.
Keyport Financial Services Corp. (the Underwriter) serves as the
principal underwriter for sales of the Fund's shares to the
Affiliated Participating Insurance Companies. The Adviser, the
Underwriter, Keyport, Independence and American Benefit are
subsidiaries of Liberty Financial Companies, Inc. (LFC). As of
March 31, 1998, approximately 72.3% of the combined voting power
of LFC's outstanding voting stock was held, indirectly, by
Liberty Mutual Insurance Company (Liberty Mutual). Liberty Life
is a subsidiary of Liberty Mutual.
FINANCIAL HIGHLIGHTS
The table below presents certain financial information for
the Fund for the period beginning January 1, 1989 and ending
December 31, 1997. The information has been audited and reported
on by the Trust's independent auditors, KPMG Peat Marwick LLP.
The report of KPMG Peat Marwick LLP for periods beginning on
January 1, 1993 appears in the Trust's annual report to
shareholders for the fiscal year ended December 31, 1997 (which
may be obtained without charge from the broker-dealer offering
the Participating Insurance Company's variable annuity contracts)
and is incorporated by reference into the Statement of Additional
Information. The Fund's total returns presented below do not
reflect the cost of insurance and other insurance company
separate account charges which vary with the VA contracts and VLI
policies offered through Participating Insurance Companies.
<TABLE>
Years Ended December 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share operating
performance:
Net asset value,
beginning of year $20.73 $16.33 $14.74 $16.53 $15.34 $15.32 $12.07 $14.79 $13.62
------ ------ ------ ------ ------ ----- ------ ------ ------
Net investment income 0.01 0.04 0.04 0.06 0.03 -- 0.21 0.19 0.23
Net realized and
unrealized gains
(losses) on invest-
ments and foreign
currency transactions 1.25 4.36 1.69 0.09 5.22 2.17 4.19 (1.53) 3.90
------ ------ ------ ------ ------ ----- ------ ------ ------
Total from invest-
ment operations 1.26 4.40 1.73 0.15 5.25 2.17 4.40 (1.34) 4.13
------ ------ ------ ------ ------ ----- ------ ------ ------
Less distributions:
Distributions from
and in excess of
net investment income (0.03) -- (0.04) (0.07) (0.02) -- (0.15) (0.28) (0.22)
Distributions from
and in excess of
net realized gains
on investments (3.96) -- (0.10) (1.87) (4.04) (2.15) (1.00) (1.10) (2.25)
Return of capital -- -- -- -- -- -- -- -- (0.49)
------ ------ ------ ------ ------ ----- ------ ------ ------
Total distributions (3.99) -- (0.14) (1.94) (4.06) (2.15) (1.15) (1.38) (2.96)
------ ------ ------ ------ ------ ----- ------ ------ ------
Net asset value,
end of year $18.00 $20.73 $16.33 $14.74 $16.53 $15.34 $15.32 $12.07 $14.79
====== ====== ====== ====== ====== ====== ====== ====== ======
Total return:
Total investment
return 7.81% 26.94% 11.75% 1.19%(b) 35.68%(b) 14.48% 37.25% (8.91)% 30.84%
Ratios/supplemental
data:
Net assets, end of
year (000s) $200,590 $196,219 $143,248 $134,078 $96,544 $52,135 $41,179 $33,238 $32,176
Ratio of expenses to
average net assets 0.73% 0.75% 0.76% 0.80%(a) 0.84%(a) 1.01% .03% 1.14% 1.08%
Ratio of net investment
income to average
net assets 0.04% 0.20% 0.26% 0.44%(b) 0.13%(b) (0.01)% 1.35% 1.43% 1.14%
Portfolio turnover
ratio 93% 100% 132% 144% 112% 85% 36% 121% 153%
Average commissions
(per share) $0.0453 $0.0251 -- -- -- -- -- -- --
<FN>
__________________
(a) These ratios were not materially affected by the
reimbursement of certain expenses by the Adviser and its
affiliates.
(b) Computed giving effect to the expense limitation undertaking
of the Adviser and its affiliates.
</TABLE>
Further information about the performance of the Fund is
contained in the Trust's annual report to shareholders for the
year ended December 31, 1997, which may be obtained without
charge by calling or writing the broker-dealer offering the
Participating Insurance Company's variable annuity contracts.
HOW THE FUND INVESTS
All investments, including mutual funds, have risks, and no
one mutual fund is suitable for all investors. No one Fund by
itself constitutes a complete investment program. The net asset
value of the shares of the Fund will vary with market conditions
and there can be no guarantee that the Fund will achieve its
investment objective.
The Fund and its investment objective and policies and are
described below. Certain additional investment policies and
techniques are described under "INVESTMENT TECHNIQUES AND
RESTRICTIONS" below. The Fund's investment objective is
fundamental and may be changed only by a vote of the Board and of
the shareholders.
More information about the portfolio securities in which the
Fund invests, including certain risks and investment limitations,
is provided in Appendix A to this Prospectus and Appendix A in
the Statement of Additional Information.
The Fund seeks to provide shareholders with growth of
capital. It pursues this objective by investing primarily in
common stocks, securities convertible into common stocks and
securities having common stock characteristics, including rights
and warrants, selected primarily for prospective capital growth.
The Fund invests in both domestic and foreign companies.
Investments in newer and smaller companies, particularly
those believed to be in the earlier phases of growth, are
emphasized. The Fund may also invest in securities of larger,
more established companies that the Adviser believes possess some
of the same characteristics as smaller companies. While income
is not an objective, securities appearing to offer attractive
possibilities for future growth of income may be included in the
Fund's portfolio.
Investor Considerations
The type of securities in which the Fund invests may be
expected to experience wide fluctuations in price in both rising
and declining markets. The Fund may be expected to experience a
greater degree of market and financial risk than other equity
portfolios. The Fund's portfolio may include securities that are
not widely traded or new issues of securities. The foreign
companies in which the Fund invests may include companies whose
operations are limited to a single country or group of countries.
The value of such investments may be significantly impacted by
factors (both positive and negative) affecting the local economy
of such country or countries.
INVESTMENT TECHNIQUES AND RESTRICTIONS
Techniques
The Fund may invest up to 25% of its total assets in
securities of foreign issuers as more fully described in Appendix
A to this Prospectus. The Fund typically holds foreign companies
in its portfolio.
When the Adviser believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S.
dollar, it may cause the Fund to enter into forward contracts to
sell an amount of foreign currency approximating the value of
some or all of the Fund's portfolio securities denominated in
such foreign currency. The Adviser may also cause the Fund to
enter into forward foreign currency contracts to protect against
loss between trade and settlement dates resulting from changes in
foreign currency exchange rates. Such contracts will also have
the effect of limiting any gains to the Fund that would have
resulted from advantageous changes in such rates.
It is the policy of the Fund that when the Adviser deems a
temporary defensive position advisable, the Fund may invest,
without limitation (i.e., up to 100% of its assets) in high-
quality fixed-income securities, or hold assets in cash or cash
equivalents, to the extent that the Adviser believes such
alternative investments to be less risky than those securities in
which the Fund normally invests.
The Fund may invest in securities purchased on a when-issued
or delayed-delivery basis. Although the payment terms of these
securities are established at the time the Fund enters into the
commitment, the securities may be delivered and paid for a month
or more after the date of purchase, when their value may have
changed and the yields then available in the market may be
greater. The Fund will make such commitments only with the
intention of actually acquiring the securities, but may sell the
securities before settlement date if it is deemed advisable for
investment reasons.
The Fund may also invest in securities purchased on a
standby commitment basis, which is a delayed-delivery agreement
in which the Fund binds itself to accept delivery of a security
at the option of the other party to the agreement. The Fund
usually receives a commitment fee in consideration for its
standby commitment.
The Fund may make loans of its portfolio securities to
broker-dealers and banks subject to certain restrictions
described in Appendix A to this Prospectus and in the Statement
of Additional Information.
The Fund may invest in options, futures contracts and other
derivatives as described in Appendix A to this Prospectus and in
the Statement of Additional Information.
Restrictions on the Fund's Investments
The Fund will not (1) with respect to 75% of the value of
its total assets, invest more than 5% of its total assets in the
securities of any one issuer (except that this restriction does
not apply to U.S. Government Securities); (2) invest more than
25% of its total assets (at market) in the securities of issuers
in any particular industry (except that this restriction does not
apply to U.S. Government Securities); (3) acquire more than 10%
of the outstanding voting securities of any one issuer; or (4)
borrow money, except as a temporary measure for extraordinary or
emergency purposes, and then the aggregate borrowings at any one
time (including any reverse repurchase agreements) may not exceed
33 1/3% of its assets (at market). The Fund will not purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets. The Fund may invest in repurchase agreements, provided
that the Fund will not invest more than 15% of its net assets in
repurchase agreements maturing in more than seven days and any
other illiquid securities. In each case, if a percentage limit
is satisfied at the time of investment or borrowing, a later
increase or decrease resulting from a change in the value of a
security or decrease in the Fund's assets will not constitute a
violation of the limit.
All of the investment restrictions applicable to the Fund
are set forth in the Statement of Additional Information.
PORTFOLIO TURNOVER
Although the Fund does not purchase securities with a view
to rapid turnover, there are no limitations on the length of time
that portfolio securities must be held and the Fund's portfolio
turnover rate may vary significantly from year to year. A high
rate of turnover of the Fund, if it should occur, would result in
increased transaction expenses, which must be borne by the Fund.
The turnover rate of the Fund may exceed 100%. The Fund may
have a higher rate of turnover than alternative investment funds
because of the flexibility of its investment policies permitting
the use of aggressive strategies and investments. The Fund's
portfolio turnover rates are shown under "FINANCIAL HIGHLIGHTS"
above.
In selecting broker-dealers for the purchase and sale of
portfolio securities, the Adviser may consider research and
brokerage services furnished by such broker-dealers to the
Adviser and its affiliates. Subject to seeking best execution,
the Adviser may consider sales of shares of the Fund (and of
other mutual funds advised by it and its affiliates), in
selecting broker-dealers for portfolio security transactions.
HOW THE FUND IS MANAGED
The Trustees
The business of the Trust's series funds is supervised by
the Trust's Board of Trustees. The Trust's Statement of
Additional Information contains the names of and biographical
information on the Trustees.
Stein Roe & Farnham Incorporated
The investment portfolio of the Fund is managed, subject to
the direction of the Board of Trustees, by Stein Roe & Farnham
Incorporated (the Adviser), One South Wacker Drive, Chicago,
Illinois 60606, pursuant to an Advisory Agreement dated May 1,
1993. The Adviser has provided investment advisory and
administrative services since 1932. The Adviser is a wholly
owned indirect subsidiary of LFC.
The Adviser places orders for the purchase and sale of
securities for the Fund. In doing so, the Adviser seeks to
obtain the best combination of price and execution, which
involves a number of judgmental factors.
Richard B. Peterson has been co-portfolio manager of the
Fund since 1991. Mr. Peterson is a Senior Vice President of the
Adviser. John S. McLandsborough has been co-portfolio manager
since June, 1997. He joined the Adviser as a portfolio manager
in 1996 and became a Vice President in 1998. Mr. McLandsborough
was a securities analyst with CS First Boston from 1993 to 1995.
The Adviser also provides the Fund with administrative
services pursuant to an Administration Agreement with the Trust
on behalf of the Fund and the Other Funds dated as of January 3,
1995. These services include financial statement preparation,
the provision of office space and equipment and facilities in
connection with the maintenance of the Trust's headquarters,
preparation and filing of required reports and tax returns,
arrangements for meetings, maintenance of the Trust's corporate
books and records, communication with shareholders, provision of
internal legal services and oversight of custodial, accounting
and other services provided to the Fund and the Other Funds by
others. The Adviser may, in its discretion, arrange for such
services to be provided to the Trust by LFC or by any of LFC's
majority or greater owned subsidiaries.
Under separate agreements, the Adviser also acts as the
agent of the Fund and the Other Funds for the transfer of shares,
disbursement of dividends and maintenance of shareholder account
records, and provides certain pricing and other record keeping
services to the Fund and the Other Funds.
The Adviser pays all compensation of the Trust's officers
who are employees of the Adviser.
Advisory and Administrative Fees
The Fund pays the Adviser annual fees for investment
advisory and administrative services at the annual rates of 0.50%
and 0.15%, respectively, of average daily net assets. All fees
are computed and accrued daily and paid monthly.
LFC and Liberty Mutual
LFC is a diversified and integrated asset management
organization providing insurance and investment products to
individuals and institutions through multiple distributions
channels. LFC's operating units include: Keyport Life Insurance
Company, a specialist in fixed and variable annuities; the
Adviser; The Colonial Group, Inc., sponsor of the Colonial family
of mutual funds; Newport Pacific Management, Inc., a specialist
in Asian equity markets; Liberty Asset Management Company, a
sponsor of closed-end funds employing a multi-managed investment
approach; and Independent Financial Marketing Group, Inc., a
specialist in the design and implementation of bank marketing
programs for insurance and investment products.
Liberty Mutual is an international multi-line insurance
writer and, with its affiliates, is one of the largest writers of
property-casualty insurance in the United States.
Custodian
State Street Bank and Trust Company (State Street), Boston,
Massachusetts, is the custodian for the Fund. Foreign securities
are maintained in the custody of foreign banks and trust
companies that are members of State Street's Global Custody
Network or foreign depositories used by such members.
Expenses of the Fund
The Fund generally will pay all its expenses, other than
those borne by the Adviser. The Adviser has voluntarily agreed
until April 30, 1999 to reimburse all expenses, including
management and administrative fees, incurred by the Fund in
excess of 0.80% of average net assets.
The Advisor would not, however, be required to reimburse
expenses to an extent which would result in the Fund's inability
to qualify as a regulated investment company under the Internal
Revenue Code.
It is the policy of the Trust that expenses directly charged
or attributable to one of its series funds will be paid from the
assets of that fund. General expenses of the Trust will be
allocated among and charged to the assets of each of the Trust's
series funds (including the Fund and the Other Funds) on a basis
that the Trustees deem fair and equitable, which may be based on
the relative assets of each such fund or the nature of the
services performed and their relative applicability to each such
fund.
PURCHASES AND REDEMPTIONS
The Participating Insurance Companies place daily orders to
purchase and redeem shares of the Fund based on, among other
things, the net amount of purchase payments to be invested and
surrender and transfer requests to be effected on that day
pursuant to the VA contracts and VLI policies. Shares are
purchased and redeemed as a result of certain other transactions
pursuant to the VA contracts and VLI policies, including
deductions for fees and charges by the applicable insurance
company separate account. The Trust continuously offers and
redeems shares at net asset value without the addition of any
selling commission, sales load or redemption charge. Shares are
sold and redeemed at their net asset value as next determined
after receipt of purchase payments or redemption requests,
respectively, by the separate accounts. Similarly, shares are
sold or redeemed as a result of such other transactions under the
VA contracts and VLI policies at the net asset value computed for
the day on which such transactions are effected by the separate
accounts. The right of redemption may be suspended or payments
postponed whenever permitted by applicable law and regulations.
Keyport Financial Services Corp. (KFSC), a subsidiary of
Keyport, serves pursuant to an Underwriting Agreement as
principal underwriter for the Trust with respect to sales of
shares to Keyport and other Affiliated Participating Insurance
Companies. KFSC is registered as a broker-dealer under the
Securities Exchange Act of 1934 and is a member of the National
Association Securities Dealers, Inc. KFSC's address is 125 High
Street, Boston, Massachusetts 02110.
INVESTMENT RETURN
The total return from an investment in the Fund is measured
by the distributions received (assuming reinvestment of all
distributions) plus or minus the change in the net asset value
per share for a given period. A total return percentage is
calculated by first dividing the value of a share at the end of
the period (including reinvestment of distributions) by the value
of the share at the beginning of the period and then subtracting
1.0. The Fund's average annual total return is determined by
computing the annual percentage change in value of a $1,000
investment in the Fund for a specified period, assuming
reinvestment of all dividends and distributions.
Total return information describes the Fund's performance
for the period shown and does not predict future performance.
Comparison of the Fund's total return with those of alternative
investments should consider differences between the Fund and the
alternative investments, the periods and methods used in
calculation of the return being compared, and the impact of taxes
on alternative investments. The Fund's investment return figures
do not reflect the cost of insurance and other insurance company
separate account charges which vary with the VA contracts and VLI
policies offered through the separate accounts of the
Participating Insurance Companies, and which will decrease the
return realized by a contract or policyholder.
NET ASSET VALUE
The Adviser determines net asset value per share of the Fund
as of the close of regular trading on the New York Stock Exchange
(NYSE) (currently 4:00 p.m., Eastern time). Net asset value per
share is calculated for the Fund by dividing the current market
value of total portfolio assets, less all liabilities (including
accrued expenses), by the total number of shares outstanding.
Net asset value is determined on each day when the NYSE is open,
except on such days in which no order to purchase or redeem
shares is received. The NYSE is scheduled to be open Monday
through Friday throughout the year except for certain Federal and
other holidays.
U.S. Securities
Each security traded on a national securities exchange is
valued at its last sale price on that exchange on the day of
valuation or, if there are no sales that day, at the latest bid
quotation. Each over-the-counter security for which the last
sale price on the day of valuation is available from Nasdaq is
valued at that price. All other over-the-counter securities for
which reliable quotations are available are valued at the latest
bid quotation, except that securities convertible into stock are
valued at the latest valuations provided by a pricing service
approved by the Board.
The Board has determined to value long-term debt
obligations primarily on the basis of valuations furnished by a
pricing service which may employ electronic data processing
techniques, including a so-called "matrix" system, to determine
valuations, as well as dealer-supplied quotations. Long-term
debt obligations for which reliable pricing services are, in the
opinion of the Adviser, not available will be valued at their
respective values as determined in good faith by, or under
procedures established by, the Board.
Foreign Securities
The values of foreign portfolio securities are generally
based upon market quotations which, depending upon local
convention or regulation, may be the last sales price, the last
bid or asked price, or the mean between the last bid and asked
prices as of, in each case, the close of the appropriate exchange
or other designated time. Trading in securities on European and
Far Eastern securities exchanges and over-the-counter markets is
normally completed at various times before the close of business
on each day on which the NYSE is open. Trading of these
securities may not take place on every NYSE business day. In
addition, trading may take place in various foreign markets on
Saturdays or on other days when the NYSE is not open and on which
the Fund's net asset value is not calculated. Therefore, such
calculation does not take place contemporaneously with the
determination of the prices of many of the portfolio securities
used in such calculation and the value of the Fund's portfolio
may be significantly affected on days when shares of the Fund may
not be purchased or redeemed.
Other assets and securities of the Fund are valued at a fair
value as determined in good faith by, or under procedures
established by, the Board.
TAXES
The Fund has elected to be treated and to qualify as a
"regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986 (Code). As a result of such election, for
any tax year in which the Fund meets the investment limitations
and the distribution, diversification and other requirements
referred to below, the Fund will not be subject to Federal income
tax, and the income of the Fund will be treated as the income of
its shareholders. Under current law, since the shareholders are
life insurance company "segregated asset accounts," they will not
be subject to income tax currently on this income to the extent
such income is applied to increase the values of VA contracts and
VLI policies.
Among the conditions for qualification and avoidance of
taxation at the Trust level, Subchapter M imposes investment
limitations, distribution requirements, and requirements relating
to the diversification of investments. The requirements of
Subchapter M may affect the investments made by the Fund. Any of
the applicable diversification requirements could require a sale
of assets of the Fund that would affect the net asset value of
the Fund.
Pursuant to the requirements of Section 817(h) of the Code,
the only shareholders of the Trust and its series funds will be
Participating Insurance Companies and their separate accounts
that fund VA contracts, VLI policies and other variable insurance
contracts. The prospectus that describes a particular VA
contract or VLI policy discusses the taxation of separate
accounts and the owner of such contract or policy.
The Fund intends to comply with the requirements of Section
817(h) and the related regulations thereunder issued by the
Treasury Department. These provisions impose certain
diversification requirements affecting the securities in which
the Fund may invest and other limitations. The diversification
requirements of Section 817(h) of the Code are in addition to the
diversification requirements under Subchapter M and the
Investment Company Act of 1940. The consequences of failure to
meet the requirements of Section 817(h) could result in taxation
of the Participating Insurance Companies offering the VA
contracts and VLI policies and immediate taxation of all owners
of the contracts and policies to the extent of appreciation on
investment under the contracts. The Trust believes that the Fund
is in compliance with these requirements.
The Secretary of the Treasury may issue additional rulings
or regulations that will prescribe the circumstances in which an
owner of a variable insurance contract's control of the
investments of a segregated asset account may cause such owner,
rather than the insurance company, to be treated as the owner of
the assets of a segregated asset account. It is expected that
such regulations would have prospective application. However, if
a ruling or regulation were not considered to set forth a new
position, the ruling or regulation could have retroactive effect.
The Trust therefore may find it necessary, and reserves the
right to take action to assure, that a VA contract or VLI policy
continues to qualify as an annuity or insurance contract under
Federal tax laws. The Trust, for example, may be required to
alter the investment objectives of the Fund or substitute the
shares of the Fund for those of another. No such change of
investment objectives or substitution of securities will take
place without notice to the contract and policy owners with
interests invested in the Fund and without prior approval of the
Securities and Exchange Commission, or the approval of a majority
of such owners, to the extent legally required.
To the extent the Fund invests in foreign securities,
investment income received by the Fund from sources within
foreign countries may be subject to foreign income taxes withheld
at the source. The United States has entered into tax treaties
with many foreign countries which entitle the Fund to a reduced
rate of tax or exemption from tax on such income.
Gains and losses from foreign currency dispositions,
foreign-currency denominated debt securities and payables or
receivables, and foreign currency forward contracts are subject
to special tax rules that generally cause them to be
recharacterized as ordinary income and losses, and may affect the
timing and amount of the Fund's recognition of income, gain or
loss.
It is impossible to determine the effective rate of foreign
tax in advance since the amount of the Fund's assets, if any, to
be invested within various countries will fluctuate and the
extent to which tax refunds will be recovered is uncertain. The
Fund intends to operate so as to qualify for treaty-reduced tax
rates where applicable.
The preceding is a brief summary of some relevant tax
considerations. This discussion is not intended as a complete
explanation or a substitute for careful tax planning and
consultation with individual tax advisors.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to declare and distribute, as dividends or
capital gains distributions, at least annually, substantially all
of its net investment income and net profits realized from the
sale of portfolio securities, if any, to its shareholders
(Participating Insurance Companies' separate accounts). The net
investment income of the Fund consists of all dividends or
interest received by the Fund, less estimated expenses (including
the investment advisory and administrative fees). Income
dividends will be declared and distributed annually. All net
short-term and long-term capital gains of the Fund, net of carry-
forward losses, if any, realized during the fiscal year, are
declared and distributed periodically, no less frequently than
annually. All dividends and distributions are reinvested in
additional shares of the Fund at net asset value, as of the
record date for the distributions.
SHAREHOLDER COMMUNICATIONS
Owners of VA contracts and VLI policies, issued by a
Participating Insurance Company or for which shares of the Fund
are available as an investment vehicle, receive from the
applicable Participating Insurance Company unaudited semi-annual
financial statements and audited year-end financial statements of
the Fund certified by the Trust's independent auditors. Each
report shows the investments owned by the Fund and provides other
information about the Trust and its operations. Copies of such
reports may be obtained from the broker-dealer offering the
Participating Insurance Company's variable annuity contracts.
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a diversified open-end management investment
company as defined in the Investment Company Act of 1940 (1940
Act) organized under an Agreement and Declaration of Trust
(Declaration of Trust) as a Massachusetts business trust on June
9, 1987. The Declaration of Trust may be amended by a vote of
either the Trust's shareholders (which include shareholders of
the Other Funds) or the Board. The Trust is authorized to issue
an unlimited number of shares of beneficial interest without par
value, in one or more series as the Board may authorize. Each of
the Trust's funds is a separate series of the Trust.
Each share of the Fund is entitled to participate pro rata
in any dividends and other distributions declared by the Board
with respect to the Fund, and all shares of the Fund have equal
rights in the event of liquidation of the Fund.
Shareholders of the Fund and each Other Fund are entitled to
one vote for each share of that series fund held on any matter
presented to shareholders. Shares of the Fund and the Other
Funds will vote separately as individual series when required by
the 1940 Act or other applicable law or when the Board determines
that the matter affects only the interests of one or more series
funds, such as, for example, a proposal to approve an amendment
to that fund's Advisory Agreement, but shares of the Fund and all
of the Other Funds vote together, to the extent required by the
1940 Act, in the election or selection of Trustees and
independent accountants.
The shares do not have cumulative voting rights, which means
that the holders of more than 50% of the shares of the Fund and
the Other Funds, taken together, voting for the election of
Trustees can elect all of the Trustees, and, in such event, the
holders of the remaining shares will not be able to elect any
Trustees.
The Fund is not required by law to hold regular annual
meetings of shareholders and does not intend to do so. However,
special meetings may be called for purposes such as electing or
removing Trustees or changing fundamental policies.
The Trust is required to hold a shareholders' meeting to
elect Trustees to fill vacancies in the event that less than a
majority of Trustees were elected by shareholders. Trustees may
also be removed by the vote of two-thirds of the outstanding
shares at a meeting called at the request of shareholders whose
interests represent 10% or more of the outstanding shares of the
Trust.
Under Massachusetts law, shareholders of a business trust
may, under certain circumstances, be held personally liable for
the obligations of the Trust. However, the Trust's Declaration
of Trust disclaims liability of the shareholders, the Trustees,
or officers of the Trust for acts or obligations of the Trust,
which are binding only on the assets and property of the Trust
(or the applicable series fund thereof) and requires that notice
of such disclaimer be given in each agreement, obligation, or
contract entered into or executed by the Trust or the Board. The
Declaration of Trust provides for indemnification out of the
Trust's assets (or the applicable fund) 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
believed to be remote because it is limited to circumstances in
which the disclaimer is inoperative and the Trust itself is
unable to meet its obligations. The risk to any one series fund
of sustaining a loss on account of liabilities incurred by
another series fund also is believed to be remote.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional
Information which has been incorporated by reference herein, does
not contain all the information set forth in the Registration
Statement filed by the Trust with the Securities and Exchange
Commission under the Securities Act of 1933. Copies of the
Registration Statement may be obtained from the Commission or may
be examined at the office of the Commission in Washington, D.C.
<PAGE>
APPENDIX A
INVESTMENT TECHNIQUES
AND SECURITIES
FOREIGN INVESTMENTS
The Fund may invest up to 25% of its total assets in
securities of foreign issuers that are not publicly traded in the
U.S., which for this purpose do not include securities
represented by American Depositary Receipts (ADRs) or securities
guaranteed by a U.S. person.
Foreign Securities
While investment in foreign securities is intended to
reduce risk by providing further diversification, such
investments involve risks in addition to the credit and market
risks normally associated with domestic securities. These
include sovereign risks and risks pertaining to the local economy
in the country or countries in which the foreign company conducts
business. Foreign investments may be affected favorably or
unfavorably by changes in currency rates and exchange control
regulations. There may be less publicly available information
about a foreign company than about a U.S. company, and foreign
companies may not be subject to accounting, auditing and
financial reporting standards and requirements comparable to
those applicable to U.S. companies. Securities of some foreign
companies are less liquid or more volatile than securities of
U.S. companies, and foreign brokerage commissions and custodian
fees are generally higher than in the U.S. Investments in
foreign securities may also be subject to other risks different
from those affecting U.S. investments, including local political
or economic developments, expropriation or nationalization of
assets, imposition of withholding taxes on dividend or interest
payments, currency blockage (which would prevent cash from being
brought back to the U.S.), and sometimes less advantageous legal,
operational, and financial protection applicable to foreign sub-
custodial arrangements. These risks are carefully considered by
the Adviser prior to the purchase of these securities.
Foreign Currency Transactions
When the Fund invests in foreign securities, such securities
usually will be denominated in, or salable for, foreign
currencies, and the Fund temporarily may hold funds in foreign
currencies. Thus, the value of Fund shares will be affected by
changes in exchange rates.
As one way of managing exchange rate risk, the Fund may
enter into forward currency exchange contracts (agreements to
purchase or sell currencies at a specified price and date). The
exchange rate for the transaction (the amount of currency the
Fund will deliver or receive when the contract is completed) is
fixed when the Fund enters into the contract. The Fund usually
will enter into these contracts to stabilize the U.S. dollar
value of a security it has agreed to buy or sell. The Fund
intends to use these contracts to hedge the U.S. dollar value of
a security it already owns or intends to purchase, particularly
if the Fund expects a decrease in the value of the currency in
which the foreign security is denominated. Although the Fund
will attempt to benefit from using forward contracts, the success
of its hedging strategy will depend on the Adviser's ability to
predict accurately the future exchange rates between foreign
currencies and the U.S. dollar. The value of Fund's investments
denominated in foreign currencies will depend on the relative
strength of those currencies and the U.S. dollar, and the Fund
may be affected favorably or unfavorably by changes in the
exchange rates or exchange control regulations between foreign
currencies and the dollar. Changes in foreign currency exchange
rates also may affect the value of dividends and interest earned,
gains and losses realized on the sale of securities, and net
investment income and gains, if any, to be distributed to
shareholders by the Fund.
STANDBY COMMITMENTS
The Fund may invest in securities purchased on a standby
commitment basis, as described below.
A standby commitment is a delayed-delivery agreement in
which the Fund binds itself to accept delivery of a security at
the option of the other party to the agreement. The Fund usually
receives a commitment fee in consideration for its standby
commitment. At the time the Fund enters into a binding
obligation to purchase securities on a standby commitment basis,
liquid assets of the Fund having a value of at least as great as
the purchase price of the securities to be purchased will be
segregated on the books of the Fund and held by its custodian
throughout the period of the obligation.
If the value of the securities that the Fund has committed
to purchase increases, the other party may exercise its right not
to deliver the securities, in which case the Fund only would
retain its commitment fee and forego any appreciation of those
securities. If the value of the securities that the Fund has
committed to purchase decreases, the other party would probably
deliver the securities, in which case the Fund would absorb the
loss between the purchase price and the decreased market value,
which loss may significantly exceed the commitment fee.
LENDING PORTFOLIO SECURITIES
The Fund may lend portfolio securities in limited amounts,
as described below.
The Fund may lend securities to brokers, dealers and
financial institutions pursuant to agreements requiring that the
loans be continuously secured by liquid assets as collateral
equal at all times in value to at least the market value of the
securities loaned. Such securities loans will not be made with
respect to the Fund if as a result the aggregate of all
outstanding securities loans exceeds 15% of the value of its
total assets taken at their current value. The Fund continues to
receive interest or dividends on the securities loaned and would
also receive an additional return that may be in the form of a
fixed fee or a percentage of the collateral. The Fund would have
the right to call the loan and obtain the securities loaned at
any time on notice of not more than five business days. The Fund
would not have the right to vote the securities during the
existence of the loan but would call the loan to permit voting of
the securities if, in the Adviser's judgment, a material event
requiring a shareholder vote would otherwise occur before the
loan was repaid. In the event of bankruptcy or other default of
the borrower, the Fund could experience both delays in
liquidating the loan collateral or recovering the loaned
securities and losses including (a) possible decline in the value
of the collateral or in the value of the securities loaned during
the period while the Fund seeks to enforce its rights thereto,
(b) possible subnormal levels of income and lack of access to
income during this period, and (c) expenses of enforcing its
rights. However, loans may be made only to borrowers approved by
the Board when the income to be earned from the loan, in the
opinion of the Adviser, justifies the attendant risks.
OPTIONS, FUTURES AND OTHER DERIVATIVES
Consistent with its objective, the Fund may purchase and
write both call options and put options on securities, indexes
and foreign currencies, enter into interest rate, index and
foreign currency futures contracts and options on such futures
contracts, and purchase other types of forward or investment
contracts linked to individual securities, indexes or other
benchmarks ("derivative products") in order to achieve its
desired investment objective, to provide additional revenue, or
to hedge against changes in security prices, interest rates or
currency fluctuations. The Fund may write a call or put option
only if the option is covered. There can be no assurance that a
liquid market will exist when the Fund seeks to close out a
derivative product position. In addition, because of low margin
deposits required, the use of futures contracts involves a high
degree of leverage, and may result in losses in excess of the
amount of the margin deposit. Successful use of derivative
products depends on the Adviser's ability to predict correctly
changes in the level and the direction of security prices,
interest rates, currency exchange rates, and other market
factors, but even a well-conceived transaction may be
unsuccessful because of an imperfect correlation between the cash
and the derivative product markets. For additional information
with respect to these matters, please refer to the Statement of
Additional Information.
<PAGE>
STEINROE VARIABLE INVESTMENT TRUST
STEIN ROE MONEY MARKET FUND, VARIABLE SERIES
Federal Reserve Plaza
600 Atlantic Avenue
Boston, Massachusetts 02210
Stein Roe Money Market Fund, Variable Series (Fund) is a
series fund in the SteinRoe Variable Investment Trust (Trust), an
open-end, diversified management investment company that
currently includes five separate funds, each with its own
investment objective and policies.
The investment objective of the Fund is high current income
from short-term money market instruments while emphasizing
preservation of capital and maintaining excellent liquidity.
(The Fund attempts to maintain its net asset value at $1.00 per
share, but there can be no assurance that it will be able to do
so. An investment in the Fund is neither insured nor guaranteed
by the U.S. Government.)
________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
________________________________________________________________
This Prospectus contains information about the Fund that a
prospective investor should know before applying for certain
variable annuity contracts and variable life insurance policies
offered by separate accounts of insurance companies investing in
shares of the Fund. Please read it carefully and retain it for
future reference.
Additional facts about the Trust (including the Fund) are
included in a Statement of Additional Information dated May 1,
1998, incorporated herein by reference, which has been filed with
the Securities and Exchange Commission. For a free copy write to
Keyport Financial Services Corp. at 125 High Street, Boston,
Massachusetts 02110 or the broker-dealer offering the variable
annuity contracts and variable life insurance policies of
Participating Insurance Companies (as such term is defined in
this Prospectus).
_______________________________________________________________
SHARES OF THE FUND ARE AVAILABLE AND ARE BEING MARKETED
EXCLUSIVELY AS A POOLED FUNDING VEHICLE FOR VARIABLE ANNUITY
CONTRACTS ("VA CONTRACTS") AND VARIABLE LIFE INSURANCE POLICIES
("VLI POLICIES") OF KEYPORT LIFE INSURANCE COMPANY AND
INDEPENDENCE LIFE & ANNUITY COMPANY, AND THE VA CONTRACTS OF
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON. OTHER PARTICIPATING
INSURANCE COMPANIES MAY BE ADDED FROM TIME TO TIME.
_______________________________________________________________
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR
THE APPROPRIATE VA CONTRACT OR VLI POLICIES OF PARTICIPATING
INSURANCE COMPANIES. BOTH PROSPECTUSES SHOULD BE READ AND
RETAINED FOR FUTURE REFERENCE.
The date of this prospectus is May 1, 1998
TABLE OF CONTENTS
Page
The Trust...............................................3
Financial Highlights....................................3
How the Fund Invests....................................4
Investment Techniques and Restrictions..................6
How the Fund is Managed.................................7
Purchases and Redemptions...............................9
Investment Return.......................................9
Net Asset Value........................................10
Taxes..................................................10
Dividends and Distributions............................12
Shareholder Communications.............................12
Organization and Description of Shares.................12
Additional Information.................................13
Appendix A: Investment Techniques and Securities.......14
Appendix B: Description of Ratings....................19
THE TRUST
Stein Roe Money Market Fund, Variable Series (Fund) is a
series fund of the SteinRoe Variable Investment Trust (Trust), an
open-end, diversified management investment company currently
consisting of five funds with differing investment objectives,
policies and restrictions. (The Trust's series funds other than
the Fund are referred to herein as the "Other Funds"). The Trust
issues shares of beneficial interest in each of its series funds
that represent interests in a separate portfolio of securities
and other assets. The Trust may add or delete series funds from
time to time.
The Trust is the funding vehicle for variable annuity
contracts (VA contracts) and variable life insurance policies
(VLI policies) offered by the separate accounts of life insurance
companies (Participating Insurance Companies). Shares of the
Fund currently are sold only to Keyport Life Insurance Company
(Keyport), Independence Life & Annuity Company (Independence),
American Benefit Life Insurance Company (American Benefit) and
Liberty Life Assurance Company of Boston (Liberty Life).
Keyport, Independence, American Benefit and Liberty Life (Keyport
entities) are affiliated entities. Other Participating Insurance
Companies may be added from time to time.
The Participating Insurance Companies and their separate
accounts are the shareholders or investors (shareholders) of the
Fund. Owners of VA contracts and owners of VLI policies invest in
sub-accounts of separate accounts of the Participating Insurance
Companies that, in turn, invest in the Fund.
The prospectuses issued by the Participating Insurance
Companies describe which underlying funds are available to the
separate accounts offering the VA contracts and VLI policies. The
Trust assumes no responsibility for those prospectuses. However,
the Board of Trustees of the Trust (Board) does monitor events to
identify any material conflicts that may arise between the
interests of the Participating Insurance Companies or between the
interests of owners of VA contracts and VLI policies. The Trust
currently does not foresee any disadvantages to the owners of VA
contracts and VLI policies arising from the fact that certain
interests of the owners may differ. The Trust's Statement of
Additional Information contains additional information regarding
such differing interests and related risks.
Stein Roe & Farnham Incorporated (the Adviser) provides
investment advisory services to the Fund. The Adviser also
provides administrative and transfer agent services to the Fund.
Keyport Financial Services Corp. (the Underwriter) serves as the
principal underwriter for sales of the Fund's shares to the
Keyport entities. The Adviser, the Underwriter and the Keyport
entities (other than Liberty Life) are wholly owned indirect
subsidiaries of Liberty Financial Companies, Inc. ("LFC"). As of
March 31, 1998, approximately 72.3% of the combined voting power
of LFC's outstanding voting stock was owned, indirectly, by
Liberty Mutual Insurance Company (Liberty Mutual). Liberty Life
is a subsidiary of Liberty Mutual.
FINANCIAL HIGHLIGHTS
The table below presents certain financial information for
the Fund for the period beginning January 1, 1989 and ending
December 31, 1997. The information has been audited and reported
on by the Trust's independent auditors, KPMG Peat Marwick LLP.
The report of KPMG Peat Marwick LLP for periods beginning on
January 1, 1993 appears in the Trust's annual report to
shareholders for the fiscal year ended December 31, 1997 (which
may be obtained without charge from the Underwriter) and is
incorporated by reference into this Prospectus. The Fund's total
returns presented below do not reflect the cost of insurance and
other insurance company separate account charges which vary with
the VA contracts and VLI policies offered through the separate
accounts of Participating Insurance Companies.
Money Market Fund
Financial Highlights
(for a share outstanding throughout the period)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share operating
performances:
Net asset value,
beginning of year $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ----- ------ ------ ------ ------ -----
Net investment income 0.050 0.049 0.055 0.037 0.027 0.034 0.056 0.076 0.087
------ ------ ------ ----- ------ ------ ------ ------ -----
Less distributions:
Distributions from net
investment income (0.050) (0.049) (0.055) (0.037) (0.027) (0.034) (0.056) (0.076) (0.087)
------ ------ ------ ----- ------ ------ ------ ------ -----
Net asset value,
end of year $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
===== ===== ===== ===== ===== ===== ===== ===== =====
Total return:
Total investment return 5.18% 5.01% 5.62% 3.81% 2.70% 3.48% 5.79% 7.89% 9.07%
Ratios/supplemental data:
Net assets, end of
year (000s) $67,137 $65,461 $64,992 $78,698 $83,049 $70,821 $77,676 $94,462 $94,313
Ratio of expenses to
average net assets 0.65% 0.65% 0.63% 0.62% 0.65% 0.67% 0.67% 0.66% 0.66%
Ratio of net investment
income to average net
assets 5.05% 4.90% 5.48% 3.73% 2.68% 3.42% 5.67% 7.61% 8.68%
</TABLE>
Further information about the performance of the Fund is
contained in the Trust's annual report to shareholders for the
year ended December 31, 1997, which may be obtained without
charge from the Underwriter.
HOW THE FUND INVESTS
All investments, including mutual funds, have risks, and no
one mutual fund is suitable for all investors. No one fund by
itself constitutes a complete investment program. There can be no
guarantee that the Fund will achieve its investment objective.
Although the Fund attempts to stabilize its net asset value at
$1.00 per share, there can be no assurance that it will be able
to do so.
The Fund and its investment objectives and policies are
described below. The Fund's investment objective is fundamental
and may be changed only by a vote of the Board of Trustees and of
the shareholders.
More information about the portfolio securities in which the
Fund invests, including certain risks and investment limitations,
is provided in Appendix A to this Prospectus and Appendix A in
the Trust's Statement of Additional Information.
The Fund seeks high current income from investment in short-
term money market instruments while emphasizing preservation of
capital and maintaining excellent liquidity.
The Fund pursues this objective by investing all of its
assets in U.S. dollar denominated money market instruments
maturing in thirteen months or less from time of investment.
Each security must be rated (or be issued by an issuer that is
rated with respect to its short-term debt) within the highest
rating category for short-term debt by at least two nationally
recognized statistical rating organizations ("NRSRO"), or, if
unrated, determined by or under the direction of the Board of
Trustees to be of comparable quality. These securities may
include:
(1) Securities issued or guaranteed by the U.S. Government or by
its agencies or instrumentalities ("U.S. Government Securities").
(2) Securities issued or guaranteed by the government of any
foreign country that have a long-term rating at time of purchase
of A or better (or equivalent rating) by at least one NRSRO.
(3) Certificates of deposit, bankers' acceptances and time
deposits of any bank (U.S. or foreign) having total assets in
excess of $1 billion, or the equivalent in other currencies (as
of the date of the most recent available financial statements) or
of any branches, agencies or subsidiaries (U.S. or foreign) of
any such bank.
(4) Commercial paper of U.S. or foreign issuers, including
variable rate demand notes.
(5) Notes, bonds, and debentures having a long-term rating at
time of purchase of A or better (or equivalent rating) by at
least one NRSRO.
(6) Repurchase agreements involving securities listed in (1)
above.
(7) Other high-quality short-term obligations.
Under normal market conditions the Fund will invest at least
25% of its total assets in securities of issuers in the financial
services industry (which includes, but is not limited to, banks,
personal credit and business credit institutions, and other
financial service institutions).
The remaining maturity of each of the Fund's investments at
the time of investment is 13 months or less. The weighted average
maturity of its investment portfolio varies with money market
conditions, but is always 90 days or less.
Although there can be no assurance that it will always be
able to do so, the Fund follows procedures designed to maintain
its price per share at $1.00. (See "NET ASSET VALUE.")
Investor Considerations
The yield from short-term investments may be lower than
yields from longer-term securities. The value of the Fund's
securities fluctuates inversely with changes in interest rates.
Both the risk of an issuer's inability to pay interest and
principal on a given security (financial risk) and the price
volatility (market risk) of investment in the Fund may be
expected to be less than for non-money market funds.
Because of the Fund's policy of investing at least 25% of
its assets in securities of issuers in the financial services
industry, the Fund may be more adversely affected by changes in
market or economic conditions and other circumstances affecting
the financial services industry.
INVESTMENT TECHNIQUES AND RESTRICTIONS
Techniques
The Fund may invest in securities purchased on a when-issued
or delayed-delivery basis. Although the payment terms of these
securities are established at the time the Fund enters into the
commitment, the securities may be delivered and paid for a month
or more after the date of purchase, when their value may have
changed and the yields then available in the market may be
greater. The Fund will make such commitments only with the
intention of actually acquiring the securities, but may sell the
securities before settlement date if it is deemed advisable for
investment reasons.
The Fund may also invest in securities purchased on a
standby commitment basis, which is a delayed delivery agreement
in which the Fund binds itself to accept delivery of a security
at the option of the other party to the agreement. The Fund
usually receives a commitment fee in consideration for its
standby commitment.
The Fund may invest up to 25% of its total assets in
securities of foreign issuers as more fully described in Appendix
A to this Prospectus.
Restrictions on the Fund's Investments
The Fund will not (1) with respect to 75% of the value of
its total assets invest more than 5% of its total assets in the
securities of any one issuer (except that this restriction does
not apply to (i) U.S. Government Securities or (ii) certificates
of deposit, bankers' acceptances or repurchase agreements); (2)
invest more than 25% of its total assets (at market) in the
securities of issuers in any particular industry (except that
this restriction does not apply to (i) U.S. Government
Securities, (ii) certificates of deposit, bankers' acceptances or
repurchase agreements or (iii) securities of issuers in the
financial services industry); (3) acquire more than 10% of the
outstanding voting securities of any one issuer; or (4) borrow
money, except as a temporary measure for extraordinary or
emergency purposes, and then the aggregate borrowings at any one
time (including any reverse repurchase agreements) may not exceed
33 1/3% of its assets (at market). The Fund will not purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets. The Fund may invest in repurchase agreements, provided
that the Fund will not invest more than 10% of its net assets in
repurchase agreements maturing in more than seven days and any
other illiquid securities. In each case, if a percentage limit
is satisfied at the time of investment or borrowing, a later
increase or decrease resulting from a change in the value of a
security or decrease in the Fund's assets will not constitute a
violation of the limit.
All of the investment restrictions applicable to the Fund
are set forth in the Trust's Statement of Additional Information.
HOW THE FUND IS MANAGED
The Trustees
The business of the Trust's series funds is supervised by
the Trust's Board of Trustees. The Trust's Statement of
Additional Information contains the names of and biographical
information on the Trustees.
Stein Roe & Farnham Incorporated
The investment portfolio of the Fund is managed, subject to
the direction of the Board of Trustees, by Stein Roe & Farnham
Incorporated (the Adviser), One South Wacker Drive, Chicago,
Illinois 60606, pursuant to an Advisory Agreement dated December
9, 1988. The Adviser has been providing investment advisory and
administrative services since 1932. The Adviser is a wholly
owned indirect subsidiary of LFC.
The Adviser places orders for the purchase and sale of
securities for the Fund. In doing so, the Adviser seeks to obtain
the best combination of price and execution, which involves a
number of judgmental factors.
The Adviser also provides the Fund with administrative
services pursuant to an Administration Agreement with the Trust
on behalf of the Fund and each Other Fund dated as of January 3,
1995. These services include financial statement preparation,
the provision of office space and equipment and facilities in
connection with the maintenance of the Trust's headquarters,
preparation and filing of required reports and tax returns,
arrangements for meetings, maintenance of the Trust's corporate
books and records, communication with shareholders, provision of
internal legal services and oversight of custodial, accounting
and other services provided to the Fund by others. The Adviser
may, in its discretion, arrange for such services to be provided
to the Fund by LFC or by any of LFC's majority or greater owned
subsidiaries.
Under separate agreements, the Adviser also acts as the
agent of the Fund and the Other Funds for the transfer of shares,
disbursement of dividends and maintenance of shareholder account
records, and provides pricing and certain other record keeping
services to the Fund and the Other Funds.
The Adviser pays all compensation of the Trust's officers
who are employees of the Adviser.
Advisory and Administrative Fees
The Fund pays the Adviser annual fees for investment
advisory and administrative services at the annual rates of 0.35%
and 0.15%, respectively, of average daily net assets. All fees
are computed and accrued daily and paid monthly.
LFC and Liberty Mutual
LFC is a diversified and integrated asset management
organization providing insurance and investment products to
individuals and institutions through multiple distributions
channels. LFC's primary operating units include: Keyport; the
Adviser; The Colonial Group, Inc., sponsor of the Colonial family
of mutual funds; Newport Pacific Management, Inc., a specialist
in Asian equity markets; Liberty Asset Management Company, a
sponsor of closed-end funds employing a multi-managed investment
approach; and Independent Financial Marketing Group, Inc., a
specialist in the design and implementation of bank marketing
programs for insurance and investment products.
Liberty Mutual is an international multi-line insurance
writer and, with its affiliates, is one of the largest writers of
property-casualty insurance in the United States.
Custodian
State Street Bank and Trust Company (State Street), Boston,
Massachusetts, is the custodian for the Fund. Foreign securities
are maintained in the custody of foreign banks and trust
companies that are members of State Street's Global Custody
Network or foreign depositories used by such members.
Expenses of the Fund
The Fund generally will pay all its expenses, other than
those borne by the Adviser. The Adviser has voluntarily agreed
until April 30, 1999 to reimburse all expenses, including
management and administrative fees, incurred by the Fund in
excess of 0.65% of average net assets.
The Advisor would not, however, be required to reimburse
expenses to an extent which would result in the Fund's inability
to qualify as a regulated investment company under the Internal
Revenue Code.
It is the policy of the Trust that expenses directly charged
or attributable to any of its particular series funds will be
paid from the assets of that fund. General expenses of the Trust
will be allocated among and charged to the assets of each of the
Trust's series funds (including the Fund and the Other Funds) on
a basis that the Trustees deem fair and equitable, which may be
based on the relative assets of each such fund or the nature of
the services performed and their relative applicability to each
such fund.
PURCHASES AND REDEMPTIONS
The Participating Insurance Companies place daily orders to
purchase and redeem shares of the Fund based on, among other
things, the net amount of purchase payments to be invested and
surrender and transfer requests to be effected on that day
pursuant to the VA contracts and VLI policies. Shares are
purchased and redeemed as a result of certain other transactions
pursuant to the VA contracts and VLI policies, including
deductions for fees and charges by the applicable insurance
company separate account. The Trust continuously offers and
redeems shares at net asset value without the addition of any
selling commission, sales load or redemption charge. Shares are
sold and redeemed at their net asset value as next determined
after receipt of purchase payments or redemption requests,
respectively, by the separate accounts. Similarly, shares are
sold or redeemed as a result of such other transactions under the
VA contracts and VLI policies at the net asset value computed for
the day on which such transactions are effected by the separate
accounts. The right of redemption may be suspended or payments
postponed whenever permitted by applicable law and regulations.
Keyport Financial Services Corp. (KFSC), a subsidiary of
Keyport, serves pursuant to an Underwriting Agreement is
principal underwriter for the Trust with respect to sales of
shares to a Keyport entities. KFSC is registered as a broker-
dealer under the Securities Exchange Act of 1934 and is a member
of the National Association of Securities Dealers, Inc. KFSC's
address is 125 High Street, Boston, Massachusetts 02110.
INVESTMENT RETURN
The total return from an investment in the Fund is measured
by the distributions received (assuming reinvestment of all
distributions) plus or minus the change in the net asset value
per share for a given period. A total return percentage is
calculated by first dividing the value of a share at the end of
the period (including reinvestment of distributions) by the value
of the share at the beginning of the period and then subtracting
1.0. The Fund's average annual total return is determined by
computing the annual percentage change in value of a $1,000
investment in the Fund for a specified period, assuming
reinvestment of all dividends and distributions.
Because the Fund seeks to maintain a $1.00 per share net
asset value, its return is usually quoted as a current seven-day
yield, calculated by totaling the dividends on a share of the
Fund for the previous seven days and restating that yield as an
annual rate, or as an effective yield, calculated by adjusting
the current yield to assume daily compounding.
Total return information describes the Fund's performance
for the period shown and does not predict future performance.
Comparison of the Fund's yield or total return with those of
alternative investments should consider differences between the
Fund and the alternative investments, the periods and methods
used in calculation of the return being compared, and the impact
of taxes on alternative investments. The Fund's investment
return figures do not reflect the cost of insurance and other
insurance company separate account charges which vary with the VA
contracts and VLI policies offered through the separate accounts
of the Participating Insurance Companies, and which will decrease
the return realized by a contract or policyholder.
NET ASSET VALUE
The Adviser determines net asset value per share of the Fund
as of the close of regular trading on the New York Stock Exchange
(NYSE) (currently 4:00 p.m., Eastern time). Net asset value per
share is calculated for the Fund by dividing the current market
value of total portfolio assets, less all liabilities (including
accrued expenses), by the total number of shares outstanding. Net
asset value is determined on each day when the NYSE is open,
except on such days in which no order to purchase or redeem
shares is received. The NYSE is scheduled to be open Monday
through Friday throughout the year except for certain Federal and
other holidays.
The valuation of the Fund's securities is based on their
amortized cost, which does not take into account unrealized gains
or losses, in an attempt to maintain its net asset value at $1.00
per share. The extent of any deviation between the Fund's net
asset value based upon market quotations or equivalents and $1.00
per share based on amortized cost will be examined by the Board.
If such deviation were to exceed 1/2 of 1%, the Board would
consider what action, if any, should be taken, including selling
portfolio securities, increasing, reducing, or suspending
distributions or redeeming shares in kind. Assets and securities
of the Fund for which this valuation method does not produce a
fair value are valued at a fair value determined in good faith by
the Board.
TAXES
The Fund has elected to be treated and to qualify as a
"regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986 (Code). As a result of such election, for
any tax year in which the Fund meets the investment limitations
and the distribution, diversification and other requirements
referred to below, the Fund will not be subject to Federal income
tax, and the income of the Fund will be treated as the income of
its shareholders. Under current law, since the shareholders are
life insurance company "segregated asset accounts," they will not
be subject to income tax currently on this income to the extent
such income is applied to increase the values of VA contracts and
VLI policies.
Among the conditions for qualification and avoidance of
taxation at the Trust level, Subchapter M imposes investment
limitations, distribution requirements, and requirements relating
to the diversification of investments. The requirements of
Subchapter M may affect the investments made by the Fund. Any of
the applicable diversification requirements could require a sale
of assets of the Fund that would affect the net asset value of
the Fund.
Pursuant to the requirements of Section 817(h) of the Code,
the only shareholders of the Trust and its series funds will be
Participating Insurance Companies and their separate accounts
that fund VA contracts, VLI policies and other variable insurance
contracts. The prospectus that describes a particular VA contract
or VLI policy discusses the taxation of separate accounts and the
owner of such contract or policy.
The Fund intends to comply with the requirements of Section
817(h) and the related regulations thereunder issued by the
Treasury Department. These provisions impose certain
diversification requirements affecting the securities in which
the Fund may invest and other limitations. The diversification
requirements of Section 817(h) of the Code are in addition to the
diversification requirements under Subchapter M and the
Investment Company Act of 1940. The consequences of failure to
meet the requirements of Section 817(h) could result in taxation
of the Participating Insurance Companies offering the VA
contracts and VLI policies and immediate taxation of all owners
of the contracts and policies to the extent of appreciation on
investment under the contracts. The Trust believes that the Fund
is in compliance with these requirements.
The Secretary of the Treasury may issue additional rulings
or regulations that will prescribe the circumstances in which an
owner of a variable insurance contract's control of the
investments of a segregated asset account may cause such owner,
rather than the insurance company, to be treated as the owner of
the assets of a segregated asset account. It is expected that
such regulations would have prospective application. However, if
a ruling or regulation were not considered to set forth a new
position, the ruling or regulation could have a retroactive
effect.
The Trust therefore may find it necessary, and reserves the
right to take action to assure, that a VA contract or VLI policy
continues to qualify as an annuity or insurance contract under
Federal tax laws. The Trust, for example, may be required to
alter the investment objectives of the Fund or substitute the
shares of the Fund for those of another. No such change of
investment objectives or substitution of securities will take
place without notice to the contract and policy owners with
interests invested in the Fund and without prior approval of the
Securities and Exchange Commission, or the approval of a majority
of such owners, to the extent legally required.
To the extent the Fund invests in foreign securities,
investment income received by the Fund from sources within
foreign countries may be subject to foreign income taxes withheld
at the source. The United States has entered into tax treaties
with many foreign countries which entitle the Fund to a reduced
rate of tax or exemption from tax on such income.
The Fund's foreign currency gains and losses from foreign
currency dispositions, foreign-currency denominated debt
securities and payables or receivables, and foreign currency
forward contracts are subject to special tax rules that generally
cause them to be recharacterized as ordinary income and losses,
and may affect the timing and amount of the Fund's recognition of
income, gain or loss.
It is impossible to determine the effective rate of foreign
tax in advance since the amount of the Fund's assets, if any, to
be invested within various countries will fluctuate and the
extent to which tax refunds will be recovered is uncertain. The
Fund intends to operate so as to qualify for treaty-reduced tax
rates where applicable.
The preceding is a brief summary of some relevant tax
considerations. This discussion is not intended as a complete
explanation or a substitute for careful tax planning and
consultation with individual tax advisors.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to declare and distribute, as dividends or
capital gains distributions, substantially all of its net
investment income and net profits realized from the sale of
portfolio securities, if any, to its shareholders (Participating
Insurance Companies' separate accounts). The net investment
income of the Fund consists of all dividends or interest received
by the Fund, less estimated expenses (including the investment
advisory and administrative fees). Dividends in respect of net
investment income are declared daily and are reinvested monthly
in shares of the Fund at the net asset value per share of $1.00.
All net short-term and long-term capital gains of the Fund, net
of carry-forward losses, if any, realized during the fiscal year,
are declared and distributed periodically, no less frequently
than annually. All capital gains dividends and distributions are
reinvested in additional shares of the Fund at net asset value,
as of the record date for the distributions.
SHAREHOLDER COMMUNICATIONS
Owners of VA contracts and VLI policies, issued by a
Participating Insurance Company or for which shares of the Fund
are available as an investment vehicle, receive from the
applicable Participating Insurance Company unaudited semi-annual
financial statements and audited year-end financial statements of
the Fund certified by the Trust's independent auditors. Each
report shows the investments owned by the Fund and provides other
information about the Trust and its operations. Copies of such
reports may be obtained from the Participating Insurance
Companies or the Secretary of the Trust.
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a diversified open-end management investment
company as defined in the Investment Company Act of 1940 (1940
Act) organized under an Agreement and Declaration of Trust
(Declaration of Trust) as a Massachusetts business trust on June
9, 1987. The Declaration of Trust may be amended by a vote of
either the Trust's shareholders (which include shareholders of
the Other Funds) or the Board. The Trust is authorized to issue
an unlimited number of shares of beneficial interest without par
value, in one or more series as the Board may authorize. Each of
the Trust's funds is a separate series of the Trust.
Each share of the Fund is entitled to participate pro rata
in any dividends and other distributions declared by the Board
with respect to the Fund, and all shares of the Fund have equal
rights in the event of liquidation of the Fund.
Shareholders of each of the Fund and each Other Fund are
entitled to one vote for each share of that series fund held on
any matter presented to shareholders. Shares of the Fund and the
Other Funds will vote separately as individual series when
required by the 1940 Act or other applicable law or when the
Board determines that the matter affects only the interests of
one or more funds, such as, for example, a proposal to approve an
amendment to that fund's Advisory Agreement, but shares of the
Fund and all of the Other Funds vote together, to the extent
required by the 1940 Act, in the election or selection of
Trustees and independent accountants.
The shares of the Trust do not have cumulative voting
rights, which means that the holders of more than 50% of the
shares of the Fund and the Other Funds, taken together, voting
for the election of Trustees can elect all of the Trustees, and,
in such event, the holders of the remaining shares will not be
able to elect any Trustees.
The Fund is not required by law to hold regular annual
meetings of shareholders and does not intend to do so. However,
special meetings may be called for purposes such as electing or
removing Trustees or changing fundamental policies.
The Trust is required to hold a shareholders' meeting to
elect Trustees to fill vacancies in the event that less than a
majority of Trustees were elected by shareholders. Trustees may
also be removed by the vote of two-thirds of the outstanding
shares at a meeting called at the request of shareholders whose
interests represent 10% or more of the outstanding shares of the
Trust.
Under Massachusetts law, shareholders of a business trust
may, under certain circumstances, be held personally liable for
the obligations of the Trust. However, the Trust's Declaration
of Trust disclaims liability of the shareholders, the Trustees,
or officers of the Trust for acts or obligations of the Trust,
which are binding only on the assets and property of the Trust
(or the applicable series fund thereof) and requires that notice
of such disclaimer be given in each agreement, obligation, or
contract entered into or executed by the Trust or the Board. The
Declaration of Trust provides for indemnification out of the
Trust's assets (or the applicable Fund) 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
believed to be remote because it is limited to circumstances in
which the disclaimer is inoperative and the Trust itself is
unable to meet its obligations. The risk to any one series fund
of sustaining a loss on account of liabilities incurred by
another series fund also is believed to be remote.
ADDITIONAL INFORMATION
This Prospectus including the Statement of Additional
Information which has been incorporated by reference herein, does
not contain all the information set forth in the Registration
Statement filed by the Trust with the Securities and Exchange
Commission under the Securities Act of 1933. Copies of the
Registration Statement may be obtained from the Commission or may
be examined at the office of the Commission in Washington, D.C.
<PAGE>
APPENDIX A
INVESTMENT TECHNIQUES AND SECURITIES
MONEY MARKET INSTRUMENTS
The Fund may invest in the money market instruments
described below, in addition to money market instruments such as
certificates of deposit of U.S. banks and bankers' acceptances.
Obligations of Foreign Branches of United States Banks
The obligations of foreign branches of U.S. 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 government regulation. Payment of interest and principal
upon these may also be affected by governmental action in the
country of domicile of the branch (generally referred to as
sovereign risk). In addition, evidences of ownership of such
securities may be held outside the U.S. and the Fund may be
subject to the risks associated with the holding of such property
overseas. (See "FOREIGN INVESTMENTS--Foreign Securities" below.)
Obligations of U.S. Branches of Foreign Banks
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 by governmental action in
the country in which the foreign bank has its head office. In
addition, there may be less publicly available information about
a U.S. branch of a foreign bank than about a domestic bank.
Obligations of Foreign Banks
Obligations of foreign banks and branches of foreign banks
are similar to the obligations of U.S. banks but involve risks
that are different in some respects. Such risks may include
future political and economic developments, the possible
imposition of foreign withholdings taxes on interest income
payable on the obligations, possible seizure or nationalization
of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign government
restrictions that might adversely affect the payment of principal
and interest on the obligations. Additionally, there may be less
public information available about foreign banks and their
branches. Foreign banks and foreign branches of foreign banks are
not regulated by U.S. banking authorities, and generally are not
bound by accounting, auditing, and financial reporting standards
comparable to U.S. banks.
Master Demand Notes
Master demand notes are unsecured obligations that permit
the investment of fluctuating amounts by the Fund at varying
rates of interest pursuant to direct arrangements between the
Fund, as lender, and the issuer, as borrower. Master demand notes
may permit daily fluctuations in the interest rate and daily
changes in the amount borrowed. The Fund has the right to
increase the amount under the note at any time up to the full
amount provided by the note agreement or to decrease the amount,
and the borrower may repay up to the full amount of the note
without penalty. Notes purchased by the Fund must permit the Fund
to demand payment of principal and accrued interest at any time
(on not more than seven days' notice) and to resell the note at
any time to a third party. The notes may have maturities of more
than one year, provided that (i) the Fund is entitled to payment
of principal and accrued interest upon not more than seven days'
notice, and (ii) the rate of interest on such notes is adjusted
automatically at periodic intervals which normally will not
exceed 31 days but may extend up to one year. The notes will be
deemed to have a maturity equal to the longer of the period
remaining to the next interest rate adjustment or the demand
notice period. Because these types of notes are direct lending
arrangements between the lender and borrower, such instruments
are not normally traded, and there is no secondary market for
these notes, although they are redeemable and thus repayable by
the borrower at face value plus accrued interest at any time.
Accordingly, the Fund's right to redeem is dependent on the
ability of the borrower to pay principal and interest on demand.
These notes are not typically rated by credit rating agencies.
The Fund may invest in such notes only if rated or at the time of
an investment the issuer meets the criteria established for
commercial paper.
Repurchase Agreements
The Fund may enter into repurchase agreements with member
banks of the Federal Reserve System that have at least $1 billion
in deposits, primary dealers in U.S. Government Securities or
other financial institutions believed by the Adviser to be
creditworthy. Under such agreements, the bank, primary dealer or
other financial institution agrees upon entering into the
contract to repurchase the security at a mutually agreed upon
date and price, thereby determining the yield during the term of
the agreement. This results in a fixed rate of return insulated
from market fluctuations during such period. The seller under a
repurchase agreement will be required to maintain the value of
the securities subject to the agreement at not less than the
repurchase price, and such value will be determined on a daily
basis by marking that underlying securities to their market
value. Although the securities subject to the repurchase
agreement might bear maturities exceeding a year, the Fund
intends to enter only into repurchase agreements which provide
for settlement within a year and usually within seven days.
Securities subject to repurchase agreements will be held by the
Fund's custodian or in the Federal Reserve book-entry system. The
Fund does not bear the risk of a decline in the value of the
underlying security unless the seller defaults under its
repurchase obligation. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Fund could
experience both delays in liquidating the underlying securities
and losses including (a) possible declines in the value of the
underlying securities during the period while the Fund seeks to
enforce its rights thereto; (b) possible subnormal levels of
income and lack of access to income during this period; and (c)
expenses of enforcing its rights. The Board has established
procedures to evaluate the creditworthiness of each party with
whom the Fund enters into repurchase agreements by setting
guidelines and standards of review for the Adviser and monitoring
the Adviser's actions with regard to repurchase agreements.
U.S. GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities include, but are not limited
to, direct obligations of the Treasury and securities issued or
guaranteed by the Federal Housing Administration, Farmers Home
Administration, Export-Import Bank of the United States, Small
Business Administration, Government National Mortgage
Association, General Services Administration, Central Bank for
Cooperatives, Federal Home Loan Banks, Federal Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Federal Land
Banks, Maritime Administration, the Tennessee Valley Authority,
District of Columbia Armory Board, Resolution Funding Corp. and
Federal National Mortgage Association.
Some obligations of U.S. Government agencies and
instrumentalities, such as Government National Mortgage
Association Pass-Through Certificates, are supported by the full
faith and credit of the U.S.; others, such as securities of
Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; still others, such as bonds issued
by the Federal National Mortgage Association, a private
corporation, are supported only by the credit of the
instrumentality. Because the U.S. Government is not obligated by
law to provide support to an instrumentality it sponsors, the
Fund will invest in the securities issued by such an
instrumentality only when the Adviser determines that the credit
risk with respect to the instrumentality does not make its
securities unsuitable investments for the Fund. U.S. Government
Securities do not include international agencies or
instrumentalities in which the U.S. Government, its agencies or
instrumentalities participate, such as the World Bank, the Asian
Development Bank or issues insured by the Federal Deposit
Insurance Corporation or the Federal Savings and Loan Insurance
Corporation.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements. Under
a reverse repurchase agreement, the Fund would sell securities
and agree to repurchase them at a mutually agreed upon date and
price. The Fund intends to enter into reverse repurchase
agreements to avoid otherwise having to sell securities during
unfavorable market conditions in order to meet redemptions. At
the time the Fund enters into a reverse repurchase agreement, it
will establish a segregated account with its custodian containing
liquid assets having a value not less than the repurchase price
(including accrued interest) and will subsequently monitor the
account to maintain such value. Reverse repurchase agreements
involve the risk that the market value of the securities which
the Fund is obligated to repurchase may decline below the
repurchase price. In the event the buyer of securities under a
reverse repurchase agreement files for bankruptcy or becomes
insolvent, such buyer or its trustee or receiver may receive an
extension of time to determine whether to enforce the Fund's
obligation to repurchase the securities, and its use of the
proceeds of the reverse repurchase agreement may effectively be
restricted pending such decision. The Staff of the Securities and
Exchange Commission has taken the position that the 1940 Act
treats reverse repurchase agreements as borrowings by a fund.
STANDBY COMMITMENTS
The Fund may invest in securities purchased on a standby
commitment basis, as described below:
A standby commitment is a delayed delivery agreement in
which the Fund binds itself to accept delivery of a security at
the option of the other party to the agreement. The Fund usually
receives a commitment fee in consideration for its standby
commitment. At the time the Fund enters into a binding
obligations to purchase securities on a standby commitment basis,
liquid assets of the Fund having a value of at least as great as
the purchase price of the securities to be purchased will be
segregated on the books of the Fund and held by the custodian
throughout the period of the obligation.
If the value of the securities that the Fund has committed
to purchase increases, the other party may exercise its right not
to deliver the securities, in which case the Fund only would
retain its commitment fee and forego any appreciation of those
securities. If the value of the securities that the Fund has
committed to purchase decreases, the other party would probably
deliver the securities, in which case the Fund would absorb the
loss between the purchase price and the decreased market value,
which loss may significantly exceed the commitment fee.
FOREIGN INVESTMENTS
The Fund may invest up to 25% of its total assets in
securities of foreign issuers.
Foreign Securities
While investment in foreign securities is intended to reduce
risk by providing further diversification, such investments
involve risks in addition to the credit and market risks normally
associated with domestic securities. These include sovereign
risks and risks pertaining to the local economy in the country or
countries in which the foreign company conducts business. Foreign
investments may be affected favorably or unfavorably by changes
in currency rates and exchange control regulations. There may be
less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to
accounting, auditing and financial reporting standards and
requirements comparable to those applicable to U.S. companies.
Securities of some foreign companies are less liquid or more
volatile than securities of U.S. companies, and foreign brokerage
commissions and custodian fees are generally higher than in the
U.S. Investments in foreign securities may also be subject to
other risks different from those affecting U.S. investments,
including local political or economic developments, expropriation
or nationalization of assets, imposition of withholding taxes on
dividend or interest payments, currency blockage (which would
prevent cash from being brought back to the U.S.), and sometimes
less advantageous legal, operational, and financial protection
applicable to foreign sub-custodial arrangements. These risks are
carefully considered by the Adviser prior to the purchase of
these securities.
Foreign Currency Transactions
When the Fund invests in foreign securities, such securities
usually will be denominated in, or salable for, foreign
currencies, and the Fund temporarily may hold funds in foreign
currencies. Thus, the value of Fund shares will be affected by
changes in exchange rates.
As one way of managing exchange rate risk, the Fund may
enter into forward currency exchange contracts (agreements to
purchase or sell currencies at a specified price and date). The
exchange rate for the transaction (the amount of currency the
Fund will deliver or receive when the contract is completed) is
fixed when the Fund enters into the contract. The Fund usually
will enter into these contracts to stabilize the U.S. dollar
value of a security it has agreed to buy or sell. The Fund
intends to use these contracts to hedge the U.S. dollar value of
a security it already owns or intends to purchase, particularly
if the Fund expects a decrease in the value of the currency in
which the foreign security is denominated. Although the Fund
will attempt to benefit from using forward contracts, the success
of its hedging strategy will depend on the Adviser's ability to
predict accurately the future exchange rates between foreign
currencies and the U.S. dollar. The value of Fund's investments
denominated in foreign currencies will depend on the relative
strength of those currencies and the U.S. dollar, and the Fund
may be affected favorably or unfavorably by changes in the
exchange rates or exchange control regulations between foreign
currencies and the dollar. Changes in foreign currency exchange
rates also may affect the value of dividends and interest earned,
gains and losses realized on the sale of securities, and net
investment income and gains, if any, to be distributed to
shareholders by the Fund.
<PAGE>
APPENDIX B
DESCRIPTION OF RATINGS
RATINGS IN GENERAL
A rating of a rating service represents the service's
opinion as to the credit quality of the security being rated.
However, the ratings are general and are not absolute standards
of quality or guarantees as to the credit worthiness of an
issuer. Consequently, the Adviser believes that the quality of
debt securities in which the Fund invests should be continuously
reviewed and that individual analysts give different weightings
to the various factors involved in credit analysis. A rating is
not a recommendation to purchase, sell or hold a security because
it does not take into account market value or suitability for a
particular investor. Ratings are based on current information
furnished by the issuer or obtained by the rating services from
other sources that they consider reliable. Ratings may be
changed, suspended or withdrawn as a result of changes in or
unavailability of such information, or for other reasons.
The following is a description of the characteristics of
ratings used by Moody's Investors Service, Inc. (Moody's) and
Standard & Poor's Corporation (S&P), each of which is a NRSRO.
BOND RATINGS
Ratings by Moody's
Aaa. Bonds rated Aaa are judged to be 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 an exceptionally stable margin and
principal is secure. Although 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
bonds.
Aa. Bonds 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 bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than the Aaa
bonds.
A. Bonds rated A posses 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 sometime in the future.
Baa. Bonds 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 risk
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 rated class of
bonds and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standings.
NOTE: 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 issue ranks in the lower end of its generic
rating category.
Ratings by S&P
AAA. Debt rated AAA has the highest rating. 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
issues 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 the
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 for debt in higher rated
categories.
BB, B, CCC, CC. Debt rated BB, B, CCC or CC is regarded, in
balance, as predominately speculative with respect to capacity to
pay interest and repay principal in accordance with the terms of
the obligation. BB indicates the lowest degree of speculation
and CC 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.
C. This rating is reserved for income bonds on which no
interest is being paid.
D. Debt rated D is in default, and payment of interest
and/or repayment of principal is in arrears.
NOTE: The ratings from AA to B may be modified by the
addition of a plus (+) or minus (-) sign to show relative
standing within the major rating categories.
COMMERCIAL PAPER RATINGS
Ratings by Moody's
Moody's employs the following three designations, all judged
to be investment grade, to indicate the relative repayment
capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its commercial paper
obligations are supported by the credit of another entity or
entities, Moody's, in assigning ratings to such issuers,
evaluates the financial strength of the indicated affiliated
corporations, commercial banks, insurance companies, foreign
governments or other entities, but only as one factor in the
total rating assessment.
Ratings by S&P
A brief description of the applicable rating symbols and
their meaning follows:
A. Issues assigned this highest rating are regarded as
having the greatest capacity for timely payment. Issues in this
category are further refined with the designations 1, 2, and 3 to
indicate the relative degree of safety.
A-1. this designation indicates that the degree of safety
regarding timely payment is very strong. Those issues determined
to possess overwhelming safety characteristics will be denoted
with a plus (+) sign designation.
<PAGE>
STEINROE VARIABLE INVESTMENT TRUST
Federal Reserve Plaza
600 Atlantic Avenue, Boston, Massachusetts 02210
STATEMENT OF ADDITIONAL INFORMATION
Dated May 1, 1998
This Statement of Additional Information is not a
prospectus, but provides additional information which should be
read in conjunction with the Trust's Prospectus dated May 1, 1998
and any supplement thereto. The Prospectus may be obtained at no
charge by calling Keyport Financial Services Corp. at (800) 437-
4466, or by contacting the applicable Participating Insurance
Company, or the broker-dealers offering certain variable annuity
contracts or variable life insurance policies issued by the
Participating Insurance Company.
TABLE OF CONTENTS
Page
COMMENCEMENT OF OPERATIONS................................S-2
MIXED AND SHARED FUNDING..................................S-2
INVESTMENT RESTRICTIONS...................................S-3
PORTFOLIO TURNOVER........................................S-6
PURCHASES AND REDEMPTIONS.................................S-6
TRUSTEES AND OFFICERS.....................................S-7
MANAGEMENT ARRANGEMENTS...................................S-9
TRUST CHARGES AND EXPENSES................................S-10
CUSTODIAN.................................................S-11
PORTFOLIO TRANSACTIONS....................................S-11
NET ASSET VALUE...........................................S-14
INVESTMENT PERFORMANCE....................................S-15
RECORD SHAREHOLDERS.......................................S-16
INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS.............S-17
APPENDIX A--Investment Techniques and Securities..........A-1
<PAGE>
COMMENCEMENT OF OPERATIONS
The SteinRoe Variable Investment Trust (the Trust) commenced
operations on January 1, 1989. The Trust is an open-end,
diversified management investment company currently consisting of
five Funds with differing investment objectives, policies and
restrictions. Currently, the Trust consists of Stein Roe Special
Venture Fund, Variable Series (Special Venture Fund), Stein Roe
Growth Stock Fund, Variable Series (Growth Stock Fund), Stein Roe
Balanced Fund, Variable Series (Balanced Fund), Stein Roe
Mortgage Securities Fund, Variable Series (Mortgage Securities
Fund) and Stein Roe Money Market Fund, Variable Series (Money
Market Fund) (individually referred to as a Fund, or by the
defined name indicated, or collectively as the Funds). Prior to
November 15, 1997, Special Venture Fund was named Capital
Appreciation Fund, Growth Stock Fund was named Managed Growth
Stock Fund, Balanced Fund was named Managed Assets Fund, Mortgage
Securities Fund was named Mortgage Securities Income Fund, and
Money Market Fund was named Cash Income Fund.
The Trust issues shares of beneficial interest in each Fund
that represent interests in a separate portfolio of securities
and other assets. The Trust may add or delete Funds from time to
time. The Trust is the funding vehicle for variable annuity
contracts (VA contracts) and variable life insurance policies
(VLI policies) offered by the separate accounts of life insurance
companies (Participating Insurance Companies).
MIXED AND SHARED FUNDING
As described above, the Trust serves as a funding medium for
VA contracts and VLI policies of Participating Insurance
Companies, so-called mixed and shared funding. As of the date of
this Statement of Additional Information, the Participating
Insurance Companies are Keyport Life Insurance Company (Keyport),
Independence Life & Annuity Company (a wholly owned subsidiary of
Keyport) (Independence), American Benefit Life Insurance Company
(also a wholly owned subsidiary of Keyport) (American Benefit),
Liberty Life Assurance Company of Boston (an affiliate of Liberty
Mutual Insurance Company) (Liberty Life), and, with respect to
Special Venture Fund, Transamerica Occidental Life Insurance
Company, First Transamerica Life Insurance Company, Great-West
Life & Annuity Insurance Company and Providian Life and Health
Insurance Company. Keyport is an indirect wholly owned
subsidiary of Liberty Financial Companies, Inc. ("LFC"). As of
March 31, 1998, approximately 72.3% of the combined voting power
of LFC's outstanding voting stock was held by Liberty Mutual
Insurance Company (Liberty Mutual). One or more of the Funds may
from time to time become funding vehicles for VA contracts or VLI
policies of other Participation Insurance Companies, including
other entities not affiliated with Keyport, LFC or Liberty
Mutual.
The interests of owners of VA contracts and VLI policies
could diverge based on differences in state regulatory
requirements, changes in the tax laws or other unanticipated
developments. The Trust does not foresee any such differences or
disadvantages at this time. However, the Trustees will monitor
for such developments to identify any material irreconcilable
conflicts and to determine what action, if any, should be taken
in response to such conflicts. If such a conflict were to occur,
one or more separate accounts might be required to withdraw its
investments in one or more Funds or shares of another Fund may be
substituted. This might force a Fund to sell securities at
disadvantageous prices.
INVESTMENT RESTRICTIONS
Each Fund operates under the investment restrictions listed
below. Restrictions numbered (i) through (viii) are fundamental
policies which may not be changed for a Fund without approval of
a majority of the outstanding voting shares of a Fund, defined as
the lesser of the vote of (a) 67% of the shares of a Fund at a
meeting where more than 50% of the outstanding shares are present
in person or by proxy or (b) more than 50% of the outstanding
shares of a Fund. Other restrictions are not fundamental
policies and may be changed with respect to a Fund by the
Trustees without shareholder approval.
The following investment restrictions apply to each Fund
except as otherwise indicated.
A Fund may not:
(i) with respect to 75% of the value of the total assets of a
Fund, invest more than 5% of the value of its total assets, taken
at market value at the time of a particular purchase, in the
securities of any one issuer, except (a) securities issued or
guaranteed by the U.S. government or its agencies or
instrumentalities, and (b) [with respect to Money Market Fund
only] certificates of deposit, bankers' acceptances and
repurchase agreements;
(ii) purchase securities of any one issuer if more than 10% of
the outstanding voting securities of such issuer would at the
time be held by the Fund;
(iii) act as an underwriter of securities, except insofar as it
may be deemed an underwriter for purposes of the Securities Act
of 1933 on disposition of securities acquired subject to legal or
contractual restrictions on resale;
(iv) invest in a security if more than 25% of its total assets
(taken at market value at the time of a particular purchase)
would be invested in the securities of issuers in any particular
industry, except that this restriction does not apply to: (i)
securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, (ii) [with respect to Money Market
Fund only] certificates of deposit and bankers' acceptances and
repurchase agreements or (iii) [as to Money Market Fund only]
securities of issuers in the financial services industry;
(v) purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, and
securities issued by companies which invest in real estate or
interests therein), commodities or commodity contracts (except
that it may enter into (a) futures and options on futures and (b)
forward contracts);
(vi) purchase securities on margin (except for use of short-term
credits as are necessary for the clearance of transactions), make
short sales of securities, or participate on a joint or a joint
and several basis in any trading account in securities (except in
connection with transactions in options, futures, and options on
futures);
(vii) make loans, but this restriction shall not prevent a Fund
from (a) buying a part of an issue of bonds, debentures, or other
obligations which are publicly distributed, or from investing up
to an aggregate of 15% of its total assets (taken at market value
at the time of each purchase) in parts of issues of bonds,
debentures or other obligations of a type privately placed with
financial institutions, (b) investing in repurchase agreements,
or (c) lending portfolio securities, provided that it may not
lend securities if, as a result, the aggregate value of all
securities loaned would exceed 15% of its total assets (taken at
market value at the time of such loan); or
(viii) borrow, except that it may (a) borrow up to 33 1/3% of its
total assets from banks, taken at market value at the time of
such borrowing, as a temporary measure for extraordinary or
emergency purposes, but not to increase portfolio income (the
total of reverse repurchase agreements and such borrowings will
not exceed 33 1/3% of its total assets, and the Fund will not
purchase additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of its
total assets) and (b) enter into transactions in options,
futures, and options on futures.
Each Fund is also subject to the following restrictions and
policies, which are not fundamental and may be changed by the
Trustees without shareholder approval.
A Fund may not:
(a) invest in companies for the purpose of exercising control or
management;
(b) purchase more than 3% of the stock of another investment
company; or purchase stock of other investment companies equal to
more than 5% of the Fund's total assets (valued at time of
purchase) in the case of any one other investment company and 10%
of such assets (valued at the time of purchase) in the case of
all other investment companies in the aggregate; any such
purchases are to be made in the open market where no profit to a
sponsor or dealer results from the purchase, other than the
customary broker's commission, except for securities acquired as
part of a merger, consolidation or acquisition of assets;
(c) mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held by it,
except as may be necessary in connection with (i) permitted
borrowings and (ii) options, futures and options on futures;
(d) issue senior securities, except to the extent permitted by
the Investment Company Act of 1940 (including permitted
borrowings);
(e) purchase portfolio securities for the Fund from, or sell
portfolio securities to, any of the officers and directors or
Trustees of the Trust or of its investment adviser;
(f) invest more than 5% of its net assets (valued at time of
purchase) in warrants, nor more than 2% of its net assets in
warrants that are not listed on the New York or American Stock
Exchanges;
(g) write an option on a security unless the option is issued by
the Options Clearing Corporation, an exchange or similar entity;
(h) buy or sell an option on a security, a futures contract or an
option on a futures contract unless the option, the futures
contract or the option on the futures contract is offered through
the facilities of a recognized securities association or listed
on a recognized exchange or similar entity;
(i) purchase a put or call option if the aggregate premiums paid
for all put and call options exceed 20% of its net assets (less
the amount by which any such positions are in-the-money),
excluding put and call options purchased as closing transactions;
or
(j) invest more than 15% [except as to Money Market Fund, 10%] of
the Fund's net assets (taken at market value at the time of each
purchase) in illiquid securities including repurchase agreements
maturing in more than seven days.
Further, as to Money Market Fund with respect to 100% of its
assets, SEC rules prohibit the Fund from investing more than 5%
of its assets, taken at market value at the time of purchase, in
the securities of any one issuer; provided that (i) the Fund may
invest more than 5% of its assets in securities issued or
guaranteed by the U.S. Government or its agencies or
instrumentalities and (ii) the Fund may invest more than 5% of
its assets for a period of up to three business days after the
purchase thereof (but not more than 25% of its assets) in the
securities of any one first-tier issuer (as determined by
Securities and Exchange Commission rules); provided, further,
that the Fund may not make more than one investment in accordance
with this exception at any one time.
Under normal market conditions, Money Market Fund will
invest at least 25% of its assets in securities of issuers in the
financial services industry. This policy may cause the Fund to
be more adversely affected by changes in market or economic
conditions and other circumstances affecting the financial
services industry. The financial services industry includes
issuers that, according to the Directory of Companies Required to
File Annual Reports with the Securities and Exchange Commission
(the Commission), are in the following categories: state banks;
national banks; savings and loan holding companies; personal
credit institutions; business credit institutions; mortgage-
backed securities; finance-services; security and commodity
brokers, dealers and services; life, accident and health
insurance carriers; fire, marine, casualty and surety insurance
carriers; insurance agents, brokers and services.
Additional Voluntary Restrictions Pertaining to Special Venture
Fund
Special Venture Fund also is subject to the following
additional restrictions and policies under certain applicable
insurance laws pertaining to variable annuity contract separate
accounts. These policies and restrictions are not fundamental
and may be changed by the Trustees without shareholder approval:
The borrowing limits for the Fund are (1) 10% of net asset
value when borrowing for any general purpose and (2) 25% of net
asset value when borrowing as a temporary measure to facilitate
redemptions. For this purpose, net asset value is the market
value of all investments or assets owned less outstanding
liabilities of the Fund at the time that any new or additional
borrowing is undertaken.
The Fund also will be subject to the following
diversification guidelines pertaining to investments in foreign
securities:
1. The Fund will be invested in a minimum of five different
foreign countries at all times when it holds investments in
foreign securities. However, this minimum is reduced to four
when foreign country investments comprise less than 80% of the
Fund's net asset value; to three when less than 60% of such
value; to two when less than 40%, and to one when less than 20%.
2. Except as set forth in item 3 below, the Fund will have no
more than 20% of its net asset value invested in securities of
issuers located in any one foreign country.
3. The Fund may have an additional 15% of its value invested in
securities of issuers located in any one of the following
countries: Australia, Canada, France, Japan, the United Kingdom
or Germany.
If a percentage limit with respect to any of the foregoing
fundamental and non-fundamental policies is satisfied at the time
of investment or borrowing, a later increase or decrease in a
Fund's assets will not constitute a violation of the limit.
PORTFOLIO TURNOVER
The portfolio turnover of each Fund will vary from year to
year. Although no Fund will trade in securities for short-term
profits, when circumstances warrant securities may be sold
without regard to the length of time held. Portfolio turnover
for each Fund (other than Money Market Fund) is shown under
"FINANCIAL HIGHLIGHTS" in the Prospectus. See "PORTFOLIO
TURNOVER" in the Prospectus for a discussion of certain factors
which may produce relatively high turnover in certain of the
Funds.
A 100% turnover rate would occur if all of the securities in
the portfolio were sold and either repurchased or replaced within
one year. The Funds pay brokerage commissions in connection with
options and futures transactions and effecting closing purchase
or sale transactions, as well as for the purchases and sales of
other portfolio securities other than fixed income securities. If
a Fund writes a substantial number of call or put options (on
securities or indexes) or engages in the use of futures contracts
or options on futures contracts (all referred to as
"Collateralized Transactions"), and the market prices of the
securities underlying the Collateralized Transactions move
inversely to the Collateralized Transaction, there may be a very
substantial turnover of the portfolios.
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the Prospectus
under the headings "PURCHASES AND REDEMPTIONS" and "NET ASSET
VALUE."
Each Fund's net asset value is determined on days on which
the New York Stock Exchange ("NYSE") is open for trading. The
NYSE is regularly closed on Saturdays and Sundays and on New
Year's Day, the third Monday in January, the third Monday in
February, Good Friday, the last Monday in May, Independence Day,
Labor Day, Thanksgiving and Christmas. If one of these holidays
falls on a Saturday or Sunday, the NYSE will be closed on the
preceding Friday or the following Monday, respectively. Net
asset value will not be determined on days when the NYSE is
closed unless, in the judgment of the Trustees, the net asset
value of a Fund should be determined on any such day, in which
case the determination will be made at 4:00 p.m., Eastern time.
The Trust reserves the right to suspend or postpone
redemptions of shares of any Fund during any period when: (a)
trading on the NYSE is restricted, as determined by the
Commission, or the NYSE is closed for other than customary
weekend and holiday closing; (b) the Commission has by order
permitted such suspension; or (c) an emergency, as determined by
the Commission, exists, making disposal of portfolio securities
or the valuation of net assets of such Fund not reasonably
practicable.
TRUSTEES AND OFFICERS
The following table sets forth certain information with
respect to the Trustees and officers of the Trust:
<TABLE>
<CAPTION>
Position(s) held Principal occupations
Name and Address Age with the Trust during past five years
- ----------------------- --- --------------------- ------------------------------------
<S> <C> <C> <C>
Richard R. Christensen/1/ 65 President and Trustee President, Liberty Asset Management
Federal Reserve Plaza Company since 1994; prior thereto,
600 Atlantic Avenue President, Liberty Investment Services,
Boston, MA 02210 Inc.
John A. Bacon Jr. 70 Trustee Private investor
4N640 Honey Hill Road
Box 296
Wayne, IL 60184
Salvatore Macera 67 Trustee Private investor; former
20 Rowes Wharf Executive Vice President of Itek
Boston, MA 02109 Corporation and President of Itek
Optical & Electronic Industries, Inc.
Dr. Thomas E. Stitzel 58 Trustee Professor of Finance, College of Business,
2208 Tawny Woods Place Boise State University; business
Boise, ID 83706 consultant and author
Gary A. Anetsberger 42 Treasurer Senior Vice President, Stein Roe &
One South Wacker Drive Farnham Incorporated since April 1996;
Chicago, IL 60606 Vice President prior thereto
Sharon R. Robertson 36 Controller Associate, Stein Roe & Farnham Incorporated
One South Wacker Drive
Chicago, IL 60606
Richard B. Peterson 57 Vice President Senior Vice President, Stein Roe &
One South Wacker Drive Farnham Incorporated
Chicago, IL 60606
Harvey B. Hirschhorn 48 Vice President Executive Vice President, Stein
One South Wacker Drive Roe & Farnham Incorporated
Chicago, IL 60606
Jane M. Naeseth 48 Vice President Senior Vice President, Stein Roe &
One South Wacker Drive Farnham Incorporated
Chicago, IL 60606
Erik P. Gustafson 34 Vice President Senior Vice President (April
One South Wacker Drive 1996 to present); Vice President (1994 to
Chicago, IL 60606 1996); prior thereto, Associate, Stein Roe &
Farnham Incorporated
John S. McLandsborough 31 Vice President Vice President, Stein Roe & Farnham
One South Wacker Drive Incorporated since March 1998; portfolio
Chicago, IL 60606 manager, Stein Roe & Farnham Incorporated since
April 1996; securities analyst, CS First Boston
from June 1993 to December 1996; securities
analyst, National City Bank of Cleveland from
November 1992 to June 1993
William M. Wadden IV 40 Vice President Senior Vice President (1995 to present), Stein
One South Wacker Drive Roe & Farnham Incorporated; prior thereto,
Chicago, IL 60606 Executive Vice President, CSI Asset Management,
Inc.
John A. Benning 63 Secretary Senior Vice President, General Counsel
Federal Reserve Plaza and Secretary, Liberty Financial Companies,
600 Atlantic Avenue Inc.
Boston, MA 02210
Kevin M. Carome 42 Assistant Secretary Associate General Counsel and (since
Federal Reserve Plaza February 1995) Vice President, Liberty
600 Atlantic Avenue Financial Companies, Inc.; General Counsel,
Boston, MA 02210 Stein Roe & Farnham Incorporated, since January
1998
<FN>
- ------------
/1/ Trustee who is an "interested person," as defined in the
Investment Company Act of 1940, of the Trust, the Adviser or a
Participating Insurance Company which is an affiliate of the
Trust or the Adviser.
</TABLE>
As indicated in the above table, certain Trustees and
officers of the Trust also hold positions with Stein Roe &
Farnham Incorporated, LFC and/or their affiliates. Certain of
the Trustees and certain officers of the Trust hold comparable
positions with certain other investment companies managed by
Stein Roe & Farnham Incorporated or sponsored by other affiliates
of LFC.
Compensation of Trustees
The table set forth below presents certain information
regarding the fees paid to the Trustees for their services in
such capacity and total fees paid to them by all other investment
companies affiliated with the Trust. Trustees do not receive any
pension or retirement benefits from the Trust. No officers of
the Trust or other individuals who are affiliated with the Trust
receive any compensation from the Trust for services provided to
it.
Compensation Table
------------------
Name of Aggregate 1997 Total Compensation From
Trustee Compensation* the Trust and Affiliated
Investment Companies in
1997**
- ---------------------- ------------- ------------------------
Richard R. Christensen -- --
John A. Bacon Jr. $22,000 $34,500
Salvatore Macera 22,000 34,500
Dr. Thomas E. Stitzel 22,000 34,500
_______________
*Consists of Trustee fees in the amount of (i) a $10,000 annual
retainer, (ii) a $3,000 meeting fee for each meeting attended in
person and (iii) a $1,000 meeting fee for each telephone meeting.
**Includes Trustee fees paid by the Trust and by Liberty Variable
Investment Trust.
MANAGEMENT ARRANGEMENTS
As described in the Prospectus, the portfolio of each Fund
is managed by Stein Roe & Farnham Incorporated (Adviser). Each
Fund has its own Advisory Agreement with the Adviser. The
Adviser is a wholly owned direct subsidiary of SteinRoe Services
Inc., which in turn is a wholly owned direct subsidiary of LFC.
LFC, in turn, is a majority owned indirect subsidiary of Liberty
Mutual.
The directors of the Adviser are Kenneth R. Leibler, C.
Allen Merritt, Jr., Hans P. Ziegler, Thomas W. Butch, and Harold
W. Cogger. Mr. Leibler is President and Chief Executive Officer
of LFC; Mr. Merritt is Chief Operating Officer of LFC; Mr.
Ziegler is Chairman and Chief Executive Officer of the Adviser;
Mr. Butch is President of the Adviser's Mutual Funds division;
and Mr. Cogger is Executive Vice President of LFC. The business
address of Messrs. Leibler, Merritt and Cogger is Federal Reserve
Place, 600 Atlantic Avenue, Boston, Massachusetts 02210; that of
Messrs. Ziegler and Butch is One South Wacker Drive, Chicago,
Illinois 60606.
The Adviser, at its own expense, provides office space,
facilities and supplies, equipment and personnel for the
performance of its functions under each Fund's Advisory Agreement
and pays all compensation of the Trustees, officers and employees
who are employees of the Adviser.
Each Fund's Advisory Agreement provides that neither the
Adviser nor any of its directors, officers, stockholders (or
partners of stockholders), agents, or employees shall have any
liability to the Trust or any shareholder of the Fund for any
error or judgment, mistake of law or any loss arising out of any
investment, or for any other act or omission in the performance
by the Adviser of its duties under the Advisory Agreement, except
for liability resulting from willful misfeasance, bad faith or
gross negligence on the Adviser's part in the performance of its
duties or from reckless disregard by the Adviser of the Adviser's
obligations and duties under the Advisory Agreement.
Under an Administration Agreement with the Trust, the
Adviser provides each Fund with administrative services,
excluding investment advisory services. Specifically, the
Adviser is responsible for preparing financial statements,
providing office space and equipment in connection with the
maintenance of the headquarters of the Trust, preparing and
filing required reports and tax returns, arrangements for
meetings, maintenance of the Trust's corporate books and records,
communication with shareholders, providing internal legal
services and oversight of custodial, accounting and other
services provided to the Funds by others. The Administration
Agreement provides that the Adviser may, in its discretion,
arrange for administrative services to be provided to the Trust
by LFC or any of LFC's majority or greater owned subsidiaries.
Under separate agreements, the Adviser also acts as the
agent of the Funds for the transfer of shares, disbursement of
dividends and maintenance of shareholder account records, and
provides certain pricing and other recordkeeping services to the
Funds. The Trust believes that the charges by the Administrator
to the Trust for these services are comparable to those of other
companies performing similar services.
TRUST CHARGES AND EXPENSES
Management Fees:
During each year in the three year period ended December 31,
1997, pursuant to the advisory contracts described in the
Prospectus, each Fund paid the Adviser management fees as
follows:
1995 1996 1997
---------- ---------- ----------
Special Venture Fund: $ 690,902 $ 850,612 $1,001,641
Growth Stock Fund: 586,298 743,602 959,376
Balanced Fund: 1,009,369 1,293,967 1,147,148
Mortgage Securities Fund: 316,804 334,914 296,763
Money Market Fund: 241,257 229,758 273,501
Administrative Expenses:
During each year in the three year period ended December 31,
1997, pursuant to the Administration Agreement described above,
each Fund paid the Adviser or an affiliate thereof administrative
fees as follows:
1995 1996 1997
-------- -------- --------
Special Venture Fund: $207,244 $255,184 $300,492
Growth Stock Fund: 175,868 223,081 287,813
Balanced Fund: 336,418 431,322 472,383
Mortgage Securities Fund: 118,789 125,593 111,286
Money Market Fund: 103,394 98,468 101,786
In addition, during each such year each Fund paid the
Adviser or an affiliate thereof $7,500 for transfer agent
services.
Expense Limitation:
The Adviser has agreed to reimburse all expenses of the
Funds as follows through April 30, 1999:
Fund Expenses Exceeding
------------------------ ---------------------------
Special Venture and
Growth Stock Funds 0.80% of average net assets
Balanced Fund 0.75% of average net assets
Mortgage Securities Fund 0.70% of average net assets
Money Market Fund 0.65% of average net assets
CUSTODIAN
State Street Bank and Trust Company (the Bank), 225 Franklin
Street, Boston, Massachusetts 02110, is the custodian for the
Trust. It is responsible for holding all securities and cash of
each Fund, receiving and paying for securities purchased,
delivering against payment securities sold, receiving and
collecting income from investments, making all payments covering
expenses of the Trust, and performing other administrative
duties, all as directed by authorized persons. The Bank does not
exercise any supervisory function in such matters as purchase and
sale of portfolio securities, payment of dividends or payment of
expenses of the Funds. Portfolio securities purchased in the
U.S. are maintained in the custody of the Bank or other domestic
banks or depositories. Portfolio securities purchased outside of
the U.S. are maintained in the custody of foreign banks and trust
companies who are members of the Bank's Global Custody Network
and foreign depositories (foreign sub-custodians).
With respect to foreign sub-custodians, there can be no
assurance that a Fund, and the value of its shares, will not be
adversely affected by acts of foreign governments, financial or
operational difficulties of the foreign sub-custodians,
difficulties and costs of obtaining jurisdiction over, or
enforcing judgments against, the foreign sub-custodians or
application of foreign law to a Fund's foreign subcustodial
arrangements. Accordingly, an investor should recognize that the
noninvestment risks involved in holding assets abroad are greater
than those associated with investing in the U.S.
The Funds may invest in obligations of the Bank and may
purchase or sell securities from or to the Bank.
PORTFOLIO TRANSACTIONS
The Adviser places orders for the purchase and sale of
portfolio securities and options and futures contracts on behalf
of each Fund. The Adviser's overriding objective in effecting
portfolio transactions is to seek to obtain the best combination
of price and execution. The best net price, giving effect to
brokerage commissions, if any, and other transaction costs,
normally is an important factor in this decision, but a number of
other judgmental factors may also enter into the decision. These
include: the Adviser's knowledge of negotiated commission rates
currently available and other current transaction costs; the
nature of the security being traded; the size of the transaction;
the desired timing of the trade; the activity existing and
expected in the market for the particular security;
confidentiality; the execution, clearance and settlement
capabilities of the broker-dealer selected and others that are
considered; the Adviser's knowledge of the financial stability of
the broker-dealer selected and such other brokers or dealers;
and the Adviser's knowledge of actual or apparent operational
problems of any broker-dealer. Recognizing the value of these
execution, clearance and settlement factors, a Fund may pay a
brokerage commission in excess of that which another broker-
dealer may have charged for effecting the same transaction.
Evaluations of the reasonableness of brokerage commissions, based
on the foregoing factors, are made on an ongoing basis by the
Adviser's staff while effecting portfolio transactions. The
general level of brokerage commissions paid is reviewed by the
Adviser, which reports annually to the Board.
With respect to transactions in securities involving
brokerage commissions, when more than one broker-dealer is
believed to be capable of providing the best combination of price
and execution with respect to a particular portfolio transaction
for a Fund, the Adviser often selects a broker-dealer that has
furnished it with research products or services such as research
reports, subscriptions to financial publications and research
compilations, compilations of securities prices, earnings,
dividends, and similar data, and computer data bases, quotation
equipment and services, and research-oriented computer software
and services, and services of economic or other consultants.
Selection of brokers or dealers is not made pursuant to an
agreement or understanding with any of the broker-dealers;
however, the Adviser uses an internal allocation procedure to
identify those broker-dealers who provide it with research
products or services and the amount of research products or
services they provide, and endeavors to direct sufficient
commissions generated by its clients' accounts in the aggregate,
including the Funds, to such broker-dealers to ensure the
continued receipt of research products or services the Adviser
feels are useful. In certain instances, the Adviser receives
from broker-dealers products or services which are used both as
investment research and for administrative, marketing or other
non-research purposes. In such instances, the Adviser makes a
good faith effort to determine the relative proportions of such
products or services which may be considered as investment
research. The portion of the costs of such products or services
attributable to research usage may be defrayed by the Adviser
through brokerage commissions generated by client transactions
(without prior agreement or understanding, as noted above), while
the portion of the costs attributable to non-research usage of
such products or services is paid by the Adviser in cash. No
person acting on behalf of the Trust or any Fund is authorized,
in recognition of the value of research products or services, to
pay a commission in excess of that which another broker-dealer
might have charged for effecting the same transaction. The
Adviser also may receive research in connection with selling
concessions and designations in fixed price offerings in which
the Funds participate. Research products or services furnished
by broker-dealers through whom a Fund effects transactions may be
used in servicing any or all of the clients of the Adviser and
not all of such research products or services are used in
connection with the management of the Trust.
As stated above, the Adviser's overriding objective in
effecting portfolio transactions for the Funds is to seek to
obtain the best combination of price and execution. However,
consistent with the provisions of the Rules of Conduct of the
National Association of Securities Dealers, Inc., the Adviser
may, in selecting broker-dealers to effect portfolio transactions
for the Funds, and where more than one broker-dealer is believed
capable of providing the best combination of price and execution
with respect to a particular transaction, select a broker-dealer
in recognition of its sales of VA contracts or VLI policies
offered by Participating Insurance Companies. Except as
described in the next following sentence, neither the Trust nor
any Fund nor the Adviser has entered into any agreement with, or
made any commitment to, any unaffiliated broker-dealer which
would bind the Adviser, the Trust or any Fund to compensate any
such broker-dealer, directly or indirectly, for sales of VA
contracts or VLI policies. The Adviser has entered into
arrangements with sponsors of programs for the sale of VA
contracts issued by Participating Insurance Companies which are
not affiliates of the Adviser pursuant to which the Adviser pays
the sponsor from the Adviser's fee for managing Special Venture
Fund an amount in respect of Special Venture Fund's assets
allocable to Special Venture Fund shares held in separate
accounts of such unaffiliated Participating Insurance Companies
in respect of VA contracts issued by such entities and sold
through such arrangements. The Adviser does not cause the Trust
or any Fund to pay brokerage commissions higher than those
obtainable from other broker-dealers in recognition of such sales
of VA contracts or VLI policies.
In light of the fact that the Adviser may also provide
advisory services to the Participating Insurance Companies, and
to other advisory accounts that may or may not be registered
investment companies, securities of the same issuer may be
included, from time to time, in the portfolios of the Funds and
these other entities where it is consistent with their respective
investment objectives. If these entities desire to buy or sell
the same portfolio security at about the same time, combined
purchases and sales may be made, and in such event the security
purchased or sold normally will be allocated at the average price
and as nearly as practicable on a pro-rata basis in proportion to
the amounts desired to be purchased or sold by each entity.
While it is possible that in certain instances this procedure
could adversely affect the price or number of shares involved in
the Funds' transactions, it is believed that the procedure
generally contributes to better overall execution of the Funds'
portfolio transactions.
Because the Adviser's personnel may also provide investment
advisory services to the Participating Insurance Companies and
other advisory clients, it may be difficult to quantify the
relative benefits received by the Trust and these other entities
from research provided by broker-dealers.
The Trust has arranged for the Bank, as its custodian, to
act as a soliciting dealer to accept any fees available to the
Bank as a soliciting dealer in connection with any tender offer
for a Fund's portfolio securities. The Bank will credit any such
fees received against its custodial fees. However, the Board has
been advised by counsel that recapture by a mutual fund currently
is not permitted under the Rules of Conduct of the National
Association of Securities Dealers, Inc.
The Trust's purchases and sales of securities not traded on
securities exchanges generally are placed by the Adviser with
market makers for these securities on a net basis, without any
brokerage commissions being paid by the Trust. Net trading does
involve, however, transaction costs. Included in prices paid to
underwriters of portfolio securities is the spread between the
price paid by the underwriter to the issuer and the price paid by
the purchasers. Each Fund's purchases and sales of portfolio
securities in the over-the-counter market usually are transacted
with a broker-dealer on a net basis without any brokerage
commission being paid by such Fund, but do reflect the spread
between the bid and asked prices. The Adviser may also transact
purchases of some portfolio securities directly with the issuers.
With respect to a Fund's purchases and sales of portfolio
securities transacted with a broker or dealer on a net basis, the
Adviser may also consider the part, if any, played by the broker
or dealer in bringing the security involved to the Adviser's
attention, including investment research related to the security
and provided to the Fund.
The table below shows information on brokerage commissions
paid by Special Venture Fund, Growth Stock Fund and Balanced Fund
during the periods indicated. Mortgage Securities Fund and Money
Market Fund did not pay commissions on any of their transactions.
Special Growth
Venture Stock Balanced
Fund Fund Fund
----------- ----------- -----------
Total amount of
brokerage commissions
paid during fiscal year
ended 12/31/97 $421,740 $89,691 $294,537
Amount of commissions
paid to brokers or
dealers who supplied
research services to
the Adviser $381,079 $87,571 $288,821
Total dollar amount
involved in such
transactions: $164,159,652 $75,769,464 $182,983,990
Amount of commissions
paid to brokers or
dealers that were
allocated to such
brokers or dealers by
the Fund's portfolio
manager because of
research services provided
to the Fund $87,388 $21,610 $66,266
Total dollar amount
involved in such
transactions: $33,667,858 $13,419,761 $48,789,785
Total amount of brokerage
commissions paid during
fiscal year ended
12/31/96 $316,995 $81,270 $304,087
Total brokerage fees
paid during fiscal year
ended 12/31/95: $485,545 $109,831 $273,626
NET ASSET VALUE
The net asset value of the shares of each of the Funds is
determined by dividing the total assets of each Fund, less all
liabilities (including accrued expenses), by the total number of
shares outstanding.
The valuation of Money Market Fund's securities is based
upon their amortized cost, which does not take into account
unrealized gains or losses. This method 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 Money Market Fund would receive if it sold the
security. During periods of declining interest rates, the quoted
yield on shares of Money Market Fund may tend to be higher than a
like computation made by a fund with identical investments
utilizing a method of valuation based upon market prices and
estimates of market prices for all of its portfolio securities.
Thus, if the use of amortized cost by the Fund resulted in a
lower aggregate portfolio value on a particular day, a
prospective investor in Money Market Fund would be able to obtain
a somewhat higher yield if he purchased shares of Money Market
Fund on that day than would result from investment in a fund
utilizing solely market values, and existing investors in Money
Market Fund would receive less investment income. The converse
would apply in a period of rising interest rates.
The proceeds received by each Fund for each purchase or sale
of its shares, and all income, earnings, profits and proceeds
thereof, subject only to the rights of creditors, will be
specifically allocated to such Fund, and constitute the
underlying assets of that Fund. The underlying assets of each
Fund will be segregated on the books of account, and will be
charged with the liabilities in respect to such Fund and with a
share of the general liabilities of the Trust.
INVESTMENT PERFORMANCE
Money Market Fund may quote a "Current Yield" or "Effective
Yield" from time to time. The Current Yield is an annualized
yield based on the actual total return for a seven-day period.
The Effective Yield is an annualized yield based on a daily
compounding of the Current Yield. These yields are each computed
by first determining the "Net Change in Account Value" for a
hypothetical account having a share balance of one share at the
beginning of a seven-day period ("Beginning Account Value"),
excluding capital changes. The Net Change in Account Value will
always equal the total dividends declared with respect to the
account, assuming a constant net asset value of $1.00.
The yields are then computed as follows:
Net Change in Account Value 365
--------------------------- ----
Current Yield = Beginning Account Value x 7
[1 + Net Change in Account Value]365/7
--------------------------------------
Effective Yield = Beginning Account Value - 1
For example, the yield of Money Market Fund for the seven-day
period ended December 31, 1997, were:
$.001020274 365
----------- ---
Current Yield = $1.00 x 7 = 5.32%
[1+$.001020274]35/7
-------------------
Effective Yield = $1.00 - 1 = 5.46%
In addition to fluctuations reflecting changes in net income
of Money Market Fund resulting from changes in income earned on
its portfolio securities and in its expenses, Money Market Fund's
yield also would be affected if the Fund were to restrict or
supplement its dividends in order to maintain its net asset value
at $1.00. Portfolio changes resulting from net purchases or net
redemptions of Money Market Fund shares may affect yield.
Accordingly, Money Market Fund's yield may vary from day to day
and the yield stated for a particular past period is not a
representation as to its future yield. Money Market Fund's yield
is not guaranteed and its principal is not insured; however, the
Fund will attempt to maintain its net asset value per share at
$1.00.
Each of the Funds may quote total return figures from time
to time. Total return on a per share basis is the amount of
dividends received per share plus or minus the change in the net
asset value per share for a given period. Total return
percentage may be calculated by dividing the value of a share at
the end of a given period by the value of the share at the
beginning of the period and subtracting one.
Average Annual Total Return is computed as follows:
n
ERV = P(1+T)
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
period (or fractional portion thereof).
For example, for a $1,000 investment in the Funds, the
"Total Return," the "Total Return Percentage," and the "Average
Annual Total Return" for the life of those Funds (from January 1,
1989 to December 31, 1997 were:
Total Total Return Average Annual
Fund Return Percentage Total Return
- ------------------------ ------ ------------ --------------
Special Venture Fund $3,932 293.18% 16.43%
Growth Stock Fund 4,427 342.69 17.97
Balanced Fund 2,998 199.82 12.98
Mortgage Securities Fund 2,064 106.38 8.38
Money Market Fund 1,602 60.18 5.37
The figures contained in this "Investment Performance"
section assume reinvestment of all dividends and distributions.
They are not necessarily indicative of future results. The
performance of a Fund is a result of conditions in the securities
markets, portfolio management, and operating expenses. Although
information such as that shown above is useful in reviewing a
Fund's performance and in providing some basis for comparison
with other investment alternatives, it should not be used for
comparison with other investments using different reinvestment
assumptions or time periods. The Funds' total returns do not
reflect the cost of insurance and other insurance company
separate account charges which vary with the VA contracts and VLI
policies offered through the separate accounts of the
Participating Insurance Companies.
In advertising and sales literature, a Fund may compare its
performance with that of other mutual funds, indexes or averages
of other mutual funds, indexes of related financial assets or
data, and other competing investment and deposit products
available from or through other financial institutions. The
composition of these indexes or averages differs from that of the
Funds. Any comparison of a Fund to an alternative investment
should consider differences in features and expected performance.
RECORD SHAREHOLDERS
All the shares of the Funds are held of record by sub-
accounts of separate accounts of Participating Insurance
Companies on behalf of the owners of VLI policies and VA
contracts, or by the general account of Keyport. At March 31,
1998 the general account of Keyport owned of record less than 25%
of the outstanding shares of all the Funds.
At all meetings of shareholders of the Funds each
Participating Insurance Company will vote the shares held of
record by sub-accounts of its separate accounts only in
accordance with the instructions received from the VLI policy and
VA contract owners on behalf of whom such shares are held. All
such shares as to which no instructions are received (as well as,
in the case of Keyport, all shares held by its general account)
will be voted in the same proportion as shares as to which
instructions are received (with Keyport's general account shares
being voted in the proportions determined by instructing owners
of Keyport VLI policies and VA contracts). Accordingly, each
Participating Insurance Company disclaims beneficial ownership of
the shares of the Funds held of record by the sub-accounts of its
separate accounts (or, in the case of Keyport, its general
account). The Trust has not been informed that any Participating
Insurance Company knows of any owner of a VA contract or VLI
policy which on March 31, 1998 owned beneficially 5% or more of
the outstanding shares of any Fund.
INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
KPMG Peat Marwick LLP are the Trust's independent auditors.
The financial statements incorporated by reference in this
Statement of Additional Information have been so incorporated,
and the schedule of the financial highlights has been included in
the Prospectus, in reliance upon the upon the report of KPMG Peat
Marwick LLP given on the authority of said firm as experts in
accounting and auditing.
The financial statements of the Trust and Report of
Independent Auditors appearing on pages 10 to 38 of the December
31, 1997 Annual Report of the Trust are incorporated in this
Statement of Additional Information by reference.
<PAGE>
APPENDIX A
INVESTMENT TECHNIQUES AND SECURITIES
MONEY MARKET INSTRUMENTS
Each of the Funds may invest in money market instruments to
the extent and of the type and quality described in the
Prospectus.
Certificates of Deposits
Certificates of deposit are receipts issued by a bank in
exchange for the deposit of funds. The issuer agrees to pay the
amount deposited plus interest to the bearer of the receipt on
the date specified on the Certificate. The Certificate usually
can be traded in the secondary market prior to maturity.
Certificates of deposit will be limited to U.S. dollar-
denominated certificates of banks (U.S. or foreign) having total
assets of at least $1 billion, or the equivalent in other
currencies, as of the date of their most recently published
financial statements and of branches of such banks (U.S. or
foreign).
The Funds will not acquire time deposits or obligations
issued by the International Bank for Reconstruction and
Development, the Asian Development Bank or the Inter-American
Development Bank.
Bankers' Acceptances
Bankers' acceptances typically arise from short term credit
arrangements designed to enable businesses to obtain funds to
finance commercial transactions. Generally, an acceptance is a
time draft drawn on a bank by an exporter or an importer to
obtain a stated amount of funds to pay for specific merchandise.
The draft is then "accepted" by the bank that, in effect,
unconditionally guarantees to pay the face value of the
instrument on its maturity date. The acceptance may then be held
by the accepting bank as an earning asset or it may be sold in
the secondary market at the going rate of discount for a specific
maturity. Although maturities for acceptances can be as long as
270 days, most acceptances have maturities of six months or less.
Bankers' acceptances acquired by the Funds must be payable
in U.S. dollars and have been accepted by banks having total
assets at the time of purchase in excess of $1 billion, or the
equivalent in other currencies, and of branches of such banks
(U.S. or foreign).
MORTGAGE-BACKED SECURITIES
Mortgage Pass-Through Certificates
A Mortgage Pass-Through Certificate is a Mortgage Backed
Security representing a participation interest in mortgage loans
or a beneficial undivided interest in a specified pool containing
mortgage loans.
The aggregate dollar balance of the mortgage loans (or
participation interests) in a specified pool is generally
identical to the balance of the Mortgage Pass-Through Certificate
held by the Certificate holder. As the balance in the mortgage
pool is paid down by scheduled payments of principal and interest
and by prepayments or other early or unscheduled recoveries of
principal, the balance of the Mortgage Pass-Through Certificate
is paid down correspondingly as all such payments are "passed
through" to the Certificate holder (in this case, to the Funds).
The average interest rate payable on the mortgage loans, the
"coupon rate," is somewhat higher than the "pass-through rate"
payable under the Mortgage Pass-Through Certificate. The
difference between the coupon rate and the pass-through rate is
generally paid to the servicer of the mortgage loans as servicing
compensation. Servicing includes collecting payments, remitting
payments to the Certificate holders, holding and disbursing
escrow funds for payment of taxes and insurance premiums,
periodically inspecting the properties, and servicing
foreclosures in the event of unremedied defaults.
Under the terms of the Certificate, the due date for passing
through funds to the Certificate holders is some specified period
after the payment date on the mortgage loans. The regular pass-
through installment is paid on the due date by the entity
servicing the mortgage pool, in most cases regardless of whether
or not it has been collected from the borrower.
A particular mortgage pool will consist of mortgage loans of
one of the following types: fixed interest mortgage loans with a
maturity of not more than 30 years; adjustable interest rate
mortgage loans (that is, where the interest rate is not fixed but
varies in accordance with a formula or an index) with a maturity
of not more than 40 years; shared appreciation mortgage loans
with a maturity of not more than 30 years; growing equity
mortgage loans (where the monthly payment of principal increases
in amount and the maturity may be less than 30 years); graduated
payment mortgage loans (where the amount of the scheduled monthly
payments at the beginning of the loan term are insufficient to
fully amortize the loan and the monthly payment amount therefore
increases after a specified period or periods); second mortgages
with fixed or adjustable rates with a maturity of not more than
30 years; graduated payment adjustable rate mortgage loans; and
other alternative mortgage instruments which may combine some of
the characteristics listed above. For example, graduated
payment, graduated equity, and shared appreciation mortgage loans
can have a fixed or variable interest rate. In addition, new
types of mortgage loans may be created in the future, and as
Mortgage Pass-Through Certificates representing interests in
pools of new types of mortgage loans are developed and offered to
investors, the Fund will, consistent with its investment policies
and objective, consider investing in such Certificates.
Certain Mortgage Pass-Through Certificates purchased will
represent interests in mortgage pools containing graduated
payment adjustable rate mortgage loans or "GPARMs." These are
adjustable interest rate mortgage loans with a graduated payment
feature. The scheduled monthly payment amount on this type of
loan at the beginning of the loan term is insufficient to fully
amortize the loan; that is, the scheduled payments are
insufficient to pay off the entire loan during the term. Because
the monthly mortgage payments during the early years of graduated
payment mortgage loans may not even be sufficient to pay the
current interest due, GPARMs may involve negative amortization;
that is, the unpaid principal balance of the mortgage loan may
increase because any unpaid balance of the interest due will be
added to the principal amount of the mortgage loan. GPARMs also
involve increases in the payment amount, because at one or more
times during the early years of the loan term, the monthly
mortgage payments (principal and interest) increase to a level
that will fully amortize the loan. The monthly payment amount
may also be increased (or decreased) to reflect changes in the
interest rate. In addition, the loan term may be lengthened or
shortened from time to time, corresponding to an increase or
decrease in the interest rate.
GNMA Certificates
GNMA Certificates represent part ownership of a pool of
mortgage loans. These loans (issued by lenders such as mortgage
bankers, commercial banks and savings and loan associations) are
either insured by the Federal Housing Administration (FHA) or the
Farmers Home Administration (FMHA), or guaranteed by the Veterans
Administration (VA). A "pool" or group of such mortgages is
assembled and, after being approved by GNMA, is offered to
investors through securities dealers. Once approved by GNMA, the
timely payment of interest and principal on each mortgage is
guaranteed by GNMA and backed by the full faith and credit of the
U.S. Government. GNMA is also empowered to borrow without
limitation from the Treasury, if necessary, to make any payments
required under its guarantee. GNMA Certificates differ from
bonds issued without a sinking fund in that principal is paid
back monthly by the borrower over the term of the loan rather
than returned in a lump sum at maturity. GNMA Certificates are
called "modified pass-through" securities because both interest
and principal payments, including prepayments (net of fees paid
to the issuer and GNMA), are passed through to the holder of the
Certificate regardless of whether or not the mortgagor actually
makes the payment.
The average life of GNMA Certificates is likely to be
substantially less than the original maturity of the mortgage
pools underlying the securities. Prepayments of principal by
mortgagors and mortgage foreclosures will usually result in the
return of the greatest part of principal invested well before the
maturity of the mortgages in the pool. (Note: Due to the GNMA
guarantee, foreclosures impose little risk to principal
investment.) As prepayment rates of individual mortgage pools
vary widely, it is not possible to accurately predict the average
life of a particular issue of GNMA Certificates.
The coupon rate or interest on GNMA Certificates is lower
than the interest rate paid on the VA-guaranteed or FHA-insured
mortgages underlying the Certificates, but only by the amount of
a relatively modest fee paid to GNMA and the issuer.
The coupon rate by itself, however, does not indicate the
yield which will be earned on the Certificates for the following
reasons:
1. Certificates may be issued at a premium or discount, rather
than at par;
2. After issuance, Certificates may trade in the secondary market
at a premium or discount;
3. Interest is earned monthly, rather than semi-annually as for
traditional bonds, and monthly compounding has the effect of
raising the effective yield earned on GNMA Certificates; and
4. The actual yield of each GNMA Certificate is influenced by the
prepayment experience of the mortgage pool underlying the
Certificate; that is, if mortgagors pay off their mortgages
early, the principal returned to Certificate holders may be
reinvested at more or less favorable rates.
Since the inception of the GNMA mortgage-backed securities
program in 1970, the amount of GNMA Certificates outstanding has
grown rapidly. The size of the market and the active
participation in the secondary market by securities dealers and
many types of investors make the GNMA Certificates highly liquid
instruments. Valuations of GNMA Certificates are readily
available from securities dealers and depend on, among other
things, the level of market rates, the Certificate's coupon rate
and the prepayment experience of the pool of mortgages backing
each Certificate.
FNMA Certificates
The Federal National Mortgage Association (FNMA) is a
corporation organized and existing under the laws of the U.S. and
issues FNMA Certificates under the authority contained in the
Federal National Mortgage Association Charter Act. FNMA
Certificates are Mortgage Pass-Through Certificates issued and
guaranteed by FNMA. The obligations of FNMA under its guaranty
are obligations solely of FNMA and are not backed by, nor
entitled to, the full faith and credit of the U.S.
Each FNMA Certificate represents a fractional undivided
interest in a pool of conventional, FHA-insured or VA-guaranteed
mortgage loans purchased or formed by FNMA. The mortgage loans
are either provided from FNMA's own portfolio or are purchased
from primary lenders that satisfy certain criteria developed by
FNMA, including depth of mortgage origination experience,
servicing experience and financial capacity.
When the mortgage loans are not provided from FNMA's own
portfolio, FNMA may purchase an entire loan pool from a single
lender and issue Certificates backed by the pool alone.
Alternatively, FNMA may package a pool made up of loans purchased
from a number of lenders. The mortgage loans are held by FNMA in
its capacity as trustee pursuant to the terms of a trust
indenture for the benefit of the Certificate holders.
Each FNMA mortgage pool will consist of mortgage loans
evidenced by promissory notes on one-family or two-to-four family
residential properties. Mortgage loans with varying interest
rates may be included in a single pool. Currently, substantially
all FNMA mortgage pools consist of fixed interest rate and
growing equity mortgage loans, although FNMA mortgage pools may
also consist of adjustable interest rate mortgage loans or other
types of mortgage loans. Loans with varying loan-to-value ratios
may be included in a single pool, but each conventional mortgage
loan with a loan-to-value ratio which exceeds 80% must be insured
against default and the mortgage insurance must insure that
portion of the loan balance which exceeds 75% of the property
value. The maximum loan term is 40 years. Each mortgage loan
must conform to FNMA's published requirements or guidelines with
respect to maximum principal amount, loan-to-value ratio,
underwriting standards and hazard insurance coverage.
Pursuant to the trust indenture, FNMA is responsible for
servicing and administering the mortgage loans in a pool but
contracts with the lender (the seller of the mortgage loans, or
"seller/servicer"), or another eligible servicing institution, to
perform such functions under the supervision of FNMA. The
servicers are obligated to perform diligently all services and
duties customary to the servicing of mortgages as well as those
specifically prescribed by the FNMA Seller/Servicer Guide. FNMA
has the right to remove servicers for cause.
The pass-through rate on the FNMA Certificates is not
greater than the lowest annual interest rate borne by an
underlying mortgage loan in the pool, less a specified minimum
annual percentage of the outstanding principal balance. The fee
to FNMA representing compensation for servicing and for FNMA's
guaranty (out of which FNMA will compensate seller/servicers) is,
for each underlying mortgage loan, the difference between the
interest rate on the mortgage loan and the pass-through rate.
The minimum size of a FNMA pool is $1 million of mortgage
loans. Registered holders purchase Certificates in amounts not
less than $25,000.
FHLMC Certificates
The Federal Home Loan Mortgage Corporation (FHLMC) is a
corporate instrumentality of the U.S. created pursuant to an act
of Congress on July 24, 1970 primarily for the purpose of
increasing availability of mortgage credit for the financing of
then urgently needed housing. It seeks to provide an enhanced
degree of liquidity for residential mortgage investors primarily
by assisting in the development of secondary markets for
conventional mortgage loans. FHLMC obtains its funds by selling
mortgages and interests therein (such as Mortgage Pass-Through
Certificates), and by issuing debentures and otherwise borrowing
funds.
FHLMC Certificates represent undivided interests in
specified groups of conventional mortgage loans and/or
participation interests therein underwritten and owned by FHLMC.
FHLMC periodically forms groups of whole mortgage loans and/or
participations in connection with its continuing sales program.
Typically, at least 95% of the aggregate principal balance of the
mortgage loans in a group consists of single-family mortgage
loans and not more than 5% consists of multi-family loans. The
FHLMC Certificates are issued in fully registered form only, in
original unpaid principal balances of $25,000, $100,000,
$200,000, $500,000, $1 million and $5 million. The FHLMC
Certificates are not guaranteed by the U.S. or by any Federal
Home Loan Bank and do not constitute a debt or obligation of the
U.S. or any Federal Home Loan Bank.
FHLMC guarantees to each registered holder of a FHLMC
Certificate the timely payment of interest accruing at the
application certificate rate on the unpaid principal balance
outstanding on the mortgage loans to the extent of such holder's
percentage of participation therein. FHLMC also guarantees to
each registered holder of a FHLMC Certificate collection of all
principal on the mortgage loans without any offset or deduction,
to the extent of such holder's pro rata share. Pursuant to these
guaranties, FHLMC indemnifies holders of FHLMC Certificates
against any reduction in principal by reason of charges for
property repairs, maintenance and foreclosure.
To permit a measure of marketability for holders of FHLMC
Certificates, FHLMC has provided since June 20, 1975, and expects
to continue to provide, bid quotations for outstanding FHLMC
Certificates. Informational bid quotations are available daily
on Telerate Financial Information Network or from FHLMC's
regional offices.
Non-Governmental Mortgage Pass-Through Certificates
A Non-Governmental Mortgage Pass-Through Certificate is a
security issued by a mortgage banker, financial institution or
other entity and represents an undivided interest in a mortgage
pool consisting of a number of mortgage loans secured by single-
family residential properties. Non-Governmental Certificates do
not represent an interest in or obligation of the issuing or
servicing entity. The mortgage loans in a pool are held in trust
by a qualified bank. These private (or conventional) mortgages
are not insured by the VA, FHA or any other governmental agency.
In some cases, private commercial insurance or other credit
support may apply.
A typical mortgage pool consists of from 100 to 1000
individual mortgage loans. The aggregate dollar balance of the
mortgage loans in a pool will be generally at least $5 million.
These pools contain mortgage loans originated, serviced and
otherwise administered by an affiliate of the sponsor of the
pool.
It is expected that each of the underlying mortgage loans
will have a loan-to-value ratio at origination (based on an
independent appraisal of the mortgage property obtained by the
originator of the loan) of 90% or less. Generally, the amount of
the mortgage loans in excess of 80% of such appraised value will
be insured with a private mortgagor insurer. In some instances,
other mechanisms, such as a bank letter of credit or
senior/subordinated class structures, are used in place of
mortgage guaranty insurance but serve a similar credit support
function.
The entities originating and servicing the underlying
mortgage loans generally advance to Certificate holders any
principal and interest payments not collected from the
mortgagors. However, the obligations, if any, to make those
advances are limited only to those amounts that are reimbursable
under the mortgage guaranty insurance policy.
The property securing each of the mortgage loans in a
mortgage pool will be covered by standard hazard insurance
policies insuring against losses due to various causes, including
fire, lightning and windstorm. The amount of each policy is at
least equal to the lesser of the outstanding principal balance of
the mortgage loan or the maximum insurable value of the
improvements securing the mortgage loan. Since certain other
physical risks (including earthquakes, mudflows and floods) are
not otherwise insured against, the institution originating and
servicing the loans typically purchases a special hazard
insurance policy for each mortgage pool to cover such risks. The
special hazard insurance generally is in the amount of 1% of the
aggregate principal balances of the mortgage loans in each
mortgage pool, or the sum of the balance of the two largest
mortgage loans in the mortgage pool, whichever is greater, at the
time of formation of the mortgage pool.
Any hazard losses not covered by either the standard hazard
policies or the special hazard insurance policy will not be
insured against and, accordingly, will be borne by the Fund and
therefore by the Fund's shareholders.
The pooling and servicing agreement for a Non-Governmental
Certificate generally permits, but does not require, the entity
originating and servicing the mortgage loans to repurchase from
the mortgage pool all remaining mortgage loans. The right to
repurchase typically is subject to the aggregate principal
balances of the mortgage loans at the time of repurchase being
less than 20% of the aggregate principal balances of the mortgage
loans at the time of issuance of the Certificate.
Real Estate Mortgage Investment Conduits (REMICs)
A REMIC is an entity formed either as a partnership,
corporation or trust which holds a fixed pool of mortgages and
issues multiple classes of interests at varying maturities
entitling holders to receive specified principal amounts and
interest payments at fixed rates.
Timely payment of principal and interest from a REMIC will
be dependent upon risks associated with the underlying mortgage
loans held by the REMIC. These risks include the potential for
delinquency and default by mortgagors, fluctuating interest
rates, inflation and reduced market demand for qualified market
loans.
EQUIPMENT TRUST CERTIFICATES
Balanced Fund may invest in Equipment Trust Certificates.
Equipment Trust Certificates are a mechanism for financing
the purchase of transportation equipment, such as railroad cars
and locomotives, trucks, airplanes and oil tankers.
Under an Equipment Trust Certificate, the equipment is used
as the security for the debt and title to the equipment is vested
in a trustee. The trustee leases the equipment to the user;
i.e., the railroad, airline, trucking or oil company. At the
same time, Equipment Trust Certificates in an aggregate amount
equal to a certain percentage of the equipment's purchase price
are sold to lenders. The trustee pays the proceeds from the sale
of Certificates to the manufacturer. In addition, the company
using the equipment makes an initial payment of rent equal to the
balance of the purchase price to the trustee, which the trustee
also pays to the manufacturer. The trustee collects lease
payments from the company and uses the payments to pay interest
and principal on the Certificates. At maturity, the Certificates
are redeemed and paid, the equipment is sold to the company and
the lease is terminated.
Generally, these Certificates are regarded as obligations of
the company that is leasing the equipment and are shown as
liabilities in its balance sheet as a capitalized lease in
accordance with generally accepted accounting principals.
However, the company does not own the equipment until all the
Certificates are redeemed and paid. In the event the company
defaults under its lease, the trustee terminates the lease. If
another lessee is available, the trustee leases the equipment to
another user and makes payments on the Certificates from new
lease rentals.
OPTIONS, FUTURES AND OTHER DERIVATIVES
Except for Money Market Fund, each Fund may purchase and
write both call options and put options on securities, indexes
and foreign currencies, and enter into interest rate, index and
foreign currency futures contracts and options on such futures
contracts ("futures options") in order to achieve its investment
objective, to provide additional revenue, or to hedge against
changes in security prices, interest rates or currency exchange
rates. A Fund also may use other types of options, futures
contracts, futures options, and other types of forward or
investment contracts linked to individual securities, interest
rates, foreign currencies, indices or other benchmarks
("derivative products") currently traded or subsequently
developed and traded, provided the Trustees determine that their
use is consistent with the Fund's investment objective.
Options
A Fund may purchase and write both put and call options on
securities, indexes or foreign currencies in standardized
contracts traded on recognized securities exchanges, boards of
trade or similar entities, or quoted on Nasdaq. A Fund also may
purchase agreements, sometimes called cash puts, which may
accompany the purchase of a new issue of bonds from a dealer that
the Fund might buy as a temporary defensive measure.
An option on a security (or index or foreign currency) is a
contract that gives the purchase (holder) of the option, in
return for a premium, the right to buy from (call) or sell to
(put) the seller (writer) of the option the security underlying
the option (or the cash value of the index or a specified
quantity of the foreign currency) at a specified exercise price
at any time during the term of the option (normally not exceeding
nine months). The writer of an option on an individual security
or on a foreign currency has the obligation upon exercise of the
option to deliver the underlying security or foreign currency
upon payment of the exercise price or to pay the exercise price
upon delivery of the underlying security or foreign currency.
Upon exercise, the writer of an option on an index is obligated
to pay the difference between the cash value of the index and the
exercise price multiplied by the specified multiplier for the
index option. (An index is designed to reflect specified facets
of a particular financial or securities market, a specific group
of financial instruments or securities, or certain other economic
indicators.)
A Fund will write call options and put options only if they
are "covered." For example, in the case of a call option on a
security, the option is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration upon
conversion or exchange of other securities held in its portfolio
(or, if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by
its custodian).
If an option written by a Fund expires, the Fund realizes a
capital gain equal to the premium received at the time the option
was written. If an option purchased by a Fund expires, the Fund
realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option
may be closed out by an offsetting purchase or sale of an option
of the same series (type, exchange, underlying security, currency
or index, exercise price and expiration). There can be no
assurance, however, that a closing purchase or sale transaction
can be effected when a Fund desires.
A Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the
premium received from writing the option, or, if it is more, the
Fund will realize a capital loss. If the premium received from a
closing sale transaction is more than the premium paid to
purchase the option, the Fund will realize a capital gain or, if
it is less, the Fund will realize a capital loss. The principal
factors affecting the market value of a put or a call option
include supply and demand, interest rates, the current market
price of the underlying security, currency or index in relation
to the exercise price of the option, the volatility of the
underlying security, currency or index, and the time remaining
until expiration.
A put or call option purchased by a Fund is an asset of the
Fund, valued initially at the premium paid for the option. The
premium received for an option written by a Fund is recorded as a
deferred credit. The value of an option purchased or written is
marked-to-market daily and is valued at the closing price on the
exchange on which it is traded or, if not traded on an exchange
or no closing price is available, at the mean between the last
bid and asked prices.
Risks Associated with Options
There are several risks associated with transactions in
options. For example, there are significant differences between
the securities and the currency markets and the options markets
that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its
objectives. A decision as to whether, when and how to use
options involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful to some degree
because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist
when a Fund seeks to close out an option position. If a Fund
were unable to close out an option that it had purchased, it
would have to exercise the option in order to realize any profit
or the option would expire and become worthless. If a Fund were
unable to close out a covered call option that it had written on
a security or a foreign currency, it would not be able to sell
the underlying security or currency unless the option expired.
As the writer of a covered call option on a security, a Fund
foregoes, during the option's life, the opportunity to profit
from increases in the market value of the security covering the
call option above the sum of the premium and the exercise price
of the call. As the writer of a covered call option on a foreign
currency, the Fund foregoes, during the option's life, the
opportunity to profit from appreciation of the currency covering
the call.
If trading were suspended in an option purchased or written
by a Fund, the Fund would not be able to close out the option.
If restrictions on exercise were imposed, the Fund might be
unable to exercise an option it has purchased. Except to the
extent that a call option on an index written by the Fund is
covered by an option on the same index purchased by the Fund,
movements in the index may result in a loss to the Fund; however,
such losses may be mitigated by changes in the value of the
Fund's portfolio securities during the period the option was
outstanding.
Futures Contracts and Options on Futures Contracts
A Fund may use interest rate, index and foreign currency
futures contracts. An interest rate, index or foreign currency
futures contract provides for the future sale by one party and
purchase by another party of a specified quantity of a financial
instrument, the cash value of an index /2/ or a specified
quantity of a foreign currency at a specified price and time. A
public market exists in futures contracts covering a number of
indexes (including, but not limited to, the Standard & Poor's 500
Stock Index, the Value Line Composite Index and the New York
Stock Exchange Composite Index), certain financial instruments
(including, but not limited to: U.S. Treasury bonds, U.S.
Treasury notes and Eurodollar certificates of deposit) and
foreign currencies. Other index and financial instrument futures
contracts are available and it is expected that additional
futures contracts will be developed and traded.
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/2/ A futures contract on an index 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 index value
at which the index contract was originally written. Although the
value of a securities index is a function of the value of certain
specified securities, no physical delivery of those securities is
made.
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A Fund may purchase and write call and put futures options.
Futures options possess many of the same characteristics as
options on securities, indexes and foreign currencies (discussed
above). A futures option gives the holder the right, in return
for the premium paid, to assume a long position (call) or a short
position (put) in a futures contract at a specified exercise
price at any time during the period of the option. Upon exercise
of a call option, the holder acquires a long position in the
futures contract and the writer is assigned the opposite short
position. In the case of a put option, the opposite is true.
To the extent required by regulatory authorities having
jurisdiction over a Fund, such Fund will limit its use of futures
contracts and futures options to hedging transactions. For
example, a Fund might use futures contracts to hedge against or
gain exposure to fluctuations in the general level of stock
prices or anticipated changes in interest rates or currency
exchange rates which might adversely affect either the value of
the Fund's securities or the price of the securities that the
Fund intends to purchase. Although other techniques could be
used to reduce that Fund's exposure to stock price and interest
rate and currency fluctuations, the Fund may be able to hedge its
exposure more effectively and perhaps at a lower cost by using
futures contracts and futures options.
A Fund will only enter into futures contracts and futures
options that are standardized and traded on an exchange, board of
trade or similar entity or quoted on an automated quotation
system.
The success of any futures transaction depends on the
Adviser correctly predicting changes in the level and direction
of stock prices, interest rates, currency exchange rates and
other factors. Should those predictions be incorrect, a Fund's
return might have been better had the transaction not been
attempted; however, in the absence of the ability to use futures
contracts, the Adviser might have taken portfolio actions in
anticipation of the same market movements with similar investment
results but, presumably, at greater transaction costs.
When a purchase or sale of a futures contract is made by a
Fund, the Fund is required to deposit with its custodian (or
broker, if legally permitted) a specified amount of cash or U.S.
Government securities or other securities acceptable to the
broker ("initial margin"). The margin required for a futures
contract is set by the exchange on which the contact is traded
and may be modified during the term of the contract. The initial
margin is in the nature of a performance bond or good faith
deposit on the futures contract, which is returned to the Fund
upon termination of the contract, assuming all contractual
obligations have been satisfied. A Fund expects to earn interest
income on its initial margin deposits. A futures contract held
by a Fund is valued daily at the official settlement price of the
exchange on which it is traded. Each day the Fund pays or
receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known
as "marking-to-market." Variation margin paid or received by a
Fund does not represent a borrowing or loan by the Fund but is
instead settlement between the Fund and the broker of the amount
one would owe the other if the futures contract had expired at
the close of the previous day. In computing daily net asset
value, a Fund will mark-to-market its open futures positions.
The Fund is also required to deposit and maintain margin
with respect to put and call options on futures contracts written
by it. Such margin deposits will vary depending on the nature of
the underlying futures contract (and the related initial margin
requirements), the current market value of the option and other
futures positions held by the Fund.
Although some futures contracts call for making or taking
delivery of the underlying property, usually these obligations
are closed out prior to delivery by offsetting purchases or sales
of matching futures contracts (same exchange, underlying property
and delivery month). If an offsetting purchase price is less
than the original sale price, the Fund engaging in the
transaction realizes a capital gain, or if it is more, the Fund
realizes a capital loss. Conversely, if an offsetting sale price
is more than the original purchase price, the Fund engaging in
the transaction realizes a capital gain, or if it is less, the
Fund realizes a capital loss. The transaction costs must also be
included in these calculations.
Risks Associated with Futures
There are several risks associated with the use of futures
contracts and futures options. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in
the futures contract. There can be no guarantee that there will
be a correlation between price movements in the hedging vehicle
and in the portfolio securities being hedged. In addition, there
are significant differences between the securities and the
currency markets and the futures markets that could result in an
imperfect correlation between the markets, causing a given
transaction not to achieve its objectives. The degree of
imperfection of correlation depends on circumstances such as:
variations in speculative market demand for futures, futures
options and the related securities or currencies, including
technical influences in futures and futures options trading and
differences between the Fund's investments being hedged and the
securities or currencies underlying the standard contracts
available for trading. For example, in the case of index futures
contracts, the composition of the index, including the issuers
and the weighting of each issue, may differ from the composition
of the Fund's portfolio, and, in the case of interest rate
futures contracts, the interest rate levels, maturities, and
creditworthiness of the issues underlying the futures contract
may differ from the financial instruments held in the Fund's
portfolio. A decision as to whether, when and how to use futures
contracts involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful to some degree
because of market behavior or unexpected security price, interest
rate or currency exchange rate trends.
Futures exchanges may limit the amount of fluctuation
permitted in certain futures contract prices during a single
trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of the current
trading session. Once the daily limit has been reached in a
futures contract subject to the limit, no more trades may be made
on that day at a price beyond that limit. The daily limit
governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may
work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily
limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial
losses. Stock index futures contracts are not normally subject
to such daily price change limitations.
There can be no assurance that a liquid market will exist at
a time when a Fund seeks to close out a futures or futures option
position. The Fund would be exposed to possible loss on the
position during the interval of inability to close, and would
continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed
above are relatively new instruments without a significant long-
term trading history. As a result, there can be no assurance
that an active secondary market will develop or continue to
exist.
Limitations on Options and Futures
A Fund will not enter into a futures contract or purchase an
option thereon if, immediately thereafter, the initial margin
deposits for futures contracts held by that Fund plus premiums
paid by it for open futures option positions, less the amount by
which any such positions are "in-the-money," /3/ would exceed 5%
of the Fund's total assets.
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/3/ A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise
price. A put option is "in-the-money" if the exercise price
exceeds the value of the futures contract that is the subject of
the option.
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When purchasing a futures contract or writing a put option
on a futures contract, a Fund must maintain with its custodian
(or broker, if legally permitted) cash or cash equivalents
(including any margin) equal to the market value of such
contract. When writing a call option on a futures contract, the
Fund similarly will maintain with its custodian cash or cash
equivalents (including any margin) equal to the amount by which
such option is in-the-money until the option expires or is closed
out by the Fund.
A Fund may not maintain open short positions in futures
contracts, call options written on futures contracts or call
options written on indexes if, in the aggregate, the market value
of all such open positions exceeds the current value of the
securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical
relative volatility of the relationship between the portfolio and
the positions. For this purpose, to the extent the Fund has
written call options on specific securities in its portfolio, the
value of those securities will be deducted from the current
market value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission
("CFTC") Regulation 4.5 and thereby avoid being deemed a
"commodity pool operator," each Fund will use commodity futures
or commodity options contracts solely for bona fide hedging
purposes within the meaning and intent of CFTC Regulation 1.3(z),
or, with respect to positions in commodity futures and commodity
options contracts that do not come within the meaning and intent
of CFTC Regulation 1.3(z), the aggregate initial margin and
premiums required to establish such positions will not exceed 5%
of the fair market value of the assets of a Fund, after taking
into account unrealized profits and unrealized losses on any such
contracts it has entered into [in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount (as
defined in Section 190.01(x) of the CFTC Regulations) may be
excluded in computing such 5%].
Taxation of Options and Futures
If a Fund exercises a call or put option it holds, the
premium paid for the option is added to the cost basis of the
security purchased (call) or deducted from the proceeds of the
security sold (put). For cash settlement options and futures
options exercised by a Fund, the difference between the cash
received at exercise and the premium paid is a capital gain or
loss.
If a call or put option written by a Fund is exercised, the
premium is included in the proceeds of the sale of the underlying
security (call) or reduces the cost basis of the security
purchased (put). For cash settlement options and futures options
written by a Fund, the difference between the cash paid at
exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in
capital gain or loss. If an option written by a Fund was in-the-
money at the time it was written and the security covering the
option was held for more than the long-term holding period prior
to the writing of the option, any loss realized as a result of a
closing purchase transaction will be long-term. The holding
period of the securities covering an in-the-money option will not
include the period of time the option is outstanding.
If a Fund writes an equity call option /4/ other than a
"qualified covered call option," as defined in the Internal
Revenue Code, any loss on such option transaction, to the extent
it does not exceed the unrealized gains on the securities
covering the option, may be subject to deferral until the
securities covering the option have been sold.
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/4/ An equity option is defined to mean any option to buy or sell
stock, and any other option the value of which is determined by
reference to an index of stocks of the type that is ineligible to
be traded on a commodity futures exchange (e.g., an option
contract on a sub-index based on the price of nine hotel-casino
stocks). The definition of equity option excludes options on
broad-based stock indexes (such as the Standard & Poor's 500 Stock
Index).
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A futures contract held until delivery results in capital
gain or loss equal to the difference between the price at which
the futures contract was entered into and the settlement price on
the earlier of delivery notice date or expiration date. If a
Fund delivers securities under a futures contract, the Fund also
realizes a capital gain or loss on those securities.
For Federal income tax purposes, a Fund generally is
required to recognize as income for each taxable year its net
unrealized gains and losses as of the end of the year on futures,
futures options and non-equity options positions ("year-end mark-
to-market"). Generally, any gain or loss recognized with respect
to such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and
40% short-term, without regard to the holding periods of the
contracts. However, in the case of positions classified as part
of a "mixed straddle," the recognition of losses on certain
positions (including options, futures and futures options
positions, the related securities and certain successor positions
thereto) may be deferred to a later taxable year. Sale of
futures contracts or writing of call options (or futures call
options) or buying put options (or futures put options) that are
intended to hedge against a change in the value of securities
held by a Fund: (1) will affect the holding period of the hedged
securities; and (2) may cause unrealized gain or loss on such
securities to be recognized upon entry into the hedge.
If a Fund were to enter into a short index future, short
index futures option or short index option position and the
Fund's portfolio were deemed to "mimic" the performance of the
index underlying such contract, the option or futures contract
position and the Fund's stock positions would be deemed to be
positions in a mixed straddle, subject to the above-mentioned
loss deferral rules.
In order for a Fund to continue to qualify for Federal
income tax treatment as a regulated investment company, at least
90% of its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
foreign currencies, or other income (including but not limited to
gains from options and futures contracts). In addition, gains
realized on the sale or other disposition of securities held for
less than three months must be limited to less than 30% of the
Fund's annual gross income. Any net gain realized from futures
(or futures options) contracts will be considered gain from the
sale of securities and therefore be qualifying income for
purposes of the 90% requirement. In order to avoid realizing
excessive gains on securities held less than three months, the
Fund may be required to defer the closing out of certain
positions beyond the time when it would otherwise be advantageous
to do so.
Warrants
Each Fund except Money Market Fund may invest in warrants;
however, not more than 5% of a Fund's assets (at the time of
purchase) will be invested in warrants, other than warrants
acquired in units or attached to other securities. Warrants
purchased must be listed on a national stock exchange or the
Nasdaq System. Warrants are speculative in that they have no
voting rights, pay no dividends, and have no right with respect
to the assets of the corporation issuing them. Warrants
basically are options to purchase equity securities at a specific
price valid for a specific period of time. They do not represent
ownership of the securities, but only the right to buy them.
Warrants differ from call options in that warrants are issued by
the issuer of the security that may be purchased on their
exercise, whereas call options may be written or issued by
anyone. The prices of warrants do not necessarily move parallel
to the prices of the underlying securities.
"WHEN-ISSUED" SECURITIES AND COMMITMENT AGREEMENTS
Each Fund may purchase and sell securities on a when-issued
and delayed-delivery basis.
When-issued or delayed-delivery transactions arise when
securities are purchased or sold by the Funds with payment and
delivery taking place in the future in order to secure what is
considered to be an advantageous price and yield to the Funds at
the time of entering into the transaction. However, yields
available in the market when delivery takes place may be higher
than the yields on securities to be delivered. When the Funds
engage in when-issued and delayed-delivery transactions, the
Funds rely on the buyer or seller, as the case may be, to
consummate the sale. Failure to do so may result in the Funds
missing the opportunity to obtain a price or yield considered to
be advantageous. When-issued and delayed-delivery transactions
may be expected to occur a month or more before delivery is due.
However, no payment or delivery is made by the Funds until they
receive payment or delivery from the other party to the
transaction. A separate account of liquid assets equal to the
value of such purchase commitments will be maintained with the
Trust's custodian until payment is made and will not be available
to meet redemption requests. When-issued and delayed-delivery
agreements are subject to risks from changes in value based upon
changes in the level of interest rates and other market factors,
both before and after delivery. The Funds do not accrue any
income on such securities prior to their delivery. To the extent
a Fund engages in when-issued and delayed-delivery transactions,
it will do so for the purpose of acquiring portfolio securities
consistent with its investment objectives and policies and not
for the purpose of investment leverage.
Most Mortgage Pass-Through Certificates (especially FNMA and
Non-Governmental Certificates), whether they represent interests
in pools of fixed or adjustable interest rate mortgage loans, may
be purchased pursuant to the terms of firm commitment or standby
commitment agreements. Under the terms of these agreements, a
Fund will bind itself to accept delivery of a Mortgage Pass-
Through Certificate at some future settlement date (typically
three to six months from the date of the commitment agreement) at
a stated price. The standby commitment agreements create an
additional risk for a Fund because the other party to the standby
agreement generally will not be obligated to deliver the
security, but the Fund will be obligated to accept it if
delivered. Depending on market conditions (particularly on the
demand for, and supply of, Mortgage Pass-Through Certificates),
the Fund may receive a commitment fee for assuming this
obligation. If prevailing market interest rates increase during
the period between the date of the agreement and the settlement
date, the other party can be expected to deliver the security
and, in effect, pass any decline in value to the Fund. If the
value of the security increases after the agreement is made,
however, the other party is unlikely to deliver the security. In
other words, a decrease in the value of the securities to be
purchased under the terms of standby commitment agreements will
likely result in the delivery of the security, and therefore such
decrease will be reflected in the Fund's net asset value.
However, any increase in the value of the securities to be
purchased will likely result in the non-delivery of the security
and, therefore, such increase will not affect the net asset value
unless and until the Fund actually obtains the security.
RESTRICTED SECURITIES
Restricted securities are acquired through private placement
transactions, directly from the issuer or from security holders,
generally at higher yields or on terms more favorable to
investors than comparable publicly traded securities. Privately
placed securities are not readily marketable and ordinarily can
be sold only in privately negotiated transactions to a limited
number of purchasers or in public offerings made pursuant to an
effective registration statement under the Securities Act of
1933. Private or public sales of such securities by a Fund may
involve significant delays and expense. Private sales require
negotiations with one or more purchasers and generally produce
less favorable prices than the sale of comparable unrestricted
securities. Public sales generally involve the time and expense
of preparing and processing a registration statement under the
Securities Act of 1933 and may involve the payment of
underwriting commissions; accordingly, the proceeds may be less
than the proceeds from the sale of securities of the same class
which are freely marketable.
<PAGE>
STEINROE VARIABLE INVESTMENT TRUST
STEIN ROE SPECIAL VENTURE FUND, VARIABLE SERIES
Federal Reserve Plaza
600 Atlantic Avenue, Boston, Massachusetts 02210
Statement of Additional Information
Dated May 1, 1998
This Statement of Additional Information is not a
prospectus, but provides additional information which should be
read in conjunction with the Fund's Prospectus dated May 1, 1998
and any supplement thereto. The Prospectus may be obtained at no
charge by calling or writing the broker-dealer offering the
Participating Insurance Company's variable annuity contracts.
TABLE OF CONTENTS
Page
Commencement of Operations..............................S-2
Mixed and Shared Funding................................S-2
Investment Restrictions.................................S-2
Portfolio Turnover......................................S-5
Purchases and Redemptions...............................S-5
Trustees and Officers...................................S-6
Management Arrangements.................................S-7
Trust Charges and Expenses..............................S-8
Custodian...............................................S-9
Portfolio Transactions..................................S-9
Net Asset Value.........................................S-12
Investment Performance..................................S-12
Record Shareholders.....................................S-13
Independent Auditors and Financial Statements...........S-13
Appendix A--Investment Techniques and Securities........S-14
<PAGE>
COMMENCEMENT OF OPERATIONS
Stein Roe Special Venture Fund, Variable Series (Fund) is a
series fund of the SteinRoe Variable Investment Trust (Trust), an
open-end, diversified management investment company currently
consisting of five funds with differing investment objectives,
policies and restrictions that commenced operations on January 1,
1989. Other funds may be added or deleted from time to time.
The Trust issues shares of beneficial interest in each of its
series funds that represent interests in a separate portfolio of
securities and other assets. The series funds of the Trust other
than the Fund are referred to hereinafter as "Other Funds." The
Trust is the funding vehicle for variable annuity contracts (VA
contracts) and variable life insurance policies (VLI policies)
offered by the separate accounts of life insurance companies
(Participating Insurance Companies). Prior to November 15, 1997,
the Fund was named Capital Appreciation Fund.
MIXED AND SHARED FUNDING
The Trust serves as a funding medium for VA contracts and
VLI policies of Participating Insurance Companies, so-called
mixed and shared funding. Certain Participating Insurance
Companies are affiliated with the Adviser to the Fund. The Fund
may from time to time become a funding vehicle for VA contracts
and VLI policies of other Participating Insurance Companies,
including non-affiliated entities and entities affiliated with
Stein Roe & Farnham Incorporated (Adviser) or Liberty Mutual
Insurance Company.
The interests of owners of VA contracts and VLI policies
could diverge based on differences in state regulatory
requirements, changes in the tax laws or other unanticipated
developments. The Trust does not foresee any such differences or
disadvantages at this time. However, the Trustees will monitor
for such developments to identify any material irreconcilable
conflicts and to determine what action, if any, should be taken
in response to such conflicts. If such a conflict were to occur,
one or more separate accounts might be required to withdraw its
investments in the Fund or shares of another fund may be
substituted. This might force the Fund to sell securities at
disadvantageous prices.
INVESTMENT RESTRICTIONS
The Fund operates under the investment restrictions listed
below. Restrictions numbered (i) through (viii) are fundamental
policies which may not be changed without approval of a majority
of the outstanding voting shares of the Fund, defined as the
lesser of the vote of (a) 67% of the shares of the Fund at a
meeting where more than 50% of the outstanding shares are present
in person or by proxy or (b) more than 50% of the outstanding
shares of the Fund. Other restrictions are not fundamental
policies and may be changed by the Trustees without shareholder
approval.
The Fund may not:
(i) with respect to 75% of the value of the total assets of the
Fund, invest more than 5% of the value of its total assets, taken
at market value at the time of a particular purchase, in the
securities of any one issuer, except securities issued or
guaranteed by the U.S. government or its agencies or
instrumentalities;
(ii) purchase securities of any one issuer if more than 10% of
the outstanding voting securities of such issuer would at the
time be held by the Fund;
(iii) act as an underwriter of securities, except insofar as it
may be deemed an underwriter for purposes of the Securities Act
of 1933 on disposition of securities acquired subject to legal or
contractual restrictions on resale;
(iv) invest in a security if more than 25% of its total assets
(taken at market value at the time of a particular purchase)
would be invested in the securities of issuers in any particular
industry, except that this restriction does not apply to
securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities;
(v) purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, and
securities issued by companies which invest in real estate or
interests therein), commodities or commodity contracts (except
that it may enter into (a) futures and options on futures and (b)
forward contracts);
(vi) purchase securities on margin (except for use of short-term
credits as are necessary for the clearance of transactions), make
short sales of securities, or participate on a joint or a joint
and several basis in any trading account in securities, except in
connection with transactions in options, futures, and options on
futures;
(vii) make loans, but this restriction shall not prevent the Fund
from (a) buying a part of an issue of bonds, debentures, or other
obligations which are publicly distributed, or from investing up
to an aggregate of 15% of its total assets (taken at market value
at the time of each purchase) in parts of issues of bonds,
debentures or other obligations of a type privately placed with
financial institutions, (b) investing in repurchase agreements,
or (c) lending portfolio securities, provided that it may not
lend securities if, as a result, the aggregate value of all
securities loaned would exceed 15% of its total assets (taken at
market value at the time of such loan); or
(viii) borrow, except that it may (a) borrow up to 33 1/3% of its
total assets from banks, taken at market value at the time of
such borrowing, as a temporary measure for extraordinary or
emergency purposes, but not to increase portfolio income (the
total of reverse repurchase agreements and such borrowings will
not exceed 33 1/3% of its total assets, and the Fund will not
purchase additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of its
total assets) and (b) enter into transactions in options,
futures, and options on futures.
The Fund is also subject to the following restrictions and
policies, which are not fundamental and may be changed by the
Trustees without shareholder approval.
The Fund may not :
(a) invest in companies for the purpose of exercising control or
management;
(b) purchase more than 3% of the stock of another investment
company; or purchase stock of other investment companies equal to
more than 5% of the Fund's total assets (valued at time of
purchase) in the case of any one other investment company and 10%
of such assets (valued at the time of purchase) in the case of
all other investment companies in the aggregate; any such
purchases are to be made in the open market where no profit to a
sponsor or dealer results from the purchase, other than the
customary broker's commission, except for securities acquired as
part of a merger, consolidation or acquisition of assets;
(c) mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held by it,
except as may be necessary in connection with (i) permitted
borrowings and (ii) options, futures and options on futures;
(d) issue senior securities, except to the extent permitted by
the Investment Company Act of 1940 (including permitted
borrowings);
(e) purchase portfolio securities for the Fund from, or sell
portfolio securities to, any of the officers and directors or
Trustees of the Trust or of its investment adviser;
(f) invest more than 5% of its net assets (valued at time of
purchase) in warrants, nor more than 2% of its net assets in
warrants that are not listed on the New York or American Stock
Exchanges;
(g) write an option on a security unless the option is issued by
the Options Clearing Corporation, an exchange or similar entity;
(h) buy or sell an option on a security, a futures contract or an
option on a futures contract unless the option, the futures
contract or the option on the futures contract is offered through
the facilities of a recognized securities association or listed
on a recognized exchange or similar entity;
(i) purchase a put or call option if the aggregate premiums paid
for all put and call options exceed 20% of its net assets (less
the amount by which any such positions are in-the-money),
excluding put and call options purchased as closing transactions;
or
(j) invest more than 15% of the Fund's net assets (taken at
market value at the time of each purchase) in illiquid securities
including repurchase agreements maturing in more than seven days.
Additional Voluntary Restrictions
The Fund also is subject to the following additional
restrictions and policies under certain applicable insurance laws
pertaining to variable annuity contract separate accounts. These
policies and restrictions are not fundamental and may be changed
by the Trustees without shareholder approval:
The borrowing limits for the Fund are (1) 10% of net asset
value when borrowing for any general purpose and (2) 25% of net
asset value when borrowing as a temporary measure to facilitate
redemptions. For this purpose, net asset value is the market
value of all investments or assets owned less outstanding
liabilities of the Fund at the time that any new or additional
borrowing is undertaken.
The Fund also will be subject to the following
diversification guidelines pertaining to investments in foreign
securities:
1. The Fund will be invested in a minimum of five different
foreign countries at all times when it holds investments in
foreign securities. However, this minimum is reduced to four
when foreign country investments comprise less than 80% of the
Fund's net asset value; to three when less than 60% of such
value; to two when less than 40% and to one when less than 20%.
2. Except as set forth in item 3 below, the Fund will have no
more than 20% of its net asset value invested in securities of
issuers located in any one foreign country.
3. The Fund may have an additional 15% of its value invested in
securities of issuers located in any one of the following
countries: Australia, Canada, France, Japan, the United Kingdom
or Germany.
If a percentage limit with respect to any of the foregoing
fundamental and non-fundamental policies is satisfied at the time
of investment or borrowing, a later increase or decrease in the
Fund's assets will not constitute a violation of the limit.
PORTFOLIO TURNOVER
The portfolio turnover of the Fund will vary from year to
year. Although the Fund will not trade in securities for short-
term profits, when circumstances warrant securities may be sold
without regard to the length of time held. Portfolio turnover
for the Fund is shown under "FINANCIAL HIGHLIGHTS" in the
Prospectus. See "PORTFOLIO TURNOVER" in the Prospectus for a
discussion of certain factors which may produce relatively high
turnover in the Fund.
A 100% turnover rate would occur if all of the securities in
the portfolio were sold and either repurchased or replaced within
one year. The Fund pays brokerage commissions in connection with
options and futures transactions and effecting closing purchase
or sale transactions, as well as for the purchases and sales of
other portfolio securities other than fixed income securities.
If the Fund writes a substantial number of call or put options
(on securities or indexes) or engages in the use of futures
contracts or options on futures contracts (all referred to as
"Collateralized Transactions"), and the market prices of the
securities underlying the Collateralized Transactions move
inversely to the Collateralized Transaction, there may be a very
substantial turnover of the portfolio.
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the Prospectus
under the headings "PURCHASES AND REDEMPTIONS" and "NET ASSET
VALUE." The Fund's net asset value is determined on days on
which the New York Stock Exchange (NYSE) is open for trading.
The NYSE is regularly closed on Saturdays and Sundays and on New
Year's Day, the third Monday in January, the third Monday in
February, Good Friday, the last Monday in May, Independence Day,
Labor Day, Thanksgiving and Christmas. If one of these holidays
falls on a Saturday or Sunday, the NYSE will be closed on the
preceding Friday or the following Monday, respectively. Net
asset value will not be determined on days when the NYSE is
closed unless, in the judgment of the Trustees, the net asset
value of the Fund should be determined on any such day, in which
case the determination will be made at 4:00 p.m., Eastern time.
The Trust reserves the right to suspend or postpone
redemptions of shares of the Fund during any period when: (a)
trading on the NYSE is restricted, as determined by the
Commission, or the NYSE is closed for other than customary
weekend and holiday closing; (b) the Commission has by order
permitted such suspension; or (c) an emergency, as determined by
the Commission, exists, making disposal of portfolio securities
or the valuation of net assets of the Fund not reasonably
practicable.
TRUSTEES AND OFFICERS
The following table sets forth certain information with
respect to the Trustees and officers of the Trust:
<TABLE>
<CAPTION>
Position(s) held Principal occupations
Name and Address Age with the Trust during past five years
- ----------------------- --- --------------------- ------------------------------------
<S> <C> <C> <C>
Richard R. Christensen/1/ 65 President and Trustee President, Liberty Asset Management
Federal Reserve Plaza Company since 1994; prior thereto,
600 Atlantic Avenue President, Liberty Investment Services,
Boston, MA 02210 Inc.
John A. Bacon Jr. 70 Trustee Private investor
4N640 Honey Hill Road
Box 296
Wayne, IL 60184
Salvatore Macera 67 Trustee Private investor; former
20 Rowes Wharf Executive Vice President of Itek
Boston, MA 02109 Corporation and President of Itek
Optical & Electronic Industries, Inc.
Dr. Thomas E. Stitzel 58 Trustee Professor of Finance, College of Business,
2208 Tawny Woods Place Boise State University; business
Boise, ID 83706 consultant and author
Gary A. Anetsberger 42 Treasurer Senior Vice President, Stein Roe &
One South Wacker Drive Farnham Incorporated since April 1996;
Chicago, IL 60606 Vice President prior thereto
Sharon R. Robertson 36 Controller Associate, Stein Roe & Farnham Incorporated
One South Wacker Drive
Chicago, IL 60606
Richard B. Peterson 57 Vice President Senior Vice President, Stein Roe &
One South Wacker Drive Farnham Incorporated
Chicago, IL 60606
Harvey B. Hirschhorn 48 Vice President Executive Vice President, Stein
One South Wacker Drive Roe & Farnham Incorporated
Chicago, IL 60606
Jane M. Naeseth 48 Vice President Senior Vice President, Stein Roe &
One South Wacker Drive Farnham Incorporated
Chicago, IL 60606
Erik P. Gustafson 34 Vice President Senior Vice President (April
One South Wacker Drive 1996 to present); Vice President (1994 to
Chicago, IL 60606 1996); prior thereto, Associate, Stein Roe &
Farnham Incorporated
John S. McLandsborough 31 Vice President Vice President, Stein Roe & Farnham
One South Wacker Drive Incorporated since March 1998; portfolio
Chicago, IL 60606 manager, Stein Roe & Farnham Incorporated since
April 1996; securities analyst, CS First Boston
from June 1993 to December 1996; securities
analyst, National City Bank of Cleveland from
November 1992 to June 1993
William M. Wadden IV 40 Vice President Senior Vice President (1995 to present), Stein
One South Wacker Drive Roe & Farnham Incorporated; prior thereto,
Chicago, IL 60606 Executive Vice President, CSI Asset Management,
Inc.
John A. Benning 63 Secretary Senior Vice President, General Counsel
Federal Reserve Plaza and Secretary, Liberty Financial Companies,
600 Atlantic Avenue Inc.
Boston, MA 02210
Kevin M. Carome 42 Assistant Secretary Associate General Counsel and (since
Federal Reserve Plaza February 1995) Vice President, Liberty
600 Atlantic Avenue Financial Companies, Inc.; General Counsel,
Boston, MA 02210 Stein Roe & Farnham Incorporated, since January
1998
<FN>
</TABLE>
As indicated in the above table, certain Trustees and
officers of the Trust also hold positions with Stein Roe &
Farnham Incorporated, Liberty Financial Companies, Inc. (LFC)
and/or their affiliates. Certain of the Trustees and certain
officers of the Trust hold comparable positions with certain
other investment companies managed by Stein Roe & Farnham
Incorporated or sponsored by other affiliates of LFC.
Compensation of Trustees
The table set forth below presents certain information
regarding the fees paid to the Trustees for their services in
such capacity and total fees paid to them by all other investment
companies affiliated with the Trust. Trustees do not receive any
pension or retirement benefits from the Trust. No officers of
the Trust or other individuals who are affiliated with the Trust
receive any compensation from the Trust for services provided to
it.
Compensation Table
Name of Aggregate 1997 Total Compensation From
Trustee Compensation* the Trust and Affiliated
Investment Companies in
1997**
- ---------------------- ------------- ------------------------
Richard R. Christensen -- --
John A. Bacon Jr. $22,000 $34,500
Salvatore Macera 22,000 34,500
Dr. Thomas E. Stitzel 22,000 34,500
_______________
*Consists of Trustee fees in the amount of (i) a $10,000 annual
retainer, (ii) a $3,000 meeting fee for each meeting attended in
person and (iii) a $1,000 meeting fee for each telephone meeting.
**Includes Trustee fees paid by the Trust and by Liberty Variable
Investment Trust.
MANAGEMENT ARRANGEMENTS
As described in the Prospectus, the portfolio of the Fund is
managed by Stein Roe & Farnham Incorporated (the Adviser). The
Fund has its own Advisory Agreement with the Adviser. The
Adviser is a wholly owned direct subsidiary of SteinRoe Services
Inc., which in turn is a wholly owned direct subsidiary of LFC.
LFC, in turn, is an indirect majority owned subsidiary of Liberty
Mutual Insurance Company.
The directors of the Adviser are Kenneth R. Leibler, Harold
W. Cogger, C. Allen Merritt, Jr., Hans P. Ziegler, and Thomas W.
Butch. Mr. Leibler is President and Chief Executive Officer of
LFC; Mr. Cogger is Executive Vice President of LFC; Mr. Merritt
is Chief Operating Officer of LFC; Mr. Ziegler is Chairman and
Chief Executive Officer of the Adviser; and Mr. Butch is
President of the Adviser's Mutual Funds division. The business
address of Messrs. Leibler, Cogger and Merritt is Federal Reserve
Plaza, 600 Atlantic Avenue, Boston, Massachusetts, 02210; that of
Messrs. Ziegler and Butch is One South Wacker Drive, Chicago,
Illinois 60606.
The Adviser, at its own expense, provides office space,
facilities and supplies, equipment and personnel for the
performance of its functions under the Advisory Agreement and
pays all compensation of the Trustees, officers and employees who
are employees of the Adviser.
The Advisory Agreement provides that neither the Adviser nor
any of its directors, officers, stockholders (or partners of
stockholders), agents, or employees shall have any liability to
the Trust or any shareholder of the Fund for any error or
judgment, mistake of law or any loss arising out of any
investment, or for any other act or omission in the performance
by the Adviser of its duties under the Advisory Agreement, except
for liability resulting from willful misfeasance, bad faith or
gross negligence on the Adviser's part in the performance of its
duties or from reckless disregard by the Adviser of the Adviser's
obligations and duties under the Advisory Agreement.
Under an Administration Agreement with the Trust, the
Adviser provides the Fund and each Other Fund with administrative
services, excluding investment advisory services. Specifically,
the Adviser is responsible for preparing financial statements,
providing office space and equipment in connection with the
maintenance of the headquarters of the Trust, preparing and
filing required reports and tax returns, arrangements for
meetings, maintenance of the Trust's corporate books and records,
communication with shareholders, providing internal legal
services and oversight of custodial, accounting and other
services provided to the Funds by others. The Administration
Agreement provides that the Adviser may, in its discretion,
arrange for administrative services to be provided to the Trust
by LFC or any of LFC's majority or greater owned subsidiaries.
Under separate agreements, the Adviser also acts as the
agent of the Fund and the Other Funds for the transfer of shares,
disbursement of dividends and maintenance of shareholder account
records, and provides certain pricing and other recordkeeping
services to the Fund. The Trust believes that the charges by the
Administrator to the Fund for these services are comparable to
those of other companies performing similar services.
TRUST CHARGES AND EXPENSES
Management Fees:
During fiscal 1997, 1996 and 1995, respectively, pursuant to
the advisory contract described in the Prospectus, the Fund paid
the Adviser management fees in the amount of $1,001,641, $850,612
and $690,902, respectively.
Administrative Expenses:
During fiscal 1997, 1996 and 1995, pursuant to the
Administration Agreement described above, the Fund paid the
Adviser or an affiliate thereof administration fees in the amount
of $300,492, $255,184 and $207,244, respectively. In addition,
during fiscal 1997 the Fund paid the Adviser or an affiliate
thereof $7,500 for transfer agent services.
Expense Limitation:
The Adviser and Administrator have agreed to reimburse all
expenses of the Fund in excess of 0.80% of average net assets
through April 30, 1999.
CUSTODIAN
State Street Bank and Trust Company (the Bank), 225 Franklin
Street, Boston, Massachusetts 02110, is the custodian for the
Fund. It is responsible for holding all securities and cash of
the Fund, receiving and paying for securities purchased,
delivering against payment securities sold, receiving and
collecting income from investments, making all payments covering
expenses of the Fund and performing other administrative duties,
all as directed by authorized persons. The Bank does not
exercise any supervisory function in such matters as purchase and
sale of portfolio securities, payment of dividends or payment of
expenses of the Fund. Portfolio securities purchased in the U.S.
are maintained in the custody of the Bank or other domestic banks
or depositories. Portfolio securities purchased outside of the
U.S. are maintained in the custody of foreign banks and trust
companies who are members of the Bank's Global Custody Network
and foreign depositories (foreign sub-custodians).
With respect to foreign sub-custodians, there can be no
assurance that the Fund, and the value of its shares, will not be
adversely affected by acts of foreign governments, financial or
operational difficulties of the foreign sub-custodians,
difficulties and costs of obtaining jurisdiction over, or
enforcing judgments against, the foreign sub-custodians or
application of foreign law to the Fund's foreign sub-custodial
arrangements. Accordingly, an investor should recognize that the
noninvestment risks involved in holding assets abroad are greater
than those associated with investing in the U.S.
The Fund may invest in obligations of the Bank and may
purchase or sell securities from or to the Bank.
PORTFOLIO TRANSACTIONS
The Adviser places orders for the purchase and sale of
portfolio securities and options and futures contracts on behalf
of the Fund. The Adviser's overriding objective in effecting
portfolio transactions is to seek to obtain the best combination
of price and execution. The best net price, giving effect to
brokerage commissions, if any, and other transaction costs,
normally is an important factor in this decision, but a number of
other judgmental factors may also enter into the decision. These
include: the Adviser's knowledge of negotiated commission rates
currently available and other current transaction costs; the
nature of the security being traded; the size of the transaction;
the desired timing of the trade; the activity existing and
expected in the market for the particular security;
confidentiality; the execution, clearance and settlement
capabilities of the broker-dealer selected and others that are
considered; the Adviser's knowledge of the financial stability of
the broker-dealer selected and such other brokers or dealer; and
the Adviser's knowledge of actual or apparent operational
problems of any broker-dealer. Recognizing the value of these
execution, clearance and settlement factors, the Fund may pay a
brokerage commission in excess of that which another broker-
dealer may have charged for effecting the same transaction.
Evaluations of the reasonableness of brokerage commissions, based
on the foregoing factors, are made on an ongoing basis by the
Adviser's staff while effecting portfolio transactions. The
general level of brokerage commissions paid is reviewed by the
Adviser, which reports annually to the Board.
With respect to transactions in securities involving
brokerage commissions, when more than one broker-dealer is
believed to be capable of providing the best combination of price
and execution with respect to a particular portfolio transaction
for the Fund, the Adviser often selects a broker-dealer that has
furnished it with research products or services such as research
reports, subscriptions to financial publications and research
compilations, compilations of securities prices, earnings,
dividends, and similar data, and computer data bases, quotation
equipment and services, and research-oriented computer software
and services, and services of economic or other consultants.
Selection of brokers or dealers is not made pursuant to an
agreement or understanding with any of the broker-dealers;
however, the Adviser uses an internal allocation procedure to
identify those broker-dealers who provide it with research
products or services and the amount of research products or
services they provide, and endeavors to direct sufficient
commissions generated by its clients' accounts in the aggregate,
including the Fund, to such broker-dealers to ensure the
continued receipt of research products or services the Adviser
feels are useful. In certain instances, the Adviser receives
from broker-dealers products or services which are used both as
investment research and for administrative, marketing or other
non-research purposes. In such instances, the Adviser makes a
good faith effort to determine the relative proportions of such
products or services which may be considered as investment
research. The portion of the costs of such products or services
attributable to research usage may be defrayed by the Adviser
through brokerage commissions generated by client transactions
(without prior agreement or understanding, as noted above), while
the portion of the costs attributable to non-research usage of
such products or services is paid by the Adviser in cash. No
person acting on behalf of the Trust or the Fund is authorized,
in recognition of the value of research products or services, to
pay a commission in excess of that which another broker-dealer
might have charged for effecting the same transaction. The
Adviser may also receive research in connection with selling
concessions and designations in fixed price offerings in which
the Fund participates. Research products or services furnished
by broker-dealers through whom the Fund effects transactions may
be used in servicing any or all of the clients of the Adviser and
not all of such research products or services are used in
connection with the management of the Fund.
As stated above, the Adviser's overriding objective in
effecting portfolio transactions for the Fund is to seek to
obtain the best combination of price and execution. However,
consistent with the provisions of the Rules of Conduct of the
National Association of Securities Dealers, Inc., the Adviser
may, in selecting broker-dealers to effect portfolio transactions
for the Fund, and where more than one broker-dealer is believed
capable of providing the best combination of price and execution
with respect to a particular transaction, select a broker-dealer
in recognition of its sales of VA contracts or VLI policies
offered by Participating Insurance Companies. The Adviser
maintains an internal procedure to identify broker-dealers which
have sold VA contracts or VLI policies, and the amount of VA
contracts or VLI policies sold by them. Except as described in
the next following sentence, neither the Trust nor the Fund nor
the Adviser has entered into any agreement with, or made any
commitment to, any unaffiliated broker-dealer which would bind
the Adviser, the Trust or the Fund to compensate any such broker-
dealer, directly or indirectly, for sales of VA contracts or VLI
policies. The Adviser has entered into arrangements with
sponsors of programs for the sale of VA contracts issued by
Participating Insurance Companies which are not affiliates of the
Adviser pursuant to which the Adviser pays the sponsor from the
Adviser's fee for managing the Fund an amount in respect of the
Fund's assets allocable to the Fund shares held in separate
accounts of such Participating Insurance Companies, in respect of
VA contracts issued by such entities and sold to through such
arrangements. The Adviser does not cause the Trust or the Fund
to pay brokerage commissions higher than those obtainable from
other broker-dealers in recognition of such sales of VA contracts
or VLI policies.
In light of the fact that the Adviser may also provide
advisory services to the Participating Insurance Companies, and
to other advisory accounts that may or may not be registered
investment companies, securities of the same issuer may be
included, from time to time, in the portfolios of the Fund and
these other entities where it is consistent with their respective
investment objectives. If these entities desire to buy or sell
the same portfolio security at about the same time, combined
purchases and sales may be made, and in such event the security
purchased or sold normally will be allocated at the average price
and as nearly as practicable on a pro-rata basis in proportion to
the amounts desired to be purchased or sold by each entity.
While it is possible that in certain instances this procedure
could adversely affect the price or number of shares involved in
the Fund's transactions, it is believed that the procedure
generally contributes to better overall execution of the Fund's
portfolio transactions.
Because the Adviser's personnel may also provide investment
advisory services to the Participating Insurance Companies and
other advisory clients, it may be difficult to quantify the
relative benefits received by the Fund and these other entities
from research provided by broker-dealers.
The Trust has arranged for the Bank, as its custodian, to
act as a soliciting dealer to accept any fees available to the
Bank as a soliciting dealer in connection with any tender offer
for the Fund's portfolio securities. The Bank will credit any
such fees received against its custodial fees. In addition, the
Board periodically reviews the legal developments pertaining to
and the practicability of attempting to recapture underwriting
discounts and selling concessions when portfolio securities are
purchased in underwritten offerings. However, the Board has been
advised by counsel that recapture by a mutual fund currently is
not permitted under the Rules of Conduct of the National
Association of Securities Dealers, Inc.
The Fund's purchases and sales of securities not traded on
securities exchanges generally are placed by the Adviser with
market makers for these securities on a net basis, without any
brokerage commissions being paid by the Fund. Net trading does
involve, however, transaction costs. Included in prices paid to
underwriters of portfolio securities is the spread between the
price paid by the underwriter to the issuer and the price paid by
the purchasers. The Fund's purchases and sales of portfolio
securities in the over-the-counter market usually are transacted
with a broker-dealer on a net basis without any brokerage
commission being paid by the Fund, but do reflect the spread
between the bid and asked prices. The Adviser may also transact
purchases of some portfolio securities directly with the issuers.
With respect to the Fund's purchases and sales of portfolio
securities transacted with a broker or dealer on a net basis, the
Adviser may also consider the part, if any, played by the broker
or dealer in bringing the security involved to the Adviser's
attention, including investment research related to the security
and provided to the Fund.
The table below shows information on brokerage commissions
paid by the Fund during the periods indicated.
Total amount of brokerage commissions paid during
fiscal year ended 12/31/97..........................$421,740
Amount of commissions paid to brokers or dealers
who supplied research services to the Adviser........$381,079
Total dollar amount involved in such transaction..$164,159,652
Amount of commissions paid to brokers or dealers
that were allocated to such brokers or dealers
by the Fund's portfolio manager because of
research services provided to the Fund................$87,388
Total dollar amount involved in such transaction...$33,667,858
Total brokerage fees paid during fiscal year
ended 12/31/96.......................................$316,995
Total brokerage fees paid during fiscal year
ended 12/31/95.......................................$485,545
NET ASSET VALUE
The net asset value of the shares of the Fund is determined
by dividing the total assets of the Fund, less all liabilities
(including accrued expenses), by the total number of shares
outstanding. The proceeds received by the Fund for each purchase
or sale of its shares, and all income, earnings, profits and
proceeds thereof, subject only to the rights of creditors, will
be specifically allocated to the Fund, and constitute the
underlying assets of the Fund. The underlying assets of the Fund
will be segregated on the books of account, and will be charged
with the liabilities in respect to the Fund and with a share of
the general liabilities of the Trust.
INVESTMENT PERFORMANCE
The Fund may quote total return figures from time to time.
Total return on a per share basis is the amount of dividends
received per share plus or minus the change in the net asset
value per share for a given period. Total return percentage may
be calculated by dividing the value of a share at the end of a
given period by the value of the share at the beginning of the
period and subtracting one.
Average Annual Total Return is computed as follows:
n
ERV = P(1+T)
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
period (or fractional portion thereof).
For example, for a $1,000 investment in the Fund, the "Total
Return," the "Total Return Percentage," and the "Average Annual
Total Return" for the life of the Fund (from January 1, 1989 to
December 31, 1997) were:
Total Return Average Annual
Total Return Percentage Total Return
------------ ------------ ---------------
$3,932 293.18% 16.43%
The figures contained in this "Investment Performance"
section assume reinvestment of all dividends and distributions.
They are not necessarily indicative of future results. The
performance of the Fund is a result of conditions in the
securities markets, portfolio management, and operating expenses.
Although information such as that shown above is useful in
reviewing the Fund's performance and in providing some basis for
comparison with other investment alternatives, it should not be
used for comparison with other investments using different
reinvestment assumptions or time periods. The Fund's total
returns do not reflect the cost of insurance and other insurance
company separate account charges which vary with the VA contracts
and VLI policies offered through the separate accounts of the
Participating Insurance Companies.
In advertising and sales literature, the Fund may compare
its performance with that of other mutual funds, indexes or
averages of other mutual funds, indexes of related financial
assets or data, and other competing investment and deposit
products available from or through other financial institutions.
The composition of these indexes or averages differs from that
of the Fund. Any comparison of the Fund to an alternative
investment should consider differences in features and expected
performance.
RECORD SHAREHOLDERS
All the shares of the Fund are held of record by sub-
accounts of separate accounts of Participating Insurance
Companies on behalf of the owners of VLI policies and VA
contracts, or by the general account of Keyport Life Insurance
Company (Keyport), a Participating Insurance Company. At March
31, 1998 the general account of Keyport owned of record less than
25% of the outstanding shares of the Fund.
At all meetings of shareholders of the Fund each
Participating Insurance Company will vote the shares held of
record by sub-accounts of its separate accounts only in
accordance with the instructions received from the VLI policy and
VA contract owners on behalf of whom such shares are held. All
such shares as to which no instructions are received (as well as,
in the case of Keyport, all shares held by its general account)
will be voted in the same proportion as shares as to which
instructions are received (with Keyport's general account shares
being voted in the proportions determined by instructing owners
of Keyport VLI policies and VA contracts). Accordingly, each
Participating Insurance Company disclaims beneficial ownership of
the shares of the Fund held of record by the sub-accounts of its
separate accounts (or, in the case of Keyport, its general
account). The Trust has not been informed that any Participating
Insurance Company knows of any owner of a VA contract or VLI
policy which on March 31, 1998 owned beneficially 5% or more of
the outstanding shares of the Fund.
INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
KPMG Peat Marwick LLP are the Trust's independent auditors.
The financial statements incorporated by reference in this
Statement of Additional Information have been so incorporated,
and the schedule of financial highlights has been included in the
Prospectus, in reliance upon the report of KPMG Peat Marwick LLP
given on the authority of said firm as experts in accounting and
auditing.
The financial statements of the Trust with respect to the
Fund and Report of Independent Auditors appearing in the December
31, 1997 Annual Report of the Trust are incorporated in this
Statement of Additional Information by reference.
<PAGE>
APPENDIX A
INVESTMENT TECHNIQUES AND SECURITIES
OPTIONS, FUTURES AND OTHER DERIVATIVES
The Fund may purchase and write both call options and put
options on securities, indexes and foreign currencies, and enter
into interest rate, index and foreign currency futures contracts
and options on such futures contracts ("futures options") in
order to achieve its investment objective, to provide additional
revenue, or to hedge against changes in security prices, interest
rates or currency exchange rates. The Fund also may use other
types of options, futures contracts, futures options and other
types of forward or investment contracts linked to individual
securities, interest rates, foreign currencies, indices or other
benchmarks ("derivative products") currently traded or
subsequently developed and traded, provided the Trustees
determine that their use is consistent with the Fund's investment
objective.
Options on Securities and Indexes
The Fund may purchase and write both put and call options on
securities, indexes or foreign currencies in standardized
contracts traded on recognized securities exchanges, boards of
trade or similar entities, or quoted on Nasdaq. The Fund also
may purchase agreements, sometimes called cash puts, which may
accompany the purchase of a new issue of bonds from a dealer that
the Fund might buy as a temporary defensive measure.
An option on a security (or index or foreign currency) is a
contract that gives the purchase (holder) of the option, in
return for a premium, the right to buy from (call) or sell to
(put) the seller (writer) of the option the security underlying
the option (or the cash value of the index or a specified
quantity of the foreign currency) at a specified exercise price
at any time during the term of the option (normally not exceeding
nine months). The writer of an option on an individual security
or on a foreign currency has the obligation upon exercise of the
option to deliver the underlying security or foreign currency
upon payment of the exercise price or to pay the exercise price
upon delivery of the underlying security or foreign currency.
Upon exercise, the writer of an option on an index is obligated
to pay the difference between the cash value of the index and the
exercise price multiplied by the specified multiplier for the
index option. (An index is designed to reflect specified facets
of a particular financial or securities market, a specific group
of financial instruments or securities, or certain economic
indicators.)
The Fund will write call options and put options only if
they are "covered." For example, in the case of a call option on
a security, the option is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration upon
conversion or exchange of other securities held in its portfolio
(or, if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by
its custodian).
If an option written by the Fund expires, it realizes a
capital gain equal to the premium received at the time the option
was written. If an option purchased by the Fund expires, it
realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option
may be closed out by an offsetting purchase or sale of an option
of the same series (type, exchange, underlying security, currency
or index, exercise price and expiration). There can be no
assurance, however, that a closing purchase or sale transaction
can be effected when the Fund desires.
The Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the
premium received from writing the option, or, if it is more, the
Fund will realize a capital loss. If the premium received from a
closing sale transaction is more than the premium paid to
purchase the option, the Fund will realize a capital gain or, if
it is less, the Fund will realize a capital loss. The principal
factors affecting the market value of a put or a call option
include supply and demand, interest rates, the current market
price of the underlying security, currency or index in relation
to the exercise price of the option, the volatility of the
underlying security, currency or index, and the time remaining
until expiration.
A put or call option purchased by the Fund is an asset of
the Fund, valued initially at the premium paid for the option.
The premium received for an option written by the Fund is
recorded as a deferred credit. The value of an option purchased
or written is marked-to-market daily and is valued at the closing
price on the exchange on which it is traded or, if not traded on
an exchange or no closing price is available, at the mean between
the last bid and asked prices.
Risks Associated with Options
There are several risks associated with transactions in
options. For example, there are significant differences between
the securities and the currency markets and the options markets
that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its
objectives. A decision as to whether, when and how to use
options involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful to some degree
because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist
when the Fund seeks to close out an option position. If the Fund
were unable to close out an option that it had purchased, it
would have to exercise the option in order to realize any profit
or the option would expire and become worthless. If the Fund
were unable to close out a covered call option that it had
written on a security or a foreign currency, it would not be able
to sell the underlying security or currency unless the option
expired. As the writer of a covered call option on a security,
the Fund foregoes, during the option's life, the opportunity to
profit from increases in the market value of the security
covering the call option above the sum of the premium and the
exercise price of the call. As the writer of a covered call
option on a foreign currency, the Fund foregoes, during the
option's life, the opportunity to profit from appreciation of the
currency covering the call.
If trading were suspended in an option purchased or written
by the Fund, the Fund would not be able to close out the option.
If restrictions on exercise were imposed, the Fund might be
unable to exercise an option it has purchased. Except to the
extent that a call option on an index written by the Fund is
covered by an option on the same index purchased by the Fund,
movements in the index may result in a loss to the Fund; however,
such losses may be mitigated by changes in the value of the
Fund's portfolio securities during the period the option was
outstanding.
Futures Contracts and Options on Futures Contracts
The Fund may use interest rate, index and foreign currency
futures contracts. An interest rate, index or foreign currency
futures contract provides for the future sale by one party and
purchase by another party of a specified quantity of a financial
instrument, the cash value of an index /2/ or a specified
quantity of a foreign currency at a specified price and time. A
public market exists in futures contracts covering a number of
indexes (including, but not limited to, the Standard & Poor's 500
Stock Index, the Value Line Composite Index and the New York
Stock Exchange Composite Index), certain financial instruments
(including, but not limited to: U.S. Treasury bonds, U.S.
Treasury notes and Eurodollar certificates of deposit) and
foreign currencies. Other index and financial instrument futures
contracts are available and it is expected that additional
futures contracts will be developed and traded.
- ----------
/2/ A futures contract on an index 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 index
value at which the index contract was originally written.
Although the value of a securities index is a function of the
value of certain specified securities, no physical delivery of
those securities is made.
- ----------
The Fund may purchase and write call and put futures
options. Futures options possess many of the same
characteristics as options on securities, indexes and foreign
currencies (discussed above). A futures option gives the holder
the right, in return for the premium paid, to assume a long
position (call) or a short position (put) in a futures contract
at a specified exercise price at any time during the period of
the option. Upon exercise of a call option, the holder acquires
a long position in the futures contract and the writer is
assigned the opposite short position. In the case of a put
option, the opposite is true.
To the extent required by regulatory authorities having
jurisdiction over the Fund, it will limit its use of futures
contracts and futures options to hedging transactions. For
example, the Fund might use futures contracts to hedge against or
gain exposure to fluctuations in the general level of stock
prices or anticipated changes in interest rates or currency
exchange rates which might adversely affect either the value of
the Fund's securities or the price of the securities that the
Fund intends to purchase. Although other techniques could be
used to reduce the Fund's exposure to stock price and interest
rate and currency fluctuations, the Fund may be able to hedge its
exposure more effectively and perhaps at a lower cost by using
futures contracts and futures options.
The Fund will only enter into futures contracts and futures
options that are standardized and traded on an exchange, board of
trade or similar entity, or quoted on an automated quotation
system.
The success of any future transaction depends on the Adviser
correctly predicting changes in the level and direction of stock
prices, interest rates, currency exchange rates and other
factors. Should those predictions be incorrect, the Fund's
return might have been better had the transaction not been
attempted; however, in the absence of the ability to use futures
contracts, the Adviser might have taken portfolio actions in
anticipation of the same market movements with similar investment
results but, presumably, at greater transaction costs.
When a purchase or sale of a futures contract is made by the
Fund, it is required to deposit with its custodian (or broker, if
legally permitted) a specified amount of cash or U.S. Government
securities or other securities acceptable to the broker ("initial
margin"). The margin required for a futures contract is set by
the exchange on which the contact is traded and may be modified
during the term of the contract. The initial margin is in the
nature of a performance bond or good faith deposit on the futures
contract, which is returned to the Fund upon termination of the
contract, assuming all contractual obligations have been
satisfied. The Fund expects to earn interest income on its
initial margin deposits. A futures contract held by the Fund is
valued daily at the official settlement price of the exchange on
which it is traded. Each day the Fund pays or receives cash,
called "variation margin," equal to the daily change in value of
the futures contract. This process is known as "marking-to-
market." Variation margin paid or received by the Fund does not
represent a borrowing or loan by the Fund but is instead
settlement between the Fund and the broker of the amount one
would owe the other if the futures contract had expired at the
close of the previous day. In computing daily net asset value,
the Fund will mark-to-market its open futures positions.
The Fund is also required to deposit and maintain margin
with respect to put and call options on futures contracts written
by it. Such margin deposits will vary depending on the nature of
the underlying futures contract (and the related initial margin
requirements), the current market value of the option and other
futures positions held by the Fund.
Although some futures contracts call for making or taking
delivery of the underlying property, usually these obligations
are closed out prior to delivery by offsetting purchases or sales
of matching futures contracts (same exchange, underlying property
and delivery month). If an offsetting purchase price is less
than the original sale price, the Fund realizes a capital gain,
or if it is more, the Fund realizes a capital loss. Conversely,
if an offsetting sale price is more than the original purchase
price, the Fund realizes a capital gain, or if it is less, the
Fund realizes a capital loss. The transaction costs must also be
included in these calculations.
Risks Associated with Futures
There are several risks associated with the use of futures
contracts and futures options. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in
the futures contract. There can be no guarantee that there will
be a correlation between price movements in the hedging vehicle
and in the portfolio securities being hedged. In addition, there
are significant differences between the securities and the
currency markets and the futures markets that could result in an
imperfect correlation between the markets, causing a given
transaction not to achieve its objectives. The degree of
imperfection of correlation depends on circumstances such as:
variations in speculative market demand for futures, futures
options and the related securities or currencies, including
technical influences in futures and futures options trading and
differences between the Fund's investments being hedged and the
securities or currencies underlying the standard contracts
available for trading. For example, in the case of index futures
contracts, the composition of the index, including the issuers
and the weighting of each issue, may differ from the composition
of the Fund's portfolio, and, in the case of interest rate
futures contracts, the interest rate levels, maturities, and
creditworthiness of the issues underlying the futures contract
may differ from the financial instruments held in the Fund's
portfolio. A decision as to whether, when and how to use futures
contracts involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful to some degree
because of market behavior or unexpected stock price, interest
rate or currency exchange rate trends.
Futures exchanges may limit the amount of fluctuation
permitted in certain futures contract prices during a single
trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of the current
trading session. Once the daily limit has been reached in a
futures contract subject to the limit, no more trades may be made
on that day at a price beyond that limit. The daily limit
governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may
work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily
limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial
losses. Stock index futures contracts are not normally subject
to such daily price change limitations.
There can be no assurance that a liquid market will exist at
a time when the Fund seeks to close out a futures or futures
option position. The Fund would be exposed to possible loss on
the position during the interval of inability to close, and would
continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed
above are relatively new instruments without a significant long-
term trading history. As a result, there can be no assurance
that an active secondary market will develop or continue to
exist.
Limitations on Options and Futures
The Fund will not enter into a futures contract or purchase
an option thereon if, immediately thereafter, the initial margin
deposits for futures contracts held by the Fund plus premiums
paid by it for open futures option positions, less the amount by
which any such positions are "in-the-money," /3/ would exceed 5%
of the Fund's total assets.
- --------
/3/ A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise
price. A put option is "in-the-money" if the exercise price
exceeds the value of the futures contract that is the subject of
the option.
- --------
When purchasing a futures contract or writing a put option
on a futures contract, the Fund must maintain with its custodian
(or broker, if legally permitted) cash or cash equivalents
(including any margin) equal to the market value of such
contract. When writing a call option on a futures contract, the
Fund similarly will maintain with its custodian cash or cash
equivalents (including any margin) equal to the amount by which
such option is in-the-money until the option expires or is closed
out by the Fund.
The Fund may not maintain open short positions in futures
contracts, call options written on futures contracts or call
options written on indexes if, in the aggregate, the market value
of all such open positions exceeds the current value of the
securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical
relative volatility of the relationship between the portfolio and
the positions. For this purpose, to the extent the Fund has
written call options on specific securities in its portfolio, the
value of those securities will be deducted from the current
market value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission
("CFTC") Regulation 4.5 and thereby avoid being deemed a
"commodity pool operator," the Fund will use commodity futures or
commodity options contracts solely for bona fide hedging purposes
within the meaning and intent of CFTC Regulation 1.3(z), or, with
respect to positions in commodity futures and commodity options
contracts that do not come within the meaning and intent of CFTC
Regulation 1.3(z), the aggregate initial margin and premiums
required to establish such positions will not exceed 5% of the
fair market value of the assets of the Fund, after taking into
account unrealized profits and unrealized losses on any such
contracts it has entered into [in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount (as
defined in Section 190.01(x) of the CFTC Regulations) may be
excluded in computing such 5%].
Taxation of Options and Futures
If the Fund exercises a call or put option it holds, the
premium paid for the option is added to the cost basis of the
security purchased (call) or deducted from the proceeds of the
security sold (put). For cash settlement options and futures
options exercised by the Fund, the difference between the cash
received at exercise and the premium paid is a capital gain or
loss.
If a call or put option written by the Fund is exercised,
the premium is included in the proceeds of the sale of the
underlying security (call) or reduces the cost basis of the
security purchased (put). For cash settlement options and
futures options written by the Fund, the difference between the
cash paid at exercise and the premium received is a capital gain
or loss.
Entry into a closing purchase transaction will result in
capital gain or loss. If an option written by the Fund was in-
the-money at the time it was written and the security covering
the option was held for more than the long-term holding period
prior to the writing of the option, any loss realized as a result
of a closing purchase transaction will be long-term. The holding
period of the securities covering an in-the-money option will not
include the period of time the option is outstanding.
If the Fund writes an equity call option /4/ other than a
"qualified covered call option," as defined in the Internal
Revenue Code, any loss on such option transaction, to the extent
it does not exceed the unrealized gains on the securities
covering the option, may be subject to deferral until the
securities covering the option have been sold.
- --------------
/4/ An equity option is defined to mean any option to buy or sell
stock, and any other option the value of which is determined by
reference to an index of stocks of the type that is ineligible to
be traded on a commodity futures exchange (e.g., an option
contract on a sub-index based on the price of nine hotel-casino
stocks). The definition of equity option excludes option on
broad-based stock indexes (such as the Standard & Poor's 500
Stock Index).
- --------------
A futures contract held until delivery results in capital
gain or loss equal to the difference between the price at which
the futures contract was entered into and the settlement price on
the earlier of delivery notice date or expiration date. If the
Fund delivers securities under a futures contract, the Fund also
realizes a capital gain or loss on those securities.
For Federal income tax purposes, the Fund generally is
required to recognize as income for each taxable year its net
unrealized gains and losses as of the end of the year on futures,
futures options and non-equity options positions ("year-end mark-
to-market"). Generally, any gain or loss recognized with respect
to such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and
40% short-term, without regard to the holding periods of the
contracts. However, in the case of positions classified as part
of a "mixed straddle," the recognition of losses on certain
positions (including options, futures and futures options
positions, the related securities and certain successor positions
thereto) may be deferred to a later taxable year. Sale of
futures contracts or writing of call options (or futures call
options) or buying put options (or futures put options) that are
intended to hedge against a change in the value of securities
held by the Fund: (1) will affect the holding period of the
hedged securities; and (2) may cause unrealized gain or loss on
such securities to be recognized upon entry into the hedge.
If the Fund were to enter into a short index future, short
index futures option or short index option position and the
Fund's portfolio were deemed to "mimic" the performance of the
index underlying such contract, the option or futures contract
position and the Fund's stock positions would be deemed to be
positions in a mixed straddle, subject to the above-mentioned
loss deferral rules.
In order for the Fund to continue to qualify for Federal
income tax treatment as a regulated investment company, at least
90% of its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
foreign currencies, or other income (including but not limited to
gains from options and futures contracts). In addition, gains
realized on the sale or other disposition of securities held for
less than three months must be limited to less than 30% of the
Fund's annual gross income. Any net gain realized from futures
(or futures options) contracts will be considered gain from the
sale of securities and therefore be qualifying income for
purposes of the 90% requirement. In order to avoid realizing
excessive gains on securities held less than three months, the
Fund may be required to defer the closing out of certain
positions beyond the time when it would otherwise be advantageous
to do so.
"WHEN-ISSUED" SECURITIES
The Fund may purchase and sell securities on a when-issued
and delayed-delivery basis.
When-issued or delayed-delivery transactions arise when
securities are purchased or sold by the Fund with payment and
delivery taking place in the future in order to secure what is
considered to be an advantageous price and yield to the Fund at
the time of entering into the transaction. However, yields
available in the market when delivery takes place may be higher
than the yields on securities to be delivered. When the Fund
engages in when-issued and delayed-delivery transactions, the
Fund relies on the buyer or seller, as the case may be, to
consummate the sale. Failure to do so may result in the Fund
missing the opportunity to obtain a price or yield considered to
be advantageous. When-issued and delayed-delivery transactions
may be expected to occur a month or more before delivery is due.
However, no payment or delivery is made by the Fund until it
receives payment or delivery from the other party to the
transaction. A separate account of liquid assets equal to the
value of such purchase commitments will be maintained with the
Trust's custodian until payment is made and will not be available
to meet redemption requests. When-issued and delayed-delivery
agreements are subject to risks from changes in value based upon
changes in the level of interest rates and other market factors,
both before and after delivery. The Fund does not accrue any
income on such securities prior to their delivery. To the extent
the Fund engages in when-issued and delayed-delivery
transactions, it will do so for the purpose of acquiring
portfolio securities consistent with its investment objectives
and policies and not for the purpose of investment leverage.
WARRANTS
The Fund may invest in warrants; however, not more than 5%
of the Fund's assets (at the time of purchase) will be invested
in warrants, other than warrants acquired in units or attached to
other securities. Warrants purchased must be listed on a
national stock exchange or the Nasdaq system. Warrants are
speculative in that they have no voting rights, pay no dividends,
and have no right with respect to the assets of the corporation
issuing them. Warrants basically are options to purchase equity
securities at a specific price valid for a specific period of
time. They do not represent ownership of the securities, but
only the right to buy them. Warrants differ from call options in
that warrants are issued by the issuer of the security that may
be purchased on their exercise, whereas call options may be
written or issued by anyone. The prices of warrants do not
necessarily move parallel to the prices of the underlying
securities.
RESTRICTED SECURITIES
Restricted securities are acquired through private placement
transactions, directly from the issuer or from security holders,
generally at higher yields or on terms more favorable to
investors than comparable publicly traded securities. Privately
placed securities are not readily marketable and ordinarily can
be sold only in privately negotiated transactions to a limited
number of purchasers or in public offerings made pursuant to an
effective registration statement under the Securities Act of
1933. Private or public sales of such securities by the Fund may
involve significant delays and expense. Private sales require
negotiations with one or more purchasers and generally produce
less favorable prices than the sale of comparable unrestricted
securities. Public sales generally involve the time and expense
of preparing and processing a registration statement under the
Securities Act of 1933 and may involve the payment of
underwriting commissions; accordingly, the proceeds may be less
than the proceeds from the sale of securities of the same class
which are freely marketable.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Index to Financial Statements and Supporting Schedules:
The following financial statements for each of the Funds in
the Trust are included below in this Part C:
Independent Auditors' Report
Schedules of Investments as of December 31, 1997
Statements of Assets and Liabilities as of December 31, 1997
Statements of Operations for the year ended December 31, 1997
Statements of Changes in Net Assets for each of the years in
the two-year period ended December 31, 1997
Financial Highlights for each of the years in the five-year
period ended December 31, 1997
Said financial statements are included incorporated by
reference into this filing as part of Part B.
(b) Exhibits:
1. Agreement and Declaration of Trust as amended on
September 9, 1988 and October 5, 1988.
2. Amended and Restated By-Laws
3. None
4. Not applicable.
5. (a) Fund Advisory Agreement, dated May 1, 1993, between
the Trust on behalf of the Capital Appreciation Fund
(now named Stein Roe Special Venture Fund, Variable
Series) and Stein Roe & Farnham Incorporated
(b) Fund Advisory Agreement, dated May 1, 1993, between
the Trust on behalf of the Managed Growth Stock Fund
(now named Stein Roe Growth Stock Fund, Variable
Series) and Stein Roe & Farnham Incorporated
(c) Fund Advisory Agreement, dated May 1, 1993, between
the Trust on behalf of the Managed Assets Fund (now
named Stein Roe Balanced Fund, Variable Series) and
Stein Roe & Farnham Incorporated
(d) Fund Advisory Agreement, dated May 1, 1993, between
the Trust on behalf of the Mortgage Securities
Income Fund (now named SteinRoe Mortgage Securities
Fund, Variable Series) and Stein Roe & Farnham
Incorporated
(e) Fund Advisory Agreement, dated December 9, 1988,
between the Trust on behalf of the Cash Income Fund
(now named Stein Roe Money Market Fund, Variable
Series) and Stein Roe & Farnham Incorporated
6. Underwriting Agreement dated December 9, 1988 between
Keystone Provident Financial Services Corp. (now Keyport
Financial Services Corp.) and the Trust; and Amendment to
Underwriting Agreement dated as of April 1, 1994 between
Keyport Financial Services Corp. and the Trust
7. None
8. (a) Custodian Contract dated December 31, 1988 between
State Street Bank and Trust Company and SteinRoe
Variable Investment Trust(4)
(b) First Amendment to Custodian Contract dated February
23, 1989(5)
(c) Second Amendment to Custodian Contract dated January
23, 1993 (3)
9. (a) Administration Agreement dated as of January 3, 1995
between the Trust, on behalf of each of its Funds,
and Stein Roe & Farnham Incorporated (6)
(b) Transfer Agency Agreement dated as of January 3,
1995 between the Trust, on behalf of each of its
Funds, and Stein Roe & Farnham Incorporated (6)
(c) Amended and Restated Participation Agreement dated
April 3, 1998 among the Trust, Keyport Life
Insurance Company and Keyport Financial Services
Corp.
(d) [Deleted]
(e) Participation Agreement dated as of October 1, 1993
among the Trust, Keyport Financial Services Corp.
and Independence Life Annuity Company (formerly
"Crown America Life Insurance Company").(3)
(f) Participation Agreement dated as of April 15, 1994
among the Trust, on behalf of the Capital
Appreciation Fund, Transamerica Occidental Life
Insurance Company, Stein Roe & Farnham Incorporated
and Charles Schwab & Co., Inc. (3)
(g) Participation Agreement dated as of December 1, 1994
among the Trust, on behalf of the Capital
Appreciation Fund, First Transamerica Life Insurance
Company, Stein Roe & Farnham Incorporated and
Charles Schwab & Co., Inc. (6)
(h) Accounting and Bookkeeping Agreement dated as of
January 3, 1995 between the Trust, on behalf of each
of its Funds, and Stein Roe Farnham Incorporated.
(6)
(i) Participation Agreement among the Trust, on behalf
of the Capital Appreciation Fund, Great-West Life &
Annuity Insurance Company, Stein Roe & Farnham
Incorporated and Charles Schwab & Co., Inc. (10)
(j) Participation Agreement among the Trust, on behalf
of the Capital Appreciation Fund, Providian Life and
Health Insurance Company and Stein Roe & Farnham
Incorporated. (10)
10. Opinion and consent of counsel as to the legality of the
securities being registered
11. Consent of Independent Auditors
12. Not applicable.
13. Not applicable.
14. Not applicable
15. Not applicable
16. Calculation of Yields and Total Returns (9)
17. Financial Data Schedules
18. Not applicable.
19. (a) Power of Attorney executed by each Trustee of the
Trust pertaining to this Registration Statement
(b) Power of Attorney executed by Gary A. Anetsberger
and Sharon R. Robertson pertaining to this
Registration Statement.
_________________
(1) [Deleted]
(2) [Deleted]
(3) Incorporated by reference to Post-Effective Amendment No. 9
to this Registration Statement filed on April 27, 1994
(4) Incorporated by reference to Post-Effective Amendment No. 1
to this Registration Statement filed on February 21, 1989.
(5) Incorporated by reference to Post-Effective Amendment No. 2
to this Registration Statement filed on June 28, 1989.
(6) Incorporated by reference to Post-Effective Amendment No. 10
to this Registration Statement filed on April 27, 1995.
(7) [Deleted]
(8) [Deleted]
(9) Incorporated by Reference to Post-Effective Amendment No. 11
to this Registration Statement, filed April, 1996.
(10) Incorporated by References to Post-Effective Amendment No. 12
to this Registration Statement, filed April, 1997.
Item 25. Persons Controlled by or Under Common Control with
Registrant.
Shares of the Trust registered pursuant to this Registration
Statement will be offered and sold to Keyport Life Insurance
Company ("Keyport"), a stock life insurance company organized
under the laws of Rhode Island, and to certain of its separate
investment accounts and the respective separate investment
accounts of Liberty Life Assurance Company of Boston ("Liberty
Life"), a stock life insurance company organized as a
Massachusetts corporation, Independence Life & Annuity Company, a
stock life insurance company organized under the laws of Rhode
Island ("Independence") and American Benefit Life Insurance
Company, a stock life insurance company organized under the laws
of New York. As described below, Keyport, Liberty Life,
Independence and American Benefit are under common control. The
purchasers of insurance contracts and policies issued in
connection with such accounts will have the right to instruct
Keyport, Liberty Life, Independence and American Benefit with
respect to the voting of the Registrant's shares held by their
respective separate accounts. Subject to such voting instruction
rights, Keyport, Liberty Life, Independence, American Benefit and
their respective separate accounts directly control the
Registrant. In addition, shares of Stein Roe Special Venture
Fund, Variable Series currently are sold to certain separate
accounts of four insurance companies not affiliated with Keyport,
and shares of any of the Funds may in the future be sold to
separate accounts of other unaffiliated insurance companies.
Keyport Financial Services Corp. ("KFSC"), the Trust's
principal underwriter, Stein Roe & Farnham Incorporated, the
Trust's investment manager (the "Adviser"), Keyport, Independence
are and American Benefit each wholly owned indirect subsidiaries
of Liberty Financial Companies, Inc. ("LFC"), Boston,
Massachusetts. As of March 31, 1997, Liberty Mutual Insurance
Company ("LMIC"), Boston, Massachusetts, owned, indirectly,
approximately 72.3% of the combined voting power of the
outstanding voting stock LFC (with the balance being publicly-
held). Liberty Life is a 90%-owned subsidiary of LMIC.
Item 26. Number of Holders of Securities
As of March 31, 1998 the number of record holders of shares
of beneficial interest of each series ("Fund") of the Trust was as
follows:
Title of Class Number of Record
Shares of Beneficial Interest of Holders
- ---------------------------------------------- ---------------
Stein Roe Special Venture Fund, Variable Series 11
Stein Roe Growth Stock Fund, Variable Series 5
Stein Roe Balanced Fund, Variable Series 4
Stein Roe Mortgage Securities Fund, Variable Series 5
Stein Roe Money Market Fund, Variable Series 7
Item 27. Indemnification
Article Tenth of the Agreement and Declaration of Trust of
Registrant (Exhibit 1), which Article is incorporated herein by
reference, provides that Registrant shall provide indemnification
of its trustees and officers (including each person who serves or
has served at Registrant's request as director, officer, or
trustee of another organization in which Registrant has any
interest as a shareholder, creditor or otherwise) ("Covered
Persons") under specified circumstances.
Section 17(h) of the Investment Company Act of 1940 ("1940
Act") provides that neither the Agreement and Declaration of Trust
nor the By-Laws of Registrant, nor any other instrument pursuant
to which Registrant is organized or administered, shall contain
any provision which protects or purports to protect any trustee or
officer of Registrant against any liability to Registrant or its
shareholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office. In
accordance with Section 17(h) of the 1940 Act, Article Tenth shall
not protect any person against any liability to Registrant or its
shareholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
To the extent required under the 1940 Act,
(i) Article Tenth does not protect any person against
any liability to Registrant or to its shareholders to which he
would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office;
(ii) in the absence of a final decision on the merits
by a court or other body before whom a proceeding was brought that
a Covered Person was not liable by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office, no indemnification is
permitted under Article Tenth unless a determination that such
person was not so liable is made on behalf of Registrant by (a)
the vote of a majority of the trustees who are neither "interested
persons" of Registrant as defined in Section 2(a)(19) of the 1940
Act nor parties to the proceeding ("disinterested, non-party
trustees"), or (b) an independent legal counsel as expressed in a
written opinion; and
(iii) Registrant will not advance attorneys' fees or
other expenses incurred by a Covered Person in connection with a
civil or criminal action, suit or proceeding unless Registrant
receives an undertaking by or on behalf of the Covered person to
repay the advance (unless it is ultimately determined that he is
entitled to indemnification) and (a) the Covered Person provides
security for his undertaking, or (b) Registrant is insured against
losses arising by reason of any lawful advance, or (c) a majority
of the disinterested, non-party trustees of Registrant or an
independent legal counsel as expressed in a written opinion,
determine, based on a review of readily available facts (as
opposed to a full trial-type inquiry), that there is reason to
believe that the Covered Person ultimately will be found entitled
to indemnification.
Any approval of indemnification pursuant to Article Tenth
does not prevent the recovery from any Covered Person of any
amount paid to such Covered Person in accordance with Article
Tenth as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction not to have acted
in good faith in the reasonable belief that such Covered Person's
action was in, or not opposed to, the best interests of Registrant
or to have been liable to Registrant or its shareholders by reason
of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of such Covered
Person's office.
Article Tenth also provides that its indemnification
provisions are not exclusive.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers, and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1933
Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a trustee,
officer, or controlling person of Registrant in the successful
defense of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the
securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the
final adjudication of such issue.
Registrant, its trustees and officers, its investment
adviser, the other investment companies advised by the adviser,
and persons affiliated with them are insured against certain
expenses in connection with the defense of actions, suits, or
proceedings, and certain liabilities that might be imposed as a
result of such actions, suits, or proceedings. Registrant will
not pay any portion of the premiums for coverage under such
insurance that would (1) protect any trustee or officer against
any liability to Registrant or its shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in
the conduct of his office or (2) protect its investment adviser or
principal underwriter, if any, against any liability to Registrant
or its shareholders to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, or gross
negligence, in the performance of its duties, or by reason of its
reckless disregard of its duties and obligations under its
contract or agreement with the Registrant; for this purpose the
Registrant will rely on an allocation of premiums determined by
the insurance company.
In addition, the investment adviser maintains investment
advisory professional liability insurance to insure it, for the
benefit of the Trust and its non-interested trustees, against loss
arising out of any error, omission, or breach of any duty owed to
the Trust or the Fund by the investment advisor.
Item 28. Business and Other Connections of Investment Adviser.
The Adviser is a direct wholly owned subsidiary of SteinRoe
Services Inc. ("SSI"), which in turn, is a direct wholly owned
subsidiary of LFC. LFC, as stated in Item 25 above, is an
indirect majority owned subsidiary of LMIC. The Adviser acts as
investment adviser to individuals, trustees, pension and profit-
sharing plans, charitable organizations, and other investors. In
addition to the Registrant, it also acts as investment adviser to
other no-load companies having different investment policies.
For a two-year business history of officers and directors of
the Adviser, please refer to the Form ADV of Stein Roe & Farnham
Incorporated and to the section of the Statement of Additional
Information (Part B) entitled "Investment Advisory Services."
Certain directors and officers of the Adviser also serve and
have during the past two years served in various capacities as
officers, directors or trustees of the Registrant (as reflected in
the Statement of Additional Information (Part B)) or other
investment companies managed by the Adviser.
Item 29. Principal Underwriters
(a) The Registrant's principal underwriter, Keyport
Financial Services Corp. ("KFSC"), is a wholly owned subsidiary of
Keyport Life Insurance Company, which in turn is a direct wholly
owned indirect subsidiary of SSI, which in turn is a direct wholly
owned subsidiary of LFC. KFSC acts on a "best efforts" basis and
receives no fee or commission for its underwriting and
distribution services. KFSC does not act as underwriter with
respect to shares issued to Participating Insurance Companies
which are not affiliates of Keyport or LMIC.
(b) Set forth below is information concerning the directors
and officers of KFSC:
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
John S. Rosensteel Chairman and President None
William L. Dixon Vice President--Compliance None
Francis E. Reinhart Vice President--Administration None
and Director
James J. Klopper Clerk None
Donald A. Truman Assistant Clerk None
The business address of each of the directors and officers of KFSC
is 125 High Street, Boston, Massachusetts 02110.
(c) Not applicable.
Item 30. Location of Accounts and Records
Persons maintaining physical possession of accounts, books
and other documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and the Rules promulgated
thereunder include Registrant's Secretary, John A. Benning;
Registrant's investment adviser, administrator and transfer and
dividend disbursing agent, Stein Roe & Farnham Incorporated;
Registrant's principal underwriter, Keyport Financial Services
Corp.; and Registrant's custodian, State Street Bank and Trust
Company. The address of the Secretary is 600 Atlantic Avenue,
Boston, MA 02210-2214; the address of Stein Roe & Farnham
Incorporated is One South Wacker Drive, Chicago, IL 60606; the
address of Keyport Financial Services, Inc., is 125 High Street,
Boston, MA 02110; and the address of State Street Bank and Trust
Company is 225 Franklin Street, Boston, MA 02110.
Item 31. Management Services
Pursuant to an Administration Agreement with the Registrant
on behalf of all the Funds dated as of January 3, 1995, the
Adviser provides each of the Funds with administrative services.
These services include the provision of office space and equipment
and facilities in connection with the maintenance of the
Registrant's headquarters, preparation and filing of required
reports, arrangements for meetings, maintenance of the
Registrant's corporate books and records, communication with
shareholders, and oversight of custodial, accounting and other
services provided to the Funds by others. The Adviser pays all
compensation of the Registrant's trustees, officers and employees
who are employees of the Adviser. The Adviser may, in its
discretion, arrange for such services to be provided by LFC or any
of its subsidiaries.
Under separate agreements, the Adviser also acts as the agent
of the Funds for the transfer of shares, disbursement of dividends
and maintenance of shareholder account records and for pricing and
bookkeeping services.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) The Registrant hereby 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant has duly
caused this Amendment to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in
the City of Boston and the Commonwealth of Massachusetts, on the
28th day of April, 1998. The Registrant hereby certifies, in
accordance with Rule 485(b)(4) under the Securities Act of 1933,
that this amendment meets the requirements for effectiveness under
Rule 485(b) thereunder.
STEINROE VARIABLE INVESTMENT TRUST
By: /s/ Richard R. Christensen*
Richard R. Christensen, President
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement on Form N-1A has been signed below by
the following persons in the capacities and on the dates
indicated.
(Signature) (Title and Capacity) (Date)
/s/ Richard R. Christensen* President; Principal April 28, 1998
Richard R. Christensen Executive Officer;
Trustee
/s/ Gary A. Anetsberger* Treasurer; Principal April 28, 1998
Gary A. Anetsberger Financial Officer
/s/ Sharon R. Robertson* Controller; Principal April 28, 1998
Sharon R. Robertson Accounting Officer
/s/ John A. Bacon Jr.* Trustee April 28, 1998
John A. Bacon Jr.
/s/ Salvatore Macera * Trustee April 28, 1998
Salvatore Macera
/s/ Thomas E. Stitzel* Trustee April 28, 1998
Thomas E. Stitzel
*By KEVIN M. CAROME
Kevin M. Carome
Attorney-in-fact
<PAGE>
EXHIBIT LIST
Exhibit Description
1 Agreement and Declaration of Trust
2 By-Laws
5(a) Advisory Agreement of Capital Appreciation Fund
5(b) Advisory Agreement of Managed Growth Stock Fund
5(c) Advisory Agreement of Managed Assets Fund
5(d) Advisory Agreement of Mortgage Securities Income Fund
5(e) Advisory Agreement of Cash Income Fund
6 Underwriting Agreement
9(c) Amended and Restated Participation Agreement dated
April 3, 1998
10 Opinion and Consent of Counsel
11 Consent of Independent Auditors
17 Financial Data Schedules
19(a) Power of Attorney
19(b) Power of Attorney
<PAGE>
Exhibit 1
STEINROE VARIABLE INVESTMENT FUND
AGREEMENT AND DECLARATION OF TRUST
<PAGE>
TABLE OF CONTENTS
First: Name........................................................1
Second: Purposes...................................................1
Third: Address and Resident Agent..................................3
Fourth: Shares.....................................................3
A. Definition.................................................3
B. Division of Beneficial Interest............................3
C. Ownership of Shares........................................3
D. Status of Shares and Limitations of Personal Liability.....4
Fifth: No Preemptive Rights........................................4
Sixth: Issue, Redemption, and Repurchase of Shares.................4
Section I. Issue of the Trust's Shares........................4
1.01 General..............................................4
1.02 Price................................................4
1.03 Fractional Shares....................................5
1.04 Assets of a Series...................................5
Section II. Redemption and Repurchase of the Trust's Shares...5
2.01 Redemption of Shares.................................5
2.02 Price................................................5
2.03 Payment..............................................6
2.04 Effect of Suspension of Determination of Net Asset
Value................................................6
2.05 Repurchase by Agreement..............................6
2.06 Redemption of Shareholder's Interest.................6
2.07 Additional Provisions Relating to Redemptions and
Repurchases....................................7
Section III. Net Asset Value of Shares........................7
3.01 By Whom Determined...................................7
3.02 When Determined......................................7
3.03 Suspension of Determination of Net Asset Value.......7
3.04 Computation of Per Share Net Asset Value.............8
3.05 Miscellaneous........................................8
Section IV. Compliance with Investment Company Act of 1940....9
Seventh: Board of Trustees.........................................9
A. Election...................................................9
B. Effect of Death, Resignation, Etc. of a Trustee...........10
C. Powers....................................................10
D. Payment of Expenses by Trust..............................12
E. Ownership of Assets of the Trust..........................12
F. Advisory, Management and Distribution.....................12
Eighth: Liability.................................................13
A. Trustees, Shareholders, Etc. Not Personally Liable;
Notice....................................................13
B. Trustee's Good Faith Action; Expert Advice; No Bond or
Surety....................................................14
C. Liability of Third Persons Dealing with Trustees..........14
Ninth: Determination of Net Profits, Etc.; Dividends..............14
Tenth: Indemnification............................................15
A. Indemnification Generally.................................15
B. Determination of Eligibility..............................15
C. Indemnification Not Exclusive.............................16
D. Shareholders..............................................17
E. Contractual Rights .......................................17
F. Protection of Rights .....................................17
Eleventh: Reservation of Right to Amend...........................17
A. By Board of Trustees......................................17
B. By Shareholders...........................................18
Twelfth: Shareholders' Voting Powers and Meetings.................18
A. Shareholders' Voting Powers...............................18
B. Meetings..................................................18
C. Quorum and Required Vote..................................19
D. Place of Meeting..........................................19
E. Notice of Meetings; Adjournment...........................19
F. Share Ledger..............................................20
G. Action by Written Consent.................................20
Thirteenth: Use of Name.. ........................................20
Fourteenth: Miscellaneous.........................................20
A. Duration and Termination of Trust.........................20
B. Filing of Copies; References; Headings....................20
C. Applicable Law............................................21
D. Severability .............................................21
<PAGE> 1
AGREEMENT AND DECLARATION OF TRUST
THIS AGREEMENT AND DECLARATION OF TRUST ("Declaration of
Trust") is made at Boston, Massachusetts, this 9th day of
June, 1987, by the Trustee hereunder, and by the holders of
shares of beneficial interest to be issued hereunder as
hereinafter provided.
WITNESSETH that
WHEREAS, this Trust has been formed as a voluntary
association with transferable shares under the laws of the
Commonwealth of Massachusetts to carry on the business of an
investment company; and
WHEREAS, the Trustee has agreed to manage all property
coming into her hands as Trustee of a voluntary association in
the form of a Massachusetts business trust in accordance with
the provisions hereinafter set forth.
NOW THEREFORE, the Trustee hereby declares that she will
hold all cash, securities and other assets that she may from
time to time acquire in any manner as Trustee hereunder in Trust
to manage and dispose of the same upon the following terms and
conditions for the pro rata benefit of the holders from time to
time of shares of the applicable series in this Trust as
hereinafter set forth.
FIRST: NAME.
The name of this Trust is SteinRoe Variable Investment Fund
(the "Trust").
SECOND: PURPOSES.
The purposes for which the Trust is formed are:
1 To engage in the business of a management investment
company;
2 To invest and reinvest in, to buy or otherwise acquire, to
hold, for investment or otherwise, to sell or otherwise
dispose of, to lend or to pledge, to trade in or deal in,
securities or interests of all kinds, or obligations of all
kinds, or rights, warrants, or contracts, and to acquire
such securities, interests, or obligations, of or
guaranteed by any private or public company, corporation,
association, general or limited partnership, trust or other
enterprise or organization, foreign or domestic, or of or
guaranteed by any national, state or local government,
foreign or domestic, or their agencies, instrumentalities
or subdivisions, including but not limited to bonds,
debentures, preferred stocks, common stocks, convertible
securities, bills, time notes and all other evidences of
indebtedness; negotiable or non-negotiable instruments;
options; futures contracts and options on futures contracts;
government securities; and money market instruments,
including but not limited to bank certificates of deposit,
finance paper, commercial paper, bankers' acceptances, and
all kinds of repurchase agreements, of any corporation,
company, trust, association, firm or other business
organization, however established, and of any county, state,
municipality or other political subdivision, or of any other
governmental or quasi-governmental agency or instrumentality;
3 To invest and reinvest in, to buy or otherwise acquire, to
hold, for investment or otherwise, to sell or otherwise
dispose of, foreign currencies, funds, and exchange, and to
make deposits in banks, savings banks, trust companies, and
savings and loan associations, foreign or domestic;
4 To exercise all rights, powers, and privileges as owner of
any securities, property, or assets which might be
exercised by any individual owning such securities,
property, or assets in his own right;
5 To acquire (by purchase, lease, or otherwise) and to hold,
use, maintain, develop, and dispose of (by sale or
otherwise) any property, real or personal, and any interest
therein;
6 To aid by further investment any corporation, company,
trust, association, or firm, any obligation of or interest
in which is held by the Trust or in the affairs of which
the Trust has any direct or indirect interest; to do all
acts and things designed to protect, preserve, improve, or
enhance the value of such obligation or interest; to
guarantee or become surety on any or all of the contracts,
stocks, bonds, notes, debentures, and other obligations of
any such corporation, company, trust, association, or firm;
and
7 In general, to carry on any other business in connection
with or incidental to any of the foregoing objects and
purposes, and to engage in any and all lawful business
except as may be prohibited to be engaged in by a business
trust organized under the laws of the Commonwealth of
Massachusetts as in force from time to time, to do
everything necessary, suitable, or proper for the
accomplishment of any purpose or the attainment of any
object or the furtherance of any power hereinbefore set
forth, either alone or in association with others, and to
do every other act or thing incidental or appurtenant to or
growing out of or connected with the aforesaid business or
purposes, objects, or powers.
The Trust shall have the power to conduct and carry on its
business, or any part thereof, and to have one or more offices,
and to exercise any or all of its trust powers and rights, in
the Commonwealth of Massachusetts, in any other states,
territories, districts, colonies, and dependencies of the United
States, and in any or all foreign countries.
The foregoing clauses shall be construed both as objects
and powers, and the foregoing enumeration of specific powers
shall not be held to limit or restrict in any manner the general
powers of the Trust.
THIRD: ADDRESS AND RESIDENT AGENT.
The post office address of the principal office of the
Trust in the Commonwealth of Massachusetts is:
c/o CT Corporation System
2 Oliver Street
Boston, Massachusetts 02109
or such other office as the Board of Trustees may from time to
time designate.
The name and post office address of the resident agent of
the Trust in the Commonwealth of Massachusetts is:
CT Corporation System
2 Oliver Street
Boston, Massachusetts 02109
or such other person as the Board of Trustees may from time to
time designate. Such resident agent is a Massachusetts
corporation.
FOURTH: SHARES.
A. DEFINITION. "Shares" means the equal proportionate
transferable units of interest into which the beneficial
interest in the Trust shall be divided from time to time or, if
more than one series of shares is authorized by the Board of
Trustees, the equal proportionate units into which each series
shall be divided from time to time.
B. DIVISION OF BENEFICIAL INTEREST. The shares of the
Trust shall be issued in one or more series as the Board of
Trustees may, without shareholder approval, authorize. Each
series shall be preferred over all other series with respect to
the assets allocated to that series. The beneficial interest in
each series shall at all times be divided into shares, with or
without par value as the Board of Trustees may determine, each
of which shall represent an equal proportionate interest in the
series with each other share of the same series, none having
priority or preference over another. The number of shares
authorized shall be unlimited, and the shares so authorized may
be represented in part by fractional shares. The Board of
Trustees may from time to time divide or combine the shares of
any series into a greater or lesser number without thereby
changing the proportionate beneficial interests in the series.
C. OWNERSHIP OF SHARES. The ownership of shares shall be
recorded on the books of the Trust or its transfer or similar
agent. No certificates certifying the ownership of shares shall
be issued except as the Board of Trustees may otherwise
determine from time to time. The Board of Trustees may make
such rules as it considers appropriate for the issuance of share
certificates, the transfer of shares and similar matters. The
record books of the Trust as kept by the Trust or any transfer
or similar agent of the Trust, as the case may be, shall be
conclusive as to who are the shareholders of each series and as
to the number of shares of each series held from time to time by
each shareholder.
D. STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY.
Shares shall be deemed to be personal property giving only the
rights provided in this instrument. Every shareholder by virtue
of having become a shareholder shall be deemed to have expressly
assented to and agreed to be bound by the terms hereof and to
have become a party hereto. The death of a shareholder during
the continuance of the Trust shall not operate to terminate the
same nor entitle the representative of such deceased shareholder
to an accounting or to take any action in court or elsewhere
against the Trust or the Board of Trustees, but only to the
rights of said decedent under this Trust. Ownership of shares
shall not entitle the shareholder to any title in or to the whole
or any part of the Trust property or right to call for a
partition or division of the same or for an accounting, nor shall
the ownership of shares constitute the shareholders to be
partners. Neither the Trust nor the Board of Trustees, nor any
officer, employee or agent of the Trust shall have any power to
bind personally any shareholder, nor, except as specifically
provided herein, to call upon any shareholder for the payment of
any sum of money or assessment whatsoever other than such as the
shareholder may at any time personally agree to pay.
FIFTH: NO PREEMPTIVE RIGHTS.
Shareholders shall have no preemptive or other right to
receive, purchase, or subscribe for any additional shares or
other securities issued by the Trust.
SIXTH: ISSUE, REDEMPTION, AND REPURCHASE OF SHARES.
SECTION I. ISSUE OF THE TRUST'S SHARES
1.01. GENERAL. The Board of Trustees may from time to
time issue, reissue, sell or cause to be issued and sold any of
the Trust's shares in one or more series as the Board of
Trustees may, without shareholder approval, authorize, including
any shares redeemed or repurchased by the Trust, for a
consideration determined in accordance with Section 1.02 hereof;
except that only shares previously contracted to be sold may be
issued during any period when the determination of net asset
value is suspended pursuant to the provisions of Section III
hereof.
1.02. PRICE. No shares of a series shall be issued or
sold by the Trust, except as a share dividend distributed to
shareholders of such series, for less than an amount which would
result in proceeds to the Trust, in connection with such
transaction, of at least the net asset value per share of such
series, determined as set forth in Section III hereof. The net
asset value per share applicable to any such transaction shall
be the net asset value per share of such series next determined
after receipt of an unconditional order for purchase of shares
of such series; except that, subject to applicable rules and
regulations, if any, of the Securities and Exchange Commission
or any other governmental body having similar jurisdiction over
the Trust (the "SEC"), the Board of Trustees may prescribe that
requests for purchase received prior to a time of day (the
"cutoff time") preceding the time of day prescribed for
determination of net asset value per share of such series shall
be transacted at the net asset value per share next determined
and that requests for purchase received after the cutoff time and
before the time for determination of the next net asset value per
share shall be transacted at the net asset value per share next
determined after the next net asset value per share of such
series. The criteria for determining what constitutes an
unconditional order for purchase of shares of a series and the
receipt of such an order shall be prescribed by the Board of
Trustees. All shares, when issued in accordance with the terms
of this Section I, shall be fully paid and nonassessable.
1.03. FRACTIONAL SHARES. The Trust may issue and sell or
cause to be issued and sold fractions of shares of a series
having pro rata all the rights of full shares of such series,
including, without limitation, the right to vote and to receive
dividends.
1.04. ASSETS OF A SERIES. All consideration received by
the Trust for the issue or sale of shares of each series
authorized by the Board of Trustees, together with all income,
earnings, profits, and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation thereof, and any
funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to
the series of shares with respect to which the same were
received by the Trust for all purposes, subject only to the
rights of creditors of Trust assets allocated to such series,
and shall be so recorded upon the books of account of the Trust
and are herein referred to as "assets of" such series.
SECTION II. REDEMPTION AND REPURCHASE OF THE TRUST'S SHARES
2.01. REDEMPTION OF SHARES. Any shares of any series of
the Trust may be redeemed at the option of the holder of such
shares and, to the extent permitted in Section 2.06 hereof, at
the option of the Trust, at the redemption price for such shares,
determined in the manner set out in this Declaration of Trust or
in any amendment hereto. Unless otherwise provided by resolution
of the Board of Trustees, shares redeemed shall be cancelled.
Redeemed shares which have not been cancelled may be resold by
the Trust. The Trust shall redeem shares subject to the
conditions and at the price determined as hereinafter set forth.
2.02. PRICE. Shares shall be redeemed at the net asset
value per share of the appropriate series, determined as set
forth in Section III hereof. The net asset value per share of
such series applicable to any such redemption of shares shall be
the net asset value per share next determined after receipt of a
request for redemption of such shares in proper form, except
that, subject to applicable rules and regulations, if any, of
the SEC, the Board of Trustees may prescribe that requests for
redemption received prior to the cutoff time preceding the time
of day prescribed for determination of net asset value per share
of such series shall be transacted at the net asset value per
share next determined and that requests for redemption after the
cutoff time and before the time for determination of the next net
asset value per share shall be transacted at the net asset value
per share next determined after the next net asset value per
share. The criteria for determining what constitutes a proper
request for redemption of shares of a series and the receipt of
such request for redemption shall be prescribed by the Board of
Trustees.
2.03. PAYMENT. Subject to the provisions of Section 2.04
hereof, payment for shares of a series shall be made in cash to,
or upon the direction of, the shareholder of record within seven
calendar days after the date of receipt of (a) a written,
unconditional and irrevocable instruction of the shareholder to
redeem, in a form acceptable to the Trust or its designated
agent, together with any certificates which may have been issued
therefor, endorsed or accompanied by proper instrument of
transfer, and such other documents as the Trust or its
designated agent may require or (b) such other direction or
authorization of redemption by the shareholder as the Board of
Trustees shall authorize. Subject to applicable rules and
regulations, if any, of the SEC, the Trust may pay the redemption
price for such shares of a series in whole or in part by a
distribution in kind of securities from the portfolio of the
Trust allocated to such series, in lieu of money, valuing such
securities at their value employed for determining the net asset
value governing such redemption price, and selecting the
securities in such manner as the Board of Trustees may determine
to be fair and equitable.
2.04. EFFECT OF SUSPENSION OF DETERMINATION OF NET ASSET
VALUE. If, pursuant to Section 3.03 hereof, the Board of
Trustees shall declare a suspension of the determination of net
asset value of a particular series, (a) the rights of
shareholders (including those who shall have requested
redemption pursuant to Sections 2.01, 2.02, and 2.03 hereof but
for whom the redemption price shall not yet have been
determined) to have shares redeemed and paid for by the Trust,
and (b) the obligation of the Trust to pay for shares previously
redeemed, shall be suspended until the termination of such
suspension. Any record holder of shares not previously redeemed
who shall have his redemption right so suspended may, during the
period of such suspension, by appropriate written notice of
revocation at the office or agency where request for redemption
was made, revoke any request or instruction for redemption not
honored and withdraw any certificates tendered for redemption.
The redemption price of shares for which redemption requests have
been made and not revoked shall be the net asset value of such
shares next determined as set forth in Section III hereof after
the termination of such suspension, and payment shall be made
within seven days after the date upon which the requirements of
Section 2.03 were met plus the period during which the
determination of net asset value was suspended.
2.05. REPURCHASE BY AGREEMENT. The Trust may repurchase
shares of the Trust directly, or through a principal
underwriter, if any, or another agent designated for the
purpose, by agreement with the owner thereof at a price not
exceeding the net asset value per share of the appropriate
series determined as of the time when the purchase or contract
of purchase is made or the net asset value as of any time which
may be later determined pursuant to Section III hereof, provided
payment is not made for the shares prior to the time as of which
such net asset value is determined. Repurchased shares may be
resold by the Trust.
2.06. REDEMPTION OF SHAREHOLDER'S INTEREST. The Trust
shall have the right at its option and at any time to redeem
shares of any shareholder at the net asset value thereof
determined in accordance with Section III hereof: (i) if at such
time such shareholder owns fewer shares than, or shares having
an aggregate net asset value of less than, an amount determined
from time to time by the Board of Trustees; or (ii) to the
extent that such shareholder owns shares of a particular series
of shares equal to or in excess of a percentage of the
outstanding shares of that series determined from time to time
by the Board of Trustees; or (iii) to the extent that such
shareholder owns shares of the Trust representing a percentage
equal to or in excess of such percentage of the aggregate number
of outstanding shares of the Trust or the aggregate net asset
value of the Trust determined from time to time by the Board of
Trustees, and subject to the Trust's giving general notice to
all shareholders of its intention to avail itself of such right,
either by publication in the Trust's prospectus, if any, or by
such other means as the Board of Trustees may determine.
Subject to the same terms and conditions, the Trust shall also
have the right to redeem shares of the Trust, or a particular
series, owned by any shareholder if, in the opinion of the Board
of Trustees, ownership of shares of the Trust or series,
respectively, has or may become concentrated to an extent which
could cause the Trust to become a personal holding company
within the meaning of the Internal Revenue Code.
2.07 ADDITIONAL PROVISIONS RELATING TO REDEMPTIONS AND
REPURCHASES. The completion of redemption of shares shall
constitute a full discharge of the Trust and the Trustees with
respect to such shares, and the Trustees may require that any
certificate or certificates issued by the Trust to evidence the
ownership of such shares shall be surrendered to the Trustees
for cancellation or notation.
SECTION III. NET ASSET VALUE OF SHARES
3.01. BY WHOM DETERMINED. Subject to the provisions of
Section 3.04 of this Article SIXTH, the Board of Trustees shall
have the power and duty to determine from time to time the net
asset value per share of the outstanding shares of each series
authorized by the Board of Trustees and any such determination
shall be binding on all parties.
3.02. WHEN DETERMINED. The net asset value of a series
shall be determined at such times as the Board of Trustees,
subject to applicable rules and regulations, if any, of the SEC,
shall prescribe, provided that such net asset value shall be
determined at least once each week. In the absence of a
resolution of the Board of Trustees, the net asset value of a
series shall be determined as of the close of trading on the New
York Stock Exchange on each business day.
3.03. SUSPENSION OF DETERMINATION OF NET ASSET VALUE. The
Board of Trustees may declare a suspension of the determination
of net asset value of a series (a) for any period during which
trading on the New York Stock Exchange is restricted, as
determined by the SEC, or that Exchange is closed (other than
customary weekend and holiday closings), (b) for any period
during which an emergency exists as a result of which disposal of
the investments held by that series or determination of net asset
value of that series is not reasonably practicable, or (c) for
such period as the SEC by order may permit. Such suspension
shall take effect at such time as the Board of Trustees shall
specify and thereafter there shall be no determination of net
asset value until the Board of Trustees shall declare the
suspension terminated, except that the suspension shall terminate
in any event on the first day on which (1) the condition giving
rise to the suspension shall have ceased to exist and (2) no
other condition exists under which suspension is authorized under
this Section 3.03. Each declaration by the Board of Trustees
pursuant to this Section 3.03 shall be consistent with such
official rules and regulations, if any, relating to the subject
matter thereof as shall have been promulgated by the SEC. To the
extent not inconsistent with such official rules and regulations,
the determination of the Board of Trustees shall be conclusive.
3.04. COMPUTATION OF PER SHARE NET ASSET VALUE.
a. Net Asset Value Per Share. The net asset value of each
share of a series as of any particular time shall be the
quotient obtained by dividing the value of the net assets of the
Trust allocated to such series by the total number of shares of
such series outstanding, rounded to such extent as the Board of
Trustees shall determine from time to time.
b. Value of Trust's Net Assets. The value of the net
assets of the Trust allocated to any series as of any particular
time shall be the value of the assets so allocated less the
liabilities of the Trust so allocated, determined as follows:
(1) each security for which market quotations are readily
available shall be valued at current market value
determined by methods specified by the Board of
Trustees;
(2) each other security, including any security within (1)
for which the specified price does not appear to
represent a dependable quotation for such security as of
the time of valuation, shall be valued at a fair value as
determined in good faith by the Board of Trustees;
(3) any cash on hand shall be valued at the face amount
thereof;
(4) any cash on deposit, accounts receivable, and cash
dividends and interest declared or accrued and not yet
received, any prepaid expenses, and any other current
asset shall be valued at the face amount thereof,
unless the Board of Trustees shall determine that any
such item is not worth its face amount, in which case
such asset shall be valued at a fair value determined
in good faith by the Board of Trustees; and
(5) any other asset shall be valued at a fair value
determined in good faith by the Board of Trustees.
Notwithstanding the foregoing, short-term debt obligations,
commercial paper and repurchase agreements may be, but need not
be, valued on the basis of quoted yields for securities of
comparable maturity, quality and type, or on the basis of
amortized cost. The Board of Trustees may appoint persons to
assist it in the determination of the value of assets,
liabilities and net asset value per share of any series and to
make the actual calculations pursuant to the direction of the
Board of Trustees.
3.05. MISCELLANEOUS. For the purposes of this Section
III:
a. Shares of any series issued shall be deemed to be
outstanding commencing immediately after the time for
determination of net asset value per share for purposes of
determining their sale price, pursuant to Section 1.02 hereof,
and the net sale price thereof shall thereupon be deemed an asset
of that series.
b. Shares of any series for which a request for redemption
has been made in proper form or which are being repurchased by
the Trust shall be deemed to be outstanding up to and including
the time as of which the redemption or repurchase price for such
shares is determined. After such time, they shall be deemed to
be no longer outstanding and the price until paid shall thereupon
be deemed to be a liability of that series.
c. Funds on deposit and contractual obligations payable to
the Trust in foreign currency and liabilities and contractual
obligations payable by the Trust in foreign currency shall be
taken at the current applicable rate of exchange as nearly as
practicable at the time as of which the net asset value is
computed for the series to which such items relate.
SECTION IV. COMPLIANCE WITH INVESTMENT COMPANY ACT OF 1940
Notwithstanding any of the foregoing provisions of this
Article SIXTH, the Board of Trustees may prescribe such other
bases and times for determining the per share net asset value of
any series of the Trust as it shall deem necessary or desirable
to enable the Trust to comply with any provision of the
Investment Company Act of 1940, or any rule or regulation
thereunder, all as now in effect or hereafter amended or added
(the "1940 Act"), including any rule or regulation adopted by
any securities association registered under the Securities
Exchange Act of 1934.
SEVENTH: BOARD OF TRUSTEES.
A. ELECTION. The number of Trustees shall be fixed
pursuant to the By-Laws. Trustees shall be elected by the
shareholders, except as otherwise provided herein. The initial
Trustees, each of whom shall serve until the first meeting of
shareholders at which Trustees are elected and until his or her
successor is elected and qualified, or until he or she sooner
dies, resigns or is removed, shall be Jilaine Hummel Bauer and
such other persons as the Trustee or Trustees then in office
shall, prior to any sale of shares pursuant to a public
offering, appoint.
Any vacancy occurring in the Board of Trustees may be
filled by the Trustees, unless immediately after filling any
such vacancy, less than two-thirds of the Trustees then holding
office would have been elected to such office by the
shareholders. The Board of Trustees shall call a meeting of
shareholders for the purpose of electing Trustees whenever less
than a majority of the Trustees have been elected by
shareholders. Each Trustee elected by the shareholders or by
the Board of Trustees shall serve until the next meeting of
shareholders, if any, called for the purposes of reelecting such
Trustee or electing a successor to such Trustee and until the
election and qualification of his or her successor, or until he
or she sooner dies, resigns or is removed. A Trustee may be
removed with or without cause (a) at any meeting called for such
purpose by a vote of two-thirds of the outstanding shares, (b) by
the holders of two-thirds of the outstanding shares by
declaration in writing filed with the Custodian of the securities
of the Trust, or (c) by vote of a majority of the Trustees then
in office.
B. EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE. The
death, declination, resignation, retirement, removal, or
incapacity of the Trustees, or any one of them, shall not
operate to annul the Trust or to revoke any existing agency
created pursuant to the terms of this Declaration of Trust.
C. POWERS. Subject to the provisions of this Declaration
of Trust, the business of the Trust shall be managed by the
Board of Trustees, and they shall have all powers necessary or
convenient to carry out that responsibility. Without limiting
the foregoing, the Board of Trustees may adopt By-Laws not
inconsistent with this Declaration of Trust providing for the
conduct of the business of the Trust and may amend and repeal
them to the extent that such By-Laws do not reserve that right
to the shareholders; they may fill vacancies in their number,
including vacancies resulting from increases in their number,
and may elect and remove such officers and appoint and terminate
such agents as they consider appropriate; they may appoint from
their own number, and terminate, any one or more committees
consisting of two or more Trustees, including an executive
committee which may, when the Board of Trustees is not in
session, exercise some or all of the power and authority of the
Board of Trustees as the Trustees may determine; they may appoint
an advisory board, the members of which shall not be Trustees and
need not be shareholders; they may employ one or more custodians
of the assets of the Trust and may authorize such custodians to
employ subcustodians and to deposit all or any part of such
assets in a system or systems for the central handling of
securities, retain a transfer agent or a shareholder services
agent, or both, provide for the distribution of shares by the
Trust, through one or more principal underwriters or otherwise,
set record dates for the determination of shareholders with
respect to various matters and in general delegate such authority
as they consider desirable to any officers of the Trust, to any
committee of the Board of Trustees and to any agent or employee
of the Trust or to any such custodian or underwriter.
Without limiting the foregoing, the Board of Trustees shall
have power and authority:
1 To invest and reinvest in securities, options, futures
contracts, options on futures contracts and other property, and
to hold cash uninvested;
2 To sell, exchange, lend, pledge, mortgage,
hypothecate, write options on and lease any or all of the assets
of the Trust;
3 To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or
property; and to execute and deliver proxies or powers of
attorney to such person or persons as the Board of Trustees
shall deem proper, granting to such person or persons such power
and discretion with relation to securities or property as the
Board of Trustees shall deem proper;
4 To exercise powers and rights of subscription or
otherwise which in any manner arise out of ownership of
securities or other assets;
5 To hold any security or property in a form not
indicating any trust, whether in bearer, unregistered or other
negotiable form, or in the name of the Trustees or of the Trust
or in the name of a custodian, subcustodian or other depository
or a nominee or nominees or otherwise;
6 To allocate assets, liabilities and expenses of the
Trust to a particular series of shares or to apportion the same
among two or more series, provided that any liabilities or
expenses incurred by a particular series of shares shall be
payable solely out of the assets of that series;
7 To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or
issuer, any security of which is or was held in the Trust; to
consent to any contract, lease, mortgage, purchase or sale of
property by such corporation or issuer, and to pay calls or
subscriptions with respect to any security held in the Trust;
8 To join with other security holders in acting through a
committee, depositary, voting trustee or otherwise, and in that
connection to deposit any security with, or transfer any
security to, any such committee, depositary or trustee, and to
delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the
Board of Trustees shall deem proper, and to agree to pay, and to
pay, such portion of the expenses and compensation of such
committee, depositary or trustee as the Board of Trustees shall
deem proper;
9 To compromise, arbitrate or otherwise adjust claims in
favor of or against the Trust on any matter in controversy,
including but not limited to claims for taxes;
10 To enter into joint ventures, general or limited
partnerships and any other combinations or associations;
11 To borrow funds, securities or other assets;
12 To endorse or guarantee the payment of any notes or
other obligations of any person; to make contracts of guarantee
or suretyship, or otherwise assume liability for payment
thereof; and to mortgage and pledge the Trust property or any
part thereof to secure any of or all of such obligations or
obligations incurred pursuant to Clause 11 hereof;
13 To purchase and pay for, entirely out of Trust
property, such insurance as they may deem necessary or
appropriate for the conduct of the business, including without
limitation, insurance policies insuring the assets of the Trust
and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the shareholders,
Trustees, officers, employees, agents, investment advisers or
managers, principal underwriters, or independent contractors of
the Trust individually against all claims and liabilities of
every nature arising by reason of holding, being or having held
any such office or position, or by reason of any action alleged
to have been taken or omitted by any such person as shareholder,
Trustee, officer, employee, agent, investment adviser or
manager, principal underwriter, or independent contractor,
including any action taken or omitted that may be determined to
constitute negligence, whether or not the Trust would have the
power to indemnify such person against such liability;
14 To pay pensions for faithful service, as deemed
appropriate by the Board of Trustees, and to adopt, establish
and carry out pension, profit-sharing, share bonus, share
purchase, savings, thrift and other retirement, incentive and
benefit plans, trusts and provisions, including the purchasing
of life insurance and annuity contracts as a means of providing
such retirement and other benefits, for any or all of the
Trustees, officers, employees, and agents of the Trust;
15 To pay remuneration to each Trustee for his services,
including reimbursement of expenses incurred, as shall be fixed
from time to time by resolution of the Board of Trustees.
Nothing herein contained shall be construed to preclude any
Trustee from serving the Trust in any other capacity and
receiving compensation therefor; and
16 To do all acts and things appropriate in the
furtherance of the foregoing and in furtherance of the purposes
of the Trust.
The Board of Trustees shall not in any way be bound or
limited by any present or future law or custom in regard to
investments by Trustees. Except as otherwise provided herein or
from time to time in the By-Laws, any action to be taken by the
Board of Trustees may be taken by a majority of the Trustees
present at a meeting of the Board of Trustees (a quorum being
present), within or without Massachusetts, including any meeting
held by means of conference telephone or other communications
equipment by means of which all persons participating in the
meeting can hear each other at the same time and participation
by such means shall constitute presence in person at a meeting,
or by written consents of a majority of the Trustees then in
office.
D. PAYMENT OF EXPENSES BY TRUST. The Board of Trustees is
authorized to pay or to cause to be paid out of the principal or
income of the Trust, or partly out of principal and partly out
of income, as they deem appropriate, all expenses, fees,
charges, taxes and liabilities incurred or arising in connection
with the Trust, or in connection with the management thereof,
including, but not limited to, the Trustees' compensation and
such expenses and charges for the services of the Trust's
officers, employees, investment adviser or manager, principal
underwriter, auditor, counsel, custodian, transfer agent,
shareholder servicing agent, and such other agents or
independent contractors and such other expenses and charges as
the Board of Trustees may deem necessary or proper to incur,
provided, however, that all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with a particular
series of shares, as determined by the Board of Trustees, shall
be payable solely out of the assets of that series.
E. OWNERSHIP OF ASSETS OF THE TRUST. Title to all of the
assets of the Trust, including all assets allocated to each
series of shares, shall at all times be considered as vested in
the Board of Trustees.
F. ADVISORY, MANAGEMENT AND DISTRIBUTION. Subject to a
vote meeting the requirements of the 1940 Act, the Board of
Trustees may, at any time and from time to time, contract for
exclusive or nonexclusive advisory and/or management services
with any partnership, corporation, trust, association or other
organization (the "Adviser"), every such contract to comply with
such requirements and restrictions as may be set forth in the
By-Laws; and any such contract may contain such other terms
interpretive of or in addition to said requirements and
restrictions as the Board of Trustees may determine, including,
without limitation, authority to determine from time to time
what investments shall be purchased, held, sold or exchanged and
what portion, if any, of the assets of the Trust shall be held
uninvested and to make changes in the Trust's investments. The
Board of Trustees may also, at any time and from time to time,
contract with the Adviser or any other partnership, corporation,
trust, association or other organization, appointing it
exclusive or nonexclusive distributor or principal underwriter
for the shares, every such contract to comply with such
requirements and restrictions as may be set forth in the By-
Laws; and any such contract may contain such other terms
interpretive of or in addition to said requirements and
restrictions as the Board of Trustees may determine.
The fact that:
(i) any of the shareholders, Trustees or officers of
the Trust is a shareholder, director, officer, partner,
trustee, employee, manager, adviser, principal underwriter,
or distributor or agent of or for any corporation, trust,
association, or other organization, or of or for any parent
or affiliate of any organization, with which an advisory or
management contract, or principal underwriter's or
distributor's contract, or transfer, shareholder services or
other agency contract may have been or may hereafter be
made, or that any such organization, or any parent or
affiliate thereof, is a shareholder or has an interest in
the Trust, or that
(ii) any corporation, trust, association or other
organization with which an advisory or management contract
or principal underwriter's or distributor's contract, or
transfer, shareholder services or other agency contract may
have been or may hereafter be made by the Trust also has an
advisory or management contract, or principal underwriter's
or distributor's contract, or transfer, shareholder services
or other agency contract with one or more other
corporations, trusts, associations, or other organizations,
or has other business or interests,
shall not affect the validity of any such contract or disqualify
any shareholder, Trustee or officer of the Trust from voting upon
or executing the same or create any liability or accountability
to the Trust or its shareholders.
EIGHTH: LIABILITY:
A. TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE;
NOTICE. All persons extending credit to, contracting with or
having any claim against the Trust or a particular series of
shares shall look only to the assets of the Trust or the assets
of that particular series of shares for payment under such
credit, contract or claim; and neither the shareholders nor the
Trustees, nor any of the Trust's officers, employees or agents,
whether past, present or future, shall be personally liable
therefor.
The Board of Trustees shall not be responsible or liable in
any event for any neglect or wrongdoing of any officer, agent,
employee, investment adviser or principal underwriter of the
Trust, nor shall any Trustee be responsible for the act or
omission of any other Trustee, but nothing herein shall protect
any Trustee against any liability to which such Trustee would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in
the conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or
undertaking made or issued by any Trustees or Trustee or by any
officers or officer shall give notice that this Declaration of
Trust is on file with the Secretary of the Commonwealth of
Massachusetts and shall recite that the same was executed or
made by or on behalf of the Trust or by them as Trustees or
Trustee or as officers or officer and not individually and that
the obligations of such instrument are not binding upon any of
them or the shareholders individually but are binding only upon
the assets and property of the Trust, or of the particular
series of shares to which such instrument relates, and may
contain such further recital as he or she or they may deem
appropriate, but the omission thereof shall not operate to bind
any Trustees or Trustee or officers or officer, or shareholders
or shareholder individually.
Every note, bond, contract, instrument, certificate, share
or undertaking and every other act or thing whatsoever executed
or done by or on behalf of the Trust or the Board of Trustees or
any of them in connection with the Trust shall be conclusively
deemed to have been executed or done only in or with respect to
their or his capacity as Trustees or Trustee, and such Trustees
or Trustee shall not be personally liable thereon.
B. TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR
SURETY. The exercise by the Trustees of their powers and
discretions hereunder shall be binding upon everyone interested.
A Trustee shall be liable for his or her own willful
misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of the office of Trustee,
and for nothing else, and shall not be liable for errors of
judgment or mistakes of fact or law. The Trustees may take
advice of counsel or other experts with respect to the meaning
and operation of this Declaration of Trust, and shall be under
no liability for any act or omission in accordance with such
advice or for failing to follow such advice. The Trustees shall
not be required to give any bond as such, nor any surety if a
bond is required.
C. LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES. No
person dealing with the Board of Trustees or any Trustee shall
be bound to make any inquiry concerning the validity of any
transaction made or to be made by either or to see to the
application of any payments made or property transferred to the
Trust or upon its order.
NINTH: DETERMINATION OF NET PROFITS, ETC.; DIVIDENDS.
With respect to each series of shares authorized by the
Board of Trustees, the Board is expressly authorized to
determine in accordance with generally accepted accounting
principles and practices what constitutes net income, profits or
earnings, or surplus and capital, to include in net income,
profits or earnings the portion of subscription or redemption
prices attributable to accrued net income, profits or earnings
in such prices, and to determine what accounting periods shall
be used by the Trust for any purpose, whether annual or any
other period, including daily; to set apart out of any funds of
such series such reserves for such purposes as it shall
determine and to abolish the same; to declare and pay dividends
and distributions in cash, securities, or other property from
surplus or capital or any funds of such series legally available
therefor, at such intervals (which may be as frequently as
daily) or on such other periodic basis as it shall determine; to
declare such dividends or distributions by means of a formula or
other method of determination at meetings held less frequently
than the frequency of the effectiveness of such declarations; to
establish payment dates for dividends or any other distributions
on any basis, including dates occurring less frequently than the
effectiveness of the declaration thereof; and to provide for the
payment of declared dividends on a date earlier than the
specified payment date in the case of shareholders of such
series redeeming their entire ownership of shares of such
series. Inasmuch as the computation of net income, profits or
earnings for Federal income tax purposes may vary from the
computation thereof on the books, the above provisions shall be
interpreted to give to the Board of Trustees the power in its
discretion to distribute for any fiscal year as dividends and as
capital gain distributions, respectively, additional amounts
sufficient to enable the Trust to avoid or reduce its liability
for taxes.
No dividend or distribution (including, without limitation,
any distribution paid upon termination of the Trust or of any
series) with respect to, nor any redemption or repurchase of,
the shares of any series shall be effected by the Trust other
than from the assets of such series.
TENTH: INDEMNIFICATION.
A. INDEMNIFICATION GENERALLY. The Trust shall indemnify,
to the fullest extent permitted by applicable law, each person
who is or has been a Trustee or officer (including each person
who serves or has served at the Trust's request as a director,
officer, or trustee of another organization in which the Trust
has any interest as a shareholder, creditor or otherwise, and any
heir, administrator or executor of such person) (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 attorney's fees
reasonably incurred by such Covered Person in connection with the
defense or disposition of any action, suit or other proceeding,
whether civil, criminal, administrative or investigative, and any
appeal therefrom (a "Proceeding"), before any court or
administrative or legislative body, in which such Covered Person
may be or may have been involved as a party or otherwise or with
which such person may be or may have been threatened, while in
office or thereafter, by reason of being or having been such a
Covered Person.
B. DETERMINATION OF ELIGIBILITY. Notwithstanding the
provisions of Section A of Article TENTH, to the extent required
under the 1940 Act,
(i) Article TENTH, Section A, shall not protect any
person against any liability to the Trust or to its shareholders
to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard
of the duties involved in the conduct of his office;
(ii) in the absence of a final decision on the merits
by a court or other body before whom a Proceeding was brought
that a Covered Person was not liable by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard
of the duties involved in the conduct of his office, no
indemnification shall be permitted unless a determination that
such person was not so liable shall have been made on behalf of
the Trust by (a) the vote of a majority of "disinterested, non-
party Trustees," as defined below, or (b) an independent
legal counsel as expressed in a written opinion; and
(iii) the Trust shall not advance attorneys' fees
incurred by a Covered Person in connection with Proceeding unless
the Trust receives an undertaking by or on behalf of the Covered
Person to repay the advance (unless it is ultimately determined
that he is entitled to indemnification) and (a) the Covered
Person shall provide security for his undertaking, or (b) the
Trust shall be insured against losses arising by reason of any
lawful advances, or (c) a majority of the disinterested, non-
party Trustees of the Trust or an independent legal counsel, as
expressed in a written opinion, shall determine, based on a
review of readily available facts (as opposed to a full trial-
type inquiry), that there is reason to believe that the Covered
Person ultimately will be found entitled to indemnification.
Such undertaking shall provide that the Covered Person to whom
the advance was made shall not be obligated to repay pursuant to
such undertaking until the final determination of any pending
Proceeding in a court of competent jurisdiction, including
appeals therefrom, concerning the right of such Covered Person to
be indemnified by the Trust or the obligation of such person to
repay pursuant to the undertaking.
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 not to have
acted in good faith in the reasonable belief that such Covered
Person's action was in, or not opposed to, the best interests of
the Trust or to have been liable to the Trust or its
shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office.
As used in this Article TENTH, the term "disinterested, non-
party Trustee" is a Trustee who is not an "interested person" of
the Trust, as defined in Section 2(a)(19) of the 1940 Act and
against whom none of the Proceedings in question or another
action, suit or other Proceeding on the same or similar grounds
is then or has been pending.
C. INDEMNIFICATION NOT EXCLUSIVE. The right of
indemnification hereby provided shall not be exclusive of or
affect any other rights to which any such Covered Person may be
entitled. Nothing contained in this Article shall affect any
rights to indemnification to which Covered Persons and other
persons may be entitled by contract (apart from the provisions
of this Article TENTH) or otherwise under law, nor to limit the
power of the Trust to indemnify such persons.
D. SHAREHOLDERS. In case any shareholder or former
shareholder shall be held to be personally liable solely by
reason of his or her being or having been a shareholder and not
because of his or her acts or omissions or for some other
reason, the shareholder or former shareholder (or his or her
heirs, executors, administrators or other legal representatives
or in the case of a corporation or other entity, its corporate
or other general successor) shall be entitled to be held
harmless from and indemnified against all loss and expense
arising from such liability.
E. CONTRACTUAL RIGHTS. This Article TENTH shall be deemed
to be a contract between the Trust and each person who is a
Covered Person at any time this Article TENTH is in effect. Any
repeal or other modification of this Article TENTH or of any
applicable laws shall not limit any rights of indemnification
then existing or arising out of events, acts, or omissions
occurring prior to such repeal or modification, including,
without limitation, the right to indemnification for Proceedings
commenced after such repeal or modification to enforce this
Article TENTH with respect to events, acts or omissions prior to
repeal or modification.
F. PROTECTION OF RIGHTS. If a written claim for
indemnification by a Covered Person under this Article TENTH is
not promptly paid in full by the Trust after receipt by the Trust
of a such claim, or if expenses have not been promptly advanced
after compliance by a Covered Person with the requirements of
this Article TENTH for such advancement, such Covered Person may,
at any time thereafter, bring suit against the Trust to recover
the unpaid amount of the claim or the advancement of expenses.
If successful, in whole or in part, in such suit, such Covered
Person shall also be entitled to be paid the reasonable expense
therefor. It shall be a defense to any such action (other than
an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition
where the requirements of this Article TENTH for advancement of
expenses have been met by such Covered Person) that the
indemnification of the Covered Person is prohibited, but the
burden of proving such defense shall be on the Trust. Neither
the failure of the Trust, including its disinterested non-party
Trustees or independent legal counsel, to have made a
determination that indemnification of Covered Person is proper in
the circumstances because he or she has met the applicable
standard of conduct required under the 1940 Act, nor the actual
determination by the Trust, including its disinterested non-
party Trustees or independent legal counsel, that the Covered
Person had not met such applicable standard of conduct, shall be
a defense to the action or create a presumption that such Covered
Person had not met the applicable standard of conduct.
ELEVENTH: RESERVATION OF RIGHT TO AMEND.
A. BY BOARD OF TRUSTEES. Except when otherwise required
by the 1940 Act, this Declaration of Trust may be amended at any
time by a majority of the Trustees then in office, provided
notice of any amendment (other than amendments having the
purpose of supplying any omission, curing any ambiguity or
curing, correcting or supplementing any defective or
inconsistent provision contained herein, or having any other
purpose which is ministerial or clerical in nature) shall be
mailed promptly to shareholders of record at the close of
business on the effective date of such amendment.
B. BY SHAREHOLDERS. Except when otherwise required by the
1940 Act, this Declaration of Trust may be amended at any time
by a majority vote of the shares of the Trust entitled to be
voted.
TWELFTH: SHAREHOLDERS' VOTING POWERS AND MEETINGS.
A. SHAREHOLDERS' VOTING POWERS. The shareholders shall
have power to vote only (i) for the election or removal of
Trustees as provided in Article SEVENTH, Section A; (ii) with
respect to any investment adviser as provided in Article SEVENTH,
Section F; (iii) with respect to any termination of this Trust or
a series thereof to the extent and as provided in Article
FOURTEENTH; (iv) with respect to any amendment of this
Declaration of Trust to the extent and as provided in Article
ELEVENTH, Section B; (v) to the same extent as the stockholders
of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be brought
or maintained derivatively or as a class action on behalf of the
Trust or the shareholders; and (vi) with respect to such
additional matters relating to the Trust as may be required by
the 1940 Act, this Declaration of Trust, the By-Laws or any
registration of the Trust with the SEC, or as the Board of
Trustees may consider necessary or desirable. Each whole share
outstanding on the record date established in accordance with the
By-Laws shall be entitled to one vote as to any matter on which
it is entitled to vote and each fractional share shall be
entitled to a proportionate fractional vote. Notwithstanding any
other provision of this Declaration of Trust, on any matter
submitted to a vote of shareholders, shares shall be voted in the
aggregate and not by individual series except: (1) when required by
the 1940 Act or other applicable law, shares shall be voted
by individual series; or (2) when the Board of Trustees has
determined that the matter affects only the interests of one or
more series, then shareholders of the unaffected series shall not
be entitled to vote thereon. There shall be no cumulative voting
in the election of the Board of Trustees.
Shares may be voted in person or by proxy. A proxy with
respect to shares held in the names of two or more persons shall
be valid if executed by any one of them unless at or prior to
exercise of the proxy, the Trust receives a specific written
notice to the contrary from any one of them. A proxy purporting
to be executed by or on behalf of a shareholder shall be deemed
valid unless challenged at or prior to its exercise and the
burden of proving invalidity shall rest on the challenger. At
all meetings of shareholders, unless inspectors of election have
been appointed, all questions relating to the qualification of
voters and the validity of proxies and the acceptance or
rejection of votes shall be decided by the chairman of the
meeting. Unless otherwise specified in the proxy, the proxy
shall apply to all shares of each series of the Trust owned by
the shareholder.
Until shares are issued, the Board of Trustees may exercise
all rights of shareholders and may take any action required by
law, this Declaration of Trust or the By-Laws to be taken by
shareholders.
B. MEETINGS. Meetings of shareholders of the Trust or of
any series may be called by the Board of Trustees, the
President, the Executive Vice-President, any Vice-President, or
such other person or persons as may be specified in the By-Laws
and held from time to time for the purpose of taking action upon
any matter requiring the vote or the authority of the
shareholders of the Trust or any series as herein provided or
upon any other matter deemed by the Board of Trustees to be
necessary or desirable. Meetings of shareholders of the Trust
or of any series shall be called by the Secretary or such other
person or persons as may be specified in the By-Laws upon
written application by shareholders holding at least 10% of the
outstanding shares of the Trust, if shareholders of all series
are required hereunder to vote in the aggregate and not by
individual series at such meeting, or of any series, if
shareholders of such series are entitled hereunder to vote by
individual series at such meeting, requesting that a meeting be
called for a purpose requiring action by the shareholders as
provided herein or in the By-Laws and provided that such
application shall state the purpose or purposes of such meeting
and the matters proposed to be acted on.
C. QUORUM AND REQUIRED VOTE. Thirty percent of the shares
entitled to vote shall be a quorum for the transaction of
business at a shareholders' meeting, except that if any
provision of law or of this Declaration of Trust permits or
requires that holders of any series shall vote as a series, then
thirty percent of the aggregate number of shares of each series
entitled to vote shall be necessary to constitute a quorum for
the transaction of business by that series. Any lesser number,
however, shall be sufficient for adjournments or if no shares
are represented thereat, any officer present thereat entitled to
preside or act as secretary of such meeting may adjourn the
meeting. Any adjourned session or sessions may be held within a
reasonable time after the date set for the original meeting
without the necessity of further notice. Except when a larger
vote is required by any provision of this Declaration of Trust
or the By-Laws, a majority of the shares voted shall decide any
questions and a plurality shall elect any Trustee, provided that
where any provision of law or of this Declaration of Trust
permits or requires that the holders of any series shall vote as
a series, then a majority of the shares of that series voted on
the matter shall decide that matter insofar as that series is
concerned.
The vote upon any question shall be by written ballot
whenever requested by any person entitled to vote but, unless
such a request is made, voting may be conducted by voice vote or
in any other way approved by the meeting.
D. PLACE OF MEETING. All shareholders' meetings shall be
held at the office of the Trust in the City of Chicago, State of
Illinois, except that the Board of Trustees or the President of
the Trust may fix a different place of meeting within the United
States, which shall be specified in the notice or waiver of
notice of such meeting.
E. NOTICE OF MEETINGS; ADJOURNMENT. The Secretary or an
Assistant Secretary shall cause notice of the place, date and
hour and the purpose or purposes for which a meeting is called,
to be mailed, postage prepaid, not less than seven days before
the date of such meeting, to each shareholder entitled to vote
at such meeting, at his address as it appears on the records of
the Trust. Notice of any shareholders' meeting need not be
given to any shareholder who shall sign a written waiver of such
notice, whether before or after the time of such meeting, which
waiver shall be filed with the record of such meeting, or to any
shareholder who shall attend such meeting in person or by proxy.
A meeting of shareholders convened on the date for which it was
called may be adjourned from time to time, without further
notice, to a date not more than 120 days after the original
record date.
F. SHARE LEDGER. It shall be the duty of the Secretary
or Assistant Secretary of the Trust to cause an original or
duplicate share ledger to be maintained at the office of the
Trust's transfer agent. Such share ledger may be in written
form or any other form capable of being converted into written
form within a reasonable time for visual inspection.
G. ACTION BY WRITTEN CONSENT. Any action taken by
shareholders may be taken without a meeting if a majority of
shareholders entitled to vote on the matter (or such larger
proportion thereof as shall be required by any express provision
of this Declaration of Trust or the By-Laws) consent to the
action in writing and such written consents are filed with the
records of the meetings of shareholders. Such consent shall be
treated for all purposes as a vote taken at a meeting of
shareholders.
THIRTEENTH: USE OF NAME.
The Trust acknowledges that it is adopting its trust name,
and may adopt the names of various series of the Trust, through
permission of Stein Roe & Farnham Incorporated, a Delaware
corporation, and agrees that Stein Roe & Farnham Incorporated
reserves to itself and any successor to its business the right to
grant the non-exclusive right to use the name "SteinRoe Variable
Investment Fund" or "Stein Roe & Farnham Variable Investment
Fund" or "Stein Roe _____ Fund" or "Stein Roe & Farnham ____
Fund" or "SR&F Variable Investment Fund" or "Stein Roe ____" or
"Stein ______" or "Stein Roe," or "Stein," or any similar name to
any other entity, including but not limited to any investment
company of which Stein Roe & Farnham Incorporated or any
subsidiary or affiliate thereof or any successor to the business
thereof shall be the investment adviser.
FOURTEENTH: MISCELLANEOUS.
A. DURATION AND TERMINATION OF TRUST. Unless terminated
as provided herein, the Trust shall continue without limitation
of time. The Trust may be terminated at any time by vote of
shareholders holding a majority of the shares of each series
entitled to vote or by the Trustees by written notice to the
shareholders. Any series of shares may be terminated at any
time by vote of shareholders holding a majority of the shares of
such series entitled to vote or by the Trustees by written
notice to the shareholders of such series.
Upon termination of the Trust or of any one or more series
of shares, after paying or otherwise providing for all charges,
taxes, expenses and liabilities, whether due or accrued or
anticipated as may be determined by the Trustees, the Trust
shall, in accordance with such procedures as the Trustees
consider appropriate, reduce the remaining assets to
distributable form in cash or shares or other securities, or any
combination thereof, and distribute the proceeds to the
shareholders of the series involved, ratably according to the
number of shares of such series held by the several shareholders
of such series on the date of termination.
B. FILING OF COPIES, REFERENCES, HEADINGS. The original or
a copy of this instrument and of each amendment hereto shall be
kept at the office of the Trust where it may be inspected by any
shareholder. A copy of this instrument and of each amendment
hereto shall be filed by the Trust with the Secretary of the
Commonwealth of Massachusetts and with the Boston City Clerk, as
well as any other governmental office where such filing may from
time to time be required. Anyone dealing with the Trust may
rely on a certificate by an officer of the Trust as to whether
or not any such amendments have been made and as to any matters
in connection with the Trust hereunder; and, with the same
effect as if it were the original, may rely on a copy certified
by an officer of the Trust to be a copy of this instrument or of
any such amendments. In this instrument and in any such
amendment, references to this instrument, and all expressions
such as "herein", "hereof", and "hereunder", shall be deemed to
refer to this instrument as amended or affected by any such
amendments. Headings are placed herein for convenience of
reference only and shall not be taken as a part hereof or
control or affect the meaning, construction or effect of this
instrument. This instrument may be executed in any number of
counterparts, each of which shall be deemed an original.
C. APPLICABLE LAW. This Declaration of Trust is made in
the Commonwealth of Massachusetts, and it is created under and
is to be governed by and construed and administered according to
the laws of said Commonwealth. The Trust shall be of the type
commonly called a Massachusetts business trust, and without
limiting the provisions hereof, the Trust may exercise all powers
which are ordinarily exercised by such a trust.
D. SEVERABILITY. If any Article or other portion of this
Declaration of Trust shall be invalidated or held to be
unenforceable on any ground by any court of competent
jurisdiction, the decision of which shall have not been reversed
on appeal, such invalidity or unenforceability shall not affect
the other provisions hereof, and this Declaration of Trust shall
be construed in all respects as if such invalid or unenforceable
provision had been omitted herefrom.
IN WITNESS WHEREOF, the undersigned has hereunto set her
hand and seal in the City of Boston, Massachusetts, for herself
and her assigns, as of the day and year first above written.
JILAINE HUMMEL BAUER
Trustee
THE COMMONWEALTH OF MASSACHUSETTS)
COUNTY OF SUFFOLK ) ss
Boston, June 9, 1987.
Then personally appeared the above-named Jilaine Hummel
Bauer, Trustee, and acknowledged the foregoing instrument to be
her free act and deed, before me.
MARYELLEN LARZILLA
Notary Public
My commission expires:
April 2, , 1993
(NOTARIAL SEAL)
<PAGE>
STEINROE VARIABLE INVESTMENT FUND
AMENDMENT TO AGREEMENT AND DECLARATION OF TRUST
The undersigned, being the sole trustee of SteinRoe Variable
Investment Fund, a voluntary association with transferable shares
organized under the laws of the Commonwealth of Massachusetts
pursuant to an Agreement and Declaration of Trust dated June 9,
1987 (the "Declaration of Trust"), does hereby amend the
Declaration of Trust as follows and hereby consents to such
amendment:
1. Article First of the Declaration of Trust is deleted and
the following is inserted in lieu thereof:
FIRST: NAME.
The name of the Trust (which is hereafter called the
"Trust") is SteinRoe Variable Investment Trust.
2. Article Thirteenth is deleted and the following is
inserted in lieu thereof:
THIRTEENTH: USE OF NAME.
The Trust acknowledges that it is adopting its trust name,
and may adopt the names of various series of the Trust, through
permission of Stein Roe & Farnham Incorporated, a Delaware
corporation, and agrees that Stein Roe & Farnham Incorporated
reserves to itself and any successor to its business the right to
grant the non-exclusive right to use the name "SteinRoe Variable
Investment Trust" or "Stein Roe & Farnham Variable Investment
Trust" or "Stein Roe _____ Trust" or "Stein Roe & Farnham ____
Trust" or "SR&F Variable Investment Trust" or "Stein Roe ____" or
"Stein ______" or "Stein Roe," or "Stein," or any similar name to
any other entity, including but not limited to any investment
company of which Stein Roe & Farnham Incorporated or any
subsidiary or affiliate thereof or any successor to the business
thereof shall be the investment adviser.
This instrument may be executed in several counterparts,
each of which shall been deemed an original, but all taken
together shall be one instrument.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and seal this 9th day of September, 1988.
JAMES D. WINSHIP
James D. Winship, Trustee
STATE OF ILLINOIS)
) SS
COUNTY OF COOK )
Then personally appeared before me the above-named James D.
Winship, known to me to be a trustee of SteinRoe Variable
Investment Trust and acknowledged the foregoing instrument to be
his free act and deed.
SALLY A. BEDNARCIK
Notary Public
My commission expires 6/19/90
OFFICIAL SEAL
<PAGE>
STEIN ROE VARIABLE INVESTMENT TRUST
SECOND AMENDMENT TO AGREEMENT AND DECLARATION OF TRUST
The undersigned, being the successor sole Trustee of
SteinRoe Variable Investment Trust (the "Trust"), a voluntary
association with transferable shares organized under the laws of
the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust dated June 9, 1987, as amended by an
Amendment dated September 9, 1988 (the "Declaration of Trust"),
does hereby further amend the Declaration of Trust as follows and
hereby consents to such amendment.
1. Article Third of the Declaration of Trust is amended to
read in its entirety as follows:
"THIRD: ADDRESS AND RESIDENT AGENT.
The post office address of the principal office of the
Trust in the Commonwealth of Massachusetts is:
c/o Liberty Investment Services, Inc.
600 Atlantic Avenue
Boston, Massachusetts 02210
or such other office as the Board of Trustees may from time to
time designate.
The name and post office address of the resident agent of
the Trust in the Commonwealth of Massachusetts is:
John A. Benning, Esq.
c/o Liberty Investment Services, Inc.,
600 Atlantic Avenue
Boston, Massachusetts 02210
or such other person as the Board of Trustees may from time to
time designate."
2. Article Tenth, Section D of the Declaration of Trust is
amended to read in its entirety as follows:
"D. SHAREHOLDERS. In case any shareholder or former
shareholder shall be held to be personally liable solely by
reason of his or her being or having been a shareholder and not
because of his or her acts or omissions, his or her non-compliance
with applicable federal tax law, or for some other
reason, the shareholder or former shareholder (or his or her
heirs, executors, administrators or other legal representatives
or in the case of a corporation or other entity, its corporate
or other general successor) shall be entitled to be held
harmless from and indemnified against all loss and expense
arising from such liability."
3. Article Twelfth, Section D of the Declaration of Trust
is amended to read in its entirety as follows:
"D. PLACE OF MEETING. All shareholders' meetings shall be
held at the office of the Trust in the City of Boston,
Massachusetts, except that the Board of Trustees or the President
of the Trust may fix a different place of meeting within the
United States, which shall be specified in the notice or waiver
of notice of such meeting."
4. Article Fourteenth, Section A of the Declaration of Trust
is amended to read in its entirety as follows:
"FOURTEENTH: MISCELLANEOUS.
A. DURATION AND TERMINATION OF TRUST. Unless terminated
as proved herein, the Trust shall continue without limitation
of time. The Trust may be terminated at any time by the Trustees
by written notice to the shareholders unless otherwise required
by law. Any series of shares may be terminated at any time by
the Trustees by written notice to the shareholders of such series
unless otherwise required by law.
Upon termination of the Trust or of any one or more series
of shares, after paying or otherwise providing for all charges,
taxes, expenses and liabilities, whether due or accrued or
anticipated as may be determined by the Trustees, The Trust
shall, in accordance with such procedures as the Trustees
consider appropriate, reduce the remaining assets to
distributable form in cash or shares or other securities, or any
combination thereof, and distribute the proceeds to the
shareholders of the series involved, ratably according to the
number of shares of such series held by the several shareholders
of such series on the date of termination.
Anything contained herein or otherwise to the contrary
notwithstanding, the Trustees upon affirmative majority vote, may
(a) select any entity, be it a corporation, association, trust or
other kind of organization, or organize any such kind of entity,
to take over the Trust property and carry on the affairs of the
Trust, (b) merge the Trust into or sell, convey and transfer the
Trust property to any such entity for such consideration and upon
terms and conditions without limitation as they in their
discretion deem suitable, and (c) take such other action as they
may in their discretion deem either necessary or appropriate to
accomplish or implement any action taken hereunder."
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and seal this 5th day of October, 1988.
JOHN A BENNING
John A. Benning, Trustee
COMMONWEALTH OF MASSACHUSETTS)
)
COUNTY OF SUFFOLK )
Then personally appeared before me the above-named John A.
Benning known to me and known to be the sole trustee of the Stein
Roe Variable Investment Trust and acknowledged the foregoing
instrument to be his free act and deed.
JOHN L. DAVENPORT
Notary Public
My commission Expires
June 16, 1989
EXHIBIT 2
<PAGE>
STEINROE VARIABLE INVESTMENT TRUST
BY-LAWS
(As Amended and Restated Through October 5, 1988)
<PAGE>
ARTICLE I. AGREEMENT AND DECLARATION OF TRUST, LOCATION OF
OFFICES AND SEAL
Section 1.01. Agreement and Declaration of Trust........1
1.02. Principal Office..........................1
1.03. Seal......................................1
ARTICLE II. BOARD OF TRUSTEES
Section 2.01. Number and Term of Office.................1
2.02. Power to Declare Dividends................2
2.03. Annual and Regular Meetings...............2
2.04. Special Meetings..........................2
2.05. Notice....................................3
2.06. Waiver of Notice..........................3
2.07. Quorum and Voting.........................3
2.08. Action Without a Meeting..................3
ARTICLE III. EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.01. How Constituted...........................3
3.02. Powers of the Executive Committee.........4
3.03. Other Committees of the Board of Trustees.4
3.04. Proceedings, Quorum and Manner of Acting..4
3.05. Other Committees..........................4
3.06. Action Without a Meeting..................4
3.07. Waiver of Notice..........................4
ARTICLE IV. OFFICERS
Section 4.01. General...................................5
4.02. Term of Office and Qualifications.........5
4.03. Resignation...............................5
4.04. Removal...................................5
4.05. Chairman of the Board.....................5
4.06. Powers and Duties of the President........6
4.07. Powers and Duties of Vice-Presidents......6
4.08. Powers and Duties of the Treasurer........6
4.09. Powers and Duties of the Secretary........7
4.10. Powers and Duties of Assistant Treasurers.7
4.11. Powers and Duties of Assistant
Secretaries.............................7
4.12. Remuneration..............................7
4.13. Surety Bonds..............................7
ARTICLE V. CUSTODY OF SECURITIES
Section 5.01. Employment of a Custodian.................7
5.02. Provisions of Custodian Contract..........8
ARTICLE VI. EXECUTION OF INSTRUMENTS, RIGHTS AS SECURITY
HOLDER
Section 6.01. General...................................8
6.02. Rights as Security Holder.................8
ARTICLE VII. SHARES OF BENEFICIAL INTEREST
Section 7.01. Certificates..............................9
7.02. Uncertificated Shares.....................9
7.03. Transfers of Shares.......................9
7.04. Registered Shareholders...................9
7.05. Transfer Agents and Registrars...........10
7.06. Fixing of Record Date....................10
7.07. Lost, Stolen, or Destroyed Certificates..10
7.08. Discontinuance of Issuance of
Certificates.............................11
ARTICLE VIII. FISCAL YEAR, ACCOUNTANT
Section 8.01. Fiscal Year..............................11
8.02. Accountants..............................11
ARTICLE IX. AMENDMENTS
Section 9.01. General..................................11
9.02. By Shareholders Only.....................11
ARTICLE X. MISCELLANEOUS
Section 10.01. Restrictions and Limitations............12
<PAGE> 1
STEINROE VARIABLE INVESTMENT TRUST
BY-LAWS
(As Amended and Restated Through October 5, 1988)
ARTICLE I. AGREEMENT AND DECLARATION OF TRUST,
LOCATION OF OFFICES AND SEAL
Section 1.01. Agreement and Declaration of Trust.
These By-Laws shall be subject to the Agreement and
Declaration of Trust as now in effect or hereinafter amended
("Declaration of Trust") of SteinRoe Variable Investment Trust,
a Massachusetts business trust established by the Declaration
of Trust (the "Trust"). For all purposes, except as noted in
these By-Laws, "series" as used hereinafter shall refer to the
Trust's investment portfolios ("Funds") and any series issued
by such Funds, including Matched Maturity Series of the
Government Securities Zero Coupon Fund.
Section 1.02. Principal Office. A principal office of
the Trust shall be located in Boston, Massachusetts. The Trust
may, in addition, establish and maintain such other offices and
places of business as the Board of Trustees may from time to
time determine.
Section 1.03. Seal. The seal of the Trust shall be
circular in form and shall bear the name of the Trust, the
word "Massachusetts," and the year of its organization. The
form of the seal shall be subject to alteration by the Board
of Trustees and the seal may be used by causing it or a
facsimile to be impressed or affixed or printed or otherwise
reproduced. Any officer or Trustee of the Trust shall have
authority to affix the seal of the Trust to any document
requiring the same. Unless otherwise required by the Board
of Trustees, the seal shall not be necessary to be placed on,
and its absence shall not impair the validity of, any
document, instrument or other paper executed and delivered by
or on behalf of the Trust.
ARTICLE II. BOARD OF TRUSTEES
Section 2.01. Number and Term of Office. The Board of
Trustees shall initially consist of the initial sole Trustee,
and his or her successor, which number may be increased or
subsequently decreased by a resolution of a majority of the
entire Board of Trustees, provided that the number of Trustees
shall not be less than one nor more than twenty-one. Each
Trustee (whenever selected) shall hold office until the next
meeting of shareholders and until his successor is elected and
qualified or until his earlier death, resignation, or removal.
The initial Trustee shall be the person designated in the
Declaration of Trust.
Section 2.02. Power to Declare Dividends.
(a) The Board of Trustees, from time to time as it may
deem advisable, may declare and pay dividends to the
shareholder of any series of the Trust in cash or other
property of that series, out of any source available to that
series for dividends, according to the respective rights and
interests of shareholders of that series and in accordance
with the applicable provisions of the Declaration of Trust.
(b) The Board of Trustees may prescribe from time to
time that dividends declared on shares of a series may be
payable at the election of any of the shareholders of that
series (exercisable before the declaration of the
dividend), either in cash or in shares of that series;
provided that the net asset value of the shares received by a
shareholder electing to receive dividends in shares
(determined as of such time as the Board of Trustees shall
have prescribed in accordance with the Declaration of Trust)
shall not exceed the full amount of cash to which the
shareholder would be entitled if he elected to receive cash.
Section 2.03. Annual and Regular Meetings. Annual and
regular meetings of the Board of Trustees may be held without
call or notice and at such places at such times as the Board
of Trustees may from time to time determine provided that
notice of the first regular meeting following any such
determination shall be given to absent Trustees. Unless
otherwise required by the Investment Company Act of 1940 (the
"1940 Act"), members of the Board of Trustees or any committee
designated thereby may participate in a meeting of such Board
or committee by means of a conference telephone or other
communications equipment, by means of which all persons
participating in the meeting can hear each other at the same
time. Participation by such means shall constitute presence in
person at a meeting.
Section 2.04. Special Meetings. Special meetings of
the Board of Trustees shall be held whenever called and at
such place and time determined by the President or by any one
of the Trustees, at the time being in office, at the time and
place specified in the respective notices or waivers of notice
of such meetings.
Section 2.05. Notice. If notice of a meeting of the
Board of Trustees is required or desired to be given, notice
stating the time and place shall be mailed to each Trustee at
his residence or regular place of business at least two days
before the day on which the meeting is to be held, or caused
to be delivered to him personally or to be transmitted to him
by telephone, telegraph, cable, or wireless at least one day
before the meeting. A notice or waiver of notice of a meeting
need not specify the purpose thereof.
Section 2.06. Waiver of Notice. No notice required or
desired to be given of any meeting need be given to any
Trustee who attends such meeting in person or to any Trustee
who waives notice of such meeting in writing (which waiver
shall be filed with records of such meeting), whether before
or after the time of the meeting.
Section 2.07. Quorum and Voting. At all meetings of
the Board of Trustees, the presence of a majority of the
Trustees then in office shall constitute a quorum for the
transaction of business. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting
without further notice, from time to time, until a quorum
shall be present. The action of a majority of the Trustees
present at a meeting at which a quorum is present shall be
the action of the Board of Trustees, unless the concurrence
of a greater proportion or a proportion of Trustees who are not
interested persons as defined by the 1940 Act is required for
such action by law, by the Declaration of Trust, or by these
By-Laws.
Section 2.08. Action Without a Meeting. Any action
required or permitted to be taken at any meeting of the Board
of Trustees may be taken without a meeting, unless otherwise
required by the 1940 Act, if all Trustees consent to the action
in writing, and such written consents are filed with the
minutes of proceedings of the Board of Trustees. such consents
shall be treated as a vote for all purposes.
ARTICLE III. EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.01. How Constituted. By resolution adopted
by the Board of Trustees, the Board may designate one or more
committees, including an Executive Committee. The number
composing such committee (not less than two in the case of any
Executive Committee) shall be determined by the Board of
Trustees. Each member of a committee shall be a Trustee and
shall hold office during the pleasure of the Board.
Section 3.02. Powers of the Executive Committee.
Unless otherwise provided by resolution of the Board of
Trustees, the Executive Committee shall have and may exercise
all powers of the Board of Trustees in the management of the
business and affairs of the Trust that may lawfully be
exercised by an executive committee, except the power to
recommend to shareholders any matter requiring shareholder
approval, amend the Declaration of Trust or By-Laws, or
approve any merger or share exchange that does not require
shareholder approval.
Section 3.03. Other Committees of the Board of
Trustees. To the extent provided by resolution of the Board,
other committees of the Board shall have and may exercise any
of the powers that may lawfully be granted to the Executive
Committee.
Section 3.04. Proceedings, Quorum and Manner of Acting.
In the absence of appropriate resolution of the Board of
Trustees, each committee may adopt such rules and regulations
governing its proceedings, quorum and manner of acting as it
shall deem proper and desirable. In the absence of any member
of any such committee, the members thereof present at any
meeting, whether or not they constitute a quorum, may appoint a
member of the Board of Trustees to act in the place of such
absent member.
Section 3.05. Other Committees. The Board of Trustees
may appoint other committees, each consisting of one or more
persons, who need not be Trustees. Each such committee shall
have such powers and perform such duties as may be assigned
to it from time to time by the Board of Trustees, but shall
not exercise any power which may lawfully be exercised only
by the Board of Trustees or a committee thereof.
Section 3.06. Action Without a Meeting. Any action
required or permitted to be taken at any meeting of any
committee may be taken without a meeting, if all the members
thereof consent in writing and such written consents are filed
with the minutes of proceedings of the Board of Trustees or
of the committee.
Section 3.07. Waiver of Notice. Whenever any notice of
the time, place or purpose of any meeting of any committee is
required to be given under the provisions of any applicable
law or under the provisions of the Declaration of Trust or
these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to such notice and filed with the
records of the meeting, whether before or after the holding
of such meeting, or actual attendance at the meeting in
person, shall be deemed equivalent to the giving of such
notice to such persons.
ARTICLE IV. OFFICERS
Section 4.01. General. The officers of the Trust shall
be a President, a Secretary, and a Treasurer who shall be
elected by the Trustees. The Trustees may elect or appoint
such other officers or agents as they deem advisable including,
without limitation, a Controller, one or more Vice Presidents,
one or more Assistant Treasurers, and one or more Assistant
Secretaries.
Section 4.02. Term of Office and Qualifications. Except
as otherwise provided by law, the Declaration of Trust of
these by-laws, the President, the Treasurer and the Secretary
shall each hold office until his successor shall have been
duly elected and qualified or until his or her earlier death,
resignation or removal, and all other officers shall hold
office at the pleasure of the Trustees. Any person may hold
one or more offices of the Trust except the offices of
President and Vice-President, but no officer shall execute,
acknowledge, or verify an instrument in more than one capacity,
if such instrument is required by law, by the Declaration of
Trust, or by these By-Laws to be executed, acknowledged or
verified by two or more officers. The Chairman of the Board,
if any, shall be chosen from among the Trustees of the Trust
and may hold such office only so long as he continues to be a
Trustee. No other officer need be a Trustee.
Section 4.03. Resignation. Any officer may resign his
office at any time by delivering a written resignation to the
Board of Trustees, the President, the Secretary, or any
Assistant Secretary. Unless otherwise specified therein,
such resignation shall take effect upon delivery.
Section 4.04. Removal. Any officer may be removed from
office, whenever in the Board's judgment the best interest of
the Trust will be served thereby, by the vote of a majority
of the Trustees then in office given at any regular or special
meeting. In addition, any officer or agent appointed by an
officer or a committee may be removed, either with or without
cause, by such appointing officer or committee.
Section 4.05. Chairman of the Board. In the absence or
disability of the President, the Chairman of the Board, if
there be such an officer, shall preside at all shareholders'
meetings and at all meetings of the Board of Trustees. He
shall have such other powers and perform such other duties as
may be assigned to him from time to time by the Board of
Trustees.
Section 4.06. Powers and Duties of the President. The
President may call meetings of the Trustees and of any
Committee thereof when he deems it necessary and shall preside
at all meetings of the Shareholders. Subject to the control of
the Trustees and to the control of any Committees of the
Trustees, within their respective spheres, as provided by the
Trustees, he shall at all times exercise a general supervision
and direction over the affairs of the Trust. He shall have the
power to employ attorneys and counsel for the Trust and to
employ such subordinate officers, agents, clerks and employees
as he may find necessary to transact the business of the Trust.
He shall also have the power to grant, issue, execute or sign
such powers of attorney, proxies or other documents as may be
deemed advisable or necessary in furtherance of the interests
of the Trust. The President shall have such other powers and
duties, as from time to time may be conferred upon or assigned
to him by the Trustees.
Section 4.07. Powers and Duties of Vice Presidents. In
the absence or disability of the President, the Vice President
or, if there be more than one vice President, any Vice
President designated by the Trustees shall perform all the
duties and may exercise any of the powers of the President,
subject to the control of the Trustees. Each Vice President
shall perform such other duties as may be assigned to him from
time to time by the Trustees and the President.
Section 4.08 Powers and Duties of the Treasurer. The
Treasurer shall be the principal financial officer of the
Trust, and, in the absence of a Controller of the Trust serving
as the principal accounting officer, shall be the principal
accounting officer of the Trust. He shall deliver all funds of
the Trust which may come into his hands to such Custodian as
the Trustees may employ pursuant to Article V of these By-Laws.
He shall render a statement of condition of the finances of the
Trust to the Trustees as often as they shall require the same
and he shall in general perform all the duties incident to the
office of Treasurer and such other duties as from time to time
may be assigned to him by the Trustees. The Treasurer shall
give a bond for the faithful discharge of his duties, if
required to do so by the Trustees, in such sum and with such
surety or sureties as the Trustees shall require.
Section 4.09. Powers and Duties of the Secretary. The
Secretary shall keep the minutes of all meetings of the
Trustees and of the Shareholders in proper books provided for
that purpose; he shall have custody of the seal of the Trust;
he shall have charge of the Share transfer books, lists and
records unless the same are in the charge of the Transfer
Agent. He shall attend to the giving and serving of all
notices by the Trust in accordance with the provision of these
By-Laws and as required by law; and subject to these By-Laws,
he shall in general perform all duties incident to the office
of the Secretary and such other duties as from time to time may
be assigned to him by the Trustees.
Section 4.10. Powers and Duties of Assistant Treasurers.
In the absence or disability of the Treasurer, any Assistant
Treasurer designated by the Trustees shall perform such other
duties as from time to time may be assigned to him by the
Trustees. Each Assistant Treasurer shall give a bond for the
faithful discharge of his duties, if required to do so by the
Trustees, in such sum and with such surety or sureties as the
Trustees shall require.
Section 4.11. Powers and Duties of Assistant Secretaries.
In the absence or disability of the Secretary, any Assistant
Secretary designated by the Trustees shall perform all the
duties, and may exercise any of the powers, of the Secretary.
Each Assistant Secretary shall perform such other duties as
from time to time may be assigned to him by the Trustees.
Section 4.12. Remuneration. The compensation, if any, of
the officers and Trustees of the Trust shall be fixed from time
to time by the Board of Trustees.
Section 4.13. Surety Bonds. The Board of Trustees may
require any officer or agent of the Trust to execute a bond
to the Trust (including, without limitation, any bond required
by the 1940 Act and the rules and regulations of the SEC
thereunder) in such sum and with such surety or sureties as the
Board of Trustees may determine, conditioned upon the faithful
performance of his duties to the Trust, including
responsibility for negligence and for the accounting of any of
the Trust's property, funds, or securities that may come into
his hands.
ARTICLE V. CUSTODY OF SECURITIES
Section 5.01. Employment of a Custodian. The Trust
shall place and at all times maintain in the custody of a
Custodian (including any sub-custodian for the Custodian) all
securities and similar investments owned by the Trust for the
benefit of any series and cash representing the proceeds from
sales of securities owned by the Trust for the benefit of any
series and of capital stock or other units of beneficial
interest issued to the Trust for the benefit of any series,
payments of principal upon securities owned by the Trust for
the benefit of any series, or capital distribution in respect
to capital stock or other units of beneficial interest owned by
the Trust for the benefit of any series, pursuant to a written
contract with such Custodian. The Custodian shall be a bank or
trust company having not less than $2,000,000 aggregate
capital, surplus and undivided profits (as shown in its last
published report).
Section 5.02. Provisions of Custodian Contract. The
Custodian contract shall be upon such terms and conditions
and may provide for such compensation as the Board of
Trustees deems necessary or appropriate, provided such
contract shall include all such provisions that are required
by, and shall otherwise comply with, the applicable provisions
of the Investment Company Act and the rules and regulations
thereunder as in effect from time to time.
ARTICLE VI. EXECUTION OF INSTRUMENTS, RIGHTS AS
SECURITY HOLDER
Section 6.01. General. All deeds, documents,
transfers, contracts, agreements and other instruments
requiring execution by the Trust shall be signed by the
President, any Vice-President, or the Treasurer, or as
the Board of Trustees may otherwise, from time to time,
authorize. Any such authorization may be general or
confined to specific instances.
Section 6.02. Rights as Security Holder. Unless
otherwise ordered by the Board of Trustees, any officer shall
have full power and authority on behalf of the Trust to (1)
exercise (or waive) any and all rights, powers and privileges
incident to the ownership of any securities or other
obligations which may be owned by the Trust; and (2) attend
and to act and to vote, or in the name of the Trust to
execute proxies to vote, at any meeting of security holders
of any company in which the Trust may hold securities. At
any such meeting, any officer shall possess and may exercise
(in person or by proxy) any and all rights, powers and
privileges incident to the ownership of such securities.
ARTICLE VII. SHARES OF BENEFICIAL INTEREST
Section 7.01. Certificates. Each shareholder shall be
entitled, upon request, to a certificate or certificates which
shall represent and certify the number, kind, series and class
of full shares owned by him in the Trust. No certificates
shall be issued for fractional shares. Each certificate
shall be signed by the President or a Vice-President and
countersigned by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer and shall be sealed
with the Seal. The signatures may be either manual or
facsimile signatures and the seal may be either facsimile or
any other form of seal. In case any officer who has signed any
certificate ceases to be an officer of the Trust before the
certificate is issued, the certificate may nevertheless be
issued with the same effect as if the officer had not ceased to
be such officer as of the date of its issue.
Section 7.02. Uncertificated Shares. The Trust's share
ledger shall be deemed to represent and certify the number of
full and/or fractional shares of a series owned of record by
a shareholder in those instances where a certificate for such
shares has not been issued.
Section 7.03. Transfers of Shares. Shares of any
series of the Trust shall be transferable on the books of the
Trust at the request of the record holder thereof in person
or by a duly authorized attorney, upon presentation to the
Trust or its transfer agent of a duly executed assignment or
authority to transfer, or proper evidence of succession, and,
if the shares are represented by a certificate, a duly
endorsed certificate or certificates of shares surrendered
for cancellation, and with such proof of the authenticity of
the signatures and as to other relevant matters as the Trust
or its transfer agent may reasonably require.
The transfer shall be recorded on the books of the Trust
and the old certificates, if any, shall be cancelled, and the
new record holder, upon request, shall be entitled to a new
certificate or certificates.
Section 7.04. Registered Shareholders. The Trust shall
be entitled to treat the holder of record of shares of each
series as the holder in fact thereof and, accordingly, shall
not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person,
whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Commonwealth of
Massachusetts.
Section 7.05. Transfer Agents and Registrars. The
Board of Trustees may, from time to time, appoint or remove
transfer agents and/or registrars of transfers of shares of
the Trust, and it may appoint the same person as both
transfer agent and registrar. Upon any such appointment
being made, all certificates representing shares thereafter
issued shall be countersigned by one of such transfer agents
or by one of such registrars of transfers or by both and
shall not be valid unless so countersigned. If the same
person shall be both transfer agent and registrar, only one
countersignature by such person shall be required.
Section 7.06. Fixing of Record Date. The Board of
Trustees may fix in advance a date as a record date for the
determination of the shareholders of any series entitled to
notice of or to vote at any meeting of such shareholders or
any adjournment thereof, or to express consent to Trust
action in writing without a meeting, or to receive payment of
any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change,
conversion, or exchange of shares of such series, or for the
purpose of any other lawful action, provided that such record
date shall not be a date more than 60 days, and, in the case
of a meeting of shareholders, not less than 10 days, prior to
the date on which the particular action requiring such
determination of shareholders of such series is to be taken.
In such case only such shareholders as shall be shareholders
of record of such series on the record date so fixed shall be
entitled to such notice of, and to vote at, such meeting or
adjournment, or to give such consent, or to receive payment
of such dividend or other distribution, or to receive such
allotment of rights, or to exercise such rights, or to take
such other action, as the case may be, notwithstanding any
transfer or redemption of any shares of such series on the
books of the Trust after any such record date. If no record
date has been fixed for the determination of shareholders,
the record date for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders
shall be at the close of business on the day on which notice
of the meeting is mailed, which shall not be more than 70
days before the meeting, or, if notice is waived by all
shareholders entitled thereto, at the close of business on
the tenth day before the day on which the meeting is held.
Section 7.07. Lost, Stolen, or Destroyed Certificates.
Before issuing a new certificate for shares of any series of
the Trust alleged to have been lost, stolen, or destroyed, the
Board of Trustees or any officer authorized by the Board may,
in its or his discretion, require the owner of the lost,
stolen, or destroyed certificate (or his legal representative)
to give the Trust a bond or other indemnity, in such form and
in such amount as of the Board or any such officer may direct
and with such surety or sureties as may be satisfactory to the
Board or any such officer, sufficient to indemnify the Trust
against any claim that may be made against it on account of
the alleged loss, theft, or destruction of any such
certificate or the issuance of such new certificate.
Section 7.08. Discontinuance of Issuance of Certificates.
The Trustees may at any time discontinue the issuance of share
certificates and may, by written notice to each shareholder,
require the surrender of share certificates to the Trust for
cancellation. Such surrender and cancellation shall not
affect the ownership of shares in the Trust.
ARTICLE VIII. FISCAL YEAR, ACCOUNTANT
Section 8.01. Fiscal Year. The fiscal year of the Trust
shall be established by the Board of Trustees.
Section 8.02. Accountants. The Trust shall employ an
independent public accountant or firm of independent public
accountants as the Accountant to examine and certify or
issue its report on the financial statements of the Trust.
ARTICLE IX. AMENDMENTS
Section 9.01. General. Except as provided in Section
9.02 hereof, all By-Laws of the Trust, whether adopted by the
Board of Trustees or the shareholders, shall be subject to
amendment, alteration, or repeal, and new By-Laws may be
made, by the affirmative vote of a majority of either:
(a) the holders of record of the outstanding shares of
the Trust entitled to vote at any meeting, the notice or
waiver of notice of which shall have specified or summarized
the proposed amendment, alteration, repeal, or new By-Law; or
(b) the Trustees, at any regular or special meeting.
Section 9.02. By Shareholders Only.
(a) No amendment of any section of these By-Laws shall
be made except by the shareholders of the Trust, if the By-
Laws provide that such section may not be amended, altered or
repealed except by the shareholders.
(b) From and after the effectiveness of the Trust's
registration statement under the Securities Act of 1933, no
amendment of this Article IV or Article X shall be made except
by the shareholders of the Trust.
ARTICLE X. MISCELLANEOUS
Section 10.01. Restrictions and Limitations.
(a) The Trust shall not lend assets of the Trust to any
officer or Trustee of the Trust or to any officer, director,
or stockholder (or partner of a stockholder) of, or person
financially interested in, the investment adviser or any
underwriter of the Trust, or to the investment adviser of the
Trust or to any underwriter of the Trust.
(b) The Trust shall not restrict the transferability or
negotiability of the shares of the Trust, except in
conformity with the statements with respect thereto contained
in the Trust's Registration Statement, and not in
contravention of such rules and regulations as the SEC may
prescribe.
(c) The Trust shall not permit any officer or Trustee of
the Trust, or any officer, director, or stockholder (or
partner of a stockholder) of the investment adviser or any
underwriter of the Trust to deal for or on behalf of the
Trust with himself as principal or agent, or with any
partnership, association, or trust in which he has a
financial interest; provided that the foregoing provisions
shall not prevent, to the extent consistent with applicable
securities laws: (1) officers and Trustees of the Trust from
buying, holding, redeeming, or selling shares in the Trust,
or from being officers, directors, or stockholders (or
partners of a stockholder) of or otherwise financially
interested in the investment adviser or any underwriter of
the Trust; (2) purchases or sales of securities or other
property by the Trust from or to an affiliated person or to
the investment adviser or any underwriter of the Trust, if
such transactions are not prohibited by the 1940 Act or have
been exempted by SEC order from the prohibitions of the 1940
Act; (3) purchases of investments for the portfolio of the
Trust through a securities dealer who is, or one or more of
whose partners, stockholders, officers, or directors is, an
officer or Trustee of the Trust, if such transactions are
handled in the capacity of broker only and commissions
charged do not exceed customary brokerage charges for such
services; (4) employment of legal counsel, registrar,
transfer agent, dividend disbursing agent, or custodian who
is, or has a partner, stockholder, officer, or director who
is, an officer or Trustee of the Trust, if only customary
fees are charged for services to the Trust; (5) sharing
statistical, research, legal and management expenses and
office hire and expenses with any other investment company in
which an officer or Trustee of the Trust is an officer,
trustee, or director or otherwise financially interested.
END OF BY-LAWS
STEINROE VARIABLE INVESTMENT TRUST
CAPITAL APPRECIATION FUND
FUND ADVISORY AGREEMENT
FUND ADVISORY AGREEMENT dated May 1, 1993 between STEINROE
VARIABLE INVESTMENT TRUST, a business trust organized under the
laws of the Commonwealth of Massachusetts (the "Trust"), on
behalf of Capital Appreciation Fund (the "Fund"), and STEIN ROE
& FARNHAM INCORPORATED, a corporation organized under the laws
of the State of Delaware (the "Investment Advisor").
WHEREAS, the Trust has been organized as an open-end
management investment company registered as such under the
Investment Company Act of 1940 ("Investment Company Act"), and
is authorized to issue shares of beneficial interest in one or
more separate series each representing interests in a separate
portfolio of securities and other assets, including the Fund,
which shares are to be issued and sold to and held by various
separate accounts of Keyport Life Insurance Company ("Keyport")
or separate accounts of other insurance companies that are
affiliated or are not affiliated with Keyport ("Participating
Insurance Company");
WHEREAS, the Trust desires the Investment Adviser to render
investment management services to the Fund in the manner and on
the terms and conditions hereinafter set forth;
WHEREAS, the Trust is entering into a Fund Administration
Agreement (the "Administration Agreement") of even date herewith
with Liberty Investment Services, Inc. (the "Administrator")
providing for certain administrative services to the Trust other
than investment management services;
WHEREAS, the Investment Advisor is registered as an
investment adviser under the Investment Advisers Act of 1940 and
as a commodities trading advisor under the Commodity Exchange
Act, and desires to provide services to the Fund in
consideration of and on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, the Trust, on behalf of the Fund, and the
Investment Advisor agree as follows:
1. Employment of the Investment Adviser. The Trust hereby
engages the Investment Adviser to manage the investment and
reinvestment of the Trust's assets represented by Fund shares
("Fund assets" or "assets of the Fund") and to advise with
respect thereto for the period, in the manner, and on the terms
hereinafter set forth. The Investment Adviser hereby accepts
such engagement and agrees during such period to render the
services and to assume the obligations herein set forth. The
Investment Adviser shall for all purposes herein be deemed to be
an independent contractor and shall, except as expressly
provided or authorized (whether herein or otherwise), have no
authority to act for or represent the Trust or the Fund in any
way or otherwise be deemed an agent of the Trust or the Fund.
2. Management Services. (a) The Investment Adviser will
manage and supervise the investment and reinvestment of the
assets of the Fund and advise with respect thereto, subject to
the direction and overall control of the Board of Trustees of
the Trust and giving due consideration to the investment
objective of the Fund and the investment policies and
investment restrictions of and the other statements concerning
the Fund set forth from time to time in the Trust's then current
prospectus and statement of additional information and other
governing documents, and to the provisions of the Internal
Revenue Code and regulations thereunder applicable to the Fund
as a regulated investment company and as the designated
investment vehicle for variable annuity, endowment, or life
insurance contracts. In furtherance of its duties set forth
above, the Investment Adviser is authorized on behalf of the
Fund (i) to buy, sell, exchange, convert, lend and otherwise
trade in the Fund's portfolio securities and assets, and (ii) to
place orders for the execution of transactions in the Fund's
portfolio securities with or through such brokers, dealers,
underwriters or issuers as the Investment Adviser may select,
and to negotiate the terms of such transactions, including
brokerage commissions on brokerage transactions, all in
accordance with the Trust's policies concerning allocation of
its portfolio brokerage, as permitted by law including but not
limited to Section 28(e) of the Securities Exchange Act of 1934,
and with the statements concerning the allocation of orders for
the purchase and sale of securities among the Fund and other
accounts of the Investment Adviser set forth from time to time
in the Trust's then current prospectus and statement of
additional information, and in doing so the Investment Adviser
shall not be required to make any reduction of its investment
advisory fee hereunder.
(b) The Investment Adviser shall provide to the Trust and
the Administrator such information, records and reports
concerning the Investment Adviser and its investment management
of the Fund's portfolio securities pursuant hereto as the Trust
and the Administrator may reasonably request.
(c) The Investment Adviser will preserve for the Trust all
records it maintains for the Trust as prescribed by the rules
and regulations of the Securities and Exchange Commission in the
manner and for the time periods prescribed by such rules. The
Investment Adviser agrees that all such records shall be the
property and under the control of the Trust and shall be made
available, within five business days of request therefor, to the
Trust's Board of Trustees or auditors during regular business
hours at the Investment Adviser's offices. In the event of
termination of this Agreement for any reason, all such records
shall be returned, without charge, promptly to the Trust, free
from any claim or retention of rights by the Investment Adviser,
except that the Investment Adviser may retain copies of such
records.
(d) The Investment Adviser will report to the Trustees of
the Trust any potential or existing material irreconcilable
conflict among the interests of the shareholders (the separate
accounts of insurance companies investing in the Trust) of which
it is aware. The Investment Adviser will assist the Trustees in
carrying out their responsibilities under an Order from the SEC,
dated July 1, 1988, granting insurance companies and variable
annuity and variable life insurance separate accounts exemptions
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of
the Investment Company Act and Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) thereunder, to the extent necessary to permit shares
of the Trust to be sold to and held by variable annuity and
variable life insurance separate accounts of insurance companies
affiliated and unaffiliated with each other. The Investment
Adviser shall provide the Trustees with all information
reasonably necessary for the Trustees to consider any issues
raised.
(e) The Investment Adviser will not disclose or use any
records or information obtained pursuant to this Agreement in
any manner whatsoever except as expressly authorized herein, and
will keep confidential any information obtained pursuant to this
Agreement, and disclose such information only if the Trust has
authorized such disclosure, or if such disclosure is expressly
required by applicable federal or state regulatory authorities.
3. Expenses Borne by Investment Adviser. To the extent
necessary to perform its obligations under this Agreement, the
Investment Adviser, at its own expenses, shall furnish executive
and other personnel and office space, equipment and facilities,
and shall pay any other expenses incurred by it, in connection
with the performance of its duties hereunder. The Investment
Adviser shall pay all salaries, fees and expenses of Trustees or
officers of the Trust who are employees of the Investment
Adviser. The Investment Adviser shall not be obligated to bear
any other expenses incidental to the operations and business of
the Trust. The Investment Adviser shall not be required to pay
or provide any credit for services provided by the Trust's
custodian, transfer agent or other agents, including the
Administrator.
4. Expenses Borne by the Trust and Fund. The Trust or the
Fund, as appropriate, shall pay all expenses incidental to the
operations and business of the Trust and the Fund not
specifically assumed or agreed to be paid by the Investment
Adviser or the Administrator pursuant to this Agreement or the
Administration Agreement, or by Keyport or any Participating
Insurance Company, including, without limitation:
(a) the fees of the Investment Adviser as provided in
Section 5 below, and of the Administrator;
(b) fees payable pursuant to any plan adopted by the Trust
pursuant to Rule 12b-1 under the Investment Company Act;
(c) all fees and charges of depositories, custodians, and
other agencies for the safekeeping and servicing of the cash,
securities, and other property of the Trust;
(d) all fees and charges of transfer, shareholder
servicing, shareholder record keeping and dividend disbursing
agents and all other expenses relating to the issuance and
redemption of shares of the Trust (including shares of the Fund)
and the maintenance and servicing of shareholder accounts;
(e) all charges for equipment or services used for
obtaining price quotations or for communication among the
Investment Adviser, any sub-adviser appointed by the Trust, the
Administrator, the Trust, Keyport or any Participating Insurance
Company, the custodian or any sub-custodian, transfer agent or
any other agent selected by the Trust or the Fund;
(f) all expenses incurred in periodic calculations of the
net asset value of the shares of the Trust (including the shares
of the Fund);
(g) all charges for bookkeeping, accounting and tax
information services provided to the Trust by the custodian or
any subcustodian;
(h) all charges for services of the Trust's independent
auditors;
(i) all charges and expenses of legal counsel for the Trust
and for the Trustees of the Trust in connection with legal
matters relating to the Trust or the Fund;
(j) all compensation of the Trustees of the Trust other
than those Trustees who are interested persons of the Trust
including, without limitation, Trustees who are interested
persons of the Investment Adviser, the Administrator, Keyport or
any Participating Insurance Company, or the principal
underwriter of the Trust, and all expenses (including expenses
incident to Trustees' meetings) incurred in connection with
their services to the Trust;
(k) all expenses of preparation, printing and mailing of
notices and proxy solicitation material and of reports and other
communications to the shareholders and beneficial owners of the
Trust, and all other expenses (including proxy solicitation
expenses) incidental to meetings of the shareholders or
beneficial owners of the Trust;
(l) all expenses of preparation (including type setting)
and printing of annual or more frequent revisions of the Trust's
prospectuses and statements of additional information and
supplements thereto, of supplying each then-existing shareholder
or beneficial owner of shares of the Fund or purchaser thereof
with a copy of such revised prospectus or SAI supplements, and
of supplying copies of such statements of additional information
to persons requesting the same;
(m) all expenses, if any, related to preparing, printing
and engraving and transmitting certificates representing shares
of the Trust;
(n) all expenses of bond and insurance coverage required by
law or deemed advisable by the Board of Trustees;
(o) all brokers' commissions and other normal charges
incident to the purchase and sale of portfolio securities;
(p) costs, including interest expense, of borrowing money;
(q) all taxes and corporate fees payable to federal, state
or other governmental agencies, domestic or foreign, and all
costs and expenses incident to the maintenance of the Trust's
legal existence;
(r) all expenses of registering and maintaining the
registration of the Trust under the Investment Company Act and
the shares of the Trust under the Securities Act of 1933, and
all expenses, if any, of qualifying and maintaining the
qualification of the shares of the Trust for sale under
securities laws of various states or other jurisdictions and of
registration and qualification of the Trust under all other laws
applicable to the Trust or its business activities;
(s) all fees, dues, and other expenses incurred by the
Trust in connection with its membership in any trade association
or other investment organization; and
(t) all miscellaneous business expenses.
The Trust or the Fund, as appropriate, shall also bear all
extraordinary non-recurring expenses as may arise, including but
not limited to expenses incurred in connection with litigation,
proceedings and claims and expenses incurred in connection with
any obligation of the Trust or the Fund to indemnify any person.
Expenses which are directly charged to or attributable to
the Fund or any other Fund of the Trust shall be borne by that
Fund, and expenses which are not solely attributable to any one
Fund of the Trust shall be allocated among the Funds of the
Trust on a basis that the Trustees of the Trust deem fair and
equitable.
5. Investment Advisory Fee. For the services to be
rendered by the Investment Adviser hereunder, the Trust, for the
benefit of the Fund, shall pay the Investment Adviser out of
Fund assets an annual fee in the amount shown in Schedule A
attached hereto and made a part hereof.
6. Non-Exclusivity. The services of the Investment
Adviser to the Fund hereunder are not to be deemed exclusive and
the Investment Adviser shall be free to render similar services
to others.
7. Standard of Care. Neither the Investment Adviser, nor
any of its directors, officers or stockholders (or partners of
stockholders), agents or employees shall be liable or
responsible to the Trust or the Fund or their shareholders (or
the beneficial owners of their shares) for any error of
judgment, mistake of law or any loss arising out of any
investment, or for any other act or omission in the performance
by the Investment Adviser of its duties under this Agreement,
except for liability resulting from willful misfeasance, bad
faith or gross negligence on the Investment Adviser's part or
from reckless disregard by the Investment Adviser of its
obligations and duties under this Agreement.
8. Amendment. This Agreement may be amended at any time
by a written agreement executed by both parties hereto, provided
that with respect to amendments of substance such execution on
behalf of the Fund shall have been approved by the vote of a
majority of the outstanding voting securities of the Fund and by
the vote of a majority of those Trustees who are not interested
persons of the Trust, the Investment Adviser, the Administrator,
Keyport or a Participating Insurance Company cast in person at a
meeting called for the purpose of voting on such approval.
9. Term and Termination. This Agreement shall begin on
the date first written above, and may be terminated at any time,
without payment of any penalty, by the Board of Trustees of the
Trust, or by the vote a majority of the outstanding voting
securities of the Fund, upon sixty (60) days' written notice to
the Investment Adviser. This Agreement may be terminated by the
Investment Adviser at any time upon sixty 60 days' written
notice to the Trust. This Agreement shall terminate
automatically in the event of its assignment. Unless terminated
as hereinabove provided, this Agreement shall continue in effect
until April 30, 1995 [December 9, 1990] and thereafter from year
to year only so long as such continuance is specifically
approved at least annually in conformity with the requirements
of the Investment Company Act and the rules and regulations
thereunder (a) by the vote of a majority of those Trustees who
are not parties to this Agreement or interested persons of the
Trust, the Investment Adviser, the Administrator, Keyport
[Keystone], or a Participating Insurance Company, cast in person
at a meeting called for the purpose of voting on such approval,
and (b) by either the Board of Trustees of the Trust or by the
vote of a majority of the outstanding voting securities of the
Fund.
10. Non-Liability of Trustees and Shareholders. As
provided in the Declaration of Trust of the Trust, a copy of
which is on file with the Secretary of the Commonwealth of
Massachusetts, any obligation of the Trust or the Fund hereunder
shall be binding only upon the assets and property of the Trust
or the Fund, as the case may be, and shall not be binding upon
any Trustee, officer, employee, agent or shareholder (or
beneficial owner of shares) of the Trust, including, without
limitation, the officer of the Trust executing this Agreement on
its behalf. Neither the authorization of any action by the
Trustees or shareholders (or beneficial owners of shares) of the
Trust nor the execution of this Agreement on behalf of the Trust
shall impose any liability upon any Trustee or any shareholder
(or beneficial owner of shares).
11. Use of Investment Adviser's Name. The Trust may use
the name "Stein Roe Variable Investment Trust" or any other name
derived from the name "Stein Roe & Farnham" only for so long as
this Agreement or any extension, renewal, or amendment hereof
remains in effect, including any similar agreement with any
organization which shall have succeeded to the business of the
Investment Adviser. At such time as this Agreement or any
extension, renewal or amendment hereof, or such other similar
agreement shall no longer be in effect, the Trust will cease to
use any name derived from the name "Stein Roe & Farnham," any
name similar thereto, or any other name indicating that it is
advised by or otherwise connected with Investment Adviser, or
with any organization which shall have succeeded to Investment
Adviser's business as investment adviser.
12. Definitions, References and Headings. As used in this
Agreement, the terms "vote of a majority of the outstanding
voting securities", "interested person", "principal underwriter"
and "assignment" shall have the respective meanings provided in
the Investment Company Act and the rules thereunder, subject,
however, to such exemptions or no-action responses as may be
granted by the Securities and Exchange Commission under said
Act. Headings are placed herein for convenience of reference
only and shall not be taken as a part hereof or control or
affect the meaning, construction or effect of this Agreement.
13. Interpretation; Governing Law. This Agreement shall
be interpreted under, and the performance of the Investment
Adviser under this Agreement shall be consistent with, the
provisions of the Agreement and Declaration of Trust and By-Laws
of the Trust, as in effect from time to time, the terms of the
Investment Company Act, other applicable laws and regulations
thereunder (including any amendments hereafter adopted), the
Internal Revenue Code of 1986, and regulations thereunder, and
the Trust's prospectus and statement of additional information.
The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of Illinois (except
Section 10 hereof which shall be construed and interpreted in
accordance with the laws of Massachusetts), without giving
effect to the conflict of laws provisions thereof, provided,
however, that if such law or any of the provisions of this
Agreement conflict with the applicable provisions of the
Investment Company Act, the latter shall control.
14. Severability. If any provision of this Agreement
shall be held or made invalid by a court decision, a statute, a
rule, or otherwise, the remainder of this Agreement shall not be
affected thereby.
15. Effective Date. This Advisory Agreement shall become
effective as of its date, and supersedes the Advisory Agreement
dated December 9, 1988.
This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, the parties hereto have duly executed
this agreement on the date first above written.
CAPITAL APPRECIATION FUND
STEINROE VARIABLE INVESTMENT TRUST
By: RICHARD R. CHRISTENSEN
STEIN ROE & FARNHAM INCORPORATED
By: TIMOTHY A. SCHLINDWEIN
Chairman and CEO
<PAGE>
SCHEDULE A
Fund Advisory Agreement
Capital Appreciation Fund
The annual investment advisory fee referred to in paragraph
5 of this Agreement shall be 0.50% of the net asset value of the
Fund, computed as hereinafter provided. The fee shall be
accrued for each calendar day and the sum of the daily fee
accruals shall be paid monthly on or before the tenth day of the
following calendar month. The daily accruals of the fee will be
computed by multiplying the annual rate referred to above by the
fraction the numerator of which is one and the denominator of
which is the number of calendar days in the year, and
multiplying such product by the net asset value of the Fund as
determined in accordance with the Fund's prospectus as of the
previous business day on which the Fund was open for business.
The foregoing fee shall be prorated for any month during which
this Agreement is in effect for only a portion of the month.
STEINROE VARIABLE INVESTMENT TRUST
MANAGED GROWTH STOCK FUND
FUND ADVISORY AGREEMENT
FUND ADVISORY AGREEMENT dated May 1, 1993 between STEINROE
VARIABLE INVESTMENT TRUST, a business trust organized under the
laws of the Commonwealth of Massachusetts (the "Trust"), on
behalf of Managed Growth Stock Fund (the "Fund"), and STEIN ROE
& FARNHAM INCORPORATED, a corporation organized under the laws
of the State of Delaware (the "Investment Advisor").
WHEREAS, the Trust has been organized as an open-end
management investment company registered as such under the
Investment Company Act of 1940 ("Investment Company Act"), and
is authorized to issue shares of beneficial interest in one or
more separate series each representing interests in a separate
portfolio of securities and other assets, including the Fund,
which shares are to be issued and sold to and held by various
separate accounts of Keyport Life Insurance Company ("Keyport")
or separate accounts of other insurance companies that are
affiliated or are not affiliated with Keyport ("Participating
Insurance Company");
WHEREAS, the Trust desires the Investment Adviser to render
investment management services to the Fund in the manner and on
the terms and conditions hereinafter set forth;
WHEREAS, the Trust is entering into a Fund Administration
Agreement (the "Administration Agreement") of even date herewith
with Liberty Investment Services, Inc. (the "Administrator")
providing for certain administrative services to the Trust other
than investment management services;
WHEREAS, the Investment Advisor is registered as an
investment adviser under the Investment Advisers Act of 1940 and
as a commodities trading advisor under the Commodity Exchange
Act, and desires to provide services to the Fund in
consideration of and on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, the Trust, on behalf of the Fund, and the
Investment Advisor agree as follows:
1. Employment of the Investment Adviser. The Trust hereby
engages the Investment Adviser to manage the investment and
reinvestment of the Trust's assets represented by Fund shares
("Fund assets" or "assets of the Fund") and to advise with
respect thereto for the period, in the manner, and on the terms
hereinafter set forth. The Investment Adviser hereby accepts
such engagement and agrees during such period to render the
services and to assume the obligations herein set forth. The
Investment Adviser shall for all purposes herein be deemed to be
an independent contractor and shall, except as expressly
provided or authorized (whether herein or otherwise), have no
authority to act for or represent the Trust or the Fund in any
way or otherwise be deemed an agent of the Trust or the Fund.
2. Management Services. (a) The Investment Adviser will
manage and supervise the investment and reinvestment of the
assets of the Fund and advise with respect thereto, subject to
the direction and overall control of the Board of Trustees of
the Trust and giving due consideration to the investment
objective of the Fund and the investment policies and
investment restrictions of and the other statements concerning
the Fund set forth from time to time in the Trust's then current
prospectus and statement of additional information and other
governing documents, and to the provisions of the Internal
Revenue Code and regulations thereunder applicable to the Fund
as a regulated investment company and as the designated
investment vehicle for variable annuity, endowment, or life
insurance contracts. In furtherance of its duties set forth
above, the Investment Adviser is authorized on behalf of the
Fund (i) to buy, sell, exchange, convert, lend and otherwise
trade in the Fund's portfolio securities and assets, and (ii) to
place orders for the execution of transactions in the Fund's
portfolio securities with or through such brokers, dealers,
underwriters or issuers as the Investment Adviser may select,
and to negotiate the terms of such transactions, including
brokerage commissions on brokerage transactions, all in
accordance with the Trust's policies concerning allocation of
its portfolio brokerage, as permitted by law including but not
limited to Section 28(e) of the Securities Exchange Act of 1934,
and with the statements concerning the allocation of orders for
the purchase and sale of securities among the Fund and other
accounts of the Investment Adviser set forth from time to time
in the Trust's then current prospectus and statement of
additional information, and in doing so the Investment Adviser
shall not be required to make any reduction of its investment
advisory fee hereunder.
(b) The Investment Adviser shall provide to the Trust and
the Administrator such information, records and reports
concerning the Investment Adviser and its investment management
of the Fund's portfolio securities pursuant hereto as the Trust
and the Administrator may reasonably request.
(c) The Investment Adviser will preserve for the Trust all
records it maintains for the Trust as prescribed by the rules
and regulations of the Securities and Exchange Commission in the
manner and for the time periods prescribed by such rules. The
Investment Adviser agrees that all such records shall be the
property and under the control of the Trust and shall be made
available, within five business days of request therefor, to the
Trust's Board of Trustees or auditors during regular business
hours at the Investment Adviser's offices. In the event of
termination of this Agreement for any reason, all such records
shall be returned, without charge, promptly to the Trust, free
from any claim or retention of rights by the Investment Adviser,
except that the Investment Adviser may retain copies of such
records.
(d) The Investment Adviser will report to the Trustees of
the Trust any potential or existing material irreconcilable
conflict among the interests of the shareholders (the separate
accounts of insurance companies investing in the Trust) of which
it is aware. The Investment Adviser will assist the Trustees in
carrying out their responsibilities under an Order from the SEC,
dated July 1, 1988, granting insurance companies and variable
annuity and variable life insurance separate accounts exemptions
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of
the Investment Company Act and Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) thereunder, to the extent necessary to permit shares
of the Trust to be sold to and held by variable annuity and
variable life insurance separate accounts of insurance companies
affiliated and unaffiliated with each other. The Investment
Adviser shall provide the Trustees with all information
reasonably necessary for the Trustees to consider any issues
raised.
(e) The Investment Adviser will not disclose or use any
records or information obtained pursuant to this Agreement in
any manner whatsoever except as expressly authorized herein, and
will keep confidential any information obtained pursuant to this
Agreement, and disclose such information only if the Trust has
authorized such disclosure, or if such disclosure is expressly
required by applicable federal or state regulatory authorities.
3. Expenses Borne by Investment Adviser. To the extent
necessary to perform its obligations under this Agreement, the
Investment Adviser, at its own expenses, shall furnish executive
and other personnel and office space, equipment and facilities,
and shall pay any other expenses incurred by it, in connection
with the performance of its duties hereunder. The Investment
Adviser shall pay all salaries, fees and expenses of Trustees or
officers of the Trust who are employees of the Investment
Adviser. The Investment Adviser shall not be obligated to bear
any other expenses incidental to the operations and business of
the Trust. The Investment Adviser shall not be required to pay
or provide any credit for services provided by the Trust's
custodian, transfer agent or other agents, including the
Administrator.
4. Expenses Borne by the Trust and Fund. The Trust or the
Fund, as appropriate, shall pay all expenses incidental to the
operations and business of the Trust and the Fund not
specifically assumed or agreed to be paid by the Investment
Adviser or the Administrator pursuant to this Agreement or the
Administration Agreement, or by Keyport or any Participating
Insurance Company, including, without limitation:
(a) the fees of the Investment Adviser as provided in
Section 5 below, and of the Administrator;
(b) fees payable pursuant to any plan adopted by the Trust
pursuant to Rule 12b-1 under the Investment Company Act;
(c) all fees and charges of depositories, custodians, and
other agencies for the safekeeping and servicing of the cash,
securities, and other property of the Trust;
(d) all fees and charges of transfer, shareholder
servicing, shareholder record keeping and dividend disbursing
agents and all other expenses relating to the issuance and
redemption of shares of the Trust (including shares of the Fund)
and the maintenance and servicing of shareholder accounts;
(e) all charges for equipment or services used for
obtaining price quotations or for communication among the
Investment Adviser, any sub-adviser appointed by the Trust, the
Administrator, the Trust, Keyport or any Participating Insurance
Company, the custodian or any sub-custodian, transfer agent or
any other agent selected by the Trust or the Fund;
(f) all expenses incurred in periodic calculations of the
net asset value of the shares of the Trust (including the shares
of the Fund);
(g) all charges for bookkeeping, accounting and tax
information services provided to the Trust by the custodian or
any subcustodian;
(h) all charges for services of the Trust's independent
auditors;
(i) all charges and expenses of legal counsel for the Trust
and for the Trustees of the Trust in connection with legal
matters relating to the Trust or the Fund;
(j) all compensation of the Trustees of the Trust other
than those Trustees who are interested persons of the Trust
including, without limitation, Trustees who are interested
persons of the Investment Adviser, the Administrator, Keyport or
any Participating Insurance Company, or the principal
underwriter of the Trust, and all expenses (including expenses
incident to Trustees' meetings) incurred in connection with
their services to the Trust;
(k) all expenses of preparation, printing and mailing of
notices and proxy solicitation material and of reports and other
communications to the shareholders and beneficial owners of the
Trust, and all other expenses (including proxy solicitation
expenses) incidental to meetings of the shareholders or
beneficial owners of the Trust;
(l) all expenses of preparation (including type setting)
and printing of annual or more frequent revisions of the Trust's
prospectuses and statements of additional information and
supplements thereto, of supplying each then-existing shareholder
or beneficial owner of shares of the Fund or purchaser thereof
with a copy of such revised prospectus or SAI supplements, and
of supplying copies of such statements of additional information
to persons requesting the same;
(m) all expenses, if any, related to preparing, printing
and engraving and transmitting certificates representing shares
of the Trust;
(n) all expenses of bond and insurance coverage required by
law or deemed advisable by the Board of Trustees;
(o) all brokers' commissions and other normal charges
incident to the purchase and sale of portfolio securities;
(p) costs, including interest expense, of borrowing money;
(q) all taxes and corporate fees payable to federal, state
or other governmental agencies, domestic or foreign, and all
costs and expenses incident to the maintenance of the Trust's
legal existence;
(r) all expenses of registering and maintaining the
registration of the Trust under the Investment Company Act and
the shares of the Trust under the Securities Act of 1933, and
all expenses, if any, of qualifying and maintaining the
qualification of the shares of the Trust for sale under
securities laws of various states or other jurisdictions and of
registration and qualification of the Trust under all other laws
applicable to the Trust or its business activities;
(s) all fees, dues, and other expenses incurred by the
Trust in connection with its membership in any trade association
or other investment organization; and
(t) all miscellaneous business expenses.
The Trust or the Fund, as appropriate, shall also bear all
extraordinary non-recurring expenses as may arise, including but
not limited to expenses incurred in connection with litigation,
proceedings and claims and expenses incurred in connection with
any obligation of the Trust or the Fund to indemnify any person.
Expenses which are directly charged to or attributable to
the Fund or any other Fund of the Trust shall be borne by that
Fund, and expenses which are not solely attributable to any one
Fund of the Trust shall be allocated among the Funds of the
Trust on a basis that the Trustees of the Trust deem fair and
equitable.
5. Investment Advisory Fee. For the services to be
rendered by the Investment Adviser hereunder, the Trust, for the
benefit of the Fund, shall pay the Investment Adviser out of
Fund assets an annual fee in the amount shown in Schedule A
attached hereto and made a part hereof.
6. Non-Exclusivity. The services of the Investment
Adviser to the Fund hereunder are not to be deemed exclusive and
the Investment Adviser shall be free to render similar services
to others.
7. Standard of Care. Neither the Investment Adviser, nor
any of its directors, officers or stockholders (or partners of
stockholders), agents or employees shall be liable or
responsible to the Trust or the Fund or their shareholders (or
the beneficial owners of their shares) for any error of
judgment, mistake of law or any loss arising out of any
investment, or for any other act or omission in the performance
by the Investment Adviser of its duties under this Agreement,
except for liability resulting from willful misfeasance, bad
faith or gross negligence on the Investment Adviser's part or
from reckless disregard by the Investment Adviser of its
obligations and duties under this Agreement.
8. Amendment. This Agreement may be amended at any time
by a written agreement executed by both parties hereto, provided
that with respect to amendments of substance such execution on
behalf of the Fund shall have been approved by the vote of a
majority of the outstanding voting securities of the Fund and by
the vote of a majority of those Trustees who are not interested
persons of the Trust, the Investment Adviser, the Administrator,
Keyport or a Participating Insurance Company cast in person at a
meeting called for the purpose of voting on such approval.
9. Term and Termination. This Agreement shall begin on
the date first written above, and may be terminated at any time,
without payment of any penalty, by the Board of Trustees of the
Trust, or by the vote a majority of the outstanding voting
securities of the Fund, upon sixty (60) days' written notice to
the Investment Adviser. This Agreement may be terminated by the
Investment Adviser at any time upon sixty 60 days' written
notice to the Trust. This Agreement shall terminate
automatically in the event of its assignment. Unless terminated
as hereinabove provided, this Agreement shall continue in effect
until April 30, 1995 and thereafter from year to year only so long
as such continuance is specifically approved at least annually in
conformity with the requirements of the Investment Company Act and
the rules and regulations thereunder (a) by the vote of a majority
of those Trustees who are not parties to this Agreement or
interested persons of the Trust, the Investment Adviser, the
Administrator, Keyport, or a Participating Insurance Company, cast
in person at a meeting called for the purpose of voting on such
approval, and (b) by either the Board of Trustees of the Trust or
by the vote of a majority of the outstanding voting securities of
the Fund.
10. Non-Liability of Trustees and Shareholders. As
provided in the Declaration of Trust of the Trust, a copy of
which is on file with the Secretary of the Commonwealth of
Massachusetts, any obligation of the Trust or the Fund hereunder
shall be binding only upon the assets and property of the Trust
or the Fund, as the case may be, and shall not be binding upon
any Trustee, officer, employee, agent or shareholder (or
beneficial owner of shares) of the Trust, including, without
limitation, the officer of the Trust executing this Agreement on
its behalf. Neither the authorization of any action by the
Trustees or shareholders (or beneficial owners of shares of the
Trust nor the execution of this Agreement on behalf of the Trust
shall impose any liability upon any Trustee or any shareholder
(or beneficial owner of shares).
11. Use of Investment Adviser's Name. The Trust may use
the name "Stein Roe Variable Investment Trust" or any other name
derived from the name "Stein Roe & Farnham" only for so long as
this Agreement or any extension, renewal, or amendment hereof
remains in effect, including any similar agreement with any
organization which shall have succeeded to the business of the
Investment Adviser. At such time as this Agreement or any
extension, renewal or amendment hereof, or such other similar
agreement shall no longer be in effect, the Trust will cease to
use any name derived from the name "Stein Roe & Farnham," any
name similar thereto, or any other name indicating that it is
advised by or otherwise connected with Investment Adviser, or
with any organization which shall have succeeded to Investment
Adviser's business as investment adviser.
12. Definitions, References and Headings. As used in this
Agreement, the terms "vote of a majority of the outstanding
voting securities", "interested person", "principal underwriter"
and "assignment" shall have the respective meanings provided in
the Investment Company Act and the rules thereunder, subject,
however, to such exemptions or no-action responses as may be
granted by the Securities and Exchange Commission under said
Act. Headings are placed herein for convenience of reference
only and shall not be taken as a part hereof or control or
affect the meaning, construction or effect of this Agreement.
13. Interpretation; Governing Law. This Agreement shall
be interpreted under, and the performance of the Investment
Adviser under this Agreement shall be consistent with, the
provisions of the Agreement and Declaration of Trust and By-Laws
of the Trust, as in effect from time to time, the terms of the
Investment Company Act, other applicable laws and regulations
thereunder (including any amendments hereafter adopted), the
Internal Revenue Code of 1986, and regulations thereunder, and
the Trust's prospectus and statement of additional information.
The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of Illinois (except
Section 10 hereof which shall be construed and interpreted in
accordance with the laws of Massachusetts), without giving
effect to the conflict of laws provisions thereof, provided,
however, that if such law or any of the provisions of this
Agreement conflict with the applicable provisions of the
Investment Company Act, the latter shall control.
14. Severability. If any provision of this Agreement
shall be held or made invalid by a court decision, a statute, a
rule, or otherwise, the remainder of this Agreement shall not be
affected thereby.
15. Effective Date. This Advisory Agreement shall become
effective as of its date, and supersedes the Advisory Agreement
dated December 9, 1988.
This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, the parties hereto have duly executed
this agreement on the date first above written.
MANAGED GROWTH STOCK FUND
STEINROE VARIABLE INVESTMENT TRUST
By: RICHARD R. CHRISTENSEN
STEIN ROE & FARNHAM INCORPORATED
By: TIMOTHY A. SCHLINDWEIN
Chairman and CEO
<PAGE>
SCHEDULE A
Fund Advisory Agreement
Managed Growth Stock Fund
The annual investment advisory fee referred to in paragraph
5 of this Agreement shall be 0.50% of the net asset value of the
Fund, computed as hereinafter provided. The fee shall be
accrued for each calendar day and the sum of the daily fee
accruals shall be paid monthly on or before the tenth day of the
following calendar month. The daily accruals of the portion of the
fee based on net asset value will be computed by multiplying the
annual rate referred to above by the fraction the numerator of
which is one and the denominator of which is the number of calendar
days in the year, and multiplying such product by the net asset
value of the Fund as determined in accordance with the Fund's
prospectus as of the previous business day on which the Fund was
open for business. The foregoing fee shall be prorated for any
month during which this Agreement is in effect for only a portion
of the month.
STEINROE VARIABLE INVESTMENT TRUST
MANAGED ASSETS FUND
FUND ADVISORY AGREEMENT
FUND ADVISORY AGREEMENT dated May 1, 1993 between STEINROE
VARIABLE INVESTMENT TRUST, a business trust organized under the
laws of the Commonwealth of Massachusetts (the "Trust"), on
behalf of Managed Assets Fund (the "Fund"), and STEIN ROE
& FARNHAM INCORPORATED, a corporation organized under the laws
of the State of Delaware (the "Investment Advisor").
WHEREAS, the Trust has been organized as an open-end
management investment company registered as such under the
Investment Company Act of 1940 ("Investment Company Act"), and
is authorized to issue shares of beneficial interest in one or
more separate series each representing interests in a separate
portfolio of securities and other assets, including the Fund,
which shares are to be issued and sold to and held by various
separate accounts of Keyport [Keystone Provident] Life Insurance
Company ("Keyport") or separate accounts of other insurance
companies that are affiliated or are not affiliated with Keyport
("Participating Insurance Company");
WHEREAS, the Trust desires the Investment Adviser to render
investment management services to the Fund in the manner and on
the terms and conditions hereinafter set forth;
WHEREAS, the Trust is entering into a Fund Administration
Agreement (the "Administration Agreement") of even date herewith
with Liberty Investment Services, Inc. (the "Administrator")
providing for certain administrative services to the Trust other
than investment management services;
WHEREAS, the Investment Advisor is registered as an
investment adviser under the Investment Advisers Act of 1940 and
as a commodities trading advisor under the Commodity Exchange
Act, and desires to provide services to the Fund in
consideration of and on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, the Trust, on behalf of the Fund, and the
Investment Advisor agree as follows:
1. Employment of the Investment Adviser. The Trust hereby
engages the Investment Adviser to manage and supervise the
investment and reinvestment of the Trust's assets represented by
Fund shares ("Fund assets" or "assets of the Fund") and to advise
with respect thereto for the period, in the manner, and on the
terms hereinafter set forth. The Investment Adviser hereby
accepts such engagement and agrees during such period to render
the services and to assume the obligations herein set forth.
The Investment Adviser shall for all purposes herein be deemed
to be an independent contractor and shall, except as expressly
provided or authorized (whether herein or otherwise), have no
authority to act for or represent the Trust or the Fund in any
way or otherwise be deemed an agent of the Trust or the Fund.
2. Management Services. (a) The Investment Adviser will
manage and supervise the investment and reinvestment of the
assets of the Fund and advise with respect thereto, subject to
the direction and overall control of the Board of Trustees of
the Trust and giving due consideration to the investment
objective of the Fund and the investment policies and
investment restrictions of and the other statements concerning
the Fund set forth from time to time in the Trust's then current
prospectus and statement of additional information and other
governing documents, and to the provisions of the Internal
Revenue Code and regulations thereunder applicable to the Fund
as a regulated investment company and as the designated
investment vehicle for variable annuity, endowment, or life
insurance contracts. In furtherance of its duties set forth
above, the Investment Adviser is authorized on behalf of the
Fund (i) to buy, sell, exchange, convert, lend and otherwise
trade in the Fund's portfolio securities and assets, and (ii) to
place orders for the execution of transactions in the Fund's
portfolio securities with or through such brokers, dealers,
underwriters or issuers as the Investment Adviser may select,
and to negotiate the terms of such transactions, including
brokerage commissions on brokerage transactions, all in
accordance with the Trust's policies concerning allocation of
its portfolio brokerage, as permitted by law including but not
limited to Section 28(e) of the Securities Exchange Act of 1934,
and with the statements concerning the allocation of orders for
the purchase and sale of securities among the Fund and other
accounts of the Investment Adviser set forth from time to time
in the Trust's then current prospectus and statement of
additional information, and in doing so the Investment Adviser
shall not be required to make any reduction of its investment
advisory fee hereunder.
(b) The Investment Adviser shall provide to the Trust and
the Administrator such information, records and reports
concerning the Investment Adviser and its investment management
of the Fund's portfolio securities pursuant hereto as the Trust
and the Administrator may reasonably request.
(c) The Investment Adviser will preserve for the Trust all
records it maintains for the Trust as prescribed by the rules
and regulations of the Securities and Exchange Commission in the
manner and for the time periods prescribed by such rules. The
Investment Adviser agrees that all such records shall be the
property and under the control of the Trust and shall be made
available, within five business days of request therefor, to the
Trust's Board of Trustees or auditors during regular business
hours at the Investment Adviser's offices. In the event of
termination of this Agreement for any reason, all such records
shall be returned, without charge, promptly to the Trust, free
from any claim or retention of rights by the Investment Adviser,
except that the Investment Adviser may retain copies of such
records.
(d) The Investment Adviser will report to the Trustees of
the Trust any potential or existing material irreconcilable
conflict among the interests of the shareholders (the separate
accounts of insurance companies investing in the Trust) of which
it is aware. The Investment Adviser will assist the Trustees in
carrying out their responsibilities under an Order from the SEC,
dated July 1, 1988, granting insurance companies and variable
annuity and variable life insurance separate accounts exemptions
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of
the Investment Company Act and Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) thereunder, to the extent necessary to permit shares
of the Trust to be sold to and held by variable annuity and
variable life insurance separate accounts of insurance companies
affiliated and unaffiliated with each other. The Investment
Adviser shall provide the Trustees with all information
reasonably necessary for the Trustees to consider any issues
raised.
(e) The Investment Adviser will not disclose or use any
records or information obtained pursuant to this Agreement in
any manner whatsoever except as expressly authorized herein, and
will keep confidential any information obtained pursuant to this
Agreement, and disclose such information only if the Trust has
authorized such disclosure, or if such disclosure is expressly
required by applicable federal or state regulatory authorities.
3. Expenses Borne by Investment Adviser. To the extent
necessary to perform its obligations under this Agreement, the
Investment Adviser, at its own expenses, shall furnish executive
and other personnel and office space, equipment and facilities,
and shall pay any other expenses incurred by it, in connection
with the performance of its duties hereunder. The Investment
Adviser shall pay all salaries, fees and expenses of Trustees or
officers of the Trust who are employees of the Investment
Adviser. The Investment Adviser shall not be obligated to bear
any other expenses incidental to the operations and business of
the Trust. The Investment Adviser shall not be required to pay
or provide any credit for services provided by the Trust's
custodian, transfer agent or other agents, including the
Administrator.
4. Expenses Borne by the Trust and Fund. The Trust or the
Fund, as appropriate, shall pay all expenses incidental to the
operations and business of the Trust and the Fund not
specifically assumed or agreed to be paid by the Investment
Adviser or the Administrator pursuant to this Agreement or the
Administration Agreement, or by Keyport or any Participating
Insurance Company, including, without limitation:
(a) the fees of the Investment Adviser as provided in
Section 5 below, and of the Administrator;
(b) fees payable pursuant to any plan adopted by the Trust
pursuant to Rule 12b-1 under the Investment Company Act;
(c) all fees and charges of depositories, custodians, and
other agencies for the safekeeping and servicing of the cash,
securities, and other property of the Trust;
(d) all fees and charges of transfer, shareholder
servicing, shareholder record keeping and dividend disbursing
agents and all other expenses relating to the issuance and
redemption of shares of the Trust (including shares of the Fund)
and the maintenance and servicing of shareholder accounts;
(e) all charges for equipment or services used for
obtaining price quotations or for communication among the
Investment Adviser, any sub-adviser appointed by the Trust, the
Administrator, the Trust, Keyport or any Participating Insurance
Company, the custodian or any sub-custodian, transfer agent or
any other agent selected by the Trust or the Fund;
(f) all expenses incurred in periodic calculations of the
net asset value of the shares of the Trust (including the shares
of the Fund);
(g) all charges for bookkeeping, accounting and tax
information services provided to the Trust by the custodian or
any subcustodian;
(h) all charges for services of the Trust's independent
auditors;
(i) all charges and expenses of legal counsel for the Trust
and for the Trustees of the Trust in connection with legal
matters relating to the Trust or the Fund;
(j) all compensation of the Trustees of the Trust other
than those Trustees who are interested persons of the Trust
including, without limitation, Trustees who are interested
persons of the Investment Adviser, the Administrator, Keyport or
any Participating Insurance Company, or the principal
underwriter of the Trust, and all expenses (including expenses
incident to Trustees' meetings) incurred in connection with
their services to the Trust;
(k) all expenses of preparation, printing and mailing of
notices and proxy solicitation material and of reports and other
communications to the shareholders and beneficial owners of the
Trust, and all other expenses (including proxy solicitation
expenses) incidental to meetings of the shareholders or
beneficial owners of the Trust;
(l) all expenses of preparation (including type setting)
and printing of annual or more frequent revisions of the Trust's
prospectuses and statements of additional information and
supplements thereto, of supplying each then-existing shareholder
or beneficial owner of shares of the Fund or purchaser thereof
with a copy of such revised prospectus or SAI supplements, and
of supplying copies of such statements of additional information
to persons requesting the same;
(m) all expenses, if any, related to preparing, printing
and engraving and transmitting certificates representing shares
of the Trust;
(n) all expenses of bond and insurance coverage required by
law or deemed advisable by the Board of Trustees;
(o) all brokers' commissions and other normal charges
incident to the purchase and sale of portfolio securities;
(p) costs, including interest expense, of borrowing money;
(q) all taxes and corporate fees payable to federal, state
or other governmental agencies, domestic or foreign, and all
costs and expenses incident to the maintenance of the Trust's
legal existence;
(r) all expenses of registering and maintaining the
registration of the Trust under the Investment Company Act and
the shares of the Trust under the Securities Act of 1933, and
all expenses, if any, of qualifying and maintaining the
qualification of the shares of the Trust for sale under
securities laws of various states or other jurisdictions and of
registration and qualification of the Trust under all other laws
applicable to the Trust or its business activities;
(s) all fees, dues, and other expenses incurred by the
Trust in connection with its membership in any trade association
or other investment organization; and
(t) all miscellaneous business expenses.
The Trust or the Fund, as appropriate, shall also bear all
extraordinary non-recurring expenses as may arise, including but
not limited to expenses incurred in connection with litigation,
proceedings and claims and expenses incurred in connection with
any obligation of the Trust or the Fund to indemnify any person.
Expenses which are directly charged to or attributable to
the Fund or any other Fund of the Trust shall be borne by that
Fund, and expenses which are not solely attributable to any one
Fund of the Trust shall be allocated among the Funds of the
Trust on a basis that the Trustees of the Trust deem fair and
equitable.
5. Investment Advisory Fee. For the services to be
rendered by the Investment Adviser hereunder, the Trust, for the
benefit of the Fund, shall pay the Investment Adviser out of
Fund assets an annual fee in the amount shown in Schedule A
attached hereto and made a part hereof.
6. Non-Exclusivity. The services of the Investment
Adviser to the Fund hereunder are not to be deemed exclusive and
the Investment Adviser shall be free to render similar services
to others.
7. Standard of Care. Neither the Investment Adviser, nor
any of its directors, officers or stockholders (or partners of
stockholders), agents or employees shall be liable or
responsible to the Trust or the Fund or their shareholders (or
the beneficial owners of their shares) for any error of
judgment, mistake of law or any loss arising out of any
investment, or for any other act or omission in the performance
by the Investment Adviser of its duties under this Agreement,
except for liability resulting from willful misfeasance, bad
faith or gross negligence on the Investment Adviser's part or
from reckless disregard by the Investment Adviser of its
obligations and duties under this Agreement.
8. Amendment. This Agreement may be amended at any time
by a written agreement executed by both parties hereto, provided
that with respect to amendments of substance such execution on
behalf of the Fund shall have been approved by the vote of a
majority of the outstanding voting securities of the Fund and by
the vote of a majority of those Trustees who are not interested
persons of the Trust, the Investment Adviser, the Administrator,
Keyport or a Participating Insurance Company cast in person at a
meeting called for the purpose of voting on such approval.
9. Term and Termination. This Agreement shall begin on
the date first written above, and may be terminated at any time,
without payment of any penalty, by the Board of Trustees of the
Trust, or by the vote a majority of the outstanding voting
securities of the Fund, upon sixty (60) days' written notice to
the Investment Adviser. This Agreement may be terminated by the
Investment Adviser at any time upon sixty 60 days' written
notice to the Trust. This Agreement shall terminate
automatically in the event of its assignment. Unless terminated
as hereinabove provided, this Agreement shall continue in effect
until April 30, 1995 and thereafter from year to year only so long
as such continuance is specifically approved at least annually in
conformity with the requirements of the Investment Company Act and
the rules and regulations thereunder (a) by the vote of a majority
of those Trustees who are not parties to this Agreement or
interested persons of the Trust, the Investment Adviser, the
Administrator, Keyport, or a Participating Insurance Company,
cast in person at a meeting called for the purpose of voting on
such approval, and (b) by either the Board of Trustees of the
Trust or by the vote of a majority of the outstanding voting
securities of the Fund.
10. Non-Liability of Trustees and Shareholders. As
provided in the Declaration of Trust of the Trust, a copy of
which is on file with the Secretary of the Commonwealth of
Massachusetts, any obligation of the Trust or the Fund hereunder
shall be binding only upon the assets and property of the Trust
or the Fund, as the case may be, and shall not be binding upon
any Trustee, officer, employee, agent or shareholder (or
beneficial owner of shares) of the Trust, including, without
limitation, the officer of the Trust executing this Agreement on
its behalf. Neither the authorization of any action by the
Trustees or shareholders (or beneficial owners of shares) of the
Trust nor the execution of this Agreement on behalf of the Trust
shall impose any liability upon any Trustee or any shareholder
(or beneficial owner of shares).
11. Use of Investment Adviser's Name. The Trust may use
the name "Stein Roe Variable Investment Trust" or any other name
derived from the name "Stein Roe & Farnham" only for so long as
this Agreement or any extension, renewal, or amendment hereof
remains in effect, including any similar agreement with any
organization that shall have succeeded to the business of the
Investment Adviser. At such time as this Agreement or any
extension, renewal or amendment hereof, or such other similar
agreement shall no longer be in effect, the Trust will cease to
use any name derived from the name "Stein Roe & Farnham," any
name similar thereto, or any other name indicating that it is
advised by or otherwise connected with Investment Adviser, or
with any organization which shall have succeeded to Investment
Adviser's business as investment adviser.
12. Definitions, References and Headings. As used in this
Agreement, the terms "vote of a majority of the outstanding
voting securities", "interested person", "principal underwriter"
and "assignment" shall have the respective meanings provided in
the Investment Company Act and the rules thereunder, subject,
however, to such exemptions or no-action responses as may be
granted by the Securities and Exchange Commission under said
Act. Headings are placed herein for convenience of reference
only and shall not be taken as a part hereof or control or
affect the meaning, construction or effect of this Agreement.
13. Interpretation; Governing Law. This Agreement shall
be interpreted under, and the performance of the Investment
Adviser under this Agreement shall be consistent with, the
provisions of the Agreement and Declaration of Trust and By-Laws
of the Trust, as in effect from time to time, the terms of the
Investment Company Act, other applicable laws and regulations
thereunder (including any amendments hereafter adopted), the
Internal Revenue Code of 1986, and regulations thereunder, and
the Trust's prospectus and statement of additional information.
The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of Illinois (except
Section 10 hereof which shall be construed and interpreted in
accordance with the laws of Massachusetts), without giving
effect to the conflict of laws provisions thereof, provided,
however, that if such law or any of the provisions of this
Agreement conflict with the applicable provisions of the
Investment Company Act, the latter shall control.
14. Severability. If any provision of this Agreement
shall be held or made invalid by a court decision, a statute, a
rule, or otherwise, the remainder of this Agreement shall not be
affected thereby.
15. Effective Date. This Advisory Agreement shall become
effective as of its date, and supersedes the Advisory Agreement
dated December 9, 1988.
This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, the parties hereto have duly executed
this agreement on the date first above written.
MANAGED ASSETS FUND
STEINROE VARIABLE INVESTMENT TRUST
By: RICHARD R. CHRISTENSEN
STEIN ROE & FARNHAM INCORPORATED
By: TIMOTHY A. SCHLINDWEIN
Chairman and CEO
<PAGE>
SCHEDULE A
Fund Advisory Agreement
Managed Assets Fund
The annual investment advisory fee referred to in paragraph
5 of this Agreement shall be 0.45% of the net asset value of the
Fund. The fee shall be accrued for each calendar day and the sum
of the daily fee accruals shall be paid monthly on or before the
tenth day of the following calendar month. The daily accruals of
the fee will be computed by (i) multiplying the annual percentage
rate referred to above by the fraction the numerator of which is
one and the denominator of which is the number of calendar days
in the year, and (ii) multiplying the product obtained pursuant
to (i) above by the net asset value of the Fund as determined in
accordance with the Fund's prospectus as of the previous business
day on which the Fund was open for business. The foregoing fee
shall be prorated for any month during which this Agreement is
in effect for only a portion of the month.
STEINROE VARIABLE INVESTMENT TRUST
MORTGAGE SECURITIES INCOME FUND
FUND ADVISORY AGREEMENT
FUND ADVISORY AGREEMENT dated May 1, 1993 between STEINROE
VARIABLE INVESTMENT TRUST, a business trust organized under the
laws of the Commonwealth of Massachusetts (the "Trust"), on
behalf of Mortgage Securities Income Fund (the "Fund"), and STEIN ROE
& FARNHAM INCORPORATED, a corporation organized under the laws
of the State of Delaware (the "Investment Advisor").
WHEREAS, the Trust has been organized as an open-end
management investment company registered as such under the
Investment Company Act of 1940 ("Investment Company Act"), and
is authorized to issue shares of beneficial interest in one or
more separate series each representing interests in a separate
portfolio of securities and other assets, including the Fund,
which shares are to be issued and sold to and held by various
separate accounts of Keyport Life Insurance Company ("Keyport")
or separate accounts of other insurance companies that are
affiliated or are not affiliated with Keyport ("Participating
Insurance Company");
WHEREAS, the Trust desires the Investment Adviser to render
investment management services to the Fund in the manner and on
the terms and conditions hereinafter set forth;
WHEREAS, the Trust is entering into a Fund Administration
Agreement (the "Administration Agreement") of even date herewith
with Liberty Investment Services, Inc. (the "Administrator")
providing for certain administrative services to the Trust other
than investment management services;
WHEREAS, the Investment Advisor is registered as an
investment adviser under the Investment Advisers Act of 1940 and
as a commodities trading advisor under the Commodity Exchange
Act, and desires to provide services to the Fund in
consideration of and on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, the Trust, on behalf of the Fund, and the
Investment Advisor agree as follows:
1. Employment of the Investment Adviser. The Trust hereby
engages the Investment Adviser to manage the investment and
reinvestment of the Trust's assets represented by Fund shares
("Fund assets" or "assets of the Fund") and to advise with
respect thereto for the period, in the manner, and on the terms
hereinafter set forth. The Investment Adviser hereby accepts
such engagement and agrees during such period to render the
services and to assume the obligations herein set forth. The
Investment Adviser shall for all purposes herein be deemed to be
an independent contractor and shall, except as expressly
provided or authorized (whether herein or otherwise), have no
authority to act for or represent the Trust or the Fund in any
way or otherwise be deemed an agent of the Trust or the Fund.
2. Management Services. (a) The Investment Adviser will
manage and supervise the investment and reinvestment of the
assets of the Fund and advise with respect thereto, subject to
the direction and overall control of the Board of Trustees of
the Trust and giving due consideration to the investment
objective of the Fund and the investment policies and
investment restrictions of and the other statements concerning
the Fund set forth from time to time in the Trust's then current
prospectus and statement of additional information and other
governing documents, and to the provisions of the Internal
Revenue Code and regulations thereunder applicable to the Fund
as a regulated investment company and as the designated
investment vehicle for variable annuity, endowment, or life
insurance contracts. In furtherance of its duties set forth
above, the Investment Adviser is authorized on behalf of the
Fund (i) to buy, sell, exchange, convert, lend and otherwise
trade in the Fund's portfolio securities and assets, and (ii) to
place orders for the execution of transactions in the Fund's
portfolio securities with or through such brokers, dealers,
underwriters or issuers as the Investment Adviser may select,
and to negotiate the terms of such transactions, including
brokerage commissions on brokerage transactions, all in
accordance with the Trust's policies concerning allocation of
its portfolio brokerage, as permitted by law including but not
limited to Section 28(e) of the Securities Exchange Act of 1934,
and with the statements concerning the allocation of orders for
the purchase and sale of securities among the Fund and other
accounts of the Investment Adviser set forth from time to time
in the Trust's then current prospectus and statement of
additional information, and in doing so the Investment Adviser
shall not be required to make any reduction of its investment
advisory fee hereunder.
(b) The Investment Adviser shall provide to the Trust and
the Administrator such information, records and reports
concerning the Investment Adviser and its investment management
of the Fund's portfolio securities pursuant hereto as the Trust
and the Administrator may reasonably request.
(c) The Investment Adviser will preserve for the Trust all
records it maintains for the Trust as prescribed by the rules
and regulations of the Securities and Exchange Commission in the
manner and for the time periods prescribed by such rules. The
Investment Adviser agrees that all such records shall be the
property and under the control of the Trust and shall be made
available, within five business days of request therefor, to the
Trust's Board of Trustees or auditors during regular business
hours at the Investment Adviser's offices. In the event of
termination of this Agreement for any reason, all such records
shall be returned, without charge, promptly to the Trust, free
from any claim or retention of rights by the Investment Adviser,
except that the Investment Adviser may retain copies of such
records.
(d) The Investment Adviser will report to the Trustees of
the Trust any potential or existing material irreconcilable
conflict among the interests of the shareholders (the separate
accounts of insurance companies investing in the Trust) of which
it is aware. The Investment Adviser will assist the Trustees in
carrying out their responsibilities under an Order from the SEC,
dated July 1, 1988, granting insurance companies and variable
annuity and variable life insurance separate accounts exemptions
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of
the Investment Company Act and Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) thereunder, to the extent necessary to permit shares
of the Trust to be sold to and held by variable annuity and
variable life insurance separate accounts of insurance companies
affiliated and unaffiliated with each other. The Investment
Adviser shall provide the Trustees with all information
reasonably necessary for the Trustees to consider any issues
raised.
(e) The Investment Adviser will not disclose or use any
records or information obtained pursuant to this Agreement in
any manner whatsoever except as expressly authorized herein, and
will keep confidential any information obtained pursuant to this
Agreement, and disclose such information only if the Trust has
authorized such disclosure, or if such disclosure is expressly
required by applicable federal or state regulatory authorities.
3. Expenses Borne by Investment Adviser. To the extent
necessary to perform its obligations under this Agreement, the
Investment Adviser, at its own expenses, shall furnish executive
and other personnel and office space, equipment and facilities,
and shall pay any other expenses incurred by it, in connection
with the performance of its duties hereunder. The Investment
Adviser shall pay all salaries, fees and expenses of Trustees or
officers of the Trust who are employees of the Investment
Adviser. The Investment shall not be obligated to bear
any other expenses incidental to the operations and business of
the Trust. The Investment Adviser shall not be required to pay
or provide any credit for services provided by the Trust's
custodian, transfer agent or other agents, including the
Administrator.
4. Expenses Borne by the Trust and Fund. The Trust or the
Fund, as appropriate, shall pay all expenses incidental to the
operations and business of the Trust and the Fund not
specifically assumed or agreed to be paid by the Investment
Adviser or the Administrator pursuant to this Agreement or the
Administration Agreement, or by Keyport or any Participating
Insurance Company, including, without limitation:
(a) the fees of the Investment Adviser as provided in
Section 5 below, and of the Administrator;
(b) fees payable pursuant to any plan adopted by the Trust
pursuant to Rule 12b-1 under the Investment Company Act;
(c) all fees and charges of depositories, custodians, and
other agencies for the safekeeping and servicing of the cash,
securities, and other property of the Trust;
(d) all fees and charges of transfer, shareholder
servicing, shareholder record keeping and dividend disbursing
agents and all other expenses relating to the issuance and
redemption of shares of the Trust (including shares of the Fund)
and the maintenance and servicing of shareholder accounts;
(e) all charges for equipment or services used for
obtaining price quotations or for communication among the
Investment Adviser, any sub-adviser appointed by the Trust, the
Administrator, the Trust, Keyport or any Participating Insurance
Company, the custodian or any sub-custodian, transfer agent or
any other agent selected by the Trust or the Fund;
(f) all expenses incurred in periodic calculations of the
net asset value of the shares of the Trust (including the shares
of the Fund);
(g) all charges for bookkeeping, accounting and tax
information services provided to the Trust by the custodian or
any subcustodian;
(h) all charges for services of the Trust's independent
auditors;
(i) all charges and expenses of legal counsel for the Trust
and for the Trustees of the Trust in connection with legal
matters relating to the Trust or the Fund;
(j) all compensation of the Trustees of the Trust other
than those Trustees who are interested persons of the Trust
including, without limitation, Trustees who are interested
persons of the Investment Adviser, the Administrator, Keyport or
any Participating Insurance Company, or the principal
underwriter of the Trust, and all expenses (including expenses
incident to Trustees' meetings) incurred in connection with
their services to the Trust;
(k) all expenses of preparation, printing and mailing of
notices and proxy solicitation material and of reports and other
communications to the shareholders and beneficial owners of the
Trust, and all other expenses (including proxy solicitation
expenses) incidental to meetings of the shareholders or
beneficial owners of the Trust;
(l) all expenses of preparation (including type setting)
and printing of annual or more frequent revisions of the Trust's
prospectuses and statements of additional information and
supplements thereto, of supplying each then-existing shareholder
or beneficial owner of shares of the Fund or purchaser thereof
with a copy of such revised prospectus or SAI supplements, and
of supplying copies of such statements of additional information
to persons requesting the same;
(m) all expenses, if any, related to preparing, printing
and engraving and transmitting certificates representing shares
of the Trust;
(n) all expenses of bond and insurance coverage required by
law or deemed advisable by the Board of Trustees;
(o) all brokers' commissions and other normal charges
incident to the purchase and sale of portfolio securities;
(p) costs, including interest expense, of borrowing money;
(q) all taxes and corporate fees payable to federal, state
or other governmental agencies, domestic or foreign, and all
costs and expenses incident to the maintenance of the Trust's
legal existence;
(r) all expenses of registering and maintaining the
registration of the Trust under the Investment Company Act and
the shares of the Trust under the Securities Act of 1933, and
all expenses, if any, of qualifying and maintaining the
qualification of the shares of the Trust for sale under
securities laws of various states or other jurisdictions and of
registration and qualification of the Trust under all other laws
applicable to the Trust or its business activities;
(s) all fees, dues, and other expenses incurred by the
Trust in connection with its membership in any trade association
or other investment organization; and
(t) all miscellaneous business expenses.
The Trust or the Fund, as appropriate, shall also bear all
extraordinary non-recurring expenses as may arise, including but
not limited to expenses incurred in connection with litigation,
proceedings and claims and expenses incurred in connection with
any obligation of the Trust or the Fund to indemnify any person.
Expenses which are directly charged to or attributable to
the Fund or any other Fund of the Trust shall be borne by that
Fund, and expenses which are not solely attributable to any one
Fund of the Trust shall be allocated among the Funds of the
Trust on a basis that the Trustees of the Trust deem fair and
equitable.
5. Investment Advisory Fee. For the services to be
rendered by the Investment Adviser hereunder, the Trust, for the
benefit of the Fund, shall pay the Investment Adviser out of
Fund assets an annual fee in the amount shown in Schedule A
attached hereto and made a part hereof.
6. Non-Exclusivity. The services of the Investment
Adviser to the Fund hereunder are not to be deemed exclusive and
the Investment Adviser shall be free to render similar services
to others.
7. Standard of Care. Neither the Investment Adviser, nor
any of its directors, officers or stockholders (or partners of
stockholders), agents or employees shall be liable or
responsible to the Trust or the Fund or their shareholders (or
the beneficial owners of their shares) for any error of
judgment, mistake of law or any loss arising out of any
investment, or for any other act or omission in the performance
by the Investment Adviser of its duties under this Agreement,
except for liability resulting from willful misfeasance, bad
faith or gross negligence on the Investment Adviser's part or
from reckless disregard by the Investment Adviser of its
obligations and duties under this Agreement.
8. Amendment. This Agreement may be amended at any time
by a written agreement executed by both parties hereto, provided
that with respect to amendments of substance such execution on
behalf of the Fund shall have been approved by the vote of a
majority of the outstanding voting securities of the Fund and by
the vote of a majority of those Trustees who are not interested
persons of the Trust, the Investment Adviser, the Administrator,
Keyport or a Participating Insurance Company cast in person at a
meeting called for the purpose of voting on such approval.
9. Term and Termination. This Agreement shall begin on
the date first written above, and may be terminated at any time,
without payment of any penalty, by the Board of Trustees of the
Trust, or by the vote a majority of the outstanding voting
securities of the Fund, upon sixty (60) days' written notice to
the Investment Adviser. This Agreement may be terminated by the
Investment Adviser at any time upon sixty 60 days' written
notice to the Trust. This Agreement shall terminate
automatically in the event of its assignment. Unless terminated
as hereinabove provided, this Agreement shall continue in effect
until April 30, 1995 and thereafter from year to year only so long
as such continuance is specifically approved at least annually in
conformity with the requirements of the Investment Company Act and
the rules and regulations thereunder (a) by the vote of a majority
of those Trustees who are not parties to this Agreement or
interested persons of the Trust, the Investment Adviser, the
Administrator, Keyport, or a Participating Insurance Company, cast
in person at a meeting called for the purpose of voting on such
approval, and (b) by either the Board of Trustees of the Trust or
by the vote of a majority of the outstanding voting securities of
the Fund.
10. Non-Liability of Trustees and Shareholders. As
provided in the Declaration of Trust of the Trust, a copy of
which is on file with the Secretary of the Commonwealth of
Massachusetts, any obligation of the Trust or the Fund hereunder
shall be binding only upon the assets and property of the Trust
or the Fund, as the case may be, and shall not be binding upon
any Trustee, officer, employee, agent or shareholder (or
beneficial owner of shares) of the Trust, including, without
limitation, the officer of the Trust executing this Agreement on
its behalf. Neither the authorization of any action by the
Trustees or shareholders (or beneficial owners of shares) of the
Trust nor the execution of this Agreement on behalf of the Trust
shall impose any liability upon any Trustee or any shareholder
(or beneficial owner of shares).
11. Use of Investment Adviser's Name. The Trust may use
the name "Stein Roe Variable Investment Trust" or any other name
derived from the name "Stein Roe & Farnham" only for so long as
this Agreement or any extension, renewal, or amendment hereof
remains in effect, including any similar agreement with any
organization that shall have succeeded to the business of the
Investment Adviser. At such time as this Agreement or any
extension, renewal or amendment hereof, or such other similar
agreement shall no longer be in effect, the Trust will cease to
use any name derived from the name "Stein Roe & Farnham," any
name similar thereto, or any other name indicating that it is
advised by or otherwise connected with Investment Adviser, or
with any organization which shall have succeeded to Investment
Adviser's business as investment adviser.
12. Definitions, References and Headings. As used in this
Agreement, the terms "vote of a majority of the outstanding
voting securities", "interested person", "principal underwriter"
and "assignment" shall have the respective meanings provided in
the Investment Company Act and the rules thereunder, subject,
however, to such exemptions or no-action responses as may be
granted by the Securities and Exchange Commission under said
Act. Headings are placed herein for convenience of reference
only and shall not be taken as a part hereof or control or
affect the meaning, construction or effect of this Agreement.
13. Interpretation; Governing Law. This Agreement shall
be interpreted under, and the performance of the Investment
Adviser under this Agreement shall be consistent with, the
provisions of the Agreement and Declaration of Trust and By-Laws
of the Trust, as in effect from time to time, the terms of the
Investment Company Act, other applicable laws and regulations
thereunder (including any amendments hereafter adopted), the
Internal Revenue Code of 1986, and regulations thereunder, and
the Trust's prospectus and statement of additional information.
The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of Illinois (except
Section 10 hereof which shall be construed and interpreted in
accordance with the laws of Massachusetts), without giving
effect to the conflict of laws provisions thereof, provided,
however, that if such law or any of the provisions of this
Agreement conflict with the applicable provisions of the
Investment Company Act, the latter shall control.
14. Severability. If any provision of this Agreement
shall be held or made invalid by a court decision, a statute, a
rule, or otherwise, the remainder of this Agreement shall not be
affected thereby.
15. Effective Date. This Advisory Agreement shall become
effective as of its date, and supersedes the Advisory Agreement
dated December 9, 1988.
This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, the parties hereto have duly executed
this agreement on the date first above written.
MORTGAGE SECURITIES INCOME FUND
STEINROE VARIABLE INVESTMENT TRUST
By: RICHARD R. CHRISTENSEN
STEIN ROE & FARNHAM INCORPORATED
By: TIMOTHY A. SCHLINDWEIN
Chairman and CEO
<PAGE>
SCHEDULE A
Fund Advisory Agreement
Mortgage Securities Income Fund
The annual investment advisory fee referred to in paragraph
5 of this Agreement shall be 0.40% of the average daily net assets.
The fee shall be accrued for each calendar day and the sum of the
daily fee accruals shall be paid monthly on or before the tenth
day of the following calendar month. The daily accruals of the
fee will be computed by multiplying the annual rate referred to
above by the fraction the numerator of which is one and the
denominator of which is the number of calendar days in the year,
and multiplying such product by the net asset value of the Fund
as determined in accordance with the Fund's prospectus as of the
previous business day on which the Fund was open for business.
The foregoing fee shall be prorated for any month during which
this Agreement is in effect for only a portion of the month.
STEINROE VARIABLE INVESTMENT TRUST
CASH INCOME FUND
FUND ADVISORY AGREEMENT
FUND ADVISORY AGREEMENT dated December 9, 1988 between
STEINROE VARIABLE INVESTMENT TRUST, a business trust organized
under the laws of the Commonwealth of Massachusetts (the "Trust"),
on behalf of Cash Income Fund (the "Fund"), and STEIN ROE
& FARNHAM INCORPORATED, a corporation organized under the laws
of the State of Delaware (the "Investment Advisor").
WHEREAS, the Trust has been organized as an open-end
management investment company registered as such under the
Investment Company Act of 1940 ("Investment Company Act"), and
is authorized to issue shares of beneficial interest in one or
more separate series each representing interests in a separate
portfolio of securities and other assets, including the Fund,
which shares are to be issued and sold to and held by various
separate accounts of Keystone Provident Life Insurance Company
("Keystone") or separate accounts of other insurance companies
that are affiliated or are not affiliated with Keystone
("Participating Insurance Company");
WHEREAS, the Trust desires the Investment Adviser to render
investment management services to the Fund in the manner and on
the terms and conditions hereinafter set forth;
WHEREAS, the Trust is entering into a Fund Administration
Agreement (the "Administration Agreement") of even date herewith
with Liberty Investment Services, Inc. (the "Administrator")
providing for certain administrative services to the Trust other
than investment management services;
WHEREAS, the Investment Advisor is registered as an
investment adviser under the Investment Advisers Act of 1940 and
as a commodities trading advisor under the Commodity Exchange
Act, and desires to provide services to the Fund in
consideration of and on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, the Trust, on behalf of the Fund, and the
Investment Advisor agree as follows:
1. Employment of the Investment Adviser. The Trust hereby
engages the Investment Adviser to manage the investment and
reinvestment of the Trust's assets represented by Fund shares
("Fund assets" or "assets of the Fund") and to advise with
respect thereto for the period, in the manner, and on the terms
hereinafter set forth. The Investment Adviser hereby accepts
such engagement and agrees during such period to render the
services and to assume the obligations herein set forth. The
Investment Adviser shall for all purposes herein be deemed to be
an independent contractor and shall, except as expressly
provided or authorized (whether herein or otherwise), have no
authority to act for or represent the Trust or the Fund in any
way or otherwise be deemed an agent of the Trust or the Fund.
2. Management Services. (a) The Investment Adviser will
manage and supervise the investment and reinvestment of the
assets of the Fund and advise with respect thereto, subject to
the direction and overall control of the Board of Trustees of
the Trust and giving due consideration to the investment
objective of the Fund and the investment policies and
investment restrictions of and the other statements concerning
the Fund set forth from time to time in the Trust's then current
prospectus and statement of additional information and other
governing documents, and to the provisions of the Internal
Revenue Code and regulations thereunder applicable to the Fund
as a regulated investment company and as the designated
investment vehicle for variable annuity, endowment, or life
insurance contracts. In furtherance of its duties set forth
above, the Investment Adviser is authorized on behalf of the
Fund (i) to buy, sell, exchange, convert, lend and otherwise
trade in the Fund's portfolio securities and assets, and (ii) to
place orders for the execution of transactions in the Fund's
portfolio securities with or through such brokers, dealers,
underwriters or issuers as the Investment Adviser may select,
and to negotiate the terms of such transactions, including
brokerage commissions on brokerage transactions, all in
accordance with the Trust's policies concerning allocation of
its portfolio brokerage, as permitted by law including but not
limited to Section 28(e) of the Securities Exchange Act of 1934,
and with the statements concerning the allocation of orders for
the purchase and sale of securities among the Fund and other
accounts of the Investment Adviser set forth from time to time
in the Trust's then current prospectus and statement of
additional information, and in doing so the Investment Adviser
shall not be required to make any reduction of its investment
advisory fee hereunder.
(b) The Investment Adviser shall provide to the Trust and
the Administrator such information, records and reports
concerning the Investment Adviser and its investment management
of the Fund's portfolio securities pursuant hereto as the Trust
and the Administrator may reasonably request.
(c) The Investment Adviser will preserve for the Trust all
records it maintains for the Trust as prescribed by the rules
and regulations of the Securities and Exchange Commission in the
manner and for the time periods prescribed by such rules. The
Investment Adviser agrees that all such records shall be the
property and under the control of the Trust and shall be made
available, within five business days of request therefor, to the
Trust's Board of Trustees or auditors during regular business
hours at the Investment Adviser's offices. In the event of
termination of this Agreement for any reason, all such records
shall be returned, without charge, promptly to the Trust, free
from any claim or retention of rights by the Investment Adviser,
except that the Investment Adviser may retain copies of such
records.
(d) The Investment Adviser will report to the Trustees of
the Trust any potential or existing material irreconcilable
conflict among the interests of the shareholders (the separate
accounts of insurance companies investing in the Trust) of which
it is aware. The Investment Adviser will assist the Trustees in
carrying out their responsibilities under an Order from the SEC,
dated July 1, 1988, granting insurance companies and variable
annuity and variable life insurance separate accounts exemptions
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of
the Investment Company Act and Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) thereunder, to the extent necessary to permit shares
of the Trust to be sold to and held by variable annuity and
variable life insurance separate accounts of insurance companies
affiliated and unaffiliated with each other. The Investment
Adviser shall provide the Trustees with all information
reasonably necessary for the Trustees to consider any issues
raised.
(e) The Investment Adviser will not disclose or use any
records or information obtained pursuant to this Agreement in
any manner whatsoever except as expressly authorized herein, and
will keep confidential any information obtained pursuant to this
Agreement, and disclose such information only if the Trust has
authorized such disclosure, or if such disclosure is expressly
required by applicable federal or state regulatory authorities.
3. Expenses Borne by Investment Adviser. To the extent
necessary to perform its obligations under this Agreement, the
Investment Adviser, at its own expenses, shall furnish executive
and other personnel and office space, equipment and facilities,
and shall pay any other expenses incurred by it, in connection
with the performance of its duties hereunder. The Investment
Adviser shall pay all salaries, fees and expenses of Trustees or
officers of the Trust who are employees of the Investment
Adviser. The Investment Adviser shall not be obligated to bear
any other expenses incidental to the operations and business of
the Trust. The Investment Adviser shall not be required to pay
or provide any credit for services provided by the Trust's
custodian, transfer agent or other agents, including the
Administrator.
4. Expenses Borne by the Trust and Fund. The Trust or the
Fund, as appropriate, shall pay all expenses incidental to the
operations and business of the Trust and the Fund not
specifically assumed or agreed to be paid by the Investment
Adviser or the Administrator pursuant to this Agreement or the
Administration Agreement, or by Keystone or any Participating
Insurance Company, including, without limitation:
(a) the fees of the Investment Adviser as provided in
Section 5 below, and of the Administrator;
(b) fees payable pursuant to any plan adopted by the Trust
pursuant to Rule 12b-1 under the Investment Company Act;
(c) all fees and charges of depositories, custodians, and
other agencies for the safekeeping and servicing of the cash,
securities, and other property of the Trust;
(d) all fees and charges of transfer, shareholder
servicing, shareholder record keeping and dividend disbursing
agents and all other expenses relating to the issuance and
redemption of shares of the Trust (including shares of the Fund)
and the maintenance and servicing of shareholder accounts;
(e) all charges for equipment or services used for
obtaining price quotations or for communication among the
Investment Adviser, any sub-adviser appointed by the Trust, the
Administrator, the Trust, Keystone or any Participating Insurance
Company, the custodian or any sub-custodian, transfer agent or
any other agent selected by the Trust or the Fund;
(f) all expenses incurred in periodic calculations of the
net asset value of the shares of the Trust (including the shares
of the Fund);
(g) all charges for bookkeeping, accounting and tax
information services provided to the Trust by the custodian or
any subcustodian;
(h) all charges for services of the Trust's independent
auditors;
(i) all charges and expenses of legal counsel for the Trust
and for the Trustees of the Trust in connection with legal
matters relating to the Trust or the Fund;
(j) all compensation of the Trustees of the Trust other
than those Trustees who are interested persons of the Trust
including, without limitation, Trustees who are interested
persons of the Investment Adviser, the Administrator, Keystone or
any Participating Insurance Company, or the principal
underwriter of the Trust, and all expenses (including expenses
incident to Trustees' meetings) incurred in connection with
their services to the Trust;
(k) all expenses of preparation, printing and mailing of
notices and proxy solicitation material and of reports and other
communications to the shareholders and beneficial owners of the
Trust, and all other expenses (including proxy solicitation
expenses) incidental to meetings of the shareholders or
beneficial owners of the Trust;
(l) all expenses of preparation (including type setting)
and printing of annual or more frequent revisions of the Trust's
prospectuses and statements of additional information and
supplements thereto, of supplying each then-existing shareholder
or beneficial owner of shares of the Fund or purchaser thereof
with a copy of such revised prospectus or SAI supplements, and
of supplying copies of such statements of additional information
to persons requesting the same;
(m) all expenses, if any, related to preparing, printing
and engraving and transmitting certificates representing shares
of the Trust;
(n) all expenses of bond and insurance coverage required by
law or deemed advisable by the Board of Trustees;
(o) all brokers' commissions and other normal charges
incident to the purchase and sale of portfolio securities;
(p) costs, including interest expense, of borrowing money;
(q) all taxes and corporate fees payable to federal, state
or other governmental agencies, domestic or foreign, and all
costs and expenses incident to the maintenance of the Trust's
legal existence;
(r) all expenses of registering and maintaining the
registration of the Trust under the Investment Company Act and
the shares of the Trust under the Securities Act of 1933, and
all expenses, if any, of qualifying and maintaining the
qualification of the shares of the Trust for sale under
securities laws of various states or other jurisdictions and of
registration and qualification of the Trust under all other laws
applicable to the Trust or its business activities;
(s) all fees, dues, and other expenses incurred by the
Trust in connection with its membership in any trade association
or other investment organization; and
(t) all miscellaneous business expenses.
The Trust or the Fund, as appropriate, shall also bear all
extraordinary non-recurring expenses as may arise, including but
not limited to expenses incurred in connection with litigation,
proceedings and claims and expenses incurred in connection with
any obligation of the Trust or the Fund to indemnify any person.
Expenses which are directly charged to or attributable to
the Fund or any other Fund of the Trust shall be borne by that
Fund, and expenses which are not solely attributable to any one
Fund of the Trust shall be allocated among the Funds of the
Trust on a basis that the Trustees of the Trust deem fair and
equitable.
5. Investment Advisory Fee. For the services to be
rendered by the Investment Adviser hereunder, the Trust, for the
benefit of the Fund, shall pay the Investment Adviser out of
Fund assets an annual fee in the amount shown in Schedule A
attached hereto and made a part hereof.
6. Non-Exclusivity. The services of the Investment
Adviser to the Fund hereunder are not to be deemed exclusive and
the Investment Adviser shall be free to render similar services
to others.
7. Standard of Care. Neither the Investment Adviser, nor
any of its directors, officers or stockholders (or partners of
stockholders), agents or employees shall be liable or
responsible to the Trust or the Fund or their shareholders (or
the beneficial owners of their shares) for any error of
judgment, mistake of law or any loss arising out of any
investment, or for any other act or omission in the performance
by the Investment Adviser of its duties under this Agreement,
except for liability resulting from willful misfeasance, bad
faith or gross negligence on the Investment Adviser's part or
from reckless disregard by the Investment Adviser of its
obligations and duties under this Agreement.
8. Amendment. This Agreement may be amended at any time
by a written agreement executed by both parties hereto, provided
that with respect to amendments of substance such execution on
behalf of the Fund shall have been approved by the vote of a
majority of the outstanding voting securities of the Fund and by
the vote of a majority of those Trustees who are not interested
persons of the Trust, the Investment Adviser, the Administrator,
Keystone or a Participating Insurance Company cast in person at a
meeting called for the purpose of voting on such approval.
9. Term and Termination. This Agreement shall begin on
the date first written above, and may be terminated at any time,
without payment of any penalty, by the Board of Trustees of the
Trust, or by the vote a majority of the outstanding voting
securities of the Fund, upon sixty (60) days' written notice to
the Investment Adviser. This Agreement may be terminated by the
Investment Adviser at any time upon sixty 60 days' written
notice to the Trust. This Agreement shall terminate
automatically in the event of its assignment. Unless terminated
as hereinabove provided, this Agreement shall continue in effect
until December 9, 1990 and thereafter from year to year only so
long as such continuance is specifically approved at least annually
in conformity with the requirements of the Investment Company Act
and the rules and regulations thereunder (a) by the vote of a
majority of those Trustees who are not parties to this Agreement
or interested persons of the Trust, the Investment Adviser, the
Administrator, Keystone, or a Participating Insurance Company,
cast in person at a meeting called for the purpose of voting on
such approval, and (b) by either the Board of Trustees of the
Trust or by the vote of a majority of the outstanding voting
securities of the Fund.
10. Non-Liability of Trustees and Shareholders. As
provided in the Declaration of Trust of the Trust, a copy of
which is on file with the Secretary of the Commonwealth of
Massachusetts, any obligation of the Trust or the Fund hereunder
shall be binding only upon the assets and property of the Trust
or the Fund, as the case may be, and shall not be binding upon
any Trustee, officer, employee, agent or shareholder (or
beneficial owner of shares) of the Trust, including, without
limitation, the officer of the Trust executing this Agreement on
its behalf. Neither the authorization of any action by the
Trustees or shareholders (or beneficial owners of shares) of the
Trust nor the execution of this Agreement on behalf of the Trust
shall impose any liability upon any Trustee or any shareholder
(or beneficial owner of shares).
11. Use of Investment Adviser's Name. The Trust may use
the name "Stein Roe Variable Investment Trust" or any other name
derived from the name "Stein Roe & Farnham" only for so long as
this Agreement or any extension, renewal, or amendment hereof
remains in effect, including any similar agreement with any
organization that shall have succeeded to the business of the
Investment Adviser. At such time as this Agreement or any
extension, renewal or amendment hereof, or such other similar
agreement shall no longer be in effect, the Trust will cease to
use any name derived from the name "Stein Roe & Farnham," any
name similar thereto, or any other name indicating that it is
advised by or otherwise connected with Investment Adviser, or
with any organization which shall have succeeded to Investment
Adviser's business as investment adviser.
12. Definitions, References and Headings. As used in this
Agreement, the terms "vote of a majority of the outstanding
voting securities", "interested person", "principal underwriter"
and "assignment" shall have the respective meanings provided in
the Investment Company Act and the rules thereunder, subject,
however, to such exemptions or no-action responses as may be
granted by the Securities and Exchange Commission under said
Act. Headings are placed herein for convenience of reference
only and shall not be taken as a part hereof or control or
affect the meaning, construction or effect of this Agreement.
13. Interpretation; Governing Law. This Agreement shall
be interpreted under, and the performance of the Investment
Adviser under this Agreement shall be consistent with, the
provisions of the Agreement and Declaration of Trust and By-Laws
of the Trust, as in effect from time to time, the terms of the
Investment Company Act, other applicable laws and regulations
thereunder (including any amendments hereafter adopted), the
Internal Revenue Code of 1986, and regulations thereunder, and
the Trust's prospectus and statement of additional information.
The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of Illinois (except
Section 10 hereof which shall be construed and interpreted in
accordance with the laws of Massachusetts), without giving
effect to the conflict of laws provisions thereof, provided,
however, that if such law or any of the provisions of this
Agreement conflict with the applicable provisions of the
Investment Company Act, the latter shall control.
14. Severability. If any provision of this Agreement
shall be held or made invalid by a court decision, a statute, a
rule, or otherwise, the remainder of this Agreement shall not be
affected thereby.
This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, the parties hereto have duly executed
this agreement on the date first above written.
CASH INCOME FUND
By: STEINROE VARIABLE INVESTMENT TRUST
By: RICHARD R. CHRISTENSEN
President
STEIN ROE & FARNHAM INCORPORATED
By: JAMES D. WINSHIP
ATTEST:
By: JAMES W. ATKINSON
<PAGE>
SCHEDULE A
Fund Advisory Agreement
Cash Income Fund
The annual investment advisory fee referred to in paragraph
5 of this Agreement shall be 0.35% of the net asset value of the
Fund. The fee shall be accrued for each calendar day and the sum
of the daily fee accruals shall be paid monthly on or before the
tenth day of the following calendar month. The daily accruals
of the fee will be computed by (i) multiplying the annual percentage
rate referred to above by the fraction the numerator of which is one
and the denominator of which is the number of calendar days in the
year, and (ii) multiplying the product obtained pursuant to (i)
above by the net asset value of the Fund as determined in accordance
with the Fund's prospectus as of the previous business day on which
the Fund was open for business. The foregoing fee shall be prorated
for any month during which this Agreement is in effect for only a
portion of the month.
UNDERWRITING AGREEMENT
AGREEMENT made this 9th day of December, 1988, between
SteinRoe Variable Investment Trust, a Massachusetts business trust
(the "Trust"), and Keystone Provident Financial Services Corp., a
Massachusetts corporation (the "Underwriter").
W I T N E S S E T H
WHEREAS, the Trust is an open-end investment company
registered under the Investment Company Act of 1940 (the "1940
Act") the shares of beneficial interest ("shares") of which are
registered under the Securities Act of 1933(the "1933 Act"); and
WHEREAS, the Trust is a series investment company currently
consisting of thirteen investment portfolios, including the
Matched Maturity Series of the Government Securities Zero Coupon
Fund (the "Funds"); and
WHEREAS, the Trust has agreed to sell its shares to the KMA
Variable Account, Keystone Provident Variable Account I and
Keystone Provident Variable Account II ("Separate Accounts"),
separate accounts of Keystone Provident Life Insurance Company
("Keystone"), in order to fund such Separate Accounts and certain
variable life insurance policies and variable annuity contracts
(the "Contracts") issued by Keystone; and
WHEREAS, the Underwriter is a broker-dealer registered under
the Securities Exchange Act of 1934 (the "1934 Act") and is a
member of the National Association of Securities Dealers, Inc.
(the "NASD"); and
WHEREAS, the Underwriter serves as the principal underwriter
for the Separate Accounts in connection with the sale of the
Contracts; and
WHEREAS, the Trust desires to appoint the Underwriter as the
principal underwriter for the Trust's shares that the Trust will
sell for the purpose of funding the Contracts issued by Keystone
and any other variable insurance products funded through the
Separate Accounts, and such other separate accounts as may be
established by Keystone and other insurance companies affiliated
or unaffiliated with Keystone, and the Underwriter is willing to
accept such appointment.
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter contained, it is hereby agreed by and between the
parties hereto as follows:
1. The Trust hereby appoints the Underwriter as the
principal underwriter and distributor for the Trust, on the terms
and conditions herein provided, to sell its shares to the Separate
Accounts in jurisdictions wherein shares of the Trust may legally
be offered to the Separate Accounts for sale, it being understood
that the Trust in its absolute discretion may issue or sell shares
directly to holders of shares of the Trust upon such terms and
conditions and for such consideration, if any, as it may
determine, when in connection with the distribution of
subscription or purchase rights, the payment or reinvestment of
dividends or distributions, or otherwise. The Underwriter shall
act solely as a disclosed agent on behalf of and for the account
of the Trust. The Trust and its transfer agent shall receive
directly from the Separate Accounts all payments for purchase of
shares of the Trust, and shall pay directly to the Separate
Accounts all amounts due them upon redemption of such shares, and
the Underwriter shall have no liability for the payment for
purchase of shares of the Trust which it sells as agent.
2. The Underwriter hereby accepts its appointment as the
principal underwriter and distributor for the Trust's shares. The
Underwriter shall be subject to the direction and control of the
Trust in the sale of its shares and shall not be obligated to sell
any specific number of shares of any Fund.
3. The Trust will use its best efforts to keep effectively
registered under the 1933 Act for sale as herein contemplated such
shares as the Underwriter shall reasonably request and as the
Securities and Exchange Commission (the "SEC") shall permit to be
so registered.
4. Notwithstanding any other provision hereof, the Trust may
terminate, suspend or withdraw the offering of shares whenever, in
its sole discretion, it deems such action to be desirable.
5. Shares of the Trust shall be sold, repurchased or
redeemed at the current public offering price per share. The
current public offering price of the Trust's shares shall be the
net asset value per share as determined in the manner and at the
times set forth in the then current prospectus for the Trust.
6. The Trust shall continuously offer and redeem its shares
at net asset value without addition of selling commission, sales
load or redemption charge. The Underwriter will receive no
compensation for the performance of its duties hereunder, except
as otherwise specifically provided.
7. Liberty Investment Services, Inc., as agent for the
Underwriter, shall issue and deliver on behalf of the Trust such
confirmations of sales to the Separate Accounts made by the
Underwriter as agent pursuant to this Agreement as may be
required. Certificates, if any, shall be issued or shares
registered on the record books of the Trust or its transfer or
similar agent in such names and denominations as the Underwriter
may specify.
8. The Trust will furnish to the Underwriter from time to
time such information with respect to the Trust and its shares as
the Underwriter may reasonably request for use in connection with
the sales and distribution of shares of the Trust. The Trust will
furnish to the Underwriter in reasonably quantities, upon request
by the Underwriter, copies of annual and interim reports of the
Trust.
9. The Underwriter will not use, distribute or disseminate
or authorize the use, distribution or dissemination, in connection
with the sale and distribution of shares of the Trust, any
statements, other than those contained in the Trust's current
prospectus, except such supplemental literature or advertising as
shall be lawful under federal and any state securities laws and
regulations. The Underwriter will furnish the Trust with copies
of all material containing such statements. Neither the
Underwriter nor any other person is authorized by the Trust to
give any information or to make any representations, other than
those contained in the registration statement (or related
prospectus), or any advertising or sales literature authorized by
responsible officers of the Trust. The Underwriter shall cause
any sales literature, advertising, or other similar materials to
be filed with and reviewed by the NASD, the SEC, or any other
required securities regulatory body, as appropriate.
10. The Trust shall use its best efforts to qualify and
maintain the qualification of an appropriate number of shares of
the Trust and each Fund for sale under the federal securities laws
and the securities laws of such states, if any, as the Underwriter
may reasonably request. The Trust shall promptly notify the
Underwriter if the registration or qualification of any Trust
shares under federal or any state securities laws, or the Trust's
registration statement under the 1940 Act, is suspended or
terminated, or if any governmental body or agency institutes
proceedings to terminate the offer and sale of any Trust shares in
any jurisdiction.
11. The Underwriter shall order shares of the Trust from the
Trust only to the extent that it shall have received purchase
orders therefor. The Underwriter will not make any short sales of
shares of the Trust.
12. In selling or reacquiring shares of the Trust the
Underwriter will in all respects conform to the requirements of
federal and state laws, if any, and the Rules of Fair Practice of
the NASD, relating to such sale or reacquisition, as the case may
be. The Underwriter will observe and be bound by all the
provisions of the Trust's Agreement and Declaration of Trust (and
of any fundamental policies adopted by the Trust pursuant to the
1940 Act, written notice of which shall have been given to the
Underwriter) which at the time in any way require, limit, restrict
or prohibit or otherwise regulate any action on the part of the
Underwriter.
13. The Underwriter will conform to the provisions hereof
and the registration statement at the time in effect under the
1933 Act and 1940 Act with respect to the Trust and the Trust's
shares, and the Underwriter shall not withhold the placing of
purchase orders so as to make a profit thereby.
14. The Trust will pay or cause to be paid expenses
(including the fees and disbursements of its own counsel) and all
taxes and fees payable to the federal, any state or other
governmental agencies on account of the registration or
qualification of securities issued by the Trust or otherwise. The
Trust will also pay or cause to be paid expenses incident to the
issuance of shares of beneficial interest, such as the cost of
share certificates, issue taxes, and fees of the transfer agent.
The Underwriter will pay all expenses in connection with its own
operations. All other expenses related hereto shall be borne by
the Trust or parties related to the Trust.
15. Liberty Investment Services, Inc. on behalf of the
Underwriter, shall maintain all books and records required by the
1934 Act and rules thereunder with respect to the purchase,
redemption or repurchase of Trust shares. All books and records
required to be maintained by this paragraph shall be maintained
and preserved in conformity with the requirements of Rule 17a-3
and 17a-4 under the 1934 Act, be and remain the property of the
Underwriter, and be at all times subject to inspection by the SEC
in accordance with Section 17(a) of the 1934 Act. Liberty
Investment Services, Inc. shall have no obligation hereunder to
maintain books and records relating to a Underwriter's general
assets and liabilities or financial statements, the computation of
its aggregate indebtedness or net capital, employment records or
any other records not specifically relating to particular
purchases, redemptions or repurchases of Trust shares.
16. The Underwriter shall be an independent contractor with
respect to the Trust and nothing herein contained shall constitute
the Underwriter, its agent or representative, or any employee
thereof as employees of the Trust in connection with sale of
shares of the Trust. The Underwriter is responsible for its own
conduct and the employment, control and conduct of its agents and
employees, and for injury to such agents or employees or to others
through its agents or employees. The Underwriter assumes full
responsibility for its agents and employees under applicable
statutes and agrees to pay all applicable employer taxes.
17. The Underwriter shall indemnify and hold harmless the
Trust and each of its directors and officers (or former officers
and directors) and each person, if any, who controls the Trust
(collectively, "Indemnitees") against any loss, liability, claim,
damage, or expense (including the reasonable cost of investigating
and defending against the same any counsel fees reasonably
incurred in connection therewith) incurred by any Indemnitees
under the 1933 Act or under common law or otherwise which arise
out of or are based upon (1) any untrue or alleged untrue
statement of a material fact contained in information furnished by
the Underwriter to the Trust for use in the Trust's registration
statement, prospectus and statement of additional information or
any supplements thereto (hereinafter collectively referred to as
the "prospectus," unless otherwise noted), or annual or interim
reports to shareholders, (2) any omission or alleged omission to
state a material fact in connection with such information
furnished by the Underwriter to the Trust which is required to be
stated in any of such documents or necessary to make such
information not misleading, (3) any misrepresentation or omission
or alleged misrepresentation or omission to state a material fact
on the part of the Underwriter or any agent or employee of the
Underwriter or any other person for whose acts the Underwriter is
responsible, unless such misrepresentation or omission or alleged
misrepresentation or omission was made in reliance on written
information furnished by the Trust, or (4) the willful misconduct
or failure to exercise reasonable care and diligence on the part
of any such persons enumerated in clause (3) of this section 17
with respect to services rendered under this Agreement. This
indemnity provision, however, shall not operate to protect any
officer or trustee of the Trust from any liability to the Trust or
any shareholder by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of the office of such officer or trustee.
In case any action shall be brought against any Indemnitee,
the Underwriter shall not be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against
any Indemnitee, unless the Indemnitee shall have notified the
Underwriter in writing within a reasonable time after the summons
or other first legal process giving information of the nature of
the claim that shall have been served upon the Indemnitee (or
after the Indemnitee shall have received notice of such service on
any designated agent). Failure to notify the Underwriter of any
such claim shall not relieve it from liability which it may have
to the person against whom such action is brought otherwise than
on account of its indemnity agreement contained in this paragraph.
The Underwriter will be entitled to participate at its own expense
in the defense, or, if it so elects, to assume the defense of any
suit brought to enforce any such liability, but if the Underwriter
elects to assume the defense, such defense shall be conducted by
counsel chosen by it and satisfactory to the Indemnitees which are
defendants in the suit. In the event the Underwriter elects to
assume the defense of any such suit and retain such counsel, the
Indemnitees which are defendants in the suit shall bear the fees
and expenses of any additional counsel retained by them, but, in
case the Underwriter does not elect to assume the defense of any
such suit, the Underwriter will reimburse the Indemnitees which
are defendants in the suit for the reasonable fees and expenses of
any counsel retained by them.
The Underwriter shall promptly notify the Trust of the
commencement of any litigation or proceedings in connection with
the issuance or sale of the shares.
The Trust will indemnify and hold harmless the Underwriter
against any loss, liability, claim, damage or expense, to which
the Underwriter may become subject, insofar as such loss,
liability, claim, damage or expense (or action in respect thereof)
arise out of or are based upon any untrue or alleged untrue
statement of material fact contained in the Trust's registration
statement (or related prospectus) or arise out of or are based
upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading; and will reimburse the
Underwriter for any legal or other expenses reasonably incurred by
it in connection with investigating or defending against such
loss, claim, damage, liability or action; provided, however, that
the Trust shall not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in the Trust's prospectus in
reliance upon and in conformity with written information furnished
by the Underwriter specifically for use in the preparation
thereof.
The Trust shall not indemnify the Underwriter for any action
where a purchaser of the Contracts was not furnished or sent or
given, at or prior to written confirmation of the sale of the
Contracts, a copy of the prospectus for the Trust.
18. This Agreement shall become effective on the date hereof
and shall continue in effect until December 9, 1990, and from year
to year thereafter but only so long as such continuance is
specifically approved in the manner required by the 1940 Act.
Either party hereto may terminate this Agreement without payment
of any penalty on any date by giving the other party at least six
months prior written notice of such termination specifying the
date fixed therefor. Without prejudice to any other remedies of
the Trust, in any such event the Trust may terminate this
Agreement at any time immediately upon any failure of fulfillment
of any of the obligations of the Underwriter hereunder.
19. This Agreement shall automatically terminate in the event
of it assignment. Without limiting the generality of the
foregoing, the term "assigned," when used in this Agreement, shall
have the meaning specified in the 1940 Act and the rules
thereunder.
20. Any notice under this Agreement shall be in writing,
addressed and delivered or mailed, postage prepaid, to the other
party at such address as such other party may designate for the
receipt of such notice.
21. All parties hereto are expressly put on notice of the
Trust's Agreement and Declaration of Trust dated June 9, 1987, and
all amendments thereto, all of which are on file with the
Secretary of the Commonwealth of Massachusetts and with the Boston
City Clerk, and the limitation of shareholder and trustee
liability contained therein. This Agreement has been executed by
and on behalf of the Trust by its representatives as such
representatives and not individually, and the obligations of the
Trust hereunder are not binding upon any of the trustees,
officers, employees, agents or shareholders of the Trust
individually but are binding upon only the assets and property of
the Trust. With respect to any claim by the Underwriter for
recovery of any liability of the Trust arising hereunder allocated
to a particular Fund of the Trust if there be more than one,
whether in accordance with the express terms hereof or otherwise,
the Underwriter shall have recourse solely against the assets of
that Fund to satisfy such claim and shall have no recourse against
the assets of any other Fund for such purpose.
22. This Agreement shall be construed in accordance with the
laws of the Commonwealth of Massachusetts and the applicable
provisions of the 1940 Act and rules thereunder. To the extent
the applicable law of the Commonwealth of Massachusetts, or any
provisions herein, conflict with applicable provisions of the 1940
Act or rules thereunder, the latter shall control.
IN WITNESS WHEREOF, the Trust and the Underwriter have each
caused this Agreement to be executed as of the day and year first
written above.
STEINROE VARIABLE INVESTMENT TRUST
By ERNST E. DUNBAR
Treasurer
Attest: JOHN L. DAVENPORT
Assistant Secretary
KEYSTONE PROVIDENT FINANCIAL
SERVICES CORP.
By ROBERT R. BAIRD
President
Attest: JAMES J. KLOPPER
Clerk
<PAGE>
AMENDMENT NO. 1 TO
UNDERWRITING AGREEMENT
AGREEMENT made as of this first day of April, 1994 between
SteinRoe Variable Investment Trust, a Massachusetts business trust
(the "Trust"), and Keyport Financial Services Corp., a
Massachusetts corporation ("KFSC").
RECITAL
Reference is made to the Underwriting Agreement dated
December 9, 1988 between the Trust and KFSC (under its former name
"Keystone Provident Financial Services Corp.") (the "Underwriting
Agreement"). The parties are entering into this Agreement to
amend the Underwriting Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the premises and other
valuable consideration, receipt of which is hereby acknowledged by
each party, the parties hereby agree as follows:
1. The Underwriting Agreement shall be limited (and KFSC's
role as principal underwriter of the Trust shall be limited) to
sales of shares of the Trust to separate accounts of insurance
companies which are affiliates of Keyport Life Insurance Company
or Liberty Mutual Life Insurance Company, except as the parties
may otherwise agree in writing.
2. Without limiting the generality of Section 1 hereof, KFSC
shall not serve as principal underwriter for the sale of shares of
the Trust to Transamerica Occidental Life Insurance Company or
First Transamerica Life Insurance Company.
IN WITNESS WHEREOF, the parties have entered into this
Agreement as if under seal as of the date first written above.
STEINROE VARIABLE INVESTMENT TRUST
By RICHARD R. CHRISTENSEN
Title: President
KEYPORT FINANCIAL SERVICES CORP.
By ROBERT R. BAIRD
Title: President
AMENDED AND RESTATED
PARTICIPATION AGREEMENT
AMONG
KEYPORT FINANCIAL SERVICES CORP.,
KEYPORT LIFE INSURANCE COMPANY,
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
and
STEINROE VARIABLE INVESTMENT TRUST
This Agreement, made and entered into as of this 3rd day of April, 1998
by and among Keyport Life Insurance Company and Liberty Life Assurance
Company of Boston (the "Companies"), on their own behalf and on behalf of
their Separate Accounts, each of which is a segregated asset account of one
of the Companies, SteinRoe Variable Investment Trust (the "Trust"), and
Keyport Financial Services Corp. ("KFSC").
WHEREAS, the Trust engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and
variable annuity contracts (collectively, "Variable Insurance Products") to
be offered by insurance companies which have entered into participation
agreements substantially identical to this Agreement (hereinafter
"Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares (such series being hereinafter referred to individually as
a "Series" or collectively as the "Series"); and
WHEREAS, the Trust relies on an order from the Securities and Exchange
Commission ("SEC"), dated July 1, 1988 (File No. 812-7044), granting life
insurance companies and variable annuity and variable life insurance
separate accounts exemptions from the provisions of Sections 9(a), 13(a),
15(a), and 15(b) of the Investment Company Act of 1940, as amended (the
"1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder to the
extent necessary to permit shares of the Trust to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated life insurance companies (hereinafter the
"Shared Funding Exemptive Order"); and
WHEREAS, the Trust is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the
Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, Stein Roe & Farnham Incorporated. ("Stein Roe") is duly
registered as an investment adviser under the Advisers Act and applicable
state securities laws; and provides certain administrative services; and
WHEREAS, Liberty Investment Services, Inc. ("LIS") serves as transfer
agent to the Trust; and
WHEREAS, the Companies have registered or will register certain
Variable Insurance Products under the 1933 Act; and
WHEREAS, the Companies have established duly organized, validly
existing segregated asset accounts (the "Separate Accounts") by resolution
of the Board of Directors of the Companies; and
WHEREAS, the Companies have registered or will register certain
Separate Accounts as unit investment trusts under the 1940 Act; and
WHEREAS, the Companies rely on certain provisions of the 1940 and 1933
Acts that exempt certain Separate Accounts and Variable Insurance Products
from the registration requirements of the Acts in connection with the sale
of Variable Insurance Products under certain tax-advantaged retirement
programs, described in Article II., Section 2.12. and as provided for by
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, KFSC is registered as a broker-dealer with the SEC under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a
member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD");
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Companies intend to purchase shares of the Trust on behalf
of each Separate Account to fund certain Variable Insurance Products and
KFSC is authorized to sell such shares to unit investment trusts such as
each Separate Account at net asset value; and
WHEREAS, this Agreement is being amended and restated hereby in order
to effect certain technical corrections to this Agreement from the form
hereof as originally executed and delivered, such amendment and restatement
to be effective nunc pro tunc as of the date first written above.
NOW, THEREFORE, in consideration of their mutual promises, the
Companies, the Trust and KFSC agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. KFSC will sell to the Companies those shares of the Trust which
each Separate Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Separate Accounts of
purchase payments or for the business day on which transactions under
Variable Insurance Products are effected by the Separate Accounts. For
purposes of this Section 1.1., LIS shall be the designee of the Trust for
receipt of such orders from each Separate Account and receipt by such
designee shall constitute receipt by the Trust. "Business Day" shall mean
any day on which the New York Stock Exchange is open for trading and any
other day on which the Trust calculates its net asset value pursuant to the
rules of the SEC.
1.2. The Trust will make its shares available indefinitely for purchase
at the applicable net asset value per share by the Companies and their
Separate Accounts on those days on which the Trust calculates its net asset
value pursuant to rules of the SEC and the Trust shall use reasonable
efforts to calculate such net asset value on each Business Day.
Notwithstanding the foregoing, the Board of Trustees of the Trust (the
"Trustees") may refuse to sell shares of any Series to any person, or
suspend or terminate the offering of shares of any Series if such action is
required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Trustees, acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws,
necessary in the best interests of the shareholders of such Series.
1.3. The Trust and KFSC agree that shares of the Trust will be sold
only to Participating Insurance Companies and their Separate Accounts. No
shares of any Series will be sold to the general public.
1.4. The Trust and KFSC will not sell Trust shares to any insurance
company or separate account unless an agreement containing provisions
substantially the same as Articles I., III., V., VII. and Sections 2.5. and
2.12. of Article II. of this Agreement is in effect to govern such sales.
1.5. The Trust will redeem for cash, at the Companies' request, any
full or fractional shares of the Trust held by the Companies, executing such
requests on a daily basis at the net asset value next computed after receipt
by the Separate Accounts of redemption requests or for the Business Day on
which transactions under Variable Insurance Products are effected by the
Separate Accounts. For purposes of this Section 1.5., Stein Roe shall be
the designee of the Trust for receipt of requests for redemption for each
Separate Account.
Subject to the applicable rules and regulations, if any, of the SEC,
the Trust may pay the redemption price for shares of any Series in whole or
in part by a distribution in kind of securities from the portfolio of the
Trust allocated to such Series in lieu of money, valuing such securities at
their value employed for determining net asset value governing such
redemption price, and selecting such securities in a manner the Trustees may
determine in good faith to be fair and equitable.
1.6. The Trust may suspend the redemption of any full or fractional
shares of the Trust (1) for any period (a) during which the New York Stock
Exchange is closed (other than customary weekend and holiday closings) or
(b) during which trading on the New York Stock Exchange is restricted; (2)
for any period during which an emergency exists as a result of which (a)
disposal by the Trust of securities owned by it is not reasonably
practicable or (b) it is not reasonably practicable for the Trust fairly to
determine the value of its net assets; or (3) for such other periods as the
SEC may by order permit for the protection of shareholders of the Trust.
1.7. The Companies will purchase and redeem the shares of each Series
offered by the then current prospectus of the Trust and in accordance with
the provisions of such prospectus and statement of additional information
(the "SAI") (collectively referred to as "Prospectus," unless otherwise
provided). The Companies agree that all net amounts available under the
Variable Insurance Products with the form number(s) which are listed on
Schedule A attached hereto and incorporated herein by this reference, as
such Schedule A may be amended from time to time hereafter by mutual written
agreement of all the parties hereto (the "Contracts"), shall be invested in
the Trust, in such other trusts advised by Stein Roe as may be mutually
agreed to in writing by the parties hereto, or in the Companies' general
accounts, provided that such amounts may also be invested in an investment
company other than the Trust if (a) such other investment company, or series
thereof, has investment objectives or policies that are substantially
different from the investment objectives and policies of each of the Series
of the Trust; or (b) one or both of the Companies give the Trust and KFSC
forty-five (45) days written notice of its or their intention to make such
other investment company available as a funding vehicle for the Contracts;
or (c) such other investment company was available as a funding vehicle for
the Contracts prior to the date of this Agreement and one or both of the
Companies so inform the Trust and KFSC prior to their signing this
Agreement; or (d) the Trust or KFSC consents to the use of such other
investment company.
1.8. The Companies shall pay for Trust shares on the next Business Day
after an order to purchase Trust shares is made in accordance with the
provisions of Section 1.1. hereof. Payment shall be in federal funds
transmitted by wire, or may otherwise be provided by separate agreement.
1.9. Issuance and transfer of the Trusts' shares will be by book entry
only. Stock certificates will not be issued to either the Companies or the
Separate Accounts. Shares ordered from the Trust will be recorded in an
appropriate title for each Separate Account or the appropriate subaccount of
each Separate Account.
1.10. The Trust, through its designee LIS, shall furnish same day
notice (by wire or telephone, followed by written confirmation) to the
Companies of any income dividends or capital gain distributions payable on
the shares of any Series. The Companies hereby elect to receive all such
income, dividends and capital gain distributions as are payable on the
shares of each Series in additional shares of that Series. The Companies
reserve the right to revoke this election and to receive all such income,
dividends and capital gain distributions in cash. The Trust shall notify
the Companies through its designee, LIS, of the number of shares so issued
as payment of such income, dividends and distributions.
1.11. The Trust shall make the net asset value per share for each
Series available to the Companies on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use
its best efforts to make such net asset value per share available by 7 p.m.,
Boston time.
ARTICLE II. Representations and Warranties
2.1. The Companies represent and warrant that the Contracts are or will
be registered under the 1933 Act to the extent required by the 1933 Act;
that the Contracts will be issued and sold in compliance in all material
respects with all applicable federal and state laws and that the sale of the
Contracts shall comply in all material respects with state insurance
suitability requirements. The Companies further represent and warrant that
they are insurance companies duly organized and in good standing under
applicable law and that prior to any issuance or sale of any Contract they
have legally and validly established each Separate Account as a segregated
asset account under the applicable state insurance laws and have registered
or, prior to any issuance or sale of the Contracts, will register each
Separate Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as a segregated investment account for
the Contracts, to the extent required by the 1940 Act.
2.2. The Trust represents and warrants that Trust shares sold pursuant
to this Agreement shall be registered under the 1933 Act to the extent
required by the 1933 Act, duly authorized for issuance and sold in
compliance with the laws of the Commonwealth of Massachusetts and all
applicable federal and any state securities laws and that the Trust is and
shall remain registered under the 1940 Act to the extent required by the
1940 Act. The Trust shall amend the registration statement for its shares
under the 1933 Act and the 1940 Act from time to time as required in order
to effect the continuous offering of its shares. The Trust shall register
and qualify the shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust or KFSC.
2.3. The Trust represents that it intends to qualify as a Regulated
Investment Company under Subchapter M of the Code and that it will make
every effort to maintain such qualification (under Subchapter M or any
successor or similar provision) and that it will notify the Companies
immediately upon having a reasonable basis for believing that it has ceased
to so qualify or that it might not so qualify in the future.
2.4. The Companies represent that the Contracts are currently treated
as endowment, annuity or life insurance contracts under applicable
provisions of the Code and that they will make every effort to maintain such
treatment and that they will notify the Trust and KFSC immediately upon
having a reasonable basis for believing that the Contracts have ceased to be
so treated or that they might not be so treated in the future.
2.5. The Trust currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future consistent with
applicable law. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Trust undertakes to have its Trustees,
a majority of whom are not interested persons of the Trust, formulate and
approve any plan under Rule 12b-1 to finance distribution expenses.
2.6. The Trust makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various
states except that the Trust represents that it is currently in compliance
and shall at all times remain in compliance with the applicable insurance
laws of the domiciliary states of the Participating Insurance Companies to
the extent that the Participating Insurance Company advises the Trust, in
writing, of such laws or any changes in such laws.
2.7. KFSC represents and warrants that it is a member in good standing
of the NASD and is registered as a broker-dealer with the SEC. KFSC further
represents that it will sell and distribute the Trust shares in accordance
with the laws of the Commonwealth of Massachusetts and all applicable state
and federal securities laws, including without limitation the 1933 Act, the
1934 Act, and the 1940 Act.
2.8. The Trust represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it
does and will comply in all material aspects with the 1940 Act.
2.9. The Trust represents and warrants that STEIN ROE is and shall
remain duly registered as an investment adviser in all material aspects
under all applicable federal and state securities laws and that STEIN ROE
shall perform its obligations for the Trust in compliance in all material
respects with the applicable laws of the Commonwealth of Massachusetts and
any applicable state and federal securities laws.
2.10. The Trust represents and warrants that all of its trustees,
officers, employees, investment advisers, and other individuals/entities
having access to securities or funds of the Trust are and shall continue to
be at all times covered by a joint fidelity bond in an amount not less than
three million seven hundred fifty thousand dollars ($3,750,000) with no
deductible amount. The aforesaid bond shall include coverage for larceny
and embezzlement and shall be issued by a reputable fidelity insurance
company.
2.11. The Companies represent and warrant that all of their directors,
officers, employees, investment advisers, and other individuals/entities
having access to securities or funds of the Trust are and shall continue to
be at all times covered by a blanket fidelity bond or similar coverage for
the benefit of the Trust, in an amount not less than ten million dollars
($10,000,000) with no deductible amount. The aforesaid bond shall include
coverage for larceny and embezzlement and shall be issued by a reputable
fidelity insurance company.
2.12. The Companies represent and warrant that they will not, without
the prior written consent of KFSC, purchase Trust shares with Separate
Account assets derived from the sale of Contracts to individuals or entities
which qualify under current or future state or federal law for any type of
tax advantage (whether by a reduction or deferral of, deduction or exemption
from, or credit against income or otherwise). Examples of such types of
funds under current law include: any tax-advantaged retirement program,
whether maintained by an individual, employer, employee association or
otherwise (including, without limitation, retirement programs which qualify
under Sections 401(a), 401(k), 403(a), 403(b), 408 and 457 of the Code), and
any retirement programs maintained for employees of the Government of the
United States or by the government of any state or political subdivision
thereof, or by any agency or instrumentality of any of the foregoing.
2.13. The Companies represent and warrant that they will not transfer
or otherwise convey shares of the Trust, without the prior written consent
of KFSC.
ARTICLE III. Prospectus and Proxy Statements; Voting
3.1. KFSC shall provide the Companies with as many copies of the
Trust's current prospectus, excluding the SAI, as the Companies may
reasonably request in connection with delivery of the prospectus, excluding
the SAI, to shareholders and purchasers of Variable Insurance Products. If
requested by the Companies in lieu thereof, the Trust shall provide such
documentation (including a final copy of the new prospectus, excluding the
SAI, as set in type at the Trust's expense) and other assistance as is
reasonably necessary in order for the Companies once each year (or more
frequently if the prospectus for the Trust is amended) to have the
prospectus for the Contracts and the Trust's prospectus, excluding the SAI,
printed together in one document (such printing to be at the Companies'
expense).
3.2. The Trust's prospectus shall state that the SAI for the Trust is
available from KFSC and the Trust, at its expense, shall provide final copy
of such SAI to KFSC for duplication and provision to any prospective owner
who requests the SAI and to any owner of a Variable Insurance Product
("Owners").
3.3. The Trust, at its expense, shall provide the Companies with copies
of its proxy material, reports to shareholders and other communications to
shareholders in such quantity as the Companies shall reasonably require for
distribution to Owners.
3.4. If and to the extent required by law, the Companies and, so long
as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for Owners, the Trust shall:
(i) solicit voting instructions from Owners;
(ii) vote the Trust shares in accordance with instructions received
from Owners; and
(iii) vote Trust shares for which no instructions have been received in
the same proportion as Trust shares of such Series for which
instructions have been received;
The Companies reserve the right to vote Trust shares held in any segregated
asset account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for assuring that
each of their Separate Accounts participating in the Trust calculates voting
privileges in a manner consistent with the standards to be provided in
writing to the Participating Insurance Companies.
3.5. The Trust will comply with all provisions of the 1940 Act
requiring voting by shareholders. The Trust reserves the right to take all
actions, including but not limited to, the dissolution, merger, and sale of
all assets of the Trust upon the sole authorization of its Trustees, to the
extent permitted by the laws of the Commonwealth of Massachusetts and the
1940 Act.
ARTICLE IV. Sales Material and Information
4.1. The Companies shall furnish, or shall cause to be furnished, to
the Trust or its designee, each piece of sales literature or other
promotional material in which the Trust or STEIN ROE, or any sub-adviser
("Sub-Adviser"), or KFSC is named, at least fifteen (15) days prior to its
use. No such material shall be used if the Trust or its designee object to
such use within fifteen (15) days after receipt of such material.
4.2. The Companies shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust
in connection with the sale of the Contracts other than the information or
representations contained in the registration statement or Prospectus for
the Trust shares, as such registration statement and Prospectus may be
amended or supplemented from time to time, or in reports or proxy statements
for the Trust, or in sales literature or other promotional material approved
by the Trust or its designee or by KFSC, except with the permission of the
Trust or KFSC or the designee of either.
4.3. The Trust or its designee shall furnish, or shall cause to be
furnished, to the Companies or their designees, each piece of sales
literature or other promotional material in which the Companies and/or their
Separate Account(s), are named at least fifteen (15) days prior to its use.
No such material shall be used if the Companies or their designee object to
such use within fifteen (15) days after receipt of such material.
4.4. The Trust and KFSC shall not give any information or make any
representations or statements on behalf of the Companies or concerning the
Companies, any Separate Account, or the Variable Insurance Products other
than the information or representations contained in a registration
statement or prospectus for such Variable Insurance Products, as such
registration statement and prospectus may be amended or supplemented from
time to time, or in published reports for such Separate Account which are in
the public domain or approved by the Company for distribution to Owners, or
in sales literature or other promotional material approved by the Companies
or their designee, except with the permission of the Companies.
4.5. The Trust will provide to the Companies at least one complete copy
of all registration statements, prospectuses, SAIs, reports, proxy
statements, sales literature and other promotional materials, applications
for exemption, requests for no-action letters, and all amendments to any of
the above, that relate to the Trust or its shares, contemporaneously with
the filing of such document with the SEC or other regulatory authorities.
4.6. The Companies will provide to the Trust at least one complete copy
of all registration statements, prospectuses, SAIs, reports, solicitations
for voting instructions, sales literature and other promotional materials,
applications for exemption, requests for no-action letters, and all
amendments to any of the above, that relate to the Variable Insurance
Products or any Separate Account, contemporaneously with the filing of such
document with the SEC.
4.7. For purposes of this Article IV., the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine,
or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public
media), sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters seminar texts,
reprints or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other
communications distributed or made generally available to some or all agents
or employees, and registration statements, prospectuses, SAIs, shareholder
reports, and proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Trust and KFSC shall pay no fee or other compensation to the
Companies under this Agreement, except that if the Trust or any Series
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then KFSC may make payments to the Companies or to the underwriter
for the Variable Insurance Products if and in amounts agreed to by KFSC in
writing and such payments will be made out of existing fees payable to KFSC
by the Trust for this purpose. No such payments shall be made directly by
the Trust. Currently, no such plan pursuant to Rule 12b-1 or payments are
contemplated.
5.2. All expenses incident to performance by the Trust under this
Agreement shall be paid by the Trust. The Trust shall see to it that all
its shares are registered and authorized for issuance in accordance with
applicable federal law and, if and to the extent deemed advisable by the
Trust, in accordance with applicable state laws prior to their sale. The
Trust shall bear the expenses of registration and qualification of the
Trust's shares, preparation and filing of the Trust's prospectus and
registration statement, proxy materials and reports, setting the prospectus
in type, setting in type and printing the proxy materials and reports to
shareholders (including the costs of printing a prospectus that constitutes
an annual report), the preparation of all statements and notices required by
any federal or state law, and all taxes on the issuance or transfer of the
Trust's shares.
5.3. The Company shall bear the expenses of distributing the Trust's
proxy materials and reports to Owners.
ARTICLE VI. Diversification
6.1. The Trust will at all times invest money from the Variable
Insurance Products in such a manner as to ensure that, insofar as such
investment is required to assure such treatment, the Variable Insurance
Products will be treated as variable contracts under the Code and the
regulations issued thereunder. Without limiting the scope of the foregoing,
the Trust will at all times comply with Section 817(h) of the Code and the
Treasury Regulations thereunder relating to the diversification requirements
for variable annuity, endowment, or life insurance contracts and any
amendments or other modifications to such Section or Regulations.
ARTICLE VII. Potential Conflicts
7.1. The Trustees will monitor the Trust for the existence of any
material irreconcilable conflict between the interests of the Owners of
separate accounts of the Companies investing in the Trust. A material
irreconcilable conflict may arise for a variety of reasons, including: (a)
an action by any state insurance regulatory authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretive letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Series
are being managed; (e) a difference in voting instructions given by variable
annuity contract and variable life insurance policy owners; or (f) a
decision by an insurer to disregard the voting instructions of Owners. The
Trustees shall promptly inform the Companies if they determine that a
material irreconcilable conflict exists and the implications thereof.
7.2. The Companies will report any potential or existing conflicts
(including the occurrence of any event specified in paragraph 7.1. which may
give rise to such a conflict) of which they are aware to the Trustees. The
Companies will assist the Trustees in carrying out their responsibilities
under the Shared Funding Exemptive Order, by providing the Trustees with all
information reasonably necessary for the Trustees to consider any issues
raised. This includes, but is not limited to, an obligation by the
Companies to inform the Trustees whenever Owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Trustees, or a majority
of its disinterested Trustees, that a material irreconcilable conflict
exists, the Companies and other Participating Insurance Companies shall, at
their expense and to the extent reasonably practicable (as determined by a
majority of the disinterested Trustees), take whatever steps are necessary
to remedy or eliminate the material irreconcilable conflict, up to and
including: (1), withdrawing the assets allocable to some or all of the
separate accounts of Participating Insurance Companies from the Trust or any
Series and reinvesting such assets in a different investment medium,
including (but not limited to) another Series of the Trust, or submitting
the question whether such segregation should be implemented to a vote of all
affected Owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the
affected Owners the option of making such a change; (2), establishing a new
registered management investment company or managed separate account; and
(3) obtaining SEC approval.
7.4. If a material irreconcilable conflict arises because of a decision
by one or both of the Companies to disregard Owner voting instructions and
that decision represents a minority position or would preclude a majority
vote, one or both of the Companies may be required, at the Trust's election,
to withdraw the affected Separate Account's investment in the Trust and
terminate this Agreement; provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing
material irreconcilable conflict as determined by a majority of the
disinterested Trustees. Any such withdrawal and termination must take place
within six (6) months after the Trust gives written notice that this
provision is being implemented, and until the end of that six (6) month
period KFSC and Trust shall continue to accept and implement orders by one
or both of the Companies for the purchase (and redemption) of shares of the
Trust.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to one or both of the
Companies conflicts with the majority of other state regulators, then one or
both of the Companies will withdraw the affected Separate Account's
investment in the Trust and terminate this Agreement within six (6) months
after the Trustees inform one or both of the Companies in writing that they
have determined that such decision has created a material irreconcilable
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees. Until
the end of the foregoing six (6) month period, KFSC and Trust shall continue
to accept and implement orders by one or both of the Companies for the
purchase (and redemption) of shares of the Trust.
7.6. For purposes of Sections 7.3. through 7.6. of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any material irreconcilable conflict, but in no
event will the Trust be required to establish a new funding medium for the
Variable Insurance Products. One or both of the Companies shall not be
required by Section 7.3. to establish a new funding medium for the Variable
Insurance Products if an offer to do so has been declined by vote of a
majority of Owners materially adversely affected by the material
irreconcilable conflict. In the event that the Trustees determine that any
proposed action does not adequately remedy any material irreconcilable
conflict, then one or both of the Companies will withdraw the affected
Separate Account's investment in the Trust and terminate this Agreement
within six (6) months after the Trustees inform one or both of the Companies
in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any
such material irreconcilable conflict as determined by a majority of the
disinterested Trustees.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of
the 1940 Act or the rules promulgated thereunder with respect to mixed or
shared funding (as defined in the Shared Funding Exemptive Order) or terms
and conditions materially different from those contained in the Shared
Funding Exemptive Order, then (a) the Trust and/or the Companies, as
appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4., 3.5., 7.1., 7.2., 7.3., 7.4.,
and 7.5. of this Agreement shall continue in effect only to the extent that
terms and conditions substantially identical to such Sections are contained
in such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Companies
8.1.(a). The Companies will indemnify and hold harmless the Trust and
each of its Trustees and Officers and each person, if any, who controls the
Trust within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1.) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of one or both of the Companies) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions
in respect thereof) or settlements are related to the sale or acquisition of
the Trust's shares or the Variable Insurance Products and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
registration statement or prospectus for the Variable Insurance
Products or contained in the sales literature for the Variable
Insurance Products (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, provided that this Agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon and
in conformity with information furnished in writing to one or both
of the Companies by or on behalf of the Trust for use in the
registration statement or prospectus for the Variable Insurance
Products or in the Variable Insurance Products or sales literature
(or any amendment or supplement) or otherwise for use in
connection with the sale of the Variable Insurance Products or
Trust shares; or
(ii) arise out of or are based upon statements or representations
(other than statements or representations contained in the
registration statement, Prospectus or sales literature of the
Trust not supplied by one or both of the Companies, or persons
under their control) or wrongful conduct of one or both of the
Companies or persons under their control, with respect to the sale
or distribution of the Variable Insurance Products or Trust
shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, Prospectus,
or sales literature of the Trust or any amendment thereof or
supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading if such a statement
or omission was made in reliance upon information furnished in
writing to the Trust by or on behalf of one or both of the
Companies; or
(iv) arise out of or result from any failure by one or both of the
Companies to provide the services and furnish the materials
contemplated by this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by one or both of the
Companies in this Agreement or arise out of or result from any
other material breach of this Agreement by one or both of the
Companies.
8.1.(b). The Companies shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by
reason of such Indemnified Party's willful misfeasance, bad faith, or
negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to the Trust, whichever is applicable.
8.1.(c). The Companies shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Companies in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify the
Companies of any such claim shall not relieve the Companies from any
liability which they may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification
provision. In case any such action is brought against the Indemnified
Parties, the Companies shall be entitled to participate, at their own
expense, in the defense of such action. The Companies also shall be
entitled to assume the defense thereof, with counsel satisfactory to the
party named in the action. After notice from one or both of the Companies
to such party of the election of one or both of the Companies to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and the Companies will not be liable
to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
8.1.(d). The Indemnified Parties will promptly notify the Companies of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Trust shares or the Contracts or the
operation of the Trust.
8.2. Indemnification By the Trust
8.2.(a). The Trust will indemnify and hold harmless the Companies, and
each of their directors and officers and each person, if any, who controls
the Companies within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2.)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Trust) or litigation
(including legal and other expenses) to which the Indemnified Parties may
become subject under any statute, regulation at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions
in respect thereof) or settlements result from the gross negligence, bad
faith or willful misconduct of the Trustees or any member thereof, are
related to the operations of the Trust and:
(i) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the diversification
requirements specified in Article VI. of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Trust;
as limited by and in accordance with the provisions of Sections 8.2.(b). and
8.2.(c). hereof.
8.2.(b). The Trust shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise by subject by
reason of such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Companies, the Trust, KFSC or each
Separate Account, whichever is applicable.
8.2.(c). The Trust shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Trust in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have served upon such
Indemnified Party (or after such Indemnified party shall have received
notice of such service on any designated agent), but failure to notify the
Trust of any such claim shall not relieve the Trust from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Trust will be
entitled to participate, at its own expense, in the defense thereof. The
Trust also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Trust
to such party of the Trust's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Trustees will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such
party independently in connection with the defense thereof other than
reasonable cases of investigations.
8.2.(d). The Companies and KFSC agree promptly to notify the Trust of
the commencement of any litigation or proceedings against them or any of
their respective officers or directors in connection with this Agreement,
the issuance or sale of the Contracts, with respect to the operation of
either Account, or the sale or acquisition of shares of the Trust.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts provided, however, that if such laws or any of the provisions
of this Agreement conflict with applicable provisions of the 1940 Act, the
latter shall control.
9.2. This Agreement shall be made subject to the provisions of the
1933, 1934, and 1940 Acts, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and
regulations as the SEC may grant (including, but not limited to, the Shared
Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party upon one (1) year advance written notice
to the other parties; provided, however such notice shall not be given
earlier than one (1) year following the date of this Agreement; or
(b) at the option of one or both of the Companies to the extent that
shares of Series are not reasonably available to meet the requirements of
the Variable Insurance Products as determined by one or both of the
Companies, provided however, that such termination shall apply only to the
Series not reasonably available. Prompt notice of the election to terminate
for such cause shall be furnished by one or both of the Companies; or
(c) at the option of the Trust in the event that formal administrative
proceedings are instituted against one or both of the Companies or KFSC by
the NASD, the SEC, the Insurance Commissioner or any other regulatory body
regarding the duties of one or both of the Companies under this Agreement or
related to the sale of the Variable Insurance Products, with respect to the
operation of a Separate Account, or the purchase of the Trust shares,
provided, however, that the Trust determines in its sole judgement exercised
in good faith, that any such administrative proceedings will have a material
adverse effect upon the ability of one or both of the Companies to perform
their obligations under this Agreement or of KFSC to perform its obligations
under its underwriting agreement with the Trust; or
(d) at the option of one or both of the Companies in the event that
formal administrative proceedings are instituted against the Trust by the
NASD, the SEC, or any state securities or insurance department or any other
regulatory body, provided, however, that one or both of the Companies
determine in their sole judgement exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon the
ability of the Trust to perform its obligations under this Agreement; or
(e) with respect to a Separate Account, upon requisite authority to
substitute the shares of another investment company for shares of the
corresponding Series of the Trust in accordance with the terms of the
Variable Insurance Products for which those Series shares had been selected
to serve as the underlying investment media. The Companies will give thirty
(30) days' prior written notice to the Trust of the date of any proposed
action to replace the Trust shares; or
(f) at the option of one or both of the Companies, in the event any of
the Trust's shares are not registered, issued or sold in accordance with
applicable federal and any state law or such law precludes the use of such
shares as the underlying investment media of the Variable Insurance Products
issued or to be issued by the Companies; or
(g) at the option of one or both of the Companies, if the Trust ceases
to qualify as a Regulated Investment Company under Subchapter M of the Code
or under any successor or similar provision, or if one or both of the
Companies reasonably believes that the Trust may fail to so qualify; or
(h) at the option of one or both of the Companies, if the Trust fails
to meet the diversification requirements specified in Article VI. hereof; or
(i) at the option of either the Trust or KFSC, if (1) the Trust or
KFSC, respectively, shall determine, in their sole judgement reasonably
exercised in good faith, that one or both of the Companies has suffered a
material adverse change in its business or financial condition or is the
subject of material adverse publicity and such material adverse publicity
will have a material adverse impact upon the business and operations of
either the Trust or KFSC, (2) the Trust or KFSC shall notify one or both of
the Companies in writing of such determination and its intent to terminate
this Agreement, and (3) after considering the actions taken by one or both
of the Companies and any other changes in circumstances since the giving of
such notice, such determination of the Trust or KFSC shall continue to apply
on the sixtieth (60th) day following the giving of such notice, which
sixtieth (60th) day shall be the effective date of termination; or
(j) at the option of one or both of the Companies, if (1) one or both
of the Companies shall determine, in its sole judgment reasonably exercised
in good faith, that either the Trust or KFSC has suffered a material adverse
change in its business or financial condition or is the subject of material
adverse publicity and such material adverse publicity will have a material
adverse impact upon the business and operations of one or both of the
Companies, (2) one or both of the Companies shall notify the Trust and KFSC
in writing of such determination and its intent to terminate the Agreement,
and (3) after considering the actions taken by the Trust and/or KFSC and any
other changes in circumstances since the giving of such notice, such
determination shall continue to apply on the sixtieth (60th) day following
the giving of such notice, which sixtieth (60th) day shall be the effective
date of termination; or
(k) at the option of either the Trust or KFSC, if one or both of the
Companies gives the Trust and KFSC the written notice specified in Section
10.3.(a). hereof and at the time such notice was given there was no notice
of termination outstanding under any other provision of this Agreement;
provided, however any termination under this Section 10.1.(k). shall be
effective forty-five (45) days after the notice specified in 10.3.(a). was
given.
10.2. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 10.1.(a). may be exercised for
any reason or for no reason.
10.3. Notice Requirement. No termination of this Agreement shall be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties to this Agreement of its intent to
terminate which notice shall set forth the basis for such termination.
Furthermore,
(a) in the event that any termination is based upon the provisions of
Article VII., or the provision of Section 10.1.(a)., 10.1.(i)., 10.1.(j). or
10.1.(k). of this Agreement, such prior written notice shall be given in
advance of the effective date of termination as required by such provisions;
and
(b) in the event that any termination is based upon the provisions of
Section 10.1.(c). or 10.1.(d). of this Agreement, such prior written notice
shall be given at least ninety (90) days before the effective date of
termination.
10.4. Effect of Termination. Notwithstanding any termination of this
Agreement, the Trust and KFSC shall at the option of one or both of the
Companies, continue to make available additional shares of the Trust
pursuant to the terms and conditions of this Agreement, for all Variable
Insurance Products in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Products"). Specifically,
without limitation, the Owners of the Existing Products shall be permitted
to reallocate investments in the Trust, redeem investments in the Trust
and/or invest in the Trust upon the making of additional purchase payments
under the Existing Products. The parties agree that this Section 10.4.
shall not apply to any terminations under Article VII. and the effect of
such Article VII. terminations shall be governed by Article VII. of this
Agreement.
10.5. The Companies shall not redeem Trust shares attributable to the
Variable Insurance Products (as opposed to Trust shares attributable to the
Companies' assets held in a Separate Account) except (i) as necessary to
implement Owner initiated transactions, or (ii) as required by state and/or
federal laws or regulations or judicial or other legal precedent of general
application (hereinafter referred to as a "Legally Required Redemption").
Upon request, the Companies will promptly furnish to the Trust and KFSC the
opinion of counsel for the Companies (which counsel shall be reasonably
satisfactory to the Trust and KFSC) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Variable
Insurance Products, the Companies shall not prevent Owners from allocating
payments to a Series that was otherwise available under the Variable
Insurance Products without first giving the Trustee or KFSC ninety (90) days
notice of their intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify
in writing to the other party.
If to the Trust:
c/o Liberty Investment Services, Inc.
600 Atlantic Avenue
Boston, Massachusetts 02210
Attention: Secretary
If to one or both of the Companies:
Keyport Life Insurance Company
125 High Street
Oliver Street Tower
Thirteenth Floor
Boston, MA 02110
Attention: General Counsel
Liberty Life Assurance Company of Boston
175 Berkeley Street
Boston, MA 02117
Attention: General Counsel
If to KFSC:
Keyport Financial Services, Corp.
125 High Street
Boston, Massachusetts 02110
Attention: Secretary
ARTICLE XII. Miscellaneous
12.1. All persons dealing with Trust must look solely to the property
of the Trust for the enforcement of any claims against the Trust hereunder
and otherwise understand that neither the Trustees, officers, agents or
shareholders of the Trust have any personal liability for any obligations
entered into by or on behalf of the Trust.
12.2. Subject to the requirements of legal process and regulatory
authority, each Party hereto shall treat as confidential the names and
addresses of the Owners and all information reasonably identified as
confidential in writing be any other party hereto and, except as permitted
by this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come
into the public domain without the express written consent of the affected
party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be effected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC,
the NASD, the Internal Revenue Service and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or
the transactions contemplated hereby.
12.7. The Trust and KFSC agree that to the extent any advisory or other
fees received by the Trust, KFSC, or Stein Roe are determined to be unlawful
in appropriate legal or administrative proceedings, the Trust shall
indemnify and reimburse the Companies for any out of pocket expenses and
actual damages the Companies have incurred as a result of any such
proceeding, provided however that the provision of Section 8.2.(b). of this
and 8.2.(c). shall apply to such indemnification and reimbursement
obligation. Such indemnification and reimbursement obligation shall be in
addition to any other indemnification and reimbursement obligations of the
Trust under this Agreement.
12.8. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligation, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly
authorized representative and its seal to be hereunder affixed hereto as of
the date specified below.
KEYPORT LIFE INSURANCE COMPANY
By its authorized officer,
By:
Title:
Date:
LIBERTY LIFE ASSURANCE
COMPANY OF BOSTON
By its authorized officer,
By:
Title:
Date:
STEINROE VARIABLE INVESTMENT TRUST
By its authorized officer,
By:
Title:
Date:
KEYPORT FINANCIAL SERVICES CORP.
By its authorized officer,
By:
Title:
Date:
<PAGE>
Schedule A
Individual and group variable annuity contracts and certificates.
Individual variable life contracts.
ROPES & GRAY
225 Franklin Street
Boston, Massachusetts 02110
(617) 423-6100
Telex Number 951973ROPES GRAY BSN
Telecopier: (617) 623-2377 (617) 423-7841
(617) 423-6905
November 16, 1988
SteinRoe Variable Investment Trust
c/o Liberty Investment Services, Inc.
600 Atlantic Avenue
Boston, Massachusetts 02210
Gentlemen:
We are furnishing this opinion with respect to the proposed
offer and sale from time to time of an indefinite number of
shares of beneficial interest (the "Shares") of Cash Income Fund,
Government Guaranteed Securities Fund, Mortgage Securities Income
Fund, Investment Grade Bond Fund, High Income Bond Fund, Managed
Assets Fund, Managed Growth Stock Fund, Aggressive Stock Fund,
Government Securities Zero Coupon Fund Matched Maturity Series
1991, Government Securities Zero Coupon Fund Matched Maturity
Series 1993, Government Securities Zero Coupon Fund Matched
Maturity Series 1996, Government Securities Zero Coupon Fund
Matched Maturity Series 1998 and Government Securities Zero
Coupon Fund Matched Maturity Series 2001 (each a "Portfolio"),
each a series of SteinRoe Variable Investment Trust (the "Trust")
being registered under the Securities Act of 1933 by the
Registration Statement of the Trust on Form N-1A.
We have acted as Massachusetts counsel for the Trust in
connection with its organization and are familiar with the action
taken by its trustees to authorize the issuance of the Shares.
We have examined its by-laws and its Agreement and Declaration of
Trust, as amended, on file at the Office of the Secretary of The
Commonwealth of Massachusetts and its by-laws and we have also
examined such other documents as we deem necessary for the
purpose of this opinion.
We assume that appropriate action will be taken to register
or qualify the sale of the Shares under any applicable state and
federal laws regulating sales and offerings of securities and
that upon sales of the Shares the Portfolio issuing such Shares
will receive the net asset value thereof.
Based upon the foregoing, we are of the opinion that:
1. The Trust is a legally organized and validly existing
unincorporated voluntary association under the laws of The
Commonwealth of Massachusetts which, unless terminated as
provided in its Agreement and Declaration of Trust, shall
continue in existence without limitation of time.
2. Each Portfolio is authorized to issue an unlimited number
of Shares and upon the issue of any thereof at net asset value
and receipt by the Portfolio issuing the shares of the authorized
consideration therefor, the Shares so issued will be validly
issued, fully paid and nonassessable by the Portfolio (although
shareholders of the Portfolio may be subject to liability under
certain circumstances as described in the Prospectus included in
the Post-Effective Amendment to the Registration Statement of the
Trust referred to above under the caption "Organization and
Description of Shares").
3. Under Massachusetts law, shareholders of the Trust will
not be liable personally for contract claims made under any
agreement, obligation or undertaking governed by Massachusetts
law and containing a disclaimer of such liability or when
adequate notice is otherwise given.
We consent to the filing of this opinion with and as part of
the Registration Statement of the Trust referred to above.
Very truly yours,
ROPES & GRAY
Ropes & Gray
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders
of the SteinRoe Variable Investment Trust
We consent to the use of our report which is
incorporated by reference into the Statements of
Additional Information and to the reference to our Firm
under the heading "Financial Highlights" in the
Prospectuses and to the reference to our Firm as
experts under the heading "Independent Auditors and
Financial Statements" in the Statements of Additional
Information.
KPMG PEAT MARWICK LLP
Chicago, Illinois
April 24, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> STEIN ROE SPECIAL VENTURE FUND, VARIABLE SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 187,478
<INVESTMENTS-AT-VALUE> 201,186
<RECEIVABLES> 1,305
<ASSETS-OTHER> 70
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 202,561
<PAYABLE-FOR-SECURITIES> 1,721
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 250
<TOTAL-LIABILITIES> 1,971
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 169,976
<SHARES-COMMON-STOCK> 11,145
<SHARES-COMMON-PRIOR> 9,464
<ACCUMULATED-NII-CURRENT> 51
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 16,856
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,708
<NET-ASSETS> 200,590
<DIVIDEND-INCOME> 721
<INTEREST-INCOME> 826
<OTHER-INCOME> 0
<EXPENSES-NET> 1,463
<NET-INVESTMENT-INCOME> 84
<REALIZED-GAINS-CURRENT> 16,867
<APPREC-INCREASE-CURRENT> (2,574)
<NET-CHANGE-FROM-OPS> 14,377
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 265
<DISTRIBUTIONS-OF-GAINS> 36,940
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,129
<NUMBER-OF-SHARES-REDEEMED> 3,703
<SHARES-REINVESTED> 2,256
<NET-CHANGE-IN-ASSETS> 4,371
<ACCUMULATED-NII-PRIOR> 263
<ACCUMULATED-GAINS-PRIOR> 36,897
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,002
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,463
<AVERAGE-NET-ASSETS> 200,328
<PER-SHARE-NAV-BEGIN> 20.73
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> 1.25
<PER-SHARE-DIVIDEND> .03
<PER-SHARE-DISTRIBUTIONS> 3.96
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.00
<EXPENSE-RATIO> .73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> STEIN ROE GROWTH STOCK FUND, VARIABLE SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 115,208
<INVESTMENTS-AT-VALUE> 213,726
<RECEIVABLES> 162
<ASSETS-OTHER> 63
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 213,951
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 552
<TOTAL-LIABILITIES> 552
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 101,690
<SHARES-COMMON-STOCK> 5,906
<SHARES-COMMON-PRIOR> 5,658
<ACCUMULATED-NII-CURRENT> 589
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12,602
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 98,518
<NET-ASSETS> 213,399
<DIVIDEND-INCOME> 1,538
<INTEREST-INCOME> 429
<OTHER-INCOME> 0
<EXPENSES-NET> 1,357
<NET-INVESTMENT-INCOME> 611
<REALIZED-GAINS-CURRENT> 12,626
<APPREC-INCREASE-CURRENT> 39,258
<NET-CHANGE-FROM-OPS> 52,494
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 710
<DISTRIBUTIONS-OF-GAINS> 7,500
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,105
<NUMBER-OF-SHARES-REDEEMED> 1,131
<SHARES-REINVESTED> 274
<NET-CHANGE-IN-ASSETS> 51,520
<ACCUMULATED-NII-PRIOR> 689
<ACCUMULATED-GAINS-PRIOR> 7,746
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 959
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,357
<AVERAGE-NET-ASSETS> 191,875
<PER-SHARE-NAV-BEGIN> 28.61
<PER-SHARE-NII> .10
<PER-SHARE-GAIN-APPREC> 8.84
<PER-SHARE-DIVIDEND> .12
<PER-SHARE-DISTRIBUTIONS> 1.30
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 36.13
<EXPENSE-RATIO> .71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> STEIN ROE BALANCED FUND, VARIABLE SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 265,584
<INVESTMENTS-AT-VALUE> 323,169
<RECEIVABLES> 3,420
<ASSETS-OTHER> 57
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 326,646
<PAYABLE-FOR-SECURITIES> 269
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,344
<TOTAL-LIABILITIES> 1,613
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 236,151
<SHARES-COMMON-STOCK> 19,334
<SHARES-COMMON-PRIOR> 18,379
<ACCUMULATED-NII-CURRENT> 9,886
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 21,411
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 57,585
<NET-ASSETS> 325,033
<DIVIDEND-INCOME> 3,022
<INTEREST-INCOME> 9,283
<OTHER-INCOME> 0
<EXPENSES-NET> 2,072
<NET-INVESTMENT-INCOME> 10,233
<REALIZED-GAINS-CURRENT> 21,484
<APPREC-INCREASE-CURRENT> 17,141
<NET-CHANGE-FROM-OPS> 48,858
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,262
<DISTRIBUTIONS-OF-GAINS> 25,340
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,917
<NUMBER-OF-SHARES-REDEEMED> 3,350
<SHARES-REINVESTED> 2,388
<NET-CHANGE-IN-ASSETS> 25,848
<ACCUMULATED-NII-PRIOR> 10,358
<ACCUMULATED-GAINS-PRIOR> 25,081
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,417
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,072
<AVERAGE-NET-ASSETS> 314,922
<PER-SHARE-NAV-BEGIN> 16.28
<PER-SHARE-NII> .53
<PER-SHARE-GAIN-APPREC> 1.96
<PER-SHARE-DIVIDEND> .56
<PER-SHARE-DISTRIBUTIONS> 1.40
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.81
<EXPENSE-RATIO> .66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> STEIN ROE MORTGAGE SECURITIES FUND, VARIABLE SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 75,321
<INVESTMENTS-AT-VALUE> 77,207
<RECEIVABLES> 1,071
<ASSETS-OTHER> 61
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 78,339
<PAYABLE-FOR-SECURITIES> 1,010
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 156
<TOTAL-LIABILITIES> 1,166
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 73,734
<SHARES-COMMON-STOCK> 7,195
<SHARES-COMMON-PRIOR> 7,724
<ACCUMULATED-NII-CURRENT> 4,579
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,026)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,886
<NET-ASSETS> 77,173
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,410
<OTHER-INCOME> 0
<EXPENSES-NET> 519
<NET-INVESTMENT-INCOME> 4,891
<REALIZED-GAINS-CURRENT> 3
<APPREC-INCREASE-CURRENT> 1,495
<NET-CHANGE-FROM-OPS> 6,389
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 929
<NUMBER-OF-SHARES-REDEEMED> 1,459
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,164
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (3,042)
<OVERDISTRIB-NII-PRIOR> (299)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 297
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 519
<AVERAGE-NET-ASSETS> 74,191
<PER-SHARE-NAV-BEGIN> 9.84
<PER-SHARE-NII> 0.68
<PER-SHARE-GAIN-APPREC> 0.21
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.73
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> STEIN ROE MONEY MARKET FUND, VARIABLE SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 66,592
<INVESTMENTS-AT-VALUE> 66,592
<RECEIVABLES> 890
<ASSETS-OTHER> 60
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 67,542
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 405
<TOTAL-LIABILITIES> 405
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 67,137
<SHARES-COMMON-STOCK> 67,137
<SHARES-COMMON-PRIOR> 65,461
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 67,137
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,857
<OTHER-INCOME> 0
<EXPENSES-NET> 438
<NET-INVESTMENT-INCOME> 3,419
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,419
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,149
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 67,656
<NUMBER-OF-SHARES-REDEEMED> 69,400
<SHARES-REINVESTED> 3,419
<NET-CHANGE-IN-ASSETS> 1,675
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 238
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 438
<AVERAGE-NET-ASSETS> 67,857
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement on Form N-1A has been signed below by
the following persons in the capacities and on the dates
indicated. By so signing, each of the undersigned in his or her
capacity as a Trustee or Officer, or both, as the case may be, of
the Registrant, does also hereby appoint Richard R. Christensen,
John A. Benning, John L. Davenport and Kevin M. Carome, and each
of them, severally, or if more than one acts, a majority of them,
his or her true and lawful attorney and agent to execute in his or
her name, place and stead (in such capacities) any and all
amendments to this Registration Statement and all instruments
necessary or desirable in connection therewith, to attest the seal
of the Registrant thereon and to file the same with the Securities
and Exchange Commission. Each of said attorneys and agents shall
have power to act with or without the other and have full power
and authority to do and perform in the name and on behalf of each
of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as
fully and to all intents and purposes as each of the undersigned
might or could do in person, hereby ratifying and approving the
act of said attorneys and agents and each of them.
(Signature) (Title and Capacity) (Date)
RICHARD R. CHRISTENSEN President; Principal April 25, 1994
Richard R. Christensen Executive Officer;
Trustee
ERNST E. DUNBAR Treasurer; Principal April 25, 1994
Ernst E. Dunbar Financial Officer
THOMAS J. SIMPSON Vice President and April 25, 1994
Thomas J. Simpson Controller; Principal
Accounting Officer
JOHN A. BACON JR. Trustee April 25, 1994
John A. Bacon Jr.
SALVATORE MACERA Trustee April 25, 1994
Salvatore Macera
THOMAS E. STITZEL Trustee April 25, 1994
Thomas E. Stitzel
POWER OF ATTORNEY
Each of the undersigned, in his or her capacity as an
Officer of SteinRoe Variable Investment Trust (the "Trust"),
does hereby appoint Richard R. Christensen, John A. Benning,
John L. Davenport and Kevin M. Carome, and each of them,
severally, or if more than one acts, a majority of them,
his or her true and lawful attorney and agent to execute in
his or her name, place and stead (in such capacities) any
and all amendments to the Trust's Registration Statement on
Form N-1A (File Nos. 33-14954 and 811-5199) and all
instruments necessary or desirable in connection therewith,
to attest the seal of the Trust thereon and to file the same
with the Securities and Exchange Commission. Each of said
attorneys and agents shall have power to act with or without
the other and have full power and authority to do and
perform in the name and on behalf of each of the
undersigned, in any and all capacities, every act whatsoever
necessary or advisable to be done in the premises as fully
and to all intents and purposes as each of the undersigned
might or could do in person, hereby ratifying and approving
the act of said attorneys and agents and each of them.
(Signature) (Title and Capacity) (Date)
GARY A. ANETSBERGER Treasurer; Principal April 24, 1995
Gary A. Anetsberger Financial officer
SHARON R. ROBERTSON Controller; Principal April 24, 1995
Sharon R. Robertson Accounting Officer
