<PAGE> 1
File No. 33-14954
Rule 497(e)
STEINROE VARIABLE
INVESTMENT TRUST
PROSPECTUS
May 1, 1999
* Stein Roe Balanced Fund, Variable Series
* Stein Roe Growth Stock Fund, Variable Series
* Stein Roe Special Venture Fund, Variable Series
* Stein Roe Mortgage Securities Fund, Variable Series
* Stein Roe Money Market Fund, Variable Series
* * * *
Trust shares available only through variable annuity contracts and
variable life insurance policies of participating insurance
companies.
* * * *
This prospectus must be accompanied by a prospectus for your
variable annuity contract or variable life insurance policy.
Retain both prospectuses for future reference.
* * * *
Although trust shares have been registered with the Securities and
Exchange Commission, the Commission has not approved any shares
offered in this prospectus or determined whether this prospectus
is accurate or complete. Any representation to the contrary is a
criminal offense.
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
<PAGE>
THE TRUST......................................................3
THE FUNDS......................................................4
Each Fund section contains the following information
specific to that Fund: investment goals, primary
investment strategies, primary investment risks,
and performance history
Stein Roe Balanced Fund, Variable Series...................4
Stein Roe Growth Stock Fund, Variable Series...............6
Stein Roe Special Venture Fund, Variable Series............8
Stein Roe Mortgage Securities Fund, Variable Series.......10
Stein Roe Money Market Fund, Variable Series..............13
OTHER INVESTMENTS AND RISKS...................................15
TRUST MANAGEMENT ORGANIZATIONS................................16
The Trustees..............................................16
The Adviser: Stein Roe & Farnham Incorporated.............16
Portfolio Managers........................................16
Year 2000 Compliance......................................17
FINANCIAL HIGHLIGHTS..........................................18
SHAREHOLDER INFORMATION.......................................23
<PAGE>
THE TRUST
SteinRoe Variable Investment Trust (Trust) includes five separate
mutual funds (Funds), each with its own investment goal and
strategies. This prospectus contains information about all of the
Funds in the Trust:
* Stein Roe Balanced Fund, Variable Series
* Stein Roe Growth Stock Fund, Variable Series
* Stein Roe Special Venture Fund, Variable Series
* Stein Roe Mortgage Securities Fund, Variable Series
* Stein Roe Money Market Fund, Variable Series
Other Funds may be added or deleted from time to time.
The Trust's Funds are investment options under variable annuity
contracts (VA contracts) and variable life insurance policies (VLI
policies) issued by life insurance companies (Participating
Insurance Companies). Some (but not all) Participating Insurance
Companies are affiliated with the investment adviser to the Funds.
Participating Insurance Companies invest in the Funds through
separate accounts that they set up for that purpose. Owners of VA
contracts and VLI policies invest in sub-accounts of those
separate accounts through instructions they give to their
insurance company.
The prospectuses of the Participating Insurance Companies'
separate accounts describe which Funds are available to the
purchasers of their own VA contracts and VLI policies.
<PAGE>
INVESTMENT GOALS-STEIN ROE BALANCED FUND, VARIABLE SERIES
- -----------------------------------------------------------------
Stein Roe Balanced Fund, Variable Series, seeks high total
investment return.
PRIMARY INVESTMENT STRATEGIES
- ----------------------------------------------------------------
The Fund allocates its investments among common stocks and
securities convertible into common stocks, bonds and cash. The
Fund invests primarily in well-established companies that have
large market capitalizations. The portfolio manager may invest in
a company because it has a history of steady to improving sales or
earnings growth that the portfolio manager believes can be
sustained. He also may invest in a company because he believes
its stock is priced attractively compared to the value of its
assets. The Fund may invest up to 25 percent of its assets in
foreign stocks.
The Fund also invests at least 25 percent of its assets in bonds.
The Fund purchases bonds that are "investment grade"-that is,
within the four highest investment grades assigned by a nationally
recognized statistical rating organization. The Fund may invest
in unrated bonds if the portfolio manager believes that the
securities are investment grade quality. To select debt
securities for the Fund, the portfolio manager considers a bond's
expected income together with its potential for price gains or
losses.
The portfolio manager sets the Fund's asset allocation between
stocks, bonds and cash based upon recommendations of Stein Roe's
investment committee. The committee makes its recommendations
based upon economic, market and other factors that affect
investment opportunities.
PRIMARY INVESTMENT RISKS
- -----------------------------------------------------------------
The primary risks of investing in the Fund are described below.
There are many circumstances (including additional risks that are
not described here) which could cause you to lose money by
investing in the Fund or prevent the Fund from achieving its
goals.
Market risk is the risk that the price of a security held by the
Fund will fall due to changing economic, political or market
conditions, or due to the financial condition of the company which
has issued the security.
Because the Fund invests in stocks and bonds, the price of the
Fund's shares-its net asset value per share (NAV)-fluctuates daily
in response to changes in the market value of the stocks and
bonds. In addition, the risks associated with the Fund's
investment strategy may cause the Fund's total return or yield to
decrease.
Foreign Securities
Foreign securities are subject to special risks. Foreign stock
markets, especially in countries with developing stock markets,
can be extremely volatile. The liquidity of foreign securities
may be more limited than domestic securities, which means that the
Fund may at times be unable to sell them at desirable prices.
Fluctuations in currency exchange rates impact the value of
foreign securities. Brokerage commissions, custodial fees, and
other fees are generally higher for foreign investments. In
addition, foreign governments may impose withholding taxes which
would reduce the amount of income available to distribute to
shareholders. Other risks include: possible delays in settlement
of transactions; less publicly available information about
companies; the impact of political, social or diplomatic events;
and possible seizure, expropriation or nationalization of the
company or its assets.
Debt Securities
The Fund's investments in debt securities, generally bonds, expose
the Fund to interest rate risk. Interest rate risk is the risk of
a decline in the price of a bond when interest rates increase. In
general, if interest rates rise, bond prices fall; and if interest
rates fall, bond prices rise. Changes in the values of bonds
usually will not affect the amount of income the Fund receives
from them but will affect the value of the Fund's shares.
Interest rate risk is generally greater for bonds having longer
maturities.
Because the Fund may invest in fixed-income securities issued by
private entities, including corporate bonds, the Fund is subject
to issuer risk. Issuer risk is the possibility that changes in
the financial condition of the issuer of a security, changes in
general economic conditions, or changes in economic conditions
that affect the issuer's industry may impact the issuer's ability
to make timely payment of interest or principal This could result
in decreases in the price of the security.
PERFORMANCE HISTORY
- -----------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from
year to year by illustrating the Fund's total calendar-year
returns. The performance table following the bar chart shows how
the Fund's average annual returns compare with those of a broad
measure of market performance for one year, five years and 10
years. We compare the Fund to the S&P 500 Index, a broad-based
measure of market performance. The chart and table are intended
to illustrate some of the risks of investing in the Fund by
showing the changes in the Fund's performance. All returns
include the reinvestment of dividends and distributions. As with
all mutual funds, past performance does not predict the Fund's
future performance. Performance results include any expense
reduction arrangements. If these arrangements were not in place,
then the performance results would have been lower. Any reduction
arrangements may be discontinued at any time. The Fund's
performance results do not reflect the cost of insurance and
separate account charges which are imposed under your VA contract
or VLI policy.
Calendar-Year Total Returns
YEAR-BY-YEAR TOTAL RETURNS
30.00
25.00 27.93 25.43
20.00 22.38
15.00 15.63 16.82 12.54
10.00
5.00 7.53 9.29
0.00
- -5.00 -0.69 -3.19
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[ ] Balanced Fund
Best quarter: 4th quarter 1998, +12.39%
Worst quarter: 3rd quarter 1990, -10.04%
1 Year 5 Years 10 Years
Stein Roe Balanced Fund, Variable
Series 12.54% 13.05% 12.94%
S&P 500 Index* 28.60% 24.05% 19.19%
________
*The S&P 500 Index is an unmanaged group of stocks that differs
from the Fund's composition; it is not available for direct
investment.
<PAGE>
INVESTMENT GOALS-STEIN ROE GROWTH STOCK FUND, VARIABLE SERIES
- -----------------------------------------------------------------
Stein Roe Growth Stock Fund, Variable Series, seeks long-term
growth of capital.
PRIMARY INVESTMENT STRATEGIES
- -----------------------------------------------------------------
The Fund invests primarily in the common stocks of companies with
large market capitalizations. The Fund emphasizes the technology,
financial services, health care, and global consumer franchise
sectors. The Fund may invest up to 25 percent of its assets in
foreign stocks. To select investments for the Fund, the portfolio
manager considers companies that he believes will generate
earnings growth over the long term regardless of the economic
environment.
PRIMARY INVESTMENT RISKS
- -----------------------------------------------------------------
The primary risks of investing in the Fund are described below.
There are many circumstances (including additional risks that are
not described here) which could cause you to lose money by
investing in the Fund or prevent the Fund from achieving its
goals.
Market risk is the risk that the price of a security held by the
Fund will fall due to changing economic, political or market
conditions, or due to the financial condition of the company which
has issued the security.
Because the Fund invests in stocks, the price of its shares-its
net asset value per share (NAV)-fluctuates daily in response to
changes in the market value of the stocks. In addition, the risks
associated with the Fund's investment strategy may cause the
Fund's total return or yield to decrease.
Foreign Securities
Foreign securities are subject to special risks. Foreign stock
markets, especially in countries with developing stock markets,
can be extremely volatile. The liquidity of foreign securities
may be more limited than domestic securities, which means that the
Fund may at times be unable to sell them at desirable prices.
Fluctuations in currency exchange rates impact the value of
foreign securities. Brokerage commissions, custodial fees, and
other fees are generally higher for foreign investments. In
addition, foreign governments may impose withholding taxes which
would reduce the amount of income available to distribute to
shareholders. Other risks include: possible delays in settlement
of transactions; less publicly available information about
companies; the impact of political, social or diplomatic events;
and possible seizure, expropriation or nationalization of the
company or its assets.
PERFORMANCE HISTORY
- -----------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from
year to year by illustrating the Fund's total calendar-year
returns. The performance table following the bar chart shows how
the Fund's average annual returns compare with those of a broad
measure of market performance for one year, five years and 10
years. We compare the Fund to the S&P 500 Index, a broad-based
measure of market performance. The chart and table are intended
to illustrate some of the risks of investing in the Fund by
showing the changes in the Fund's performance. All returns
include the reinvestment of dividends and distributions. As with
all mutual funds, past performance does not predict the Fund's
future performance. Performance results include any expense
reduction arrangements. If these arrangements were not in place,
then the performance results would have been lower. Any reduction
arrangements may be discontinued at any time. The Fund's
performance results do not reflect the cost of insurance and
separate account charges which are imposed under your VA contract
or VLI policy.
Calendar-Year Total Returns
YEAR-BY-YEAR TOTAL RETURNS
60.00
50.00
40.00 48.03
30.00 31.30 37.73 32.28
20.00 21.28 27.91
10.00
0.00 6.63 4.97
- -10.00 -1.65 -6.35
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[ ] Growth Stock Fund
Best quarter: 4th quarter 1998, +26.43%
Worst quarter: 3rd quarter 1990, -17.42%
1 Year 5 years 10 Years
Stein Roe Growth Stock Fund,
Variable Series 27.91% 21.49% 18.94%
S&P 500 Index* 28.60% 24.05% 19.19%
________
*The S&P 500 Index is an unmanaged group of stocks that differs
from the Fund's composition; it is not available for direct
investment.
<PAGE>
INVESTMENT GOALS-STEIN ROE SPECIAL VENTURE FUND, VARIABLE SERIES
- -----------------------------------------------------------------
Stein Roe Special Venture Fund, Variable Series, seeks long-term
growth of capital.
PRIMARY INVESTMENT STRATEGIES
- -----------------------------------------------------------------
Under normal market conditions, the Fund invests at least 65
percent of its assets in common stocks of companies with small
market capitalizations. The Fund invests in new issuers during
periods when new issues are being brought to market. The Fund
also invests in midcap companies. The Fund invests in companies
that compete within large and growing markets and that appear to
have the ability to grow their market share. To find companies
with these growth characteristics, the portfolio managers seek out
companies that are-or, in the portfolio managers' judgment, have
the potential to be-a market share leader within their respective
industry. They also look for companies with strong management
teams that participate in the ownership of the companies.
PRIMARY INVESTMENT RISKS
- -----------------------------------------------------------------
The primary risks of investing in the Fund are described below.
There are many circumstances (including additional risks that are
not described here) which could cause you to lose money by
investing in the Fund or prevent the Fund from achieving its
goals.
Market risk is the risk that the price of a security held by the
Fund will fall due to changing economic, political or market
conditions, or due to the financial condition of the company which
has issued the security.
Because the Fund invests in stocks, the price of its shares-its
net asset value per share (NAV)-fluctuates daily in response to
changes in the market value of the stocks. In addition, the risks
associated with the Fund's investment strategy may cause the
Fund's total return or yield to decrease.
Investments in stocks of small and midsized companies can be
riskier than investments in larger companies. Small and midsized
companies often have limited product lines, operating histories,
markets, or financial resources. They may depend heavily on a
small management group. Small companies in particular are more
likely to fail or prove unable to grow. Small and midsized
companies may trade less frequently, in smaller volumes, and
fluctuate more sharply in price than larger companies. In
addition, they may not be widely followed by the investment
community, which can lower the demand for their stock.
PERFORMANCE HISTORY
- -----------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from
year to year by illustrating the Fund's total calendar-year
returns. The performance table following the bar chart shows how
the Fund's average annual returns compare with those of a broad
measure of market performance for one year, five years and 10
years. We compare the Fund to the Russell 2000 Index, a broad-
based measure of market performance. The chart and table are
intended to illustrate some of the risks of investing in the Fund
by showing the changes in the Fund's performance. All returns
include the reinvestment of dividends and distributions. As with
all mutual funds, past performance does not predict the Fund's
future performance. Performance results include any expense
reduction arrangements. If these arrangements were not in place,
then the performance results would have been lower. Any reduction
arrangements may be discontinued at any time. The Fund's
performance results do not reflect the cost of insurance and
separate account charges which are imposed under your VA contract
or VLI policy.
Calendar-Year Total Returns
YEAR-BY-YEAR TOTAL RETURNS
40.00
30.00 30.84 37.25 35.68
20.00 26.94
10.00 14.48 11.75
0.00 1.19 7.81
- -10.00 -8.91
- -20.00 -17.30
- -30.00
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[ ] Special Venture Fund
Best quarter: 1st quarter 1991, +21.62%
Worst quarter: 3rd quarter 1990, -21.18%
1 Year 5 Years 10 Years
Stein Roe Special Venture Fund,
Variable Series -17.30% 5.06% 12.52%
Russell 2000 Index* -2.55% 11.87% 12.92%
________
*The Russell 2000 Index is an unmanaged group of stocks that
differs from the Fund's composition; it is not available for
direct investment.
<PAGE>
INVESTMENT GOALS-STEIN ROE MORTGAGE SECURITIES FUND, VARIABLE
SERIES
- -----------------------------------------------------------------
Stein Roe Mortgage Securities Fund, Variable Series, seeks the
highest possible level of current income, consistent with safety
of principal and maintenance of liquidity.
PRIMARY INVESTMENT STRATEGIES
- -----------------------------------------------------------------
Stein Roe Mortgage Securities Fund, Variable Series, normally
invests at least 65% of its assets in the following types of
mortgage securities:
* agency pass-throughs,
* agency and whole-loan collateralized mortgage obligations
(CMOs),
* mortgage-related (home equity, home improvement and manufactured
housing) asset-backed securities and
* commercial mortgage-backed securities.
To select investments for the Fund, the portfolio manager looks
for securities within these sectors that balance the potential for
the highest yield and relative value with the prospects for
incremental capital appreciation. The portfolio manager usually
focuses on securities rated AA or higher. However, the portfolio
manager may invest in securities rated investment grade (BBB) or
higher. The portfolio manager may also buy unrated securities if
Stein Roe believes the security is comparable in quality to a
security that is rated at least investment grade.
Types of Mortgage Securities
Mortgage securities represent ownership interest in large,
diversified pools of individual home mortgage loans. Sponsors pool
together mortgages of similar rates and terms and offer them as a
security to investors. The monthly payments of principal and
interest made by homeowners are in turn passed through to the
mortgage investor.
The Fund invests in three major sectors of the mortgage securities
universe. Most mortgage securities are pooled together and
structured as pass-throughs. Monthly payments of principal and
interest from the underlying mortgage loans backing the pool are
collected by a service and "passed through" regularly to the
investor. Pass-throughs can have a fixed or an adjustable rate.
The majority of pass-through securities are issued by three
agencies: Ginnie Mae, Fannie Mae, and Freddie Mac.
Collateralized mortgage obligations (CMOs) are backed by either
agency or whole loan pass-throughs, which carry either fixed or
adjustable rate interest rates. Tailored to meet investor demand,
CMOs redirect principal and interest flows, thereby shifting
prepayment risk to investors that are most suited to bear such
risk. Typically, principal prepayments are paid sequentially to
separate "tranches," which create mortgage securities of short-,
medium- and long-term maturities. The Fund may buy CMOs of any
maturity tranch, depending upon the portfolio manager's judgment
regarding which tranch at the time offers the best relative value.
Asset-backed securities are securities backed by various types of
loans such as credit card, auto and home-equity loans. The Fund
generally invests in "mortgage-related" asset-backed securities,
which are backed by residential first and second lien home equity,
home improvement and manufactured housing loans.
Commercial mortgage-backed securities are secured by loans to
office buildings, multi-family apartment buildings and shopping
centers. These loans usually contain prepayment penalties which
provide protection from refinancing in a declining interest rate
environment.
PRIMARY INVESTMENT RISKS
- -----------------------------------------------------------------
The primary risks of investing in the Fund are described below.
There are many circumstances (that are not described here) which
could cause you to lose money by investing in the Fund or prevent
the Fund from achieving its goals.
Interest rate risk is the risk of a decline in the price of a
mortgage security when interest rates rise. In general, if
interest rates rise, mortgage security prices fall; and if
interest rates fall, mortgage security prices rise. Interest rate
risk is generally greater for securities with longer maturities.
Changes in the values of securities will not affect the amount of
income the Fund receives but will affect the value of the Fund's
shares.
Prepayment risk is the possibility that, as interest rates fall,
homeowners are more likely to refinance their home mortgages. When
mortgages are refinanced, the principal on mortgage-backed
securities is paid earlier than expected. In an environment of
declining interest rates, early return of principal from
prepayments must be reinvested at lower interest rates, reducing
the expected total rate of return for mortgage securities. During
periods of rising interest rates, mortgage securities have a high
risk of declining in price. This is because higher rates lead to
slower prepayments, effectively extending the expected maturity of
the bond at a time when interest rates are rising. Prepayment
risk applies to generally all mortgage securities, regardless of
whether they represent interests in pools of fixed or adjustable
interest rate loans. The potential impact of prepayment on the
price of a mortgage-backed security may be difficult to predict
and result in greater volatility than other types of fixed income
securities.
Because the Fund may invest in securities issued by private
entities, it can at times be exposed to default risk. To protect
against these risks, the securities generally have some type of
credit enhancement, usually a senior/subordinated structure. The
portfolio manager attempts to provide that the amount of credit
enhancement in each holding subject to default is commensurate
with the credit rating assigned from the rating agencies. There
can be no assurance that the amount of credit support will be
sufficient to fully cover losses stemming from defaults of the
underlying loans.
Management risk, which exists in varying amounts in all mutual
funds, refers to the possibility that the portfolio manager may
fail to anticipate these movements or risks, or effectively
execute the Fund's strategy.
PERFORMANCE HISTORY
- -----------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from
year to year by illustrating the Fund's total calendar-year
returns. The performance table following the bar chart shows how
the Fund's average annual returns compare with those of a broad
measure of market performance for one year, five years and 10
years. We compare the Fund to the Lehman Mortgage-Backed
Securities Index, a broad-based measure of market performance.
The chart and table are intended to illustrate some of the risks
of investing in the Fund by showing the changes in the Fund's
performance. All returns include the reinvestment of dividends
and distributions. As with all mutual funds, past performance
does not predict the Fund's future performance. Performance
results include any expense reduction arrangements. If these
arrangements were not in place, then the performance results would
have been lower. Any reduction arrangements may be discontinued
at any time. The Fund's performance results do not reflect the
cost of insurance and separate account charges which are imposed
under your VA contract or VLI policy.
Calendar-Year Total Returns
YEAR-BY-YEAR TOTAL RETURNS
20.00
15.00 15.74
10.00 12.84 14.48
5.00 9.10 5.95 6.26 9.04 6.80
0.00 4.70
- -5.00 -1.57
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[ ] Mortgage Securities Fund
Best quarter: 2nd quarter 1989, +6.53%
Worst quarter: 1st quarter 1994, -1.77%
1 Year 5 Years 10 Years
Stein Roe Mortgage Securities
Fund, Variable Series 6.80% 6.79% 8.23%
Lehman Mortgage-Backed
Securities Index* 6.96% 7.23% 9.13%
________
*The Lehman Mortgage-Backed Securities Index is an unmanaged group
of securities that differs from the Fund's composition; it is not
available for direct investment.
<PAGE>
INVESTMENT GOALS-STEIN ROE MONEY MARKET FUND, VARIABLE SERIES
- -----------------------------------------------------------------
Stein Roe Money Market Fund, Variable Series, seeks high current
income, consistent with capital preservation and the maintenance
of liquidity.
PRIMARY INVESTMENT STRATEGIES
- -----------------------------------------------------------------
The Fund invests in a diversified portfolio of high-quality money
market securities. Money market funds are subject to strict rules
that require them to buy individual securities that have remaining
maturities of 13 months or less, maintain an average dollar
weighted portfolio maturity of 90 days or less, and buy only high-
quality dollar-denominated obligations. The Fund invests in the
following types of money market securities:
* Securities issued or guaranteed by the U.S. government or by its
agencies.
* 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 nationally
recognized bond rating agency.
* Certificates of deposit, bankers' acceptances, time deposits and
other short-term securities issued by domestic or foreign banks
or their subsidiaries or branches.
* Commercial paper of domestic or foreign issuers, including
variable rate demand notes.
* Short-term debt securities having a long-term rating at time of
purchase of A or better (or equivalent rating) by at least one
nationally recognized bond rating agency.
* Repurchase agreements.
* Other high-quality short-term obligations.
Under normal market conditions the Fund invests at least 25
percent of its total assets in securities of issuers in the
financial services industry.
PRIMARY INVESTMENT RISKS
- -----------------------------------------------------------------
The primary risks of investing in the Fund are described below.
There are many circumstances (including additional risks that are
not described here) which could cause you to lose money by
investing in the Fund or prevent the Fund from achieving its
goals.
Market risk is the risk that the price of a security held by the
Fund will fall due to changing economic, political or market
conditions, or due to the financial condition of the company which
has issued the security.
The Fund has maintained its NAV at $1.00 per share since inception
and will continue to try to do so. There can be no assurance that
the Fund will succeed.
An investment in the Fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by
investing in the Fund. Additionally, the Fund's yield will vary
as the short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest
rates.
Market risk includes interest rate risk, which is the risk of a
decline or increase in the price of a money market security when
interest rates increase or decline. In general, if interest rates
rise, prices fall; and if interest rates fall, prices rise.
Interest rate risk is generally greater for securities with longer
maturities. In addition, the Fund is subject to credit risk. If
a security's credit rating is downgraded, the Fund's income level
or share price could be reduced. Foreign securities held by the
Fund are also subject to the risks associated with foreign
investments, such as economic and political developments, seizure
or nationalization of deposits, imposition of taxes, or other
restrictions on the payment of principal and interest.
Because of the Fund's policy of investing at least 25 percent of
its assets in securities of issuers in the financial services
industry, the Fund may be affected more adversely than competing
funds by changes affecting that industry.
PERFORMANCE HISTORY
- -----------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from
year to year by illustrating the Fund's total calendar-year
returns. The chart is intended to illustrate some of the risks of
investing in the Fund by showing the changes in the Fund's
performance. All returns include the reinvestment of dividends
and distributions. As with all mutual funds, past performance
does not predict the Fund's future performance. Performance
results include any expense reduction arrangements. If these
arrangements were not in place, then the performance results would
have been lower. Any reduction arrangements may be discontinued
at any time. The Fund's performance results do not reflect the
cost of insurance and separate account charges which are imposed
under your VA contract or VLI policy.
Calendar-Year Total Returns
YEAR-BY-YEAR TOTAL RETURNS
10.00
8.00 9.07
6.00 7.89
4.00 5.79 5.62 5.01 5.18 5.17
2.00 3.48 2.70 3.81
0.00
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[ ] Money Market Fund
Best quarter: 2nd quarter 1989, +2.36%
Worst quarter: 3rd quarter 1993, +0.67%
The seven-day current yield for Money Market Fund for the period
ended Dec. 31, 1998 was 4.72%.
<PAGE>
OTHER INVESTMENTS AND RISKS
Each Fund's primary investment strategies and risks are described
above in its individual description. This section describes other
investments a Fund may make and the risks associated with them.
In seeking to achieve its goal, each Fund may invest in various
types of securities and engage in various investment techniques
that are not the principal focus of the Fund and, therefore, are
not described in this prospectus. These types of securities and
investment practices are discussed in the Funds' Statement of
Additional Information (SAI), which you may obtain free of charge
(see back cover).
The Funds' portfolio managers generally make decisions on buying
and selling portfolio investments based upon their judgment that
the decision will improve a Fund's investment return and further
its investment goal. The portfolio managers may also be required
to sell portfolio investments to fund redemptions.
Portfolio Turnover
The Funds do not have limits on portfolio turnover. Turnover may
vary significantly from year to year. Stein Roe does not expect
it to exceed 100 percent under normal conditions. Portfolio
turnover increases transaction expenses, which reduce a Fund's
return.
Temporary Defensive Positions
When Stein Roe believes that a temporary defensive position is
necessary, a Fund may invest, without limit, in high-quality debt
securities or hold assets in cash and cash equivalents. Stein Roe
is not required to take a temporary defensive position, and market
conditions may prevent such an action. A Fund may not achieve its
investment objective if it takes a defensive position.
Market Capitalization
In this prospectus, for the Funds that invest in stocks, we refer
to market capitalization as a means to distinguish among companies
based on their size. A company's market capitalization is simply
its stock price multiplied by the number of shares of stock it has
issued and outstanding. In the financial markets, companies
generally are sorted into one of three capitalization-based
categories: large capitalization (large cap); medium
capitalization (midcap); or small capitalization (small cap). We
follow this convention in this prospectus.
To sort companies in this manner, we compare a company's
capitalization with the capitalization of an appropriate index.
(An index is a statistical composite that measures a group of
stocks.) We utilize two indices in grouping stocks: the S&P Mid-
Cap 400 Index and the S&P Small-Cap 600 Index.
We consider a company to be large cap if its market capitalization
is at least 90 percent of the weighted market capitalization of
the S&P Mid-Cap 400 Index.
We consider a company to be midcap if its market capitalization is
less than 90 percent of the weighted market capitalization of the
S&P Mid-Cap 400 Index and at least 90 percent of the weighted
market capitalization of the S&P Small-Cap 600 Index.
We consider a company to be small cap if its market capitalization
is less than 90 percent of the weighted market capitalization of
the S&P Small-Cap 600 Index.
As of Dec. 31, 1998, large-cap companies had market
capitalizations greater than $6.6 billion, midcap companies had
market capitalizations between $1.8 and $6.6 billion and small-cap
companies had market capitalizations less than $1.8 billion.
These amounts will change as the S&P Mid-Cap 400 and S&P Small-Cap
600 indices change.
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
The Trustees
The business of the Trust and the Funds is supervised by the
Trust's Board of Trustees. The SAI contains names of and
biographical information on the Trustees.
The Adviser: Stein Roe & Farnham Incorporated
Stein Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
IL 60606, manages the day-to-day operations of the Funds. Stein
Roe has advised and managed mutual funds since 1949. As of
December 31, 1998, Stein Roe managed more than $29.7 billion in
assets. For the 1998 fiscal year, the Trust paid Stein Roe
management fees, at the following annual rates of the average
daily net assets of the specified Fund:
Stein Roe Balanced Fund, Variable Series 0.60%
Stein Roe Growth Stock Fund, Variable Series 0.65%
Stein Roe Special Venture Fund, Variable Series 0.65%
Stein Roe Mortgage Securities Fund, Variable Series 0.55%
Stein Roe Money Market Fund, Variable Series 0.50%
Stein Roe's mutual funds and institutional investment advisory
businesses are managed together with that of its affiliate,
Colonial Management Associates, Inc. (CMA), by a combined
management team of employees from both companies. CMA also shares
personnel, facilities, and systems with Stein Roe that may be used
in providing administrative or operational services to the Funds.
CMA is a registered investment adviser. Both Stein Roe and CMA
are subsidiaries of Liberty Financial Companies, Inc.
Stein Roe can use the services of AlphaTrade Inc., an affiliated
broker-dealer, when buying or selling equity securities for a
Fund's portfolio, pursuant to procedures adopted by the Board of
Trustees.
Portfolio Managers
Stein Roe Balanced Fund, Variable Series. Harvey B. Hirschhorn
has been portfolio manager of Balanced Fund since 1996. He joined
Stein Roe in 1973 and is executive vice president and chief
economist and investment strategist.
Stein Roe Growth Stock Fund, Variable Series. Erik P. Gustafson
is portfolio manager of Growth Stock Fund and has managed Stein
Roe Growth Stock Fund and Stein Roe Young Investor Fund since
1994. Mr. Gustafson joined Stein Roe in 1992 as a portfolio
manager for privately managed accounts and is a senior vice
president.
Stein Roe Special Venture Fund, Variable Series. The portfolio
managers for Special Venture Fund are William M. Garrison and
Steven M. Salopek, who have managed the Fund since October 1998.
Mr. Garrison is a vice president of Stein Roe, which he joined in
1989. He has been an associate portfolio manager of the Stein Roe
Balanced Fund since 1995 and has been an equity research analyst
with Stein Roe since 1993. Mr. Salopek is also a vice president
of Stein Roe, which he joined in 1996 as an analyst. Prior to
joining Stein Roe, Mr. Salopek was an analyst with Banc One
Investment Advisors from 1990 to 1996.
Stein Roe Mortgage Securities Fund, Variable Series. 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 Stein Roe since 1995. From 1993 to 1995, he was an executive
vice president of CSZ Asset Management, Inc.
Stein Roe Money Market Fund, Variable Series. Jane M. Naeseth has
been portfolio manager of Money Market Fund since its inception.
She has managed Stein Roe Cash Reserves Fund since 1980. Ms.
Naeseth is a senior vice president of Stein Roe, which she joined
in 1977.
YEAR 2000 COMPLIANCE
- -----------------------------------------------------------------
Like other investment companies, financial and business
organizations and individuals around the world, the Funds could be
adversely affected if the computer systems used by Stein Roe and
other service providers do not properly process and calculate
date-related information and data from and after Jan. 1, 2000.
This is commonly known as the "Year 2000 Problem." The Funds'
service providers are taking steps that they believe are
reasonably designed to address the Year 2000 problem, including
communicating with vendors who furnish services, software and
systems to the Funds, to provide that date-related information and
data can be properly processed after Jan. 1, 2000. Many Fund
service providers and vendors, including the Funds' service
providers, are in the process of making Year 2000 modifications to
their software and systems and believe that such modifications
will be completed on a timely basis prior to Jan. 1, 2000.
However, no assurances can be given that all modifications
required to ensure proper data processing and calculation on and
after Jan. 1, 2000, will be made on a timely basis or that
services to the Funds will not be adversely affected.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables that follow are intended to help
you understand the Funds' financial information for the last five
fiscal years. The total returns in the table represent the return
that investors earned assuming that they reinvested all dividends
and distributions. Certain information in the tables reflects the
financial results for a single Fund share. The information has
been audited by KPMG LLP, whose report appears in the Trust's
annual report which is available upon request. The Funds' total
returns presented below do not reflect the cost of insurance and
other company separate account charges which vary with the VA
contracts or VLI policies.
<TABLE>
<CAPTION>
Stein Roe Balanced Fund, Variable Series
Years Ended December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of year $16.81 $16.28 $14.08 $12.18 $13.11
------ ------ ------ ----- ------
Net investment income 0.48 0.53 0.57 0.48 0.51
Net realized and unrealized gains
(losses) on investments 1.48 1.96 1.63 2.61 (0.93)
------ ------ ------ ----- ------
Total from investment operations 1.96 2.49 2.20 3.09 (0.42)
------ ------ ------ ----- ------
Less distributions:
Dividends from net investment income (0.51) (0.56) - (0.48) (0.51)
Distributions from net realized gains
on investments (1.12) (1.40) - (0.71) -
------ ------ ------ ----- ------
Total distributions (1.63) (1.96) - (1.19) (0.51)
Net asset value, end of year $17.14 $16.81 $16.28 $14.08 $12.18
====== ====== ====== ====== ======
Total return:
Total investment return 12.54% 16.82% 15.63% 25.43% (3.19)%
Ratios/supplemental data
Net assets, end of year (000s) $361,823 $325,033 $299,184 $277,014 $196,278
Ratio of expenses to average net assets 0.65% 0.66% 0.67% 0.66% 0.68%
Ratio of net investment income to
average net assets 3.00% 3.18% 3.68% 3.12% 4.01%
Portfolio turnover ratio (a) 61% 44% 76% 66% 71%
<FN>
______
(a) Portfolio turnover includes dollar roll transactions.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Stein Roe Growth Stock Fund, Variable Series
Years Ended December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of year $36.13 $28.61 $23.59 $18.11 $20.65
------ ------ ------ ----- ------
Net investment income 0.08 0.10 0.13 0.15 0.15
Net realized and unrealized gains
(losses) on investments 9.54 8.84 4.89 6.68 (1.46)
------ ------ ------ ----- ------
Total from investment operations 9.62 8.94 5.02 6.83 (1.31)
------ ------ ------ ----- ------
Less distributions:
Dividends from net investment income (0.10) (0.12) - (0.15) (0.17)
Distributions from net realized gains
on investments (2.12) (1.30) - (1.20) (1.06)
------ ------ ------ ----- ------
Total distributions (2.22) (1.42) - (1.35) (1.23)
------ ------ ------ ----- ------
Net asset value, end of year $43.53 $36.13 $28.61 $23.59 $18.11
====== ====== ====== ====== ======
Total return:
Total investment return 27.91% 32.28% 21.28% 37.73% (6.35)%
Ratios/supplemental data
Net assets, end of year (000s) $271,584 $213,399 $161,879 $136,834 $98,733
Ratio of expenses to average net assets 0.70% 0.71% 0.73% 0.74% 0.77%
Ratio of net investment income to
average net assets 0.21% 0.32% 0.49% 0.72% 0.75%
Portfolio turnover ratio 40% 28% 35% 41% 72%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Stein Roe Special Venture Fund, Variable Series
Years Ended December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of year $18.00 $20.73 $16.33 $14.74 $16.53
------ ------ ------ ----- ------
Net investment income (loss) (0.04) 0.01 0.04 0.04 0.06
Net realized and unrealized gains
(losses) on investments (2.77) 1.25 4.36 1.69 0.09
------ ------ ------ ----- ------
Total from investment operations (2.81) 1.26 4.40 1.73 0.15
------ ------ ------ ----- ------
Less distributions:
Dividends from net investment income - (0.03) - (0.04) (0.07)
Distributions from net realized gains
on investments (1.57) (3.96) - (0.10) (1.87)
------ ------ ------ ----- ------
Total distributions (1.57) (3.99) - (0.14) (1.94)
------ ------ ------ ----- ------
Net asset value, end of year $13.62 $18.00 $20.73 $16.33 $14.74
====== ====== ====== ====== ======
Total return:
Total investment return (17.30)% 7.81% 26.94% 11.75% 1.19%(b)
Ratios/supplemental data
Net assets, end of year (000s) $131,929 $200,590 $196,219 $143,248 $134,078
Ratio of expenses to average net assets 0.75% 0.73% 0.75% 0.76% 0.80%(a)
Ratio of net investment income (loss)
to average net assets (0.22)% 0.04% 0.20% 0.26% 0.44%(b)
Portfolio turnover ratio 103% 93% 100% 132% 144%
<FN>
___________
(a) These ratios were not materially affected by the reimbursement
of certain expenses by Stein Roe.
(b) Computed giving effect to Stein Roe's expense limitation
undertaking.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Stein Roe Mortgage Securities Fund, Variable Series
Years Ended December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of year $10.73 $9.84 $10.16 $9.28 $10.17
------ ------ ------ ------ ------
Net investment income 0.55 0.68 0.78 0.57 0.73
Net realized and unrealized gains
(losses) on investments 0.14 0.21 (0.30) 0.89 (0.89)
------ ------ ------ ------ ------
Total from investment operations 0.69 0.89 0.48 1.46 (0.16)
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income (0.63) - (0.80) (0.58) (0.73)
Distributions from net realized gains
on investments - - - - -
Total distributions (0.63) - (0.80) (0.58) (0.73)
------ ------ ------ ------ ------
Net asset value, end of year $10.79 $10.73 $9.84 $10.16 $9.28
====== ====== ===== ====== =====
Total return:
Total investment return 6.80% 9.04% 4.70% 15.74% (1.57)%(b)
Ratios/supplemental data
Net assets, end of year (000s) $96,693 $77,173 $76,009 $101,778 $72,420
Ratio of expenses to average net assets 0.70% 0.70% 0.70%(a) 0.69% 0.70%(a)
Ratio of net investment income to
average net assets 5.91% 6.59% 6.71%(b) 6.76% 6.71%(b)
Portfolio turnover ratio (c) 8% 29% 72% 112% 241%
<FN>
________
(a) If the Fund had paid all of its expenses and there had been
no reimbursement from Stein Roe, this ratio would have been 0.72%
and 0.71% for the years ended Dec. 31, 1996 and 1994,
respectively.
(b) Computed giving effect to Stein Roe's expense limitation
undertaking.
(c) Portfolio turnover includes dollar roll transactions.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Stein Roe Money Market Fund, Variable Series
Years Ended December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of year $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ----- ------
Net investment income 0.050 0.050 0.049 0.055 0.037
------ ------ ------ ----- ------
Less distributions:
Distributions from net investment income (0.050) (0.050) (0.049) (0.055) (0.037)
------ ------ ------ ----- ------
Net asset value, end of year $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ======
Total return:
Total investment return 5.17% 5.18% 5.01% 5.62% 3.81%
Ratios/supplemental data
Net assets, end of period (000s) $101,340 $67,137 $65,461 $64,992 $78,698
Ratio of net expenses to average net
assets 0.62% 0.65% 0.65% 0.63% 0.62%
Ratio of net investment income to
average net assets 4.99% 5.05% 4.90% 5.48% 3.73%
</TABLE>
<PAGE>
SHAREHOLDER INFORMATION
Purchases and Redemptions
The Participating Insurance Companies place daily orders to
purchase and redeem shares of the Funds. These orders generally
reflect the net effect of instructions they receive from holders
of their VA contracts and VLI policies and certain other terms of
those contracts and policies. The Trust issues and redeems shares
at NAV without imposing any selling commission, sales load or
redemption charge. Shares generally are sold and redeemed at
their NAV next determined after receipt of purchase or redemption
requests from Participating Insurance Companies. The right of
redemption may be suspended or payment postponed whenever
permitted by applicable law and regulations.
How a Fund's Share Price is Determined
Each Fund's share price is its NAV next determined. NAV is the
difference between the values of a Fund's assets and liabilities
divided by the number of shares outstanding. We determine NAV at
the close of regular trading on the New York Stock Exchange
(NYSE)-normally 4 p.m. New York time.
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 NAV at $1.00 per share. The extent of any deviation between
the Fund's NAV 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. To calculate the NAV on a given day, we value each
stock listed or traded on a stock exchange at its latest sale
price on that day. If there are no sales that day, we value the
security at the most recently quoted bid price. We value each
over-the-counter security or National Association of Securities
Dealers Automated Quotation (Nasdaq) security as of the last sale
price for that day. We value all other over-the-counter
securities that have reliable quotes at the latest quoted bid
price.
We value long-term debt obligations and securities convertible
into common stock at fair value. Pricing services provide the
Funds with the value of the securities. When the price of a
security is not available, including days when we determine that
the sale or bid price of the security does not reflect that
security's market value, we value the security at a fair value
determined in good faith under procedures established by the Board
of Trustees.
We value a security at fair value when events have occurred after
the last available market price and before the close of the NYSE
that materially affect the security's price. In the case of
foreign securities, this could include events occurring after the
close of the foreign market and before the close of the NYSE.
A Fund's foreign securities may trade on days when the NYSE is
closed. We will not price shares on days that the NYSE is closed
for trading and Participating Insurance Companies may not purchase
or redeem shares.
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 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 NAV 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 NAV, as of the record date for
the distributions.
Taxes
For information regarding applicable taxes, please see the
prospectus relating to your Participating Insurance Company's
separate account.
<PAGE>
FOR MORE INFORMATION
Adviser: Stein Roe & Farnham Incorporated
You can get more information about the Funds' investments in the
Funds' semiannual and annual reports to shareholders. The annual
report contains a discussion of the market conditions and
investment strategies that significantly affected the Funds'
performance over the last fiscal year.
You may wish to read the Funds' Statement of Additional
Information (SAI) for more information on a Fund and the
securities in which it invests. The SAI is incorporated into this
prospectus by reference, which means that it is considered to be
part of this prospectus.
You can get free copies of the annual report and the SAI, request
other information and discuss your questions about the Funds by
writing:
Keyport Financial Services Corp.
125 High Street
Boston, MA 02110
or by calling or writing the Participating Insurance Company which
issued your variable annuity contract or variable life insurance
policy.
Text-only versions of all Fund documents can be viewed online or
downloaded from the SEC at www.sec.gov.
You can review and copy information about the Funds by visiting
the following location, and you can obtain copies upon payment of
a duplicating fee, by writing or calling the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
1-800-SEC-0330
Investment Company Act file number: 811-05199
<PAGE> 1
STEINROE VARIABLE
INVESTMENT TRUST
PROSPECTUS
May 1, 1999
* Stein Roe Balanced Fund, Variable Series
* * * *
Trust shares available only through variable annuity contracts and
variable life insurance policies of participating insurance
companies.
* * * *
This prospectus must be accompanied by a prospectus for your
variable annuity contract or variable life insurance policy.
Retain both prospectuses for future reference.
* * * *
Although trust shares have been registered with the Securities and
Exchange Commission, the Commission has not approved any shares
offered in this prospectus or determined whether this prospectus
is accurate or complete. Any representation to the contrary is a
criminal offense.
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
<PAGE>
TABLE OF CONTENTS
THE TRUST...........................................2
THE FUND............................................3
Investment Goals................................3
Primary Investment Strategies...................3
Primary Investment Risks........................3
Performance History.............................4
OTHER INVESTMENTS AND RISKS.........................5
TRUST MANAGEMENT ORGANIZATIONS......................6
The Trustees....................................6
The Adviser: Stein Roe & Farnham Incorporated...6
Portfolio Manager...............................6
Year 2000 Compliance............................6
FINANCIAL HIGHLIGHTS................................7
SHAREHOLDER INFORMATION.............................8
THE TRUST
SteinRoe Variable Investment Trust (Trust) includes five separate
mutual funds (Funds), each with its own investment goal and
strategies. This prospectus contains information about Stein Roe
Balanced Fund, Variable Series. Other Funds may be added or
deleted from time to time.
The Trust's Funds are investment options under variable annuity
contracts (VA contracts) and variable life insurance policies (VLI
policies) issued by life insurance companies (Participating
Insurance Companies). Some (but not all) Participating Insurance
Companies are affiliated with the investment adviser to the Funds.
Participating Insurance Companies invest in the Funds through
separate accounts that they set up for that purpose. Owners of VA
contracts and VLI policies invest in sub-accounts of those
separate accounts through instructions they give to their
insurance company.
The prospectuses of the Participating Insurance Companies'
separate accounts describe which Funds are available to the
purchasers of their own VA contracts and VLI policies.
<PAGE>
INVESTMENT GOALS-STEIN ROE BALANCED FUND, VARIABLE SERIES
- -----------------------------------------------------------------
Stein Roe Balanced Fund, Variable Series, seeks high total
investment return.
PRIMARY INVESTMENT STRATEGIES
- -----------------------------------------------------------------
The Fund allocates its investments among common stocks and
securities convertible into common stocks, bonds and cash. The
Fund invests primarily in well-established companies that have
large market capitalizations. The portfolio manager may invest in
a company because it has a history of steady to improving sales or
earnings growth that the portfolio manager believes can be
sustained. He also may invest in a company because he believes
its stock is priced attractively compared to the value of its
assets. The Fund may invest up to 25 percent of its assets in
foreign stocks.
The Fund also invests at least 25 percent of its assets in bonds.
The Fund purchases bonds that are "investment grade"-that is,
within the four highest investment grades assigned by a nationally
recognized statistical rating organization. The Fund may invest
in unrated bonds if the portfolio manager believes that the
securities are investment grade quality. To select debt
securities for the Fund, the portfolio manager considers a bond's
expected income together with its potential for price gains or
losses.
The portfolio manager sets the Fund's asset allocation between
stocks, bonds and cash based upon recommendations of Stein Roe's
investment committee. The committee makes its recommendations
based upon economic, market and other factors that affect
investment opportunities.
PRIMARY INVESTMENT RISKS
- -----------------------------------------------------------------
The primary risks of investing in the Fund are described below.
There are many circumstances (including additional risks that are
not described here) which could cause you to lose money by
investing in the Fund or prevent the Fund from achieving its
goals.
Market risk is the risk that the price of a security held by the
Fund will fall due to changing economic, political or market
conditions, or due to the financial condition of the company which
has issued the security.
Because the Fund invests in stocks and bonds, the price of the
Fund's shares-its net asset value per share (NAV)-fluctuates daily
in response to changes in the market value of the stocks and
bonds. In addition, the risks associated with the Fund's
investment strategy may cause the Fund's total return or yield to
decrease.
Foreign Securities
Foreign securities are subject to special risks. Foreign stock
markets, especially in countries with developing stock markets,
can be extremely volatile. The liquidity of foreign securities
may be more limited than domestic securities, which means that the
Fund may at times be unable to sell them at desirable prices.
Fluctuations in currency exchange rates impact the value of
foreign securities. Brokerage commissions, custodial fees, and
other fees are generally higher for foreign investments. In
addition, foreign governments may impose withholding taxes which
would reduce the amount of income available to distribute to
shareholders. Other risks include: possible delays in settlement
of transactions; less publicly available information about
companies; the impact of political, social or diplomatic events;
and possible seizure, expropriation or nationalization of the
company or its assets.
Debt Securities
The Fund's investments in debt securities, generally bonds, expose
the Fund to interest rate risk. Interest rate risk is the risk of
a decline in the price of a bond when interest rates increase. In
general, if interest rates rise, bond prices fall; and if interest
rates fall, bond prices rise. Changes in the values of bonds
usually will not affect the amount of income the Fund receives
from them but will affect the value of the Fund's shares.
Interest rate risk is generally greater for bonds having longer
maturities.
Because the Fund may invest in fixed-income securities issued by
private entities, including corporate bonds, the Fund is subject
to issuer risk. Issuer risk is the possibility that changes in
the financial condition of the issuer of a security, changes in
general economic conditions, or changes in economic conditions
that affect the issuer's industry may impact the issuer's ability
to make timely payment of interest or principal This could result
in decreases in the price of the security.
PERFORMANCE HISTORY
- -----------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from
year to year by illustrating the Fund's total calendar-year
returns. The performance table following the bar chart shows how
the Fund's average annual returns compare with those of a broad
measure of market performance for one year, five years and 10
years. We compare the Fund to the S&P 500 Index, a broad-based
measure of market performance. The chart and table are intended
to illustrate some of the risks of investing in the Fund by
showing the changes in the Fund's performance. All returns
include the reinvestment of dividends and distributions. As with
all mutual funds, past performance does not predict the Fund's
future performance. Performance results include any expense
reduction arrangements. If these arrangements were not in place,
then the performance results would have been lower. Any reduction
arrangements may be discontinued at any time. The Fund's
performance results do not reflect the cost of insurance and
separate account charges which are imposed under your VA contract
or VLI policy.
Calendar-Year Total Returns
YEAR-BY-YEAR TOTAL RETURNS
30.00
25.00 27.93 25.43
20.00 22.38
15.00 15.63 16.82 12.54
10.00
5.00 7.53 9.29
0.00
- -5.00 -0.69 -3.19
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[ ] Balanced Fund
Best quarter: 4th quarter 1998, +12.39%
Worst quarter: 3rd quarter 1990, -10.04%
<PAGE>
1 Year 5 Years 10 Years
Stein Roe Balanced Fund, Variable
Series 12.54% 13.05% 12.94%
S&P 500 Index* 28.60% 24.05% 19.19%
- --------
*The S&P 500 Index is an unmanaged group of stocks that differs
from the Fund's composition; it is not available for direct
investment.
OTHER INVESTMENTS AND RISKS
The Fund's primary investment strategies and risks are described
above. This section describes other investments the Fund may make
and the risks associated with them. In seeking to achieve its
goal, the Fund may invest in various types of securities and
engage in various investment techniques that are not the principal
focus of the Fund and, therefore, are not described in this
prospectus. These types of securities and investment practices
are discussed in the Fund's Statement of Additional Information
(SAI), which you may obtain free of charge (see back cover).
The Fund's portfolio manager generally makes decisions on buying
and selling portfolio investments based upon his judgment that the
decision will improve the Fund's investment return and further its
investment goal. The portfolio manager may also be required to
sell portfolio investments to fund redemptions.
Portfolio Turnover
The Fund does not have limits on portfolio turnover. Turnover may
vary significantly from year to year. Stein Roe does not expect
it to exceed 100 percent under normal conditions. Portfolio
turnover increases transaction expenses, which reduce the Fund's
return.
Temporary Defensive Positions
When Stein Roe believes that a temporary defensive position is
necessary, the Fund may invest, without limit, in high-quality
debt securities or hold assets in cash and cash equivalents.
Stein Roe is not required to take a temporary defensive position,
and market conditions may prevent such an action. The Fund may
not achieve its investment objective if it takes a defensive
position.
Market Capitalization
In this prospectus we refer to market capitalization as a means to
distinguish among companies based on their size. A company's
market capitalization is simply its stock price multiplied by the
number of shares of stock it has issued and outstanding. In the
financial markets, companies generally are sorted into one of
three capitalization-based categories: large capitalization
(large cap); medium capitalization (midcap); or small
capitalization (small cap). We follow this convention in this
prospectus.
To sort companies in this manner, we compare a company's
capitalization with the capitalization of an appropriate index.
(An index is a statistical composite that measures a group of
stocks.) We utilize two indices in grouping stocks: the S&P Mid-
Cap 400 Index and the S&P Small-Cap 600 Index.
We consider a company to be large cap if its market capitalization
is at least 90 percent of the weighted market capitalization of
the S&P Mid-Cap 400 Index.
We consider a company to be midcap if its market capitalization is
less than 90 percent of the weighted market capitalization of the
S&P Mid-Cap 400 Index and at least 90 percent of the weighted
market capitalization of the S&P Small-Cap 600 Index.
We consider a company to be small cap if its market capitalization
is less than 90 percent of the weighted market capitalization of
the S&P Small-Cap 600 Index.
As of Dec. 31, 1998, large-cap companies had market
capitalizations greater than $6.6 billion, midcap companies had
market capitalizations between $1.8 and $6.6 billion and small-cap
companies had market capitalizations less than $1.8 billion.
These amounts will change as the S&P Mid-Cap 400 and S&P Small-Cap
600 indices change.
TRUST MANAGEMENT ORGANIZATIONS
The Trustees
The business of the Trust and the Fund is supervised by the
Trust's Board of Trustees. The SAI contains names of and
biographical information on the Trustees.
The Adviser: Stein Roe & Farnham Incorporated
Stein Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
IL 60606, manages the day-to-day operations of the Fund. Stein
Roe has advised and managed mutual funds since 1949. As of
December 31, 1998, Stein Roe managed more than $29.7 billion in
assets. For the 1998 fiscal year, the Trust paid Stein Roe
management fees of 0.60 percent of the average daily net assets of
the Fund.
Stein Roe's mutual funds and institutional investment advisory
businesses are managed together with that of its affiliate,
Colonial Management Associates, Inc. (CMA), by a combined
management team of employees from both companies. CMA also shares
personnel, facilities, and systems with Stein Roe that may be used
in providing administrative or operational services to the Fund.
CMA is a registered investment adviser. Both Stein Roe and CMA
are subsidiaries of Liberty Financial Companies, Inc.
Stein Roe can use the services of AlphaTrade Inc., an affiliated
broker-dealer, when buying or selling equity securities for the
Fund's portfolio, pursuant to procedures adopted by the Board of
Trustees.
Portfolio Manager
Harvey B. Hirschhorn has been portfolio manager of the Fund since
1996. He joined Stein Roe in 1973 and is executive vice president
and chief economist and investment strategist.
YEAR 2000 COMPLIANCE
- -----------------------------------------------------------------
Like other investment companies, financial and business
organizations and individuals around the world, the Fund could be
adversely affected if the computer systems used by Stein Roe and
other service providers do not properly process and calculate
date-related information and data from and after Jan. 1, 2000.
This is commonly known as the "Year 2000 Problem." The Fund's
service providers are taking steps that they believe are
reasonably designed to address the Year 2000 problem, including
communicating with vendors who furnish services, software and
systems to the Fund, to provide that date-related information and
data can be properly processed after Jan. 1, 2000. Many Fund
service providers and vendors, including the Fund's service
providers, are in the process of making Year 2000 modifications to
their software and systems and believe that such modifications
will be completed on a timely basis prior to Jan. 1, 2000.
However, no assurances can be given that all modifications
required to ensure proper data processing and calculation on and
after Jan. 1, 2000, will be made on a timely basis or that
services to the Fund will not be adversely affected.
FINANCIAL HIGHLIGHTS
The financial highlights table that follows is intended to help
you understand the Fund's financial information for the last five
fiscal years. The total returns in the table represent the return
that investors earned assuming that they reinvested all dividends
and distributions. Certain information in the table reflects the
financial results for a single Fund share. The information has
been audited by KPMG LLP, whose report appears in the Trust's
annual report which is available upon request. The Fund's total
returns presented below do not reflect the cost of insurance and
other company separate account charges which vary with the VA
contracts or VLI policies.
<TABLE>
<CAPTION>
Stein Roe Balanced Fund, Variable Series
Years Ended December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of year $16.81 $16.28 $14.08 $12.18 $13.11
------ ------ ------ ----- ------
Net investment income 0.48 0.53 0.57 0.48 0.51
Net realized and unrealized gains
(losses) on investments 1.48 1.96 1.63 2.61 (0.93)
------ ------ ------ ----- ------
Total from investment operations 1.96 2.49 2.20 3.09 (0.42)
------ ------ ------ ----- ------
Less distributions:
Dividends from net investment income (0.51) (0.56) - (0.48) (0.51)
Distributions from net realized gains
on investments (1.12) (1.40) - (0.71) -
------ ------ ------ ----- ------
Total distributions (1.63) (1.96) - (1.19) (0.51)
Net asset value, end of year $17.14 $16.81 $16.28 $14.08 $12.18
====== ====== ====== ====== ======
Total return:
Total investment return 12.54% 16.82% 15.63% 25.43% (3.19)%
Ratios/supplemental data
Net assets, end of year (000s) $361,823 $325,033 $299,184 $277,014 $196,278
Ratio of expenses to average net assets 0.65% 0.66% 0.67% 0.66% 0.68%
Ratio of net investment income to
average net assets 3.00% 3.18% 3.68% 3.12% 4.01%
Portfolio turnover ratio (a) 61% 44% 76% 66% 71%
<FN>
______
(a) Portfolio turnover includes dollar roll transactions.
</TABLE>
SHAREHOLDER INFORMATION
Purchases and Redemptions
The Participating Insurance Companies place daily orders to
purchase and redeem shares of the Fund. These orders generally
reflect the net effect of instructions they receive from holders
of their VA contracts and VLI policies and certain other terms of
those contracts and policies. The Trust issues and redeems shares
at NAV without imposing any selling commission, sales load or
redemption charge. Shares generally are sold and redeemed at
their NAV next determined after receipt of purchase or redemption
requests from Participating Insurance Companies. The right of
redemption may be suspended or payment postponed whenever
permitted by applicable law and regulations.
How the Fund's Share Price is Determined
The Fund's share price is its NAV next determined. NAV is the
difference between the values of the Fund's assets and liabilities
divided by the number of shares outstanding. We determine NAV at
the close of regular trading on the New York Stock Exchange
(NYSE)-normally 4 p.m. New York time.
To calculate the NAV on a given day, we value each stock listed or
traded on a stock exchange at its latest sale price on that day.
If there are no sales that day, we value the security at the most
recently quoted bid price. We value each over-the-counter
security or National Association of Securities Dealers Automated
Quotation (Nasdaq) security as of the last sale price for that
day. We value all other over-the-counter securities that have
reliable quotes at the latest quoted bid price.
We value long-term debt obligations and securities convertible
into common stock at fair value. Pricing services provide the
Fund with the value of the securities. When the price of a
security is not available, including days when we determine that
the sale or bid price of the security does not reflect that
security's market value, we value the security at a fair value
determined in good faith under procedures established by the Board
of Trustees.
We value a security at fair value when events have occurred after
the last available market price and before the close of the NYSE
that materially affect the security's price. In the case of
foreign securities, this could include events occurring after the
close of the foreign market and before the close of the NYSE.
The Fund's foreign securities may trade on days when the NYSE is
closed. We will not price shares on days that the NYSE is closed
for trading and Participating Insurance Companies may not purchase
or redeem shares.
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 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 NAV, as of the record date for the distributions.
Taxes
For information regarding applicable taxes, please see the
prospectus relating to your Participating Insurance Company's
separate account.
<PAGE>
FOR MORE INFORMATION
Adviser: Stein Roe & Farnham Incorporated
You can get more information about the Fund's investments in the
Fund's semiannual and annual reports to shareholders. The annual
report contains a discussion of the market conditions and
investment strategies that significantly affected the Fund's
performance over the last fiscal year.
You may wish to read the Fund's Statement of Additional
Information (SAI) for more information on the Fund and the
securities in which it invests. The SAI is incorporated into this
prospectus by reference, which means that it is considered to be
part of this prospectus.
You can get free copies of the annual report and the SAI, request
other information and discuss your questions about the Fund by
writing:
Keyport Financial Services Corp.
125 High Street
Boston, MA 02110
or by calling or writing the Participating Insurance Company which
issued your variable annuity contract or variable life insurance
policy.
Text-only versions of all Fund documents can be viewed online or
downloaded from the SEC at www.sec.gov.
You can review and copy information about the Fund by visiting the
following location, and you can obtain copies upon payment of a
duplicating fee, by writing or calling the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
1-800-SEC-0330
Investment Company Act file number: 811-05199
<PAGE> 1
STEINROE VARIABLE
INVESTMENT TRUST
PROSPECTUS
May 1, 1999
* Stein Roe Growth Stock Fund, Variable Series
* * * *
Trust shares available only through variable annuity contracts and
variable life insurance policies of participating insurance
companies.
* * * *
This prospectus must be accompanied by a prospectus for your
variable annuity contract or variable life insurance policy.
Retain both prospectuses for future reference.
* * * *
Although trust shares have been registered with the Securities and
Exchange Commission, the Commission has not approved any shares
offered in this prospectus or determined whether this prospectus
is accurate or complete. Any representation to the contrary is a
criminal offense.
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
<PAGE>
TABLE OF CONTENTS
THE TRUST.............................................2
THE FUND..............................................3
Investment Goals..................................3
Primary Investment Strategies.....................3
Primary Investment Risks..........................3
Performance History...............................3
OTHER INVESTMENTS AND RISKS...........................4
TRUST MANAGEMENT ORGANIZATIONS........................5
The Trustees......................................5
The Adviser: Stein Roe & Farnham
Incorporated..........................................5
Portfolio Manager.................................6
Year 2000 Compliance..............................6
FINANCIAL HIGHLIGHTS..................................7
SHAREHOLDER INFORMATION...............................7
THE TRUST
SteinRoe Variable Investment Trust (Trust) includes five separate
mutual funds (Funds), each with its own investment goal and
strategies. This prospectus contains information about Stein Roe
Growth Stock Fund, Variable Series. Other Funds may be added or
deleted from time to time.
The Trust's Funds are investment options under variable annuity
contracts (VA contracts) and variable life insurance policies (VLI
policies) issued by life insurance companies (Participating
Insurance Companies). Some (but not all) Participating Insurance
Companies are affiliated with the investment adviser to the Funds.
Participating Insurance Companies invest in the Funds through
separate accounts that they set up for that purpose. Owners of VA
contracts and VLI policies invest in sub-accounts of those
separate accounts through instructions they give to their
insurance company.
The prospectuses of the Participating Insurance Companies'
separate accounts describe which Funds are available to the
purchasers of their own VA contracts and VLI policies.
<PAGE>
INVESTMENT GOALS-STEIN ROE GROWTH STOCK FUND, VARIABLE SERIES
- -----------------------------------------------------------------
Stein Roe Growth Stock Fund, Variable Series, seeks long-term
growth of capital.
PRIMARY INVESTMENT STRATEGIES
- -----------------------------------------------------------------
The Fund invests primarily in the common stocks of companies with
large market capitalizations. The Fund emphasizes the technology,
financial services, health care, and global consumer franchise
sectors. The Fund may invest up to 25 percent of its assets in
foreign stocks. To select investments for the Fund, the portfolio
manager considers companies that he believes will generate
earnings growth over the long term regardless of the economic
environment.
PRIMARY INVESTMENT RISKS
- -----------------------------------------------------------------
The primary risks of investing in the Fund are described below.
There are many circumstances (including additional risks that are
not described here) which could cause you to lose money by
investing in the Fund or prevent the Fund from achieving its
goals.
Market risk is the risk that the price of a security held by the
Fund will fall due to changing economic, political or market
conditions, or due to the financial condition of the company which
has issued the security.
Because the Fund invests in stocks, the price of its shares-its
net asset value per share (NAV)-fluctuates daily in response to
changes in the market value of the stocks. In addition, the risks
associated with the Fund's investment strategy may cause the
Fund's total return or yield to decrease.
Foreign Securities
Foreign securities are subject to special risks. Foreign stock
markets, especially in countries with developing stock markets,
can be extremely volatile. The liquidity of foreign securities
may be more limited than domestic securities, which means that the
Fund may at times be unable to sell them at desirable prices.
Fluctuations in currency exchange rates impact the value of
foreign securities. Brokerage commissions, custodial fees, and
other fees are generally higher for foreign investments. In
addition, foreign governments may impose withholding taxes which
would reduce the amount of income available to distribute to
shareholders. Other risks include: possible delays in settlement
of transactions; less publicly available information about
companies; the impact of political, social or diplomatic events;
and possible seizure, expropriation or nationalization of the
company or its assets.
PERFORMANCE HISTORY
- -----------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from
year to year by illustrating the Fund's total calendar-year
returns. The performance table following the bar chart shows how
the Fund's average annual returns compare with those of a broad
measure of market performance for one year, five years and 10
years. We compare the Fund to the S&P 500 Index, a broad-based
measure of market performance. The chart and table are intended
to illustrate some of the risks of investing in the Fund by
showing the changes in the Fund's performance. All returns
include the reinvestment of dividends and distributions. As with
all mutual funds, past performance does not predict the Fund's
future performance. Performance results include any expense
reduction arrangements. If these arrangements were not in place,
then the performance results would have been lower. Any reduction
arrangements may be discontinued at any time. The Fund's
performance results do not reflect the cost of insurance and
separate account charges which are imposed under your VA contract
or VLI policy.
Calendar-Year Total Returns
YEAR-BY-YEAR TOTAL RETURNS
60.00
50.00
40.00 48.03
30.00 31.30 37.73 32.28
20.00 21.28 27.91
10.00
0.00 6.63 4.97
- -10.00 -1.65 -6.35
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[ ] Growth Stock Fund
Best quarter: 4th quarter 1998, +26.43%
Worst quarter: 3rd quarter 1990, -17.42%
1 Year 5 years 10 Years
Stein Roe Growth Stock Fund,
Variable Series 27.91% 21.49% 18.94%
S&P 500 Index* 28.60% 24.05% 19.19%
________
*The S&P 500 Index is an unmanaged group of stocks that differs
from the Fund's composition; it is not available for direct
investment.
OTHER INVESTMENTS AND RISKS
The Fund's primary investment strategies and risks are described
above. This section describes other investments the Fund may make
and the risks associated with them. In seeking to achieve its
goal, the Fund may invest in various types of securities and
engage in various investment techniques that are not the principal
focus of the Fund and, therefore, are not described in this
prospectus. These types of securities and investment practices
are discussed in the Fund's Statement of Additional Information
(SAI), which you may obtain free of charge (see back cover).
The Fund's portfolio manager generally makes decisions on buying
and selling portfolio investments based upon his judgment that the
decision will improve the Fund's investment return and further its
investment goal. The portfolio manager may also be required to
sell portfolio investments to fund redemptions.
Portfolio Turnover
The Fund does not have limits on portfolio turnover. Turnover may
vary significantly from year to year. Stein Roe does not expect
it to exceed 100 percent under normal conditions. Portfolio
turnover increases transaction expenses, which reduce the Fund's
return.
Temporary Defensive Positions
When Stein Roe believes that a temporary defensive position is
necessary, the Fund may invest, without limit, in high-quality
debt securities or hold assets in cash and cash equivalents.
Stein Roe is not required to take a temporary defensive position,
and market conditions may prevent such an action. The Fund may
not achieve its investment objective if it takes a defensive
position.
Market Capitalization
In this prospectus we refer to market capitalization as a means to
distinguish among companies based on their size. A company's
market capitalization is simply its stock price multiplied by the
number of shares of stock it has issued and outstanding. In the
financial markets, companies generally are sorted into one of
three capitalization-based categories: large capitalization
(large cap); medium capitalization (midcap); or small
capitalization (small cap). We follow this convention in this
prospectus.
To sort companies in this manner, we compare a company's
capitalization with the capitalization of an appropriate index.
(An index is a statistical composite that measures a group of
stocks.) We utilize two indices in grouping stocks: the S&P Mid-
Cap 400 Index and the S&P Small-Cap 600 Index.
We consider a company to be large cap if its market capitalization
is at least 90 percent of the weighted market capitalization of
the S&P Mid-Cap 400 Index.
We consider a company to be midcap if its market capitalization is
less than 90 percent of the weighted market capitalization of the
S&P Mid-Cap 400 Index and at least 90 percent of the weighted
market capitalization of the S&P Small-Cap 600 Index.
We consider a company to be small cap if its market capitalization
is less than 90 percent of the weighted market capitalization of
the S&P Small-Cap 600 Index.
As of Dec. 31, 1998, large-cap companies had market
capitalizations greater than $6.6 billion, midcap companies had
market capitalizations between $1.8 and $6.6 billion and small-cap
companies had market capitalizations less than $1.8 billion.
These amounts will change as the S&P Mid-Cap 400 and S&P Small-Cap
600 indices change.
TRUST MANAGEMENT ORGANIZATIONS
The Trustees
The business of the Trust and the Fund is supervised by the
Trust's Board of Trustees. The SAI contains names of and
biographical information on the Trustees.
The Adviser: Stein Roe & Farnham Incorporated
Stein Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
IL 60606, manages the day-to-day operations of the Fund. Stein
Roe has advised and managed mutual funds since 1949. As of
December 31, 1998, Stein Roe managed more than $29.7 billion in
assets. For the 1998 fiscal year, the Trust paid Stein Roe
management fees of 0.65 percent of the average daily net assets of
the Fund.
Stein Roe's mutual funds and institutional investment advisory
businesses are managed together with that of its affiliate,
Colonial Management Associates, Inc. (CMA), by a combined
management team of employees from both companies. CMA also shares
personnel, facilities, and systems with Stein Roe that may be used
in providing administrative or operational services to the Fund.
CMA is a registered investment adviser. Both Stein Roe and CMA
are subsidiaries of Liberty Financial Companies, Inc.
Stein Roe can use the services of AlphaTrade Inc., an affiliated
broker-dealer, when buying or selling equity securities for the
Fund's portfolio, pursuant to procedures adopted by the Board of
Trustees.
Portfolio Manager
Erik P. Gustafson is portfolio manager of the Fund and has managed
Stein Roe Growth Stock Fund and Stein Roe Young Investor Fund
since 1994. Mr. Gustafson joined Stein Roe in 1992 as a portfolio
manager for privately managed accounts and is a senior vice
president.
YEAR 2000 COMPLIANCE
- ----------------------------------------------------------------
Like other investment companies, financial and business
organizations and individuals around the world, the Fund could be
adversely affected if the computer systems used by Stein Roe and
other service providers do not properly process and calculate
date-related information and data from and after Jan. 1, 2000.
This is commonly known as the "Year 2000 Problem." The Fund's
service providers are taking steps that they believe are
reasonably designed to address the Year 2000 problem, including
communicating with vendors who furnish services, software and
systems to the Fund, to provide that date-related information and
data can be properly processed after Jan. 1, 2000. Many Fund
service providers and vendors, including the Fund's service
providers, are in the process of making Year 2000 modifications to
their software and systems and believe that such modifications
will be completed on a timely basis prior to Jan. 1, 2000.
However, no assurances can be given that all modifications
required to ensure proper data processing and calculation on and
after Jan. 1, 2000, will be made on a timely basis or that
services to the Fund will not be adversely affected.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table that follows is intended to help
you understand the Fund's financial information for the last five
fiscal years. The total returns in the table represent the return
that investors earned assuming that they reinvested all dividends
and distributions. Certain information in the table reflects the
financial results for a single Fund share. The information has
been audited by KPMG LLP, whose report appears in the Trust's
annual report which is available upon request. The Fund's total
returns presented below do not reflect the cost of insurance and
other company separate account charges which vary with the VA
contracts or VLI policies.
<TABLE>
<CAPTION>
Stein Roe Growth Stock Fund, Variable Series
Years Ended December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of year $36.13 $28.61 $23.59 $18.11 $20.65
------ ------ ------ ----- ------
Net investment income 0.08 0.10 0.13 0.15 0.15
Net realized and unrealized gains
(losses) on investments 9.54 8.84 4.89 6.68 (1.46)
------ ------ ------ ----- ------
Total from investment operations 9.62 8.94 5.02 6.83 (1.31)
------ ------ ------ ----- ------
Less distributions:
Dividends from net investment income (0.10) (0.12) - (0.15) (0.17)
Distributions from net realized gains
on investments (2.12) (1.30) - (1.20) (1.06)
------ ------ ------ ----- ------
Total distributions (2.22) (1.42) - (1.35) (1.23)
------ ------ ------ ----- ------
Net asset value, end of year $43.53 $36.13 $28.61 $23.59 $18.11
====== ====== ====== ====== ======
Total return:
Total investment return 27.91% 32.28% 21.28% 37.73% (6.35)%
Ratios/supplemental data
Net assets, end of year (000s) $271,584 $213,399 $161,879 $136,834 $98,733
Ratio of expenses to average net assets 0.70% 0.71% 0.73% 0.74% 0.77%
Ratio of net investment income to
average net assets 0.21% 0.32% 0.49% 0.72% 0.75%
Portfolio turnover ratio 40% 28% 35% 41% 72%
</TABLE>
SHAREHOLDER INFORMATION
Purchases and Redemptions
The Participating Insurance Companies place daily orders to
purchase and redeem shares of the Fund. These orders generally
reflect the net effect of instructions they receive from holders
of their VA contracts and VLI policies and certain other terms of
those contracts and policies. The Trust issues and redeems shares
at NAV without imposing any selling commission, sales load or
redemption charge. Shares generally are sold and redeemed at
their NAV next determined after receipt of purchase or redemption
requests from Participating Insurance Companies. The right of
redemption may be suspended or payment postponed whenever
permitted by applicable law and regulations.
How the Fund's Share Price is Determined
The Fund's share price is its NAV next determined. NAV is the
difference between the values of the Fund's assets and liabilities
divided by the number of shares outstanding. We determine NAV at
the close of regular trading on the New York Stock Exchange
(NYSE)-normally 4 p.m. New York time.
To calculate the NAV on a given day, we value each stock listed or
traded on a stock exchange at its latest sale price on that day.
If there are no sales that day, we value the security at the most
recently quoted bid price. We value each over-the-counter
security or National Association of Securities Dealers Automated
Quotation (Nasdaq) security as of the last sale price for that
day. We value all other over-the-counter securities that have
reliable quotes at the latest quoted bid price.
We value long-term debt obligations and securities convertible
into common stock at fair value. Pricing services provide the
Fund with the value of the securities. When the price of a
security is not available, including days when we determine that
the sale or bid price of the security does not reflect that
security's market value, we value the security at a fair value
determined in good faith under procedures established by the Board
of Trustees.
We value a security at fair value when events have occurred after
the last available market price and before the close of the NYSE
that materially affect the security's price. In the case of
foreign securities, this could include events occurring after the
close of the foreign market and before the close of the NYSE.
The Fund's foreign securities may trade on days when the NYSE is
closed. We will not price shares on days that the NYSE is closed
for trading and Participating Insurance Companies may not purchase
or redeem shares.
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 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 NAV, as of the record date for the distributions.
Taxes
For information regarding applicable taxes, please see the
prospectus relating to your Participating Insurance Company's
separate account.
<PAGE>
FOR MORE INFORMATION
Adviser: Stein Roe & Farnham Incorporated
You can get more information about the Fund's investments in the
Fund's semiannual and annual reports to shareholders. The annual
report contains a discussion of the market conditions and
investment strategies that significantly affected the Fund's
performance over the last fiscal year.
You may wish to read the Fund's Statement of Additional
Information (SAI) for more information on the Fund and the
securities in which it invests. The SAI is incorporated into this
prospectus by reference, which means that it is considered to be
part of this prospectus.
You can get free copies of the annual report and the SAI, request
other information and discuss your questions about the Fund by
writing:
Keyport Financial Services Corp.
125 High Street
Boston, MA 02110
or by calling or writing the Participating Insurance Company which
issued your variable annuity contract or variable life insurance
policy.
Text-only versions of all Fund documents can be viewed online or
downloaded from the SEC at www.sec.gov.
You can review and copy information about the Fund by visiting the
following location, and you can obtain copies upon payment of a
duplicating fee, by writing or calling the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
1-800-SEC-0330
Investment Company Act file number: 811-05199
<PAGE> 1
STEINROE VARIABLE
INVESTMENT TRUST
PROSPECTUS
May 1, 1999
* Stein Roe Special Venture Fund, Variable Series
* * * *
Trust shares available only through variable annuity contracts and
variable life insurance policies of participating insurance
companies.
* * * *
This prospectus must be accompanied by a prospectus for your
variable annuity contract or variable life insurance policy.
Retain both prospectuses for future reference.
* * * *
Although trust shares have been registered with the Securities and
Exchange Commission, the Commission has not approved any shares
offered in this prospectus or determined whether this prospectus
is accurate or complete. Any representation to the contrary is a
criminal offense.
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
<PAGE>
TABLE OF CONTENTS
THE TRUST............................................2
THE FUND.............................................3
Investment Goals.................................3
Primary Investment Strategies....................3
Primary Investment Risks.........................3
Performance History..............................3
OTHER INVESTMENTS AND RISKS..........................4
TRUST MANAGEMENT ORGANIZATIONS.......................5
The Trustees.....................................5
The Adviser: Stein Roe & Farnham Incorporated....5
Portfolio Managers...............................6
Year 2000 Compliance.............................6
FINANCIAL HIGHLIGHTS.................................7
SHAREHOLDER INFORMATION..............................7
THE TRUST
SteinRoe Variable Investment Trust (Trust) includes five separate
mutual funds (Funds), each with its own investment goal and
strategies. This prospectus contains information about Stein Roe
Special Venture Fund, Variable Series. Other Funds may be added
or deleted from time to time.
The Trust's Funds are investment options under variable annuity
contracts (VA contracts) and variable life insurance policies (VLI
policies) issued by life insurance companies (Participating
Insurance Companies). Some (but not all) Participating Insurance
Companies are affiliated with the investment adviser to the Funds.
Participating Insurance Companies invest in the Funds through
separate accounts that they set up for that purpose. Owners of VA
contracts and VLI policies invest in sub-accounts of those
separate accounts through instructions they give to their
insurance company.
The prospectuses of the Participating Insurance Companies'
separate accounts describe which Funds are available to the
purchasers of their own VA contracts and VLI policies.
<PAGE>
INVESTMENT GOALS-STEIN ROE SPECIAL VENTURE FUND, VARIABLE SERIES
- ----------------------------------------------------------------
Stein Roe Special Venture Fund, Variable Series, seeks long-term
growth of capital.
PRIMARY INVESTMENT STRATEGIES
- ----------------------------------------------------------------
Under normal market conditions, the Fund invests at least 65
percent of its assets in common stocks of companies with small
market capitalizations. The Fund invests in new issuers during
periods when new issues are being brought to market. The Fund
also invests in midcap companies. The Fund invests in companies
that compete within large and growing markets and that appear to
have the ability to grow their market share. To find companies
with these growth characteristics, the portfolio managers seek out
companies that are-or, in the portfolio managers' judgment, have
the potential to be-a market share leader within their respective
industry. They also look for companies with strong management
teams that participate in the ownership of the companies.
PRIMARY INVESTMENT RISKS
- ----------------------------------------------------------------
The primary risks of investing in the Fund are described below.
There are many circumstances (including additional risks that are
not described here) which could cause you to lose money by
investing in the Fund or prevent the Fund from achieving its
goals.
Market risk is the risk that the price of a security held by the
Fund will fall due to changing economic, political or market
conditions, or due to the financial condition of the company which
has issued the security.
Because the Fund invests in stocks, the price of its shares-its
net asset value per share (NAV)-fluctuates daily in response to
changes in the market value of the stocks. In addition, the risks
associated with the Fund's investment strategy may cause the
Fund's total return or yield to decrease.
Investments in stocks of small and midsized companies can be
riskier than investments in larger companies. Small and midsized
companies often have limited product lines, operating histories,
markets, or financial resources. They may depend heavily on a
small management group. Small companies in particular are more
likely to fail or prove unable to grow. Small and midsized
companies may trade less frequently, in smaller volumes, and
fluctuate more sharply in price than larger companies. In
addition, they may not be widely followed by the investment
community, which can lower the demand for their stock.
PERFORMANCE HISTORY
- ----------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from
year to year by illustrating the Fund's total calendar-year
returns. The performance table following the bar chart shows how
the Fund's average annual returns compare with those of a broad
measure of market performance for one year, five years and 10
years. We compare the Fund to the Russell 2000 Index, a broad-
based measure of market performance. The chart and table are
intended to illustrate some of the risks of investing in the Fund
by showing the changes in the Fund's performance. All returns
include the reinvestment of dividends and distributions. As with
all mutual funds, past performance does not predict the Fund's
future performance. Performance results include any expense
reduction arrangements. If these arrangements were not in place,
then the performance results would have been lower. Any reduction
arrangements may be discontinued at any time. The Fund's
performance results do not reflect the cost of insurance and
separate account charges which are imposed under your VA contract
or VLI policy.
Calendar-Year Total Returns
YEAR-BY-YEAR TOTAL RETURNS
40.00
30.00 30.84 37.25 35.68
20.00 26.94
10.00 14.48 11.75
0.00 1.19 7.81
- -10.00 -8.91
- -20.00 -17.30
- -30.00
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[ ] Special Venture Fund
Best quarter: 1st quarter 1991, +21.62%
Worst quarter: 3rd quarter 1990, -21.18%
1 Year 5 Years 10 Years
Stein Roe Special Venture Fund,
Variable Series -17.30% 5.06% 12.52%
Russell 2000 Index* -2.55% 11.87% 12.92%
________
*The Russell 2000 Index is an unmanaged group of stocks that
differs from the Fund's composition; it is not available for
direct investment.
OTHER INVESTMENTS AND RISKS
The Fund's primary investment strategies and risks are described
above. This section describes other investments the Fund may make
and the risks associated with them. In seeking to achieve its
goal, the Fund may invest in various types of securities and
engage in various investment techniques that are not the principal
focus of the Fund and, therefore, are not described in this
prospectus. These types of securities and investment practices
are discussed in the Fund's Statement of Additional Information
(SAI), which you may obtain free of charge (see back cover).
The Fund's portfolio managers generally make decisions on buying
and selling portfolio investments based upon their judgment that
the decision will improve the Fund's investment return and further
its investment goal. The portfolio managers may also be required
to sell portfolio investments to fund redemptions.
Portfolio Turnover
The Fund does not have limits on portfolio turnover. Turnover may
vary significantly from year to year. Stein Roe does not expect
it to exceed 100 percent under normal conditions. Portfolio
turnover increases transaction expenses, which reduce the Fund's
return.
Temporary Defensive Positions
When Stein Roe believes that a temporary defensive position is
necessary, the Fund may invest, without limit, in high-quality
debt securities or hold assets in cash and cash equivalents.
Stein Roe is not required to take a temporary defensive position,
and market conditions may prevent such an action. The Fund may
not achieve its investment objective if it takes a defensive
position.
Market Capitalization
In this prospectus we refer to market capitalization as a means to
distinguish among companies based on their size. A company's
market capitalization is simply its stock price multiplied by the
number of shares of stock it has issued and outstanding. In the
financial markets, companies generally are sorted into one of
three capitalization-based categories: large capitalization
(large cap); medium capitalization (midcap); or small
capitalization (small cap). We follow this convention in this
prospectus.
To sort companies in this manner, we compare a company's
capitalization with the capitalization of an appropriate index.
(An index is a statistical composite that measures a group of
stocks.) We utilize two indices in grouping stocks: the S&P Mid-
Cap 400 Index and the S&P Small-Cap 600 Index.
We consider a company to be large cap if its market capitalization
is at least 90 percent of the weighted market capitalization of
the S&P Mid-Cap 400 Index.
We consider a company to be midcap if its market capitalization is
less than 90 percent of the weighted market capitalization of the
S&P Mid-Cap 400 Index and at least 90 percent of the weighted
market capitalization of the S&P Small-Cap 600 Index.
We consider a company to be small cap if its market capitalization
is less than 90 percent of the weighted market capitalization of
the S&P Small-Cap 600 Index.
As of Dec. 31, 1998, large-cap companies had market
capitalizations greater than $6.6 billion, midcap companies had
market capitalizations between $1.8 and $6.6 billion and small-cap
companies had market capitalizations less than $1.8 billion.
These amounts will change as the S&P Mid-Cap 400 and S&P Small-Cap
600 indices change.
TRUST MANAGEMENT ORGANIZATIONS
The Trustees
The business of the Trust and the Fund is supervised by the
Trust's Board of Trustees. The SAI contains names of and
biographical information on the Trustees.
The Adviser: Stein Roe & Farnham Incorporated
Stein Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
IL 60606, manages the day-to-day operations of the Fund. Stein
Roe has advised and managed mutual funds since 1949. As of
December 31, 1998, Stein Roe managed more than $29.7 billion in
assets. For the 1998 fiscal year, the Trust paid Stein Roe
management fees of 0.65 percent of the average daily net assets of
the Fund.
Stein Roe's mutual funds and institutional investment advisory
businesses are managed together with that of its affiliate,
Colonial Management Associates, Inc. (CMA), by a combined
management team of employees from both companies. CMA also shares
personnel, facilities, and systems with Stein Roe that may be used
in providing administrative or operational services to the Fund.
CMA is a registered investment adviser. Both Stein Roe and CMA
are subsidiaries of Liberty Financial Companies, Inc.
Stein Roe can use the services of AlphaTrade Inc., an affiliated
broker-dealer, when buying or selling equity securities for the
Fund's portfolio, pursuant to procedures adopted by the Board of
Trustees.
Portfolio Managers
The portfolio managers for the Fund are William M. Garrison and
Steven M. Salopek, who have managed the Fund since October 1998.
Mr. Garrison is a vice president of Stein Roe, which he joined in
1989. He has been an associate portfolio manager of the Stein Roe
Balanced Fund since 1995 and has been an equity research analyst
with Stein Roe since 1993. Mr. Salopek is also a vice president
of Stein Roe, which he joined in 1996 as an analyst. Prior to
joining Stein Roe, Mr. Salopek was an analyst with Banc One
Investment Advisors from 1990 to 1996.
YEAR 2000 COMPLIANCE
- -----------------------------------------------------------------
Like other investment companies, financial and business
organizations and individuals around the world, the Fund could be
adversely affected if the computer systems used by Stein Roe and
other service providers do not properly process and calculate
date-related information and data from and after Jan. 1, 2000.
This is commonly known as the "Year 2000 Problem." The Fund's
service providers are taking steps that they believe are
reasonably designed to address the Year 2000 problem, including
communicating with vendors who furnish services, software and
systems to the Fund, to provide that date-related information and
data can be properly processed after Jan. 1, 2000. Many Fund
service providers and vendors, including the Fund's service
providers, are in the process of making Year 2000 modifications to
their software and systems and believe that such modifications
will be completed on a timely basis prior to Jan. 1, 2000.
However, no assurances can be given that all modifications
required to ensure proper data processing and calculation on and
after Jan. 1, 2000, will be made on a timely basis or that
services to the Fund will not be adversely affected.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table that follows is intended to help
you understand the Fund's financial information for the last five
fiscal years. The total returns in the table represent the return
that investors earned assuming that they reinvested all dividends
and distributions. Certain information in the table reflects the
financial results for a single Fund share. The information has
been audited by KPMG LLP, whose report appears in the Trust's
annual report which is available upon request. The Fund's total
returns presented below do not reflect the cost of insurance and
other company separate account charges which vary with the VA
contracts or VLI policies.
<TABLE>
<CAPTION>
Stein Roe Special Venture Fund, Variable Series
Years Ended December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of year $18.00 $20.73 $16.33 $14.74 $16.53
------ ------ ------ ----- ------
Net investment income (loss) (0.04) 0.01 0.04 0.04 0.06
Net realized and unrealized gains
(losses) on investments (2.77) 1.25 4.36 1.69 0.09
------ ------ ------ ----- ------
Total from investment operations (2.81) 1.26 4.40 1.73 0.15
------ ------ ------ ----- ------
Less distributions:
Dividends from net investment income - (0.03) - (0.04) (0.07)
Distributions from net realized gains
on investments (1.57) (3.96) - (0.10) (1.87)
------ ------ ------ ----- ------
Total distributions (1.57) (3.99) - (0.14) (1.94)
------ ------ ------ ----- ------
Net asset value, end of year $13.62 $18.00 $20.73 $16.33 $14.74
====== ====== ====== ====== ======
Total return:
Total investment return (17.30)% 7.81% 26.94% 11.75% 1.19%(b)
Ratios/supplemental data
Net assets, end of year (000s) $131,929 $200,590 $196,219 $143,248 $134,078
Ratio of expenses to average net assets 0.75% 0.73% 0.75% 0.76% 0.80%(a)
Ratio of net investment income (loss)
to average net assets (0.22)% 0.04% 0.20% 0.26% 0.44%(b)
Portfolio turnover ratio 103% 93% 100% 132% 144%
<FN>
___________
(a) These ratios were not materially affected by the reimbursement
of certain expenses by Stein Roe.
(b) Computed giving effect to Stein Roe's expense limitation
undertaking.
</TABLE>
SHAREHOLDER INFORMATION
Purchases and Redemptions
The Participating Insurance Companies place daily orders to
purchase and redeem shares of the Fund. These orders generally
reflect the net effect of instructions they receive from holders
of their VA contracts and VLI policies and certain other terms of
those contracts and policies. The Trust issues and redeems shares
at NAV without imposing any selling commission, sales load or
redemption charge. Shares generally are sold and redeemed at
their NAV next determined after receipt of purchase or redemption
requests from Participating Insurance Companies. The right of
redemption may be suspended or payment postponed whenever
permitted by applicable law and regulations.
How the Fund's Share Price is Determined
The Fund's share price is its NAV next determined. NAV is the
difference between the values of the Fund's assets and liabilities
divided by the number of shares outstanding. We determine NAV at
the close of regular trading on the New York Stock Exchange
(NYSE)-normally 4 p.m. New York time.
To calculate the NAV on a given day, we value each stock listed or
traded on a stock exchange at its latest sale price on that day.
If there are no sales that day, we value the security at the most
recently quoted bid price. We value each over-the-counter
security or National Association of Securities Dealers Automated
Quotation (Nasdaq) security as of the last sale price for that
day. We value all other over-the-counter securities that have
reliable quotes at the latest quoted bid price.
We value long-term debt obligations and securities convertible
into common stock at fair value. Pricing services provide the
Fund with the value of the securities. When the price of a
security is not available, including days when we determine that
the sale or bid price of the security does not reflect that
security's market value, we value the security at a fair value
determined in good faith under procedures established by the Board
of Trustees.
We value a security at fair value when events have occurred after
the last available market price and before the close of the NYSE
that materially affect the security's price.
We will not price shares on days that the NYSE is closed for
trading and Participating Insurance Companies may not purchase or
redeem shares.
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 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 NAV, as of the record date for the distributions.
Taxes
For information regarding applicable taxes, please see the
prospectus relating to your Participating Insurance Company's
separate account.
<PAGE>
FOR MORE INFORMATION
Adviser: Stein Roe & Farnham Incorporated
You can get more information about the Fund's investments in the
Fund's semiannual and annual reports to shareholders. The annual
report contains a discussion of the market conditions and
investment strategies that significantly affected the Fund's
performance over the last fiscal year.
You may wish to read the Fund's Statement of Additional
Information (SAI) for more information on the Fund and the
securities in which it invests. The SAI is incorporated into this
prospectus by reference, which means that it is considered to be
part of this prospectus.
You can get free copies of the annual report and the SAI, request
other information and discuss your questions about the Fund by
writing:
Keyport Financial Services Corp.
125 High Street
Boston, MA 02110
or by calling or writing the Participating Insurance Company which
issued your variable annuity contract or variable life insurance
policy.
Text-only versions of all Fund documents can be viewed online or
downloaded from the SEC at www.sec.gov.
You can review and copy information about the Fund by visiting the
following location, and you can obtain copies upon payment of a
duplicating fee, by writing or calling the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
1-800-SEC-0330
Investment Company Act file number: 811-05199
<PAGE> 1
STEINROE VARIABLE
INVESTMENT TRUST
PROSPECTUS
May 1, 1999
* Stein Roe Money Market Fund, Variable Series
* * * *
Trust shares available only through variable annuity contracts and
variable life insurance policies of participating insurance
companies.
* * * *
This prospectus must be accompanied by a prospectus for your
variable annuity contract or variable life insurance policy.
Retain both prospectuses for future reference.
* * * *
Although trust shares have been registered with the Securities and
Exchange Commission, the Commission has not approved any shares
offered in this prospectus or determined whether this prospectus
is accurate or complete. Any representation to the contrary is a
criminal offense.
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
<PAGE>
TABLE OF CONTENTS
THE TRUST...........................................2
THE FUND............................................3
Investment Goals................................3
Primary Investment Strategies...................3
Primary Investment Risks........................3
Performance History.............................4
OTHER INVESTMENTS AND RISKS.........................5
TRUST MANAGEMENT ORGANIZATIONS......................5
The Trustees....................................5
The Adviser: Stein Roe & Farnham Incorporated...5
Portfolio Manager...............................5
Year 2000 Compliance............................5
FINANCIAL HIGHLIGHTS................................6
SHAREHOLDER INFORMATION.............................6
THE TRUST
SteinRoe Variable Investment Trust (Trust) includes five separate
mutual funds (Funds), each with its own investment goal and
strategies. This prospectus contains information about Stein Roe
Money Market Fund, Variable Series. Other Funds may be added or
deleted from time to time.
The Trust's Funds are investment options under variable annuity
contracts (VA contracts) and variable life insurance policies (VLI
policies) issued by life insurance companies (Participating
Insurance Companies). Some (but not all) Participating Insurance
Companies are affiliated with the investment adviser to the Funds.
Participating Insurance Companies invest in the Funds through
separate accounts that they set up for that purpose. Owners of VA
contracts and VLI policies invest in sub-accounts of those
separate accounts through instructions they give to their
insurance company.
The prospectuses of the Participating Insurance Companies'
separate accounts describe which Funds are available to the
purchasers of their own VA contracts and VLI policies.
<PAGE>
INVESTMENT GOALS-STEIN ROE MONEY MARKET FUND, VARIABLE SERIES
- -----------------------------------------------------------------
Stein Roe Money Market Fund, Variable Series, seeks high current
income, consistent with capital preservation and the maintenance
of liquidity.
PRIMARY INVESTMENT STRATEGIES
- -----------------------------------------------------------------
The Fund invests in a diversified portfolio of high-quality money
market securities. Money market funds are subject to strict rules
that require them to buy individual securities that have remaining
maturities of 13 months or less, maintain an average dollar
weighted portfolio maturity of 90 days or less, and buy only high-
quality dollar-denominated obligations. The Fund invests in the
following types of money market securities:
* Securities issued or guaranteed by the U.S. government or by its
agencies.
* 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 nationally
recognized bond rating agency.
* Certificates of deposit, bankers' acceptances, time deposits and
other short-term securities issued by domestic or foreign banks
or their subsidiaries or branches.
* Commercial paper of domestic or foreign issuers, including
variable rate demand notes.
* Short-term debt securities having a long-term rating at time of
purchase of A or better (or equivalent rating) by at least one
nationally recognized bond rating agency.
* Repurchase agreements.
* Other high-quality short-term obligations.
Under normal market conditions the Fund invests at least 25
percent of its total assets in securities of issuers in the
financial services industry.
PRIMARY INVESTMENT RISKS
- -----------------------------------------------------------------
The primary risks of investing in the Fund are described below.
There are many circumstances (including additional risks that are
not described here) which could cause you to lose money by
investing in the Fund or prevent the Fund from achieving its
goals.
Market risk is the risk that the price of a security held by the
Fund will fall due to changing economic, political or market
conditions, or due to the financial condition of the company which
has issued the security.
The Fund has maintained its NAV at $1.00 per share since inception
and will continue to try to do so. There can be no assurance that
the Fund will succeed.
An investment in the Fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by
investing in the Fund. Additionally, the Fund's yield will vary
as the short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest
rates.
Market risk includes interest rate risk, which is the risk of a
decline or increase in the price of a money market security when
interest rates increase or decline. In general, if interest rates
rise, prices fall; and if interest rates fall, prices rise.
Interest rate risk is generally greater for securities with longer
maturities. In addition, the Fund is subject to credit risk. If
a security's credit rating is downgraded, the Fund's income level
or share price could be reduced. Foreign securities held by the
Fund are also subject to the risks associated with foreign
investments, such as economic and political developments, seizure
or nationalization of deposits, imposition of taxes, or other
restrictions on the payment of principal and interest.
Because of the Fund's policy of investing at least 25 percent of
its assets in securities of issuers in the financial services
industry, the Fund may be affected more adversely than competing
funds by changes affecting that industry.
PERFORMANCE HISTORY
- -----------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from
year to year by illustrating the Fund's total calendar-year
returns. The chart is intended to illustrate some of the risks of
investing in the Fund by showing the changes in the Fund's
performance. All returns include the reinvestment of dividends
and distributions. As with all mutual funds, past performance
does not predict the Fund's future performance. Performance
results include any expense reduction arrangements. If these
arrangements were not in place, then the performance results would
have been lower. Any reduction arrangements may be discontinued
at any time. The Fund's performance results do not reflect the
cost of insurance and separate account charges which are imposed
under your VA contract or VLI policy.
Calendar-Year Total Returns
YEAR-BY-YEAR TOTAL RETURNS
10.00
8.00 9.07
6.00 7.89
4.00 5.79 5.62 5.01 5.18 5.17
2.00 3.48 2.70 3.81
0.00
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[ ] Money Market Fund
Best quarter: 2nd quarter 1989, +2.36%
Worst quarter: 3rd quarter 1993, +0.67%
The seven-day current yield for Money Market Fund for the period
ended Dec. 31, 1998 was 4.72%.
<PAGE>
OTHER INVESTMENTS AND RISKS
The Fund's primary investment strategies and risks are described
above. In seeking to achieve its goal, the Fund may invest in
various types of securities and engage in various investment
techniques that are not the principal focus of the Fund and,
therefore, are not described in this prospectus. These types of
securities and investment practices are discussed in the Fund's
Statement of Additional Information (SAI), which you may obtain
free of charge (see back cover).
The Fund's portfolio manager generally makes decisions on buying
and selling portfolio investments based upon her judgment that the
decision will improve the Fund's investment return and further its
investment goal. The portfolio manager may also be required to
sell portfolio investments to fund redemptions.
TRUST MANAGEMENT ORGANIZATIONS
The Trustees
The business of the Trust and the Fund is supervised by the
Trust's Board of Trustees. The SAI contains names of and
biographical information on the Trustees.
The Adviser: Stein Roe & Farnham Incorporated
Stein Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
IL 60606, manages the day-to-day operations of the Fund. Stein
Roe has advised and managed mutual funds since 1949. As of
December 31, 1998, Stein Roe managed more than $29.7 billion in
assets. For the 1998 fiscal year, the Trust paid Stein Roe
management fees of 0.50 percent of the average daily net assets of
the Fund.
Stein Roe's mutual funds and institutional investment advisory
businesses are managed together with that of its affiliate,
Colonial Management Associates, Inc. (CMA), by a combined
management team of employees from both companies. CMA also shares
personnel, facilities, and systems with Stein Roe that may be used
in providing administrative or operational services to the Fund.
CMA is a registered investment adviser. Both Stein Roe and CMA
are subsidiaries of Liberty Financial Companies, Inc.
Portfolio Manager
Jane M. Naeseth has been portfolio manager of the Fund since its
inception. She has managed Stein Roe Cash Reserves Fund since
1980. Ms. Naeseth is a senior vice president of Stein Roe, which
she joined in 1977.
YEAR 2000 COMPLIANCE
- -----------------------------------------------------------------
Like other investment companies, financial and business
organizations and individuals around the world, the Fund could be
adversely affected if the computer systems used by Stein Roe and
other service providers do not properly process and calculate
date-related information and data from and after Jan. 1, 2000.
This is commonly known as the "Year 2000 Problem." The Fund's
service providers are taking steps that they believe are
reasonably designed to address the Year 2000 problem, including
communicating with vendors who furnish services, software and
systems to the Fund, to provide that date-related information and
data can be properly processed after Jan. 1, 2000. Many Fund
service providers and vendors, including the Fund's service
providers, are in the process of making Year 2000 modifications to
their software and systems and believe that such modifications
will be completed on a timely basis prior to Jan. 1, 2000.
However, no assurances can be given that all modifications
required to ensure proper data processing and calculation on and
after Jan. 1, 2000, will be made on a timely basis or that
services to the Fund will not be adversely affected.
FINANCIAL HIGHLIGHTS
The financial highlights table that follows is intended to help
you understand the Fund's financial information for the last five
fiscal years. The total returns in the table represent the return
that investors earned assuming that they reinvested all dividends
and distributions. Certain information in the table reflects the
financial results for a single Fund share. The information has
been audited by KPMG LLP, whose report appears in the Trust's
annual report which is available upon request. The Fund's total
returns presented below do not reflect the cost of insurance and
other company separate account charges which vary with the VA
contracts or VLI policies.
<TABLE>
<CAPTION>
Stein Roe Money Market Fund, Variable Series
Years Ended December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of year $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ----- ------
Net investment income 0.050 0.050 0.049 0.055 0.037
------ ------ ------ ----- ------
Less distributions:
Distributions from net investment income (0.050) (0.050) (0.049) (0.055) (0.037)
------ ------ ------ ----- ------
Net asset value, end of year $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ======
Total return:
Total investment return 5.17% 5.18% 5.01% 5.62% 3.81%
Ratios/supplemental data
Net assets, end of period (000s) $101,340 $67,137 $65,461 $64,992 $78,698
Ratio of net expenses to average net
assets 0.62% 0.65% 0.65% 0.63% 0.62%
Ratio of net investment income to
average net assets 4.99% 5.05% 4.90% 5.48% 3.73%
</TABLE>
SHAREHOLDER INFORMATION
Purchases and Redemptions
The Participating Insurance Companies place daily orders to
purchase and redeem shares of the Fund. These orders generally
reflect the net effect of instructions they receive from holders
of their VA contracts and VLI policies and certain other terms of
those contracts and policies. The Trust issues and redeems shares
at NAV without imposing any selling commission, sales load or
redemption charge. Shares generally are sold and redeemed at
their NAV next determined after receipt of purchase or redemption
requests from Participating Insurance Companies. The right of
redemption may be suspended or payment postponed whenever
permitted by applicable law and regulations.
How the Fund's Share Price is Determined
The Fund's share price is its NAV next determined. NAV is the
difference between the values of the Fund's assets and liabilities
divided by the number of shares outstanding. We determine NAV at
the close of regular trading on the New York Stock Exchange
(NYSE)-normally 4 p.m. New York time.
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 NAV at $1.00 per share. The extent
of any deviation between the Fund's NAV 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.
The Fund's foreign securities may trade on days when the NYSE is
closed. We will not price shares on days that the NYSE is closed
for trading and Participating Insurance Companies may not purchase
or redeem shares.
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 expenses (including the
investment advisory and administrative fees). Dividends are
declared daily and are reinvested monthly in shares of the Fund at
the NAV 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.
Taxes
For information regarding applicable taxes, please see the
prospectus relating to your Participating Insurance Company's
separate account.
<PAGE>
FOR MORE INFORMATION
Adviser: Stein Roe & Farnham Incorporated
You can get more information about the Fund's investments in the
Fund's semiannual and annual reports to shareholders. The annual
report contains a discussion of the market conditions and
investment strategies that significantly affected the Fund's
performance over the last fiscal year.
You may wish to read the Fund's Statement of Additional
Information (SAI) for more information on the Fund and the
securities in which it invests. The SAI is incorporated into this
prospectus by reference, which means that it is considered to be
part of this prospectus.
You can get free copies of the annual report and the SAI, request
other information and discuss your questions about the Fund by
writing:
Keyport Financial Services Corp.
125 High Street
Boston, MA 02110
or by calling or writing the Participating Insurance Company which
issued your variable annuity contract or variable life insurance
policy.
Text-only versions of all Fund documents can be viewed online or
downloaded from the SEC at www.sec.gov.
You can review and copy information about the Fund by visiting the
following location, and you can obtain copies upon payment of a
duplicating fee, by writing or calling the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
1-800-SEC-0330
Investment Company Act file number: 811-05199
<PAGE> 1
STEINROE VARIABLE
INVESTMENT TRUST
PROSPECTUS
May 1, 1999
* Stein Roe Balanced Fund, Variable Series
* Stein Roe Growth Stock Fund, Variable Series
* Stein Roe Special Venture Fund, Variable Series
* Stein Roe Money Market Fund, Variable Series
* * * *
Trust shares available only through variable annuity contracts and
variable life insurance policies of participating insurance
companies.
* * * *
This prospectus must be accompanied by a prospectus for your
variable annuity contract or variable life insurance policy.
Retain both prospectuses for future reference.
* * * *
Although trust shares have been registered with the Securities and
Exchange Commission, the Commission has not approved any shares
offered in this prospectus or determined whether this prospectus
is accurate or complete. Any representation to the contrary is a
criminal offense.
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
<PAGE>
THE TRUST...................................................
THE FUNDS...................................................
Each Fund section contains the following information
specific to that Fund: investment goals, primary
investment strategies, primary investment risks,
and performance history
Stein Roe Balanced Fund, Variable Series................
Stein Roe Growth Stock Fund, Variable Series............
Stein Roe Special Venture Fund, Variable Series.........
Stein Roe Money Market Fund, Variable Series............
OTHER INVESTMENTS AND RISKS.................................
TRUST MANAGEMENT ORGANIZATIONS..............................
The Trustees............................................
The Adviser: Stein Roe & Farnham Incorporated...........
Portfolio Managers......................................
Year 2000 Compliance....................................
FINANCIAL HIGHLIGHTS........................................
SHAREHOLDER INFORMATION.....................................
<PAGE>
THE TRUST
SteinRoe Variable Investment Trust (Trust) includes five separate
mutual funds (Funds), each with its own investment goal and
strategies. This prospectus contains information about the
following Funds in the Trust:
* Stein Roe Balanced Fund, Variable Series
* Stein Roe Growth Stock Fund, Variable Series
* Stein Roe Special Venture Fund, Variable Series
* Stein Roe Money Market Fund, Variable Series
Other Funds may be added or deleted from time to time.
The Trust's Funds are investment options under variable annuity
contracts (VA contracts) and variable life insurance policies (VLI
policies) issued by life insurance companies (Participating
Insurance Companies). Some (but not all) Participating Insurance
Companies are affiliated with the investment adviser to the Funds.
Participating Insurance Companies invest in the Funds through
separate accounts that they set up for that purpose. Owners of VA
contracts and VLI policies invest in sub-accounts of those
separate accounts through instructions they give to their
insurance company.
The prospectuses of the Participating Insurance Companies'
separate accounts describe which Funds are available to the
purchasers of their own VA contracts and VLI policies.
<PAGE>
INVESTMENT GOALS-STEIN ROE BALANCED FUND, VARIABLE SERIES
- ------------------------------------------------------------
Stein Roe Balanced Fund, Variable Series, seeks high total
investment return.
PRIMARY INVESTMENT STRATEGIES
- ------------------------------------------------------------
The Fund allocates its investments among common stocks and
securities convertible into common stocks, bonds and cash. The
Fund invests primarily in well-established companies that have
large market capitalizations. The portfolio manager may invest in
a company because it has a history of steady to improving sales or
earnings growth that the portfolio manager believes can be
sustained. He also may invest in a company because he believes
its stock is priced attractively compared to the value of its
assets. The Fund may invest up to 25 percent of its assets in
foreign stocks.
The Fund also invests at least 25 percent of its assets in bonds.
The Fund purchases bonds that are "investment grade"-that is,
within the four highest investment grades assigned by a nationally
recognized statistical rating organization. The Fund may invest
in unrated bonds if the portfolio manager believes that the
securities are investment grade quality. To select debt
securities for the Fund, the portfolio manager considers a bond's
expected income together with its potential for price gains or
losses.
The portfolio manager sets the Fund's asset allocation between
stocks, bonds and cash based upon recommendations of Stein Roe's
investment committee. The committee makes its recommendations
based upon economic, market and other factors that affect
investment opportunities.
PRIMARY INVESTMENT RISKS
- ------------------------------------------------------------
The primary risks of investing in the Fund are described below.
There are many circumstances (including additional risks that are
not described here) which could cause you to lose money by
investing in the Fund or prevent the Fund from achieving its
goals.
Market risk is the risk that the price of a security held by the
Fund will fall due to changing economic, political or market
conditions, or due to the financial condition of the company which
has issued the security.
Because the Fund invests in stocks and bonds, the price of the
Fund's shares-its net asset value per share (NAV)-fluctuates daily
in response to changes in the market value of the stocks and
bonds. In addition, the risks associated with the Fund's
investment strategy may cause the Fund's total return or yield to
decrease.
Foreign Securities
Foreign securities are subject to special risks. Foreign stock
markets, especially in countries with developing stock markets,
can be extremely volatile. The liquidity of foreign securities
may be more limited than domestic securities, which means that the
Fund may at times be unable to sell them at desirable prices.
Fluctuations in currency exchange rates impact the value of
foreign securities. Brokerage commissions, custodial fees, and
other fees are generally higher for foreign investments. In
addition, foreign governments may impose withholding taxes which
would reduce the amount of income available to distribute to
shareholders. Other risks include: possible delays in settlement
of transactions; less publicly available information about
companies; the impact of political, social or diplomatic events;
and possible seizure, expropriation or nationalization of the
company or its assets.
Debt Securities
The Fund's investments in debt securities, generally bonds, expose
the Fund to interest rate risk. Interest rate risk is the risk of
a decline in the price of a bond when interest rates increase. In
general, if interest rates rise, bond prices fall; and if interest
rates fall, bond prices rise. Changes in the values of bonds
usually will not affect the amount of income the Fund receives
from them but will affect the value of the Fund's shares.
Interest rate risk is generally greater for bonds having longer
maturities.
Because the Fund may invest in fixed-income securities issued by
private entities, including corporate bonds, the Fund is subject
to issuer risk. Issuer risk is the possibility that changes in
the financial condition of the issuer of a security, changes in
general economic conditions, or changes in economic conditions
that affect the issuer's industry may impact the issuer's ability
to make timely payment of interest or principal This could result
in decreases in the price of the security.
PERFORMANCE HISTORY
- ------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from
year to year by illustrating the Fund's total calendar-year
returns. The performance table following the bar chart shows how
the Fund's average annual returns compare with those of a broad
measure of market performance for one year, five years and 10
years. We compare the Fund to the S&P 500 Index, a broad-based
measure of market performance. The chart and table are intended
to illustrate some of the risks of investing in the Fund by
showing the changes in the Fund's performance. All returns
include the reinvestment of dividends and distributions. As with
all mutual funds, past performance does not predict the Fund's
future performance. Performance results include any expense
reduction arrangements. If these arrangements were not in place,
then the performance results would have been lower. Any reduction
arrangements may be discontinued at any time. The Fund's
performance results do not reflect the cost of insurance and
separate account charges which are imposed under your VA contract
or VLI policy.
Calendar-Year Total Returns
YEAR-BY-YEAR TOTAL RETURNS
30.00
25.00 27.93 25.43
20.00 22.38
15.00 15.63 16.82 12.54
10.00
5.00 7.53 9.29
0.00
- -5.00 -0.69 -3.19
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[ ] Balanced Fund
Best quarter: 4th quarter 1998, +12.39%
Worst quarter: 3rd quarter 1990, -10.04%
1 Year 5 Years 10 Years
Stein Roe Balanced Fund, Variable
Series 12.54% 13.05% 12.94%
S&P 500 Index* 28.60% 24.05% 19.19%
________
*The S&P 500 Index is an unmanaged group of stocks that differs
from the Fund's composition; it is not available for direct
investment.
<PAGE>
INVESTMENT GOALS-STEIN ROE GROWTH STOCK FUND, VARIABLE SERIES
- ------------------------------------------------------------
Stein Roe Growth Stock Fund, Variable Series, seeks long-term
growth of capital.
PRIMARY INVESTMENT STRATEGIES
- ------------------------------------------------------------
The Fund invests primarily in the common stocks of companies with
large market capitalizations. The Fund emphasizes the technology,
financial services, health care, and global consumer franchise
sectors. The Fund may invest up to 25 percent of its assets in
foreign stocks. To select investments for the Fund, the portfolio
manager considers companies that he believes will generate
earnings growth over the long term regardless of the economic
environment.
PRIMARY INVESTMENT RISKS
- ------------------------------------------------------------
The primary risks of investing in the Fund are described below.
There are many circumstances (including additional risks that are
not described here) which could cause you to lose money by
investing in the Fund or prevent the Fund from achieving its
goals.
Market risk is the risk that the price of a security held by the
Fund will fall due to changing economic, political or market
conditions, or due to the financial condition of the company which
has issued the security.
Because the Fund invests in stocks, the price of its shares-its
net asset value per share (NAV)-fluctuates daily in response to
changes in the market value of the stocks. In addition, the risks
associated with the Fund's investment strategy may cause the
Fund's total return or yield to decrease.
Foreign Securities
Foreign securities are subject to special risks. Foreign stock
markets, especially in countries with developing stock markets,
can be extremely volatile. The liquidity of foreign securities
may be more limited than domestic securities, which means that the
Fund may at times be unable to sell them at desirable prices.
Fluctuations in currency exchange rates impact the value of
foreign securities. Brokerage commissions, custodial fees, and
other fees are generally higher for foreign investments. In
addition, foreign governments may impose withholding taxes which
would reduce the amount of income available to distribute to
shareholders. Other risks include: possible delays in settlement
of transactions; less publicly available information about
companies; the impact of political, social or diplomatic events;
and possible seizure, expropriation or nationalization of the
company or its assets.
PERFORMANCE HISTORY
- ------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from
year to year by illustrating the Fund's total calendar-year
returns. The performance table following the bar chart shows how
the Fund's average annual returns compare with those of a broad
measure of market performance for one year, five years and 10
years. We compare the Fund to the S&P 500 Index, a broad-based
measure of market performance. The chart and table are intended
to illustrate some of the risks of investing in the Fund by
showing the changes in the Fund's performance. All returns
include the reinvestment of dividends and distributions. As with
all mutual funds, past performance does not predict the Fund's
future performance. Performance results include any expense
reduction arrangements. If these arrangements were not in place,
then the performance results would have been lower. Any reduction
arrangements may be discontinued at any time. The Fund's
performance results do not reflect the cost of insurance and
separate account charges which are imposed under your VA contract
or VLI policy.
Calendar-Year Total Returns
YEAR-BY-YEAR TOTAL RETURNS
60.00
50.00
40.00 48.03
30.00 31.30 37.73 32.28
20.00 21.28 27.91
10.00
0.00 6.63 4.97
- -10.00 -1.65 -6.35
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[ ] Growth Stock Fund
Best quarter: 4th quarter 1998, +26.43%
Worst quarter: 3rd quarter 1990, -17.42%
1 Year 5 years 10 Years
Stein Roe Growth Stock Fund,
Variable Series 27.91% 21.49% 18.94%
S&P 500 Index* 28.60% 24.05% 19.19%
________
*The S&P 500 Index is an unmanaged group of stocks that differs
from the Fund's composition; it is not available for direct
investment.
<PAGE>
INVESTMENT GOALS-STEIN ROE SPECIAL VENTURE FUND, VARIABLE SERIES
- ------------------------------------------------------------
Stein Roe Special Venture Fund, Variable Series, seeks long-term
growth of capital.
PRIMARY INVESTMENT STRATEGIES
- ------------------------------------------------------------
Under normal market conditions, the Fund invests at least 65
percent of its assets in common stocks of companies with small
market capitalizations. The Fund invests in new issuers during
periods when new issues are being brought to market. The Fund
also invests in midcap companies. The Fund invests in companies
that compete within large and growing markets and that appear to
have the ability to grow their market share. To find companies
with these growth characteristics, the portfolio managers seek out
companies that are-or, in the portfolio managers' judgment, have
the potential to be-a market share leader within their respective
industry. They also look for companies with strong management
teams that participate in the ownership of the companies.
PRIMARY INVESTMENT RISKS
- ------------------------------------------------------------
The primary risks of investing in the Fund are described below.
There are many circumstances (including additional risks that are
not described here) which could cause you to lose money by
investing in the Fund or prevent the Fund from achieving its
goals.
Market risk is the risk that the price of a security held by the
Fund will fall due to changing economic, political or market
conditions, or due to the financial condition of the company which
has issued the security.
Because the Fund invests in stocks, the price of its shares-its
net asset value per share (NAV)-fluctuates daily in response to
changes in the market value of the stocks. In addition, the risks
associated with the Fund's investment strategy may cause the
Fund's total return or yield to decrease.
Investments in stocks of small and midsized companies can be
riskier than investments in larger companies. Small and midsized
companies often have limited product lines, operating histories,
markets, or financial resources. They may depend heavily on a
small management group. Small companies in particular are more
likely to fail or prove unable to grow. Small and midsized
companies may trade less frequently, in smaller volumes, and
fluctuate more sharply in price than larger companies. In
addition, they may not be widely followed by the investment
community, which can lower the demand for their stock.
PERFORMANCE HISTORY
- ------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from
year to year by illustrating the Fund's total calendar-year
returns. The performance table following the bar chart shows how
the Fund's average annual returns compare with those of a broad
measure of market performance for one year, five years and 10
years. We compare the Fund to the Russell 2000 Index, a broad-
based measure of market performance. The chart and table are
intended to illustrate some of the risks of investing in the Fund
by showing the changes in the Fund's performance. All returns
include the reinvestment of dividends and distributions. As with
all mutual funds, past performance does not predict the Fund's
future performance. Performance results include any expense
reduction arrangements. If these arrangements were not in place,
then the performance results would have been lower. Any reduction
arrangements may be discontinued at any time. The Fund's
performance results do not reflect the cost of insurance and
separate account charges which are imposed under your VA contract
or VLI policy.
Calendar-Year Total Returns
YEAR-BY-YEAR TOTAL RETURNS
40.00
30.00 30.84 37.25 35.68
20.00 26.94
10.00 14.48 11.75
0.00 1.19 7.81
- -10.00 -8.91
- -20.00 -17.30
- -30.00
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[ ] Special Venture Fund
Best quarter: 1st quarter 1991, +21.62%
Worst quarter: 3rd quarter 1990, -21.18%
1 Year 5 Years 10 Years
Stein Roe Special Venture Fund,
Variable Series -17.30% 5.06% 12.52%
Russell 2000 Index* -2.55% 11.87% 12.92%
________
*The Russell 2000 Index is an unmanaged group of stocks that
differs from the Fund's composition; it is not available for
direct investment.
<PAGE>
INVESTMENT GOALS-STEIN ROE MONEY MARKET FUND, VARIABLE SERIES
- ------------------------------------------------------------
Stein Roe Money Market Fund, Variable Series, seeks high current
income, consistent with capital preservation and the maintenance
of liquidity.
PRIMARY INVESTMENT STRATEGIES
- ------------------------------------------------------------
The Fund invests in a diversified portfolio of high-quality money
market securities. Money market funds are subject to strict rules
that require them to buy individual securities that have remaining
maturities of 13 months or less, maintain an average dollar
weighted portfolio maturity of 90 days or less, and buy only high-
quality dollar-denominated obligations. The Fund invests in the
following types of money market securities:
* Securities issued or guaranteed by the U.S. government or by its
agencies.
* 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 nationally
recognized bond rating agency.
* Certificates of deposit, bankers' acceptances, time deposits and
other short-term securities issued by domestic or foreign banks
or their subsidiaries or branches.
* Commercial paper of domestic or foreign issuers, including
variable rate demand notes.
* Short-term debt securities having a long-term rating at time of
purchase of A or better (or equivalent rating) by at least one
nationally recognized bond rating agency.
* Repurchase agreements.
* Other high-quality short-term obligations.
Under normal market conditions the Fund invests at least 25
percent of its total assets in securities of issuers in the
financial services industry.
PRIMARY INVESTMENT RISKS
- ------------------------------------------------------------
The primary risks of investing in the Fund are described below.
There are many circumstances (including additional risks that are
not described here) which could cause you to lose money by
investing in the Fund or prevent the Fund from achieving its
goals.
Market risk is the risk that the price of a security held by the
Fund will fall due to changing economic, political or market
conditions, or due to the financial condition of the company which
has issued the security.
The Fund has maintained its NAV at $1.00 per share since inception
and will continue to try to do so. There can be no assurance that
the Fund will succeed.
An investment in the Fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by
investing in the Fund. Additionally, the Fund's yield will vary
as the short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest
rates.
Market risk includes interest rate risk, which is the risk of a
decline or increase in the price of a money market security when
interest rates increase or decline. In general, if interest rates
rise, prices fall; and if interest rates fall, prices rise.
Interest rate risk is generally greater for securities with longer
maturities. In addition, the Fund is subject to credit risk. If
a security's credit rating is downgraded, the Fund's income level
or share price could be reduced. Foreign securities held by the
Fund are also subject to the risks associated with foreign
investments, such as economic and political developments, seizure
or nationalization of deposits, imposition of taxes, or other
restrictions on the payment of principal and interest.
Because of the Fund's policy of investing at least 25 percent of
its assets in securities of issuers in the financial services
industry, the Fund may be affected more adversely than competing
funds by changes affecting that industry.
PERFORMANCE HISTORY
- ------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from
year to year by illustrating the Fund's total calendar-year
returns. The chart is intended to illustrate some of the risks of
investing in the Fund by showing the changes in the Fund's
performance. All returns include the reinvestment of dividends
and distributions. As with all mutual funds, past performance
does not predict the Fund's future performance. Performance
results include any expense reduction arrangements. If these
arrangements were not in place, then the performance results would
have been lower. Any reduction arrangements may be discontinued
at any time. The Fund's performance results do not reflect the
cost of insurance and separate account charges which are imposed
under your VA contract or VLI policy.
Calendar-Year Total Returns
YEAR-BY-YEAR TOTAL RETURNS
10.00
8.00 9.07
6.00 7.89
4.00 5.79 5.62 5.01 5.18 5.17
2.00 3.48 2.70 3.81
0.00
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[ ] Money Market Fund
Best quarter: 2nd quarter 1989, +2.36%
Worst quarter: 3rd quarter 1993, +0.67%
The seven-day current yield for Money Market Fund for the period
ended Dec. 31, 1998 was 4.72%.
<PAGE>
OTHER INVESTMENTS AND RISKS
Each Fund's primary investment strategies and risks are described
above in its individual description. This section describes other
investments a Fund may make and the risks associated with them.
In seeking to achieve its goal, each Fund may invest in various
types of securities and engage in various investment techniques
that are not the principal focus of the Fund and, therefore, are
not described in this prospectus. These types of securities and
investment practices are discussed in the Funds' Statement of
Additional Information (SAI), which you may obtain free of charge
(see back cover).
The Funds' portfolio managers generally make decisions on buying
and selling portfolio investments based upon their judgment that
the decision will improve a Fund's investment return and further
its investment goal. The portfolio managers may also be required
to sell portfolio investments to fund redemptions.
Portfolio Turnover
The Funds do not have limits on portfolio turnover. Turnover may
vary significantly from year to year. Stein Roe does not expect
it to exceed 100 percent under normal conditions. Portfolio
turnover increases transaction expenses, which reduce a Fund's
return.
Temporary Defensive Positions
When Stein Roe believes that a temporary defensive position is
necessary, a Fund may invest, without limit, in high-quality debt
securities or hold assets in cash and cash equivalents. Stein Roe
is not required to take a temporary defensive position, and market
conditions may prevent such an action. A Fund may not achieve its
investment objective if it takes a defensive position.
Market Capitalization
In this prospectus, for the Funds that invest in stocks, we refer
to market capitalization as a means to distinguish among companies
based on their size. A company's market capitalization is simply
its stock price multiplied by the number of shares of stock it has
issued and outstanding. In the financial markets, companies
generally are sorted into one of three capitalization-based
categories: large capitalization (large cap); medium
capitalization (midcap); or small capitalization (small cap). We
follow this convention in this prospectus.
To sort companies in this manner, we compare a company's
capitalization with the capitalization of an appropriate index.
(An index is a statistical composite that measures a group of
stocks.) We utilize two indices in grouping stocks: the S&P Mid-
Cap 400 Index and the S&P Small-Cap 600 Index.
We consider a company to be large cap if its market capitalization
is at least 90 percent of the weighted market capitalization of
the S&P Mid-Cap 400 Index.
We consider a company to be midcap if its market capitalization is
less than 90 percent of the weighted market capitalization of the
S&P Mid-Cap 400 Index and at least 90 percent of the weighted
market capitalization of the S&P Small-Cap 600 Index.
We consider a company to be small cap if its market capitalization
is less than 90 percent of the weighted market capitalization of
the S&P Small-Cap 600 Index.
As of Dec. 31, 1998, large-cap companies had market
capitalizations greater than $6.6 billion, midcap companies had
market capitalizations between $1.8 and $6.6 billion and small-cap
companies had market capitalizations less than $1.8 billion.
These amounts will change as the S&P Mid-Cap 400 and S&P Small-Cap
600 indices change.
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
The Trustees
The business of the Trust and the Funds is supervised by the
Trust's Board of Trustees. The SAI contains names of and
biographical information on the Trustees.
The Adviser: Stein Roe & Farnham Incorporated
Stein Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
IL 60606, manages the day-to-day operations of the Funds. Stein
Roe has advised and managed mutual funds since 1949. As of
December 31, 1998, Stein Roe managed more than $29.7 billion in
assets. For the 1998 fiscal year, the Trust paid Stein Roe
management fees, at the following annual rates of the average
daily net assets of the specified Fund:
Stein Roe Balanced Fund, Variable Series 0.60%
Stein Roe Growth Stock Fund, Variable Series 0.65%
Stein Roe Special Venture Fund, Variable Series 0.65%
Stein Roe Money Market Fund, Variable Series 0.50%
Stein Roe's mutual funds and institutional investment advisory
businesses are managed together with that of its affiliate,
Colonial Management Associates, Inc. (CMA), by a combined
management team of employees from both companies. CMA also shares
personnel, facilities, and systems with Stein Roe that may be used
in providing administrative or operational services to the Funds.
CMA is a registered investment adviser. Both Stein Roe and CMA
are subsidiaries of Liberty Financial Companies, Inc.
Stein Roe can use the services of AlphaTrade Inc., an affiliated
broker-dealer, when buying or selling equity securities for a
Fund's portfolio, pursuant to procedures adopted by the Board of
Trustees.
Portfolio Managers
Stein Roe Balanced Fund, Variable Series. Harvey B. Hirschhorn
has been portfolio manager of Balanced Fund since 1996. He joined
Stein Roe in 1973 and is executive vice president and chief
economist and investment strategist.
Stein Roe Growth Stock Fund, Variable Series. Erik P. Gustafson
is portfolio manager of Growth Stock Fund and has managed Stein
Roe Growth Stock Fund and Stein Roe Young Investor Fund since
1994. Mr. Gustafson joined Stein Roe in 1992 as a portfolio
manager for privately managed accounts and is a senior vice
president.
Stein Roe Special Venture Fund, Variable Series. The portfolio
managers for Special Venture Fund are William M. Garrison and
Steven M. Salopek, who have managed the Fund since October 1998.
Mr. Garrison is a vice president of Stein Roe, which he joined in
1989. He has been an associate portfolio manager of the Stein Roe
Balanced Fund since 1995 and has been an equity research analyst
with Stein Roe since 1993. Mr. Salopek is also a vice president
of Stein Roe, which he joined in 1996 as an analyst. Prior to
joining Stein Roe, Mr. Salopek was an analyst with Banc One
Investment Advisors from 1990 to 1996.
Stein Roe Money Market Fund, Variable Series. Jane M. Naeseth has
been portfolio manager of Money Market Fund since its inception.
She has managed Stein Roe Cash Reserves Fund since 1980. Ms.
Naeseth is a senior vice president of Stein Roe, which she joined
in 1977.
YEAR 2000 COMPLIANCE
- ----------------------------------------------------------------
Like other investment companies, financial and business
organizations and individuals around the world, the Funds could be
adversely affected if the computer systems used by Stein Roe and
other service providers do not properly process and calculate
date-related information and data from and after Jan. 1, 2000.
This is commonly known as the "Year 2000 Problem." The Funds'
service providers are taking steps that they believe are
reasonably designed to address the Year 2000 problem, including
communicating with vendors who furnish services, software and
systems to the Funds, to provide that date-related information and
data can be properly processed after Jan. 1, 2000. Many Fund
service providers and vendors, including the Funds' service
providers, are in the process of making Year 2000 modifications to
their software and systems and believe that such modifications
will be completed on a timely basis prior to Jan. 1, 2000.
However, no assurances can be given that all modifications
required to ensure proper data processing and calculation on and
after Jan. 1, 2000, will be made on a timely basis or that
services to the Funds will not be adversely affected.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables that follow are intended to help
you understand the Funds' financial information for the last five
fiscal years. The total returns in the table represent the return
that investors earned assuming that they reinvested all dividends
and distributions. Certain information in the tables reflects the
financial results for a single Fund share. The information has
been audited by KPMG LLP, whose report appears in the Trust's
annual report which is available upon request. The Funds' total
returns presented below do not reflect the cost of insurance and
other company separate account charges which vary with the VA
contracts or VLI policies.
<TABLE>
<CAPTION>
Stein Roe Balanced Fund, Variable Series
Years Ended December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of year $16.81 $16.28 $14.08 $12.18 $13.11
------ ------ ------ ----- ------
Net investment income 0.48 0.53 0.57 0.48 0.51
Net realized and unrealized gains
(losses) on investments 1.48 1.96 1.63 2.61 (0.93)
------ ------ ------ ----- ------
Total from investment operations 1.96 2.49 2.20 3.09 (0.42)
------ ------ ------ ----- ------
Less distributions:
Dividends from net investment income (0.51) (0.56) - (0.48) (0.51)
Distributions from net realized gains
on investments (1.12) (1.40) - (0.71) -
------ ------ ------ ----- ------
Total distributions (1.63) (1.96) - (1.19) (0.51)
Net asset value, end of year $17.14 $16.81 $16.28 $14.08 $12.18
====== ====== ====== ====== ======
Total return:
Total investment return 12.54% 16.82% 15.63% 25.43% (3.19)%
Ratios/supplemental data
Net assets, end of year (000s) $361,823 $325,033 $299,184 $277,014 $196,278
Ratio of expenses to average net assets 0.65% 0.66% 0.67% 0.66% 0.68%
Ratio of net investment income to
average net assets 3.00% 3.18% 3.68% 3.12% 4.01%
Portfolio turnover ratio (a) 61% 44% 76% 66% 71%
<FN>
______
(a) Portfolio turnover includes dollar roll transactions.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Stein Roe Growth Stock Fund, Variable Series
Years Ended December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of year $36.13 $28.61 $23.59 $18.11 $20.65
------ ------ ------ ----- ------
Net investment income 0.08 0.10 0.13 0.15 0.15
Net realized and unrealized gains
(losses) on investments 9.54 8.84 4.89 6.68 (1.46)
------ ------ ------ ----- ------
Total from investment operations 9.62 8.94 5.02 6.83 (1.31)
------ ------ ------ ----- ------
Less distributions:
Dividends from net investment income (0.10) (0.12) - (0.15) (0.17)
Distributions from net realized gains
on investments (2.12) (1.30) - (1.20) (1.06)
------ ------ ------ ----- ------
Total distributions (2.22) (1.42) - (1.35) (1.23)
------ ------ ------ ----- ------
Net asset value, end of year $43.53 $36.13 $28.61 $23.59 $18.11
====== ====== ====== ====== ======
Total return:
Total investment return 27.91% 32.28% 21.28% 37.73% (6.35)%
Ratios/supplemental data
Net assets, end of year (000s) $271,584 $213,399 $161,879 $136,834 $98,733
Ratio of expenses to average net assets 0.70% 0.71% 0.73% 0.74% 0.77%
Ratio of net investment income to
average net assets 0.21% 0.32% 0.49% 0.72% 0.75%
Portfolio turnover ratio 40% 28% 35% 41% 72%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Stein Roe Special Venture Fund, Variable Series
Years Ended December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of year $18.00 $20.73 $16.33 $14.74 $16.53
------ ------ ------ ----- ------
Net investment income (loss) (0.04) 0.01 0.04 0.04 0.06
Net realized and unrealized gains
(losses) on investments (2.77) 1.25 4.36 1.69 0.09
------ ------ ------ ----- ------
Total from investment operations (2.81) 1.26 4.40 1.73 0.15
------ ------ ------ ----- ------
Less distributions:
Dividends from net investment income - (0.03) - (0.04) (0.07)
Distributions from net realized gains
on investments (1.57) (3.96) - (0.10) (1.87)
------ ------ ------ ----- ------
Total distributions (1.57) (3.99) - (0.14) (1.94)
------ ------ ------ ----- ------
Net asset value, end of year $13.62 $18.00 $20.73 $16.33 $14.74
====== ====== ====== ====== ======
Total return:
Total investment return (17.30)% 7.81% 26.94% 11.75% 1.19%(b)
Ratios/supplemental data
Net assets, end of year (000s) $131,929 $200,590 $196,219 $143,248 $134,078
Ratio of expenses to average net assets 0.75% 0.73% 0.75% 0.76% 0.80%(a)
Ratio of net investment income (loss)
to average net assets (0.22)% 0.04% 0.20% 0.26% 0.44%(b)
Portfolio turnover ratio 103% 93% 100% 132% 144%
<FN>
___________
(a) These ratios were not materially affected by the reimbursement
of certain expenses by Stein Roe.
(b) Computed giving effect to Stein Roe's expense limitation
undertaking.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Stein Roe Money Market Fund, Variable Series
Years Ended December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of year $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ----- ------
Net investment income 0.050 0.050 0.049 0.055 0.037
------ ------ ------ ----- ------
Less distributions:
Distributions from net investment income (0.050) (0.050) (0.049) (0.055) (0.037)
------ ------ ------ ----- ------
Net asset value, end of year $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ======
Total return:
Total investment return 5.17% 5.18% 5.01% 5.62% 3.81%
Ratios/supplemental data
Net assets, end of period (000s) $101,340 $67,137 $65,461 $64,992 $78,698
Ratio of net expenses to average net
assets 0.62% 0.65% 0.65% 0.63% 0.62%
Ratio of net investment income to
average net assets 4.99% 5.05% 4.90% 5.48% 3.73%
</TABLE>
<PAGE>
SHAREHOLDER INFORMATION
Purchases and Redemptions
The Participating Insurance Companies place daily orders to
purchase and redeem shares of the Funds. These orders generally
reflect the net effect of instructions they receive from holders
of their VA contracts and VLI policies and certain other terms of
those contracts and policies. The Trust issues and redeems shares
at NAV without imposing any selling commission, sales load or
redemption charge. Shares generally are sold and redeemed at
their NAV next determined after receipt of purchase or redemption
requests from Participating Insurance Companies. The right of
redemption may be suspended or payment postponed whenever
permitted by applicable law and regulations.
How a Fund's Share Price is Determined
Each Fund's share price is its NAV next determined. NAV is the
difference between the values of a Fund's assets and liabilities
divided by the number of shares outstanding. We determine NAV at
the close of regular trading on the New York Stock Exchange
(NYSE)-normally 4 p.m. New York time.
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 NAV at $1.00 per share. The extent of any deviation between
the Fund's NAV 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. To calculate the NAV on a given day, we value each
stock listed or traded on a stock exchange at its latest sale
price on that day. If there are no sales that day, we value the
security at the most recently quoted bid price. We value each
over-the-counter security or National Association of Securities
Dealers Automated Quotation (Nasdaq) security as of the last sale
price for that day. We value all other over-the-counter
securities that have reliable quotes at the latest quoted bid
price.
We value long-term debt obligations and securities convertible
into common stock at fair value. Pricing services provide the
Funds with the value of the securities. When the price of a
security is not available, including days when we determine that
the sale or bid price of the security does not reflect that
security's market value, we value the security at a fair value
determined in good faith under procedures established by the Board
of Trustees.
We value a security at fair value when events have occurred after
the last available market price and before the close of the NYSE
that materially affect the security's price. In the case of
foreign securities, this could include events occurring after the
close of the foreign market and before the close of the NYSE.
A Fund's foreign securities may trade on days when the NYSE is
closed. We will not price shares on days that the NYSE is closed
for trading and Participating Insurance Companies may not purchase
or redeem shares.
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 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 NAV 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 NAV, as of the record date for
the distributions.
Taxes
For information regarding applicable taxes, please see the
prospectus relating to your Participating Insurance Company's
separate account.
<PAGE>
FOR MORE INFORMATION
Adviser: Stein Roe & Farnham Incorporated
You can get more information about the Funds' investments in the
Funds' semiannual and annual reports to shareholders. The annual
report contains a discussion of the market conditions and
investment strategies that significantly affected the Funds'
performance over the last fiscal year.
You may wish to read the Funds' Statement of Additional
Information (SAI) for more information on a Fund and the
securities in which it invests. The SAI is incorporated into this
prospectus by reference, which means that it is considered to be
part of this prospectus.
You can get free copies of the annual report and the SAI, request
other information and discuss your questions about the Funds by
writing:
Keyport Financial Services Corp.
125 High Street
Boston, MA 02110
or by calling or writing the Participating Insurance Company which
issued your variable annuity contract or variable life insurance
policy.
Text-only versions of all Fund documents can be viewed online or
downloaded from the SEC at www.sec.gov.
You can review and copy information about the Funds by visiting
the following location, and you can obtain copies upon payment of
a duplicating fee, by writing or calling the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
1-800-SEC-0330
Investment Company Act file number: 811-05199
<PAGE> 1
STEINROE VARIABLE INVESTMENT TRUST
Federal Reserve Plaza
600 Atlantic Avenue, Boston, Massachusetts 02210
STATEMENT OF ADDITIONAL INFORMATION
Dated May 1, 1999
This Statement of Additional Information (SAI) is not a
prospectus, but provides additional information which should be
read in conjunction with the Trust's Prospectus dated May 1, 1999
and any supplement thereto. Financial statements, which are
contained in the Funds' Annual Report, are incorporated by
reference into this SAI. The Prospectus and Annual Report 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
General Information and History..............................2
Mixed and Shared Funding.....................................3
Investment Restrictions......................................4
Portfolio Turnover...........................................7
Purchases and Redemptions....................................8
Trustees and Officers........................................8
Management Arrangements.....................................11
Trust Charges and Expenses..................................13
Underwriters................................................14
Custodian...................................................14
Portfolio Transactions......................................15
Net Asset Value.............................................18
Taxes.......................................................19
Investment Performance......................................20
Record Shareholders.........................................22
Independent Auditors and Financial Statements...............22
Appendix A - Investment Techniques and Securities...........23
<PAGE>
GENERAL INFORMATION AND HISTORY
The SteinRoe Variable Investment Trust (the Trust) commenced
operations on Jan. 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 Nov. 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).
The Trust was 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 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.
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 SAI, 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, 1999, approximately 71.82% 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 Participating 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.
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 heading "SHAREHOLDER INFORMATION."
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 Board of Trustees of the Trust has overall management
responsibility for the Trust and the Funds. The following table
sets forth certain information with respect to the Trustees and
officers of the Trust:
<TABLE>
<CAPTION>
Position(s) held Principal occupation(s)
Name with the Trust during past five years
- ------------------ ------------------------ -----------------------------------
<S> <C> <C>
William D. Andrews, 51 Executive Vice-President Executive vice president of Stein
Roe
William D. Andrews, 51 Executive Vice-President Executive vice president of Stein
Roe & Farnham Incorporated (Stein
Roe)
Gary A. Anetsberger, 43 Senior Vice-President; Chief financial officer and chief
Treasurer administrative officer of the Mutual
Funds division of Stein Roe; senior
vice president of Stein Roe since
April 1996; vice president of Stein
Roe prior thereto
John A. Bacon Jr., 71 (3) Trustee Private investor
William W. Boyd, 72 (2)(3) Trustee Chairman and director of Sterling
Plumbing (manufacturer of plumbing
products)
Thomas W. Butch, 42 Trustee; President President of the Mutual Funds
division of Stein Roe since March
1998; senior vice president of Stein
Roe from Sept. 1994 to March 1998;
first vice president, corporate
communications, of Mellon Bank
Corporation prior thereto
Kevin M. Carome, 43 Vice-President; Senior vice president, legal, COGRA
Assistant Secretary LLC (an affiliate of Stein Roe)
since Jan. 1999; general counsel and
secretary of Stein Roe since Jan.
1998; associate general counsel and
vice president of Liberty Financial
Companies, Inc. (the indirect parent
of Stein Roe) through Jan. 1999
J. Kevin Connaughton, 34 Vice-President Vice president of Colonial
Management Associates, Inc. (CMA),
since Feb. 1998; senior tax manager,
Coopers & Lybrand, LLP from April,
1996 to Jan. 1998; vice president,
440 Financial Group/First Data
Investor Services Group from March
1994 to April 1996
Lindsay Cook, 47 (1)(2) Trustee Executive vice president of Liberty
Financial Companies, Inc. since
March 1997; senior vice president
prior thereto
William M. Garrison, 33 Vice-President Vice president of Stein Roe since
Feb. 1998; associate portfolio
manager for Stein Roe since August
1994
Erik P. Gustafson, 35 Vice-President Senior portfolio manager of Stein
Roe; senior vice president of Stein
Roe since April 1996; vice president
of Stein Roe prior thereto
Douglas A. Hacker, 43 (3) Trustee Senior vice president and chief
financial officer of UAL, Inc.
(airline) since July 1994; senior
vice president, finance of UAL, Inc.
prior thereto
Loren A. Hansen, 51 Executive Vice-President Chief investment officer/equity of
CMA since 1997; executive vice
president of Stein Roe since Dec.
1995; vice president of The Northern
Trust (bank) prior thereto
Harvey B. Hirschhorn, 49 Vice-President Executive vice president, senior
portfolio manager, and chief
economist and investment strategist
of Stein Roe; director of research
of Stein Roe, 1991 to 1995
Timothy J. Jacoby, 46 Vice-President Fund treasurer for The Colonial
Group since Sept. 1996 and chief
financial officer since Aug. 1997;
senior vice president of Fidelity
Investments from Sept. 1993 to Sept.
1996
Patricia Judge, 28 Controller Assistant vice president of Fund
accounting for Stein Roe since March
1999; deputy treasurer for the
Chicago Board of Education from
August 1995 to Feb. 1999; senior
auditor for Arthur Andersen LLP from
1993 to 1995
Janet Langford Kelly,41(3) Trustee Senior vice president, secretary and
general counsel of Sara Lee
Corporation (branded, packaged,
consumer-products manufacturer)
since 1995; partner of Sidley &
Austin (law firm) prior thereto
Gail D. Knudsen, 36 Vice-President Vice president and assistant
controller of CMA
Jane M. Naeseth, 49 Vice-President Senior vice president of Stein Roe
Charles R. Nelson, 56 (3) Trustee Van Voorhis Professor of Political
Economy, Department of Economics of
the University of Washington
Nicolette D. Parrish, 49 Vice-President; Senior legal assistant and assistant
Assistant Secretary secretary of Stein Roe
Janet B. Rysz, 43 Assistant Secretary Senior legal assistant and assistant
secretary of Stein Roe
Steven M. Salopek, 35 Vice-President Vice president of Stein Roe since
Feb. 1998; analyst for Stein Roe
from June 1996 to Feb. 1998; analyst
for Banc One Investment Advisors
from Nov. 1990 to May 1996
Thomas C. Theobald, 61 (3) Trustee Managing director, William Blair
Capital Partners (private equity
fund) since 1994; chief executive
officer and chairman of the Board of
Directors of Continental Bank
Corporation, 1987-1994
Sharlene A. Thomas, 37 Vice-President Assistant vice president of mutual
fund sales & service of Stein Roe
since Feb. 1999; manager of mutual
fund sales & services of Stein Roe
from March 1997 to Feb. 1999;
account executive with Stein Roe's
Counselor department prior thereto
William M. Wadden IV, 41 Vice-President Vice president of Stein Roe since
June 1995; executive vice president
of CSI Asset Management, Inc. prior
thereto
Heidi J. Walter, 31 Vice-President; Secretary Vice president of Stein Roe since
March 1998; senior legal counsel for
Stein Roe since Feb. 1998; legal
counsel for Stein Roe March 1995 to
Jan. 1998; associate with Beeler
Schad & Diamond, PC (law firm) prior
thereto
<FN>
_______________________
(1) Trustee who is an "interested person" of the Trust and of
Stein Roe, as defined in the Investment Company Act of 1940.
(2) Member of the Executive Committee of the Board of Trustees,
which is authorized to exercise all powers of the Board with
certain statutory exceptions.
(3) Member of the Audit Committee of the Board, which makes
recommendations to the Board regarding the selection of
auditors and confers with the auditors regarding the scope and
results of the audit.
</TABLE>
As noted above certain Trustees and officers of the Trust
also hold positions with Stein Roe, LFC and/or their affiliates.
Certain of the Trustees and officers of the Trust are trustees or
officers of other investment companies managed by Stein Roe. The
address of Mr. Bacon is 4N640 Honey Hill Road, Box 296, Wayne, IL
60184; that of Mr. Boyd is 2900 Golf Road, Rolling Meadows, IL
60008; that of Mr. Cook is 600 Atlantic Avenue, Boston, MA 02210;
that of Mr. Hacker is P.O. Box 66100, Chicago, IL 60666; that of
Ms. Kelly is Three First National Plaza, Chicago, IL 60602; that
of Mr. Nelson is Department of Economics, University of
Washington, Seattle, WA 98195; that of Mr. Theobald is Suite 3300,
222 West Adams Street, Chicago, IL 60606; that of Mr. Cantor is
1330 Avenue of the Americas, New York, NY 10019; that of Ms.
Knudsen and Messrs. Connaughton and Jacoby is One Financial
Center, Boston, MA 02111; and that of the other officers is One
South Wacker Drive, Chicago, IL 60606.
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. The Trustees are paid an
annual retainer plus an attendance fee for each meeting of the
Board or standing committee thereof attended. 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 from the
Stein Roe Fund Complex*
-----------------------
Aggregate Compensation Total Average
Name of Trustee from the Trust Compensation Per Series
- ------------------- -------------------- ------------ ----------
Thomas W. Butch (1) -0- -0- -0-
Richard R. Christensen (2) -0- -0- -0-
Lindsay Cook (1) -0- -0- -0-
John A. Bacon Jr. $19,400 $ 41,850 $ 890
William W. Boyd (1) 3,400 101,750 2,165
Douglas A. Hacker (1) 2,900 89,400 1,902
Janet Langford Kelly (1) 2,900 89,400 1,902
Salvatore Macera (2) 16,500 16,500 3,300
Charles R. Nelson (1) 3,400 101,200 2,153
Thomas E. Stitzel (2) 16,500 16,500 3,300
Thomas C. Theobald (1) 2,900 89,400 1,902
_______________
(1) Elected a Trustee of the Trust on Oct. 30, 1998.
(2) Served as a Trustee of the Trust until Oct. 30, 1998.
(3) At Dec. 31, 1998, the Stein Roe Fund Complex consisted of five
series of the Trust, 11 series of Stein Roe Investment Trust, six
series of Stein Roe Advisor Trust, four series of Stein Roe Income
Trust, four series of Stein Roe Municipal Trust, one series of
Stein Roe Trust, 13 portfolios of SR&F Base Trust, Stein Roe
Floating Rate Income Fund, Stein Roe Institutional Floating Rate
Income Fund, and Stein Roe Floating Rate Limited Liability
Company.
MANAGEMENT ARRANGEMENTS
As described in the Prospectus, the portfolio of each Fund is
managed by Stein Roe & Farnham Incorporated (Stein Roe). Each
Fund has its own Advisory Agreement with Stein Roe. Stein Roe 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 Stein Roe are Kenneth R. Leibler, C. Allen
Merritt, Jr., and Thomas W. Butch. Mr. Leibler is President and
Chief Executive Officer of LFC; Mr. Merritt is Chief Operating
Officer of LFC; and Mr. Butch is President of Stein Roe's Mutual
Funds division. The business address of Messrs. Leibler and
Merritt is Federal Reserve Plaza, 600 Atlantic Avenue, Boston,
Massachusetts 02210; that of Mr. Butch is One South Wacker Drive,
Chicago, Illinois 60606.
Stein Roe, 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 Stein Roe.
Each Fund's Advisory Agreement provides that neither Stein
Roe 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
Stein Roe of its duties under the Advisory Agreement, except for
liability resulting from willful misfeasance, bad faith or gross
negligence on the part of Stein Roe in the performance of its
duties or from reckless disregard by Stein Roe of its obligations
and duties under the Advisory Agreement.
Under an Administration Agreement with the Trust, Stein Roe
provides each Fund with administrative services, excluding
investment advisory services. Specifically, Stein Roe 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 Stein Roe 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, Stein Roe 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:
Each Fund pays Stein Roe an annual advisory fee based on the
following schedule. Fees are computed and accrued daily and paid
monthly. During each year in the three-year period ended Dec. 31,
1998, pursuant to the Advisory Agreements, each Fund paid Stein
Roe management fees as follows:
Annual Fee
Rate (as a
percent of
average net
assets) 1998 1997 1996
--------- ---------- ---------- ----------
Special Venture Fund 0.50% $ 810,605 $1,001,641 $ 850,612
Growth Stock Fund 0.50 1,177,442 959,376 743,602
Balanced Fund 0.45 1,503,385 1,147,148 1,293,967
Mortgage Securities
Fund 0.40 337,593 296,763 334,914
Money Market Fund 0.35 281,246 273,501 229,758
Administrative Expenses:
Each Fund pays Stein Roe an annual administrative fee. Fees
are computed and accrued daily and paid monthly at an annual rate
of 0.15% of average net assets. During each year in the three-
year period ended Dec. 31, 1998, pursuant to the Administration
Agreement, each Fund paid Stein Roe or an affiliate thereof
administrative fees as follows:
1998 1997 1996
-------- -------- --------
Special Venture Fund $243,182 $300,492 $255,184
Growth Stock Fund 353,233 287,813 223,081
Balanced Fund 495,128 472,383 431,322
Mortgage Securities Fund 126,597 111,286 125,593
Money Market Fund 121,428 101,786 98,468
Accounting and Bookkeeping Expenses:
The Trust pays Stein Roe an additional fee for accounting and
bookkeeping services in the annual amount of $25,000 plus .0025%
of average daily net assets in excess of $50 million. For the
years 1998, 1997 and 1996, the Trust paid Stein Roe fees of
$141,081, $139,826 and $137,898, respectively, for these services.
In addition, during each such year each Fund paid Stein Roe
or an affiliate thereof $7,500 for transfer agent services.
Expense Limitation:
Stein Roe has agreed to reimburse all expenses of the Funds
as follows through April 30, 2000:
Fund Expenses Exceeding
Special Venture Fund 0.80% of average net assets
Growth Stock Fund 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
UNDERWRITERS
Keyport Financial Services Corp., 125 High Street, Boston, MA
02110, serves as the principal underwriter of the Trust with
respect to sales of Fund shares to separate accounts sold by
Keyport Life Insurance Company and any other affiliated insurance
companies. Liberty Funds Distributor, Inc., One Financial Center,
Boston, MA 02111, distributes the Funds' shares to certain
unaffiliated Participating Insurance Companies. Keyport Financial
Services Corp. and Liberty Funds Distributor, Inc., are
subsidiaries of LFC.
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
Stein Roe places the orders for the purchase and sale of
portfolio securities and options and futures contracts on behalf
of each Fund. Stein Roe's overriding objective in selecting
brokers and dealers to effect portfolio transactions is to seek
the best combination of net price and execution. The best net
price, giving effect to brokerage commissions, if any, is an
important factor in this decision; however, a number of other
judgmental factors may also enter into the decision. These
factors include Stein Roe's knowledge of negotiated commission
rates currently available and other current transaction costs; the
nature of the security being purchased or sold; the size of the
transaction; the desired timing of the transaction; the activity
existing and expected in the market for the particular security;
confidentiality; the execution, clearance and settlement
capabilities of the broker or dealer selected and others
considered; Stein Roe's knowledge of the financial condition of
the broker or dealer selected and such other brokers and dealers;
and Stein Roe's knowledge of actual or apparent operation problems
of any broker or dealer. Recognizing the value of these factors,
Stein Roe may cause a client to pay a brokerage commission in
excess of that which another broker may have charged for effecting
the same transaction.
Stein Roe has established internal policies for the guidance
of its trading personnel, specifying minimum and maximum
commissions to be paid for various types and sizes of transactions
and effected for clients in those cases where Stein Roe has
discretion to select the broker or dealer by which the transaction
is to be executed. Transactions which vary from the guidelines
are subject to periodic supervisory review. These guidelines are
reviewed and periodically adjusted, and the general level of
brokerage commissions paid is periodically reviewed by Stein Roe.
Evaluations of the reasonableness of brokerage commissions, based
on the factors described in the preceding paragraph, are made by
Stein Roe's trading personnel while effecting portfolio
transactions. The general level of brokerage commissions paid is
reviewed by Stein Roe, and reports are made annually to the Board
of Trustees.
Where more than one broker or dealer is believed to be
capable of providing a combination of best net price and execution
with respect to a particular portfolio transaction, Stein Roe
often selects a broker or dealer that has furnished it with
investment research products or services such as: economic,
industry or company research reports or investment
recommendations; subscriptions to financial publications or
research data compilations; compilations of securities prices,
earnings, dividends, and similar data; computerized data bases;
quotation equipment and services; research or analytical computer
software and services; or services of economic and other
consultants. Such selections are not made pursuant to any
agreement or understanding with any of the brokers or dealers.
However, Stein Roe does in some instances request a broker to
provide a specific research or brokerage product or service which
may be proprietary to the broker or produced by a third party and
made available by the broker and, in such instances, the broker in
agreeing to provide the research or brokerage product or service
frequently will indicate to Stein Roe a specific or minimum amount
of commissions which it expects to receive by reason of its
provision of the product or service. Stein Roe does not agree
with any broker to direct such specific or minimum amounts of
commissions; however, Stein Roe does maintain an internal
procedure to identify those brokers who provide it with research
products or services and the value of such products or services,
and Stein Roe endeavors to direct sufficient commissions on client
transactions (including commissions on transactions in fixed
income securities effected on an agency basis and, in the case of
transactions for certain types of clients, dealer selling
concessions on new issues of securities) to ensure the continued
receipt of research products or services Stein Roe believes are
useful.
In a few instances, Stein Roe receives from a broker a
product or service which is used by Stein Roe both for investment
research and for administrative, marketing, or other non-research
or brokerage purposes. In such an instance, Stein Roe makes a
good faith effort to determine the relative proportion of its use
of such product or service which is for investment research or
brokerage, and that portion of the cost of obtaining such product
or service may be defrayed through brokerage commissions generated
by client transactions, while the remaining portion of the costs
of obtaining the product or service is paid by Stein Roe in cash.
Stein Roe may also receive research in connection with selling
concessions and designations in fixed income offerings.
The Funds do not believe they pay brokerage commissions
higher than those obtainable from other brokers in return for
research or brokerage products or services provided by brokers.
Research or brokerage products or services provided by brokers may
be used by Stein Roe in servicing any or all of its clients and
such research products or services may not necessarily be used by
Stein Roe in connection with client accounts which paid
commissions to the brokers providing such products or services.
As stated above, Stein Roe'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., Stein Roe 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
Stein Roe has entered into any agreement with, or made any
commitment to, any unaffiliated broker-dealer which would bind
Stein Roe, the Trust or any Fund to compensate any such broker-
dealer, directly or indirectly, for sales of VA contracts or VLI
policies. Stein Roe has entered into arrangements with sponsors
of programs for the sale of VA contracts issued by Participating
Insurance Companies which are not affiliates of Stein Roe pursuant
to which Stein Roe pays the sponsor from Stein Roe'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. Stein Roe 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 Stein Roe 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 Stein Roe'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 Stein Roe 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. Stein Roe 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,
Stein Roe may also consider the part, if any, played by the broker
or dealer in bringing the security involved to Stein Roe'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 12/31/98 $ 396,775 $ 180,194 $ 400,313
Amount of commissions paid
to brokers or dealers who
supplied research services
to Stein Roe 392,241 167,594 389,453
Total dollar amount involved
in such transactions: 255,845,108 235,217,789 302,652,397
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 33,910 4,800 35,410
Total dollar amount involved
in such transactions 13,042,308 8,470,588 47,332,857
Total amount of brokerage
commissions paid during
fiscal year ended 12/31/97 421,740 89,691 294,537
Total brokerage fees paid
during fiscal year ended
12/31/96 316,995 81,270 304,087
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.
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. 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.
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 Dec. 31, 1998, were:
$.00083232876 365
----------- ---
Current Yield = $1.00 x 7 = 4.34%
[1+$.00083232876]35/7
-------------------
Effective Yield = $1.00 - 1 = 4.43%
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.
n
Average Annual Total Return is computed as follows: 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 at the
end of the period (or fractional portion).
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 the Funds (from Jan. 1, 1989 to Dec.
31, 1998) were:
TOTAL RETURN AVERAGE ANNUAL
TOTAL RETURN PERCENTAGE TOTAL RETURN
------------ ------------- --------------
Special Venture Fund $3,215 225.15% 12.52%
Growth Stock Fund 5,662 466.23 18.94
Balanced Fund 3,374 237.41 12.94
Mortgage Securities Fund 2,204 120.40 8.23
Money Market Fund 1,676 67.63 5.30
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, 1999 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, 1999 owned beneficially 5% or more of the outstanding
shares of any Fund.
INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
KPMG LLP are the Trust's independent auditors. The financial
statements incorporated by reference in this SAI have been so
incorporated, and the schedule of the financial highlights has
been included in the Prospectus, in reliance upon the report of
KPMG 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 in the Dec. 31, 1998
Annual Report of the Trust are incorporated in this SAI 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 semiannually 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/1/ 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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/1/ 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 price 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 Stein Roe
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, Stein Roe
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,"/2/ would exceed 5% of
the Fund's total assets.
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/2/ 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/3/ 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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/3/ 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.
