File No. 33-14954
File No. 811-5199
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 17 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 19 [X]
STEINROE VARIABLE INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, MA 02111
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code:
(617) 722-6000
It is proposed that this filing become effective (check
appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on (date) pursuant to paragraph (b) of Rule 485
[X] 60 days after filing pursuant to paragraph (a)(i) of Rule 485
[ ] on (date) pursuant to paragraph (a)(i) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(ii) of Rule 485
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485
Kevin M. Carome Cameron S. Avery
Executive Vice President & Secy. Bell, Boyd & Lloyd
SteinRoe Variable Investment Trust Three First National Plaza
One Financial Center 70 W. Madison Street, Suite 3300
Boston, MA 02111 Chicago, Illinois 60602
(Name and Address of Agents for Service)
The Registrant has registered an indefinite number of shares of beneficial
interest of all existing and subsequently created Series of the Trust under the
Securities Act of 1933 pursuant to Rule 24f-2.
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
STEINROE VARIABLE
INVESTMENT TRUST
PROSPECTUS
JUNE 1, 2000
- - Stein Roe Balanced Fund, Variable Series
- - Stein Roe Growth Stock Fund, Variable Series
- - Stein Roe Small Company Growth Fund, Variable Series
- - Stein Roe Mortgage Securities Fund, Variable Series
- - Stein Roe Money Market Fund, Variable Series
CLASS B SHARES
* * * *
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 MAY LOSE VALUE
INSURED NO BANK GUARANTEE
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
THE TRUST.......................................................................
THE FUNDS.......................................................................
Each Fund section contains the following information specific to that Fund:
investment goal, primary investment strategy, primary investment risks,
and performance history
Stein Roe Balanced Fund, Variable Series....................................
Stein Roe Growth Stock Fund, Variable Series................................
Stein Roe Small Company Growth Fund, Variable Series........................
Stein Roe Mortgage Securities 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........................................................
Rule 12b-1 Plan...........................................................
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 all of the Funds in the Trust:
- - Stein Roe Balanced Fund, Variable Series
- - Stein Roe Growth Stock Fund, Variable Series
- - Stein Roe Small Company Growth 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.
THE FUNDS
DEFINING CAPITALIZATION
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). In defining a company's market capitalization,
we use capitalization-based categories as they are defined by Lipper, Inc.
According to Lipper, Inc. as of December 1999, large-cap companies had market
capitalizations greater than $9.0 billion, midcap companies had market
capitalizations between $2.2 and $9.0 billion, and small-cap companies had
market capitalizations less than $2.2 billion. These amounts are subject to
change.
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
INVESTMENT GOAL -- STEIN ROE BALANCED FUND, VARIABLE SERIES
Stein Roe Balanced Fund, Variable Series, seeks high total investment return.
PRIMARY INVESTMENT STRATEGY
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%
of its assets in foreign stocks.
The Fund also invests at least 25% 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. The portfolio manager may change the allocation from time to time based
upon economic, market and other factors that affect investment opportunities.
The portfolio manager may sell a portfolio holding if the security reaches the
portfolio manager's price target or if the company has a deterioration of
fundamentals such as failing to meet key operating benchmarks. The portfolio
manager may also sell a portfolio holding to fund redemptions.
PRIMARY INVESTMENT RISKS
There are two basic risks for all mutual funds that invest in stocks and bonds:
management risk and market risk. For bonds, market risk is primarily a factor of
interest rate changes. These risks may cause you to lose money by investing in
the Fund.
Management risk means that Stein Roe's stock selections and other investment
decisions might produce losses or cause the Fund to underperform when compared
to other funds with similar goals. Market risk means that security prices in a
market, sector or industry may move down. Downward movements will reduce the
value of your investment. Because of management and market risk, there is no
guarantee that the Fund will achieve its investment goal or perform favorably
compared with competing funds.
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.
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
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
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 or decrease. In general, if interest rates
rise, bond prices fall; and if interest rates fall, bond prices rise. Changes in
the values of bonds 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.
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. Because the
Class B shares are a new class of shares the bar chart and the average annual
returns shown is for Class A shares, the oldest existing Fund class. Class B
share performance would have been lower than the performance of the Fund's Class
A shares due to a difference in expenses.
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
CALENDAR-YEAR TOTAL RETURNS - CLASS A SHARES
[YEAR-BY-YEAR TOTAL BAR GRAPH]
1990 -0.69
1991 27.93
1992 7.53
1993 9.29
1994 -3.19
1995 25.47
1996 15.62
1997 16.82
1998 12.54
1999 12.53
Best quarter: 4th quarter 1999, +12.39%
Worst quarter: 3rd quarter 1990, -10.04%
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Stein Roe Balanced Fund,
Variable 12.53% 16.50% 11.99%
Series - Class A Shares
S&P 500 Index* 21.03% 28.54% 18.19%
</TABLE>
*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>
TRUST MANAGEMENT ORGANIZATIONS
INVESTMENT GOAL -- STEIN ROE GROWTH STOCK FUND, VARIABLE SERIES
Stein Roe Growth Stock Fund, Variable Series, seeks long-term growth of capital.
PRIMARY INVESTMENT STRATEGY
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% 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.
The portfolio manager may sell a portfolio holding if the security reaches the
portfolio manager's price target or if the company has a deterioration of
fundamentals such as failing to meet key operating benchmarks. The portfolio
manager may also sell a portfolio holding to fund redemptions.
PRIMARY INVESTMENT RISKS
There are two basic risks for all mutual funds that invest in stocks: management
risk and market risk. These risks may cause you to lose money by investing in
the Fund.
Management risk means that Stein Roe's stock selections and other investment
decisions might produce losses or cause the Fund to underperform when compared
to other funds with similar goals. Market risk means that security prices in a
market, sector or industry may move down. Downward movements will reduce the
value of your investment. Because of management and market risk, there is no
guarantee that the Fund will achieve its investment goal or perform favorably
compared with competing funds.
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.
The Portfolio's emphasis on certain market sectors may increase volatility in
the Fund's NAV. If sectors that the Portfolio invests in do not perform well,
the Fund's NAV could 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
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
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. Because the Class B shares are a new class of shares the bar chart and
the average annual returns shown is for Class A shares, the oldest existing Fund
class. Class B share performance would have been lower than the performance of
the Fund's Class A shares due to a difference in expenses.
CALENDAR-YEAR TOTAL RETURNS - CLASS A SHARES
[YEAR-BY-YEAR RETURNS GRAPH]
1990 -1.65
1991 48.03
1992 6.63
1993 4.97
1994 -6.35
1995 37.73
1996 21.28
1997 32.28
1998 27.91
1999 36.94
Best quarter: 4th quarter 1998, +26.43%
Worst quarter: 3rd quarter 1990, -17.42%
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Stein Roe Growth Stock Fund, Variable 36.94% 31.08% 19.43%
Series - Class A Shares
S&P 500 Index* 21.03% 28.54% 18.19%
</TABLE>
*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>
TRUST MANAGEMENT ORGANIZATIONS
INVESTMENT GOAL -- STEIN ROE SMALL COMPANY GROWTH FUND, VARIABLE SERIES
Stein Roe Small Company Growth Fund, Variable Series, seeks long-term growth of
capital.
PRIMARY INVESTMENT STRATEGY
Under normal market conditions, the Fund invests at least 65% of its assets in
common stocks of small-cap companies. The Fund may invest in new issuers during
periods when new issues are being brought to market. The Fund may also invest in
midcap companies. The Fund invests in companies that compete within large and
growing markets and that have the ability to grow their market share. To find
companies with these growth characteristics, the portfolio manager seeks out
companies that are -- or, in the portfolio manager's judgment, have the
potential to be -- a market share leader within their respective industry. He
also looks for companies with strong management teams that participate in the
ownership of the companies.
The portfolio manager may sell a portfolio holding if the security reaches the
portfolio manager's price target or if the company has a deterioration of
fundamentals such as failing to meet key operating benchmarks. The portfolio
manager may also sell a portfolio holding to fund redemptions.
PRIMARY INVESTMENT RISKS
There are two basic risks for all mutual funds that invest in stocks: management
risk and market risk. These risks may cause you to lose money by investing in
the Fund.
Management risk means that Stein Roe's stock selections and other investment
decisions might produce losses or cause the Fund to underperform when compared
to other funds with similar goals. Market risk means that security prices in a
market, sector or industry may move down. Downward movements will reduce the
value of your investment. Because of management and market risk, there is no
guarantee that the Fund will achieve its investment goal or perform favorably
compared with competing funds.
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.
SMALL- AND MEDIUM-CAP COMPANIES
The securities the Fund purchases may involve certain special risks. Small- and
medium-sized companies and new issuers often have limited product lines,
operating histories, markets, or financial resources. They also may depend
heavily on a small management group. Small-cap companies in particular are more
likely to fail or prove unable to grow. Their securities may trade less
frequently, in smaller volumes, and fluctuate more sharply in price than
securities of larger companies.
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 SmallCap 600 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
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
your VA contract or VLI policy. Because the Class B shares are a new class of
shares the bar chart and the average annual returns shown is for Class A shares,
the oldest existing Fund class. Class B share performance would have been lower
than the performance of the Fund's Class A shares due to a difference in
expenses.
CALENDAR-YEAR TOTAL RETURNS - CLASS A SHARES
[YEAR-BY-YEAR TOTAL BAR GRAPH]
1990 -8.91
1991 37.25
1992 14.48
1993 35.68
1994 1.19
1995 11.75
1996 26.94
1997 7.81
1998 -17.30
1999 48.02
Calendar Year Total Returns
Best quarter: 4th quarter 1999, +35.39%
Worst quarter: 3rd quarter 1990, -21.18%
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Stein Roe Small Company Growth Fund, 48.02% 13.36% 13.91%
Variable Series - Class A Shares
S&P SmallCap 600 Index* 12.41% 17.05% 13.04%
</TABLE>
- --------
*The S&P SmallCap 600 Index is an unmanaged group of stocks that differs from
the Fund's composition; it is not available for direct investment.
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
INVESTMENT GOAL -- 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 STRATEGY
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.
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
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. Because the Class B shares are a new class of shares the bar chart and
the average annual returns shown is for Class A shares, the oldest existing Fund
class. Class B share performance would have been lower than the performance of
the Fund's Class A shares due to a difference in expenses.
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
CALENDAR-YEAR TOTAL RETURNS - CLASS A SHARES
[YEAR-BY-YEAR TOTAL BAR GRAPH]
1990 9.10
1991 14.48
1992 5.96
1993 6.26
1994 -1.47
1995 15.62
1996 4.70
1997 9.04
1998 6.80
1999 1.08
Best quarter: 3rd quarter 1991, +5.13%
Worst quarter: 1st quarter 1994, -1.77%
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Stein Roe Mortgage Securities Fund, Variable 1.08% 7.34% 7.04%
Series - Class A Shares
Lehman Mortgage-Backed Securities Index* 1.86% 7.98% 7.78%
</TABLE>
*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>
TRUST MANAGEMENT ORGANIZATIONS
INVESTMENT GOAL -- 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 STRATEGY
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 U.S. 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.
The Portfolio invests more than 25% of its total assets in securities of issuers
in the financial services industry, including banks and financial companies such
as mortgage companies, investment banks, brokerage companies, special purpose
entities, and personal and business credit institutions
The Fund seeks to preserve the value of your investment at $1 per share.
The 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.
PRIMARY INVESTMENT RISKS
The primary risks of investing in the Fund are described below. These risks
could cause you to lose money by investing in the Fund.
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 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 is the risk that the price of a security held by the Fund will fall
due to changing market, economic, or political conditions, or due to the
financial condition of the company which has issued the security. Market risk
includes interest rate risk. Interest rate risk is the risk of change in the
price of a security when interest rates increase or decrease. In general, if
interest rates rise, securities prices fall; and if interest rates fall,
securities prices rise. Changes in the values of securities usually will not
affect the amount of income the Fund receives from them but will affect the
value of the Fund's shares.
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
Because the Portfolio may invest in debt 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 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.
Foreign securities are subject to special risks. The liquidity of foreign
securities may be more limited than domestic securities, which means that the
Portfolio may at times be unable to sell them at desirable prices. 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 an
issuer or its assets.
Because of the policy of investing more than 25% of 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.
Financial Services Industry Concentration. The financial services industries are
subject to extensive government regulation which can limit both the amounts and
types of loans and other financial commitments they can make, and the interest
rates and fees they can charge. Profitability is largely dependent on the
availability and cost of capital funds, and can fluctuate significantly when
interest rates change. Credit losses resulting from financial difficulties of
borrowers can negatively affect the financial services industries. Insurance
companies can be subject to severe price competition. The financial services
industries are currently undergoing relatively rapid change as existing
distinctions between financial service segments become less clear. For instance,
recent business combinations have included insurance, finance, and securities
brokerage under single ownership. Some primarily retail corporations have
expanded into securities and insurance industries. Moreover, the federal laws
generally separating commercial and investment banking are currently being
studied by Congress.
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. Because the Class B shares are a new class of shares the bar chart and
the average annual returns shown is for Class A shares, the oldest existing Fund
class. Class B share performance would have been lower than the performance of
the Fund's Class A shares due to a difference in expenses.
CALENDAR-YEAR TOTAL RETURNS - CLASS A SHARES
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
[YEAR-BY-YEAR RETURNS BAR GRAPH]
1990 7.95
1991 5.99
1992 3.64
1993 2.78
1994 3.67
1995 5.65
1996 4.61
1997 5.17
1998 5.57
1999 4.79
Best quarter: 1st quarter 1990, +2.04%
Worst quarter: 3rd quarter 1993, +0.67%
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
OTHER INVESTMENTS AND RISKS
The first portion of this prospectus describes each Fund's principal investment
strategy and principal investment risks. In seeking to meet its investment
goals, a Fund also may invest in other securities and use other investment
techniques. A Fund may elect not to buy any of these other securities or use any
of these other investment techniques. A Fund may not always achieve its
investment goal.
This section describes other securities and techniques, and risks associated
with them. The Statement of Additional Information (SAI) contains additional
information about a Fund's securities and investment techniques (including other
securities and techniques) and the risks associated with them. Such risks could
cause you to lose money by investing in a Fund or could cause a Fund's total
return to decrease. The SAI also contains a Fund's fundamental and
non-fundamental investment policies.
The Board of Trustees can change a Fund's investment objective without
shareholder approval.
FUTURES AND OPTIONS
Balanced Fund uses futures to gain exposure to groups of stocks or individual
issuers. The Fund uses futures to invest cash pending direct investments in
stocks and to enhance their return. It also uses futures and options on futures
to decrease equity exposure or to adjust interest rate duration of the Fund's
fixed-income security holdings. The Fund uses options on securities to earn
additional income or to hedge against price erosion in the underlying security
for the intermediate term. A future is an agreement to buy or sell a specific
amount of a financial instrument or physical commodity for an agreed-upon price
at a certain time in the future. Futures and options are efficient since they
typically cost less than direct investments in the underlying securities.
However, the Fund can lose money if the portfolio manager does not correctly
anticipate the market movements of those underlying securities.
SHORT SALES
Balanced Fund and Small Company Growth Fund may make short sales of securities.
Short selling involves the sale of borrowed securities. When the Fund thinks the
price of a stock will decline, it borrows the stock and then sells the borrowed
stock. When the Fund has to return the borrowed stock, it tries to buy the stock
at a lower price. If the Fund is successful, it has a capital gain. If the Fund
is unsuccessful and buys the stock at a higher price than the price at which it
sold the stock, the Fund has a capital loss. The Fund's capital gains and losses
may result in federal income tax consequences to the Fund's shareholders. Short
selling involves certain risks. The Fund could have a loss if the borrowed
security increases in value and if the purchased security declines in value.
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%
(150% in the case of Small Company Growth Fund) under normal conditions. The
Funds generally intend to purchase securities for long-term investment although,
to a limited extent, they may purchase securities (including securities
purchased in initial public offerings) in anticipation of relatively short-term
price gains. Portfolio turnover increases transaction expenses, which reduce a
Fund's return.
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
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.
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
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, 1999, Stein Roe managed more
than $30.1 billion in assets. For the 1999 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 Small Company Growth 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
part of a larger business unit known as Liberty Funds Group (LFG) that includes
several separate legal entities. LFG includes certain affiliates of Stein Roe,
including Colonial Management Associates, Inc. (Colonial). The LFG business unit
is managed by a single management team. Colonial and other LFG entities also
share personnel, facilities, and systems with Stein Roe that may be used in
providing administrative or operational services to the Funds. Colonial is a
registered investment adviser. Stein Roe also has a wealth management business
that is not part of LFG and is managed by a different team. Stein Roe and the
other entities that make up LFG are subsidiaries of Liberty Financial Companies,
Inc.
Stein Roe may 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 SMALL COMPANY GROWTH FUND, VARIABLE SERIES. William M. Garrison has
been portfolio manager of Small Company Growth 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.
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
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.
RULE 12b-1 PLAN
The Trust has adopted a plan for and on behalf of the Funds Class B shares in
accordance with Rule 12b-1 ("Plan") under the Investment Company Act of 1940.
Under the plan, the Trust pays the distributor a service fee of 0.25% of the
average daily net assets attributable to the Funds' Class B shares. Because
these fees are an ongoing expense, over time they increase the cost of an
investment and the shares may cost more than shares that are not subject to a
service fee.
<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. This information
is included in the Funds' financial statements, which, for the year ended
September 30, 1999, have been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the financial statements, is included in
the Funds' annual report, which is available upon request. KPMG LLP audited the
financial statements for the years 1995 through 1998. 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. Because the
Class B shares are a new class of shares the financial highlights shown are for
Class A shares, the oldest existing Fund class.
STEIN ROE BALANCED FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year................ $ 17.14 $ 16.81 $ 16.28 $ 14.08 $ 12.18
------- ------- ------- ------- -------
Net investment income (a)......................... 0.28 0.48 0.53 0.57 0.48
Net realized and unrealized gains on investments.. 1.74 1.48 1.96 1.63 2.61
------- ------- ------- ------- -------
Total from investment operations.................. 2.02 1.96 2.49 2.20 3.09
------- ------- ------- ------- -------
Less distributions:
From net investment income..................... (0.47) (0.51) (0.56) -- (0.48)
From net realized gains .......................
(0.89) (1.12) (1.40) -- (0.71)
-------- -------- -------- --------- --------
Total distributions............................... (1.36) (1.63) (1.96) -- (1.19)
-------- -------- -------- --------- --------
Net asset value, end of year...................... $ 17.80 $ 17.14 $ 16.81 $ 16.28 $ 14.08
======= ======= ======= ======= =======
TOTAL RETURN:
Total investment return (b)....................... 12.53% 12.54% 16.82% 15.63% 25.43%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000s).................... $425,005 $361,823 $325,033 $299,184 $277,014
Ratio of expenses to average net assets (c)....... 0.63%(d) 0.65% 0.66% 0.67% 0.66%
Ratio of net investment income to average net
assets (c)..................................... 2.60%(d) 3.00% 3.18% 3.68% 3.12%
Portfolio turnover ratio ......................... 43% 61% 44% 76% 66%
</TABLE>
(a) Per share data was calculated using average shares outstanding during
the period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(d) During the year ended December 31, 1999, the Fund experienced a
one-time reduction in its expenses of two basis points as a result of
expenses accrued in a prior period. The Fund's ratios disclosed above
reflect the actual rate at which expenses were incurred throughout the
current fiscal year without the reduction.
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
STEIN ROE GROWTH STOCK FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ............. $ 43.53 $ 36.13 $ 28.61 $ 23.59 $ 18.11
----------- ----------- ----------- ----------- -----------
Net investment income (loss)(a)................. (0.03) 0.08 0.10 0.13 0.15
Net realized and unrealized gains on
investments ................................. 15.79 9.54 8.84 4.89 6.68
----------- ----------- ----------- ----------- -----------
Total from investment operations ............... 15.76 9.62 8.94 5.02 6.83
----------- ----------- ----------- ----------- -----------
Less distributions:
From net investment income .................. (0.08) (0.10) (0.12) -- (0.15)
From net realized gains ..................... (1.28) (2.12) (1.30) -- (1.20)
----------- ----------- ----------- ----------- -----------
Total distributions ............................ (1.36) (2.22) (1.42) -- (1.35)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year ................... $ 57.93 $ 43.53 $ 36.13 $ 28.61 $ 23.59
=========== =========== =========== =========== ===========
TOTAL RETURN:
Total investment return (b) .................... 36.94% 27.91% 32.28% 21.28% 37.73%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000s) ................. $ 403,836 $ 271,584 $ 213,399 $ 161,879 $ 136,834
Ratio of expenses to average net assets (c) .... 0.67% 0.70% 0.71% 0.73% 0.74%
Ratio of net investment income (loss) to average
net assets (c) .............................. (0.05%) 0.21% 0.32% 0.49% 0.72%
Portfolio turnover ratio ....................... 70% 40% 28% 35% 41%
</TABLE>
(a) Per share data was calculated using average shares outstanding during
the period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
2
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
STEIN ROE SMALL COMPANY GROWTH FUND, VARIABLE SERIES(a)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ............... $ 13.62 $ 18.00 $ 20.73 $ 16.33 $ 14.74
----------- ----------- ----------- ----------- -----------
Net investment income (loss) (b) ................. (0.03) (0.04) 0.01 0.04 0.04
Net realized and unrealized gains (losses) on
investments ................................. 6.57 (2.77) 1.25 4.36 1.69
----------- ----------- ----------- ----------- -----------
Total from investment operations ................. 6.54 (2.81) 1.26 4.40 1.73
----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends from net investment income .......... -- -- (0.03) -- (0.04)
Distributions from net realized gains on
investments ................................... -- (1.57) (3.96) -- (0.10)
----------- ----------- ----------- ----------- -----------
Total distributions .............................. -- (1.57) (3.99) -- (0.14)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year ..................... $ 20.16 $ 13.62 $ 18.00 $ 20.73 $ 16.33
=========== =========== =========== =========== ===========
TOTAL RETURN:
Total investment return (c) ...................... 48.02% (17.30)% 7.81% 26.94% 11.75%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000s) ................... $ 139,849 $ 131,929 $ 200,590 $ 196,216 $ 143,248
Ratio of expenses to average net assets (d) ...... 0.72%(e) 0.75% 0.73% 0.75% 0.76%
Ratio of net investment gain (loss) to average net
assets (d) .................................... (0.27)%(e) (0.22)% 0.04% 0.20% 0.26%
Portfolio turnover ratio ......................... 110% 103% 93% 100% 132%
</TABLE>
(a) The name of the Fund was changed on May 5, 1999, from Stein Roe Special
Venture Fund, Variable Series.
(b) Per share data was calculated using average shares outstanding during
the period.
(c) Total return at net asset value assuming all distributions reinvested.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(e) During the year ended December 31, 1999, the Fund experienced a
one-time reduction in its expenses of five basis points as a result of
expenses accrued in a prior period. The Fund's ratios disclosed above
reflect the actual rate at which expenses were incurred throughout the
current fiscal year without the reduction.
3
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
STEIN ROE MORTGAGE SECURITIES FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year .......... $ 10.79 $ 10.73 $ 9.84 $ 10.16 $ 9.28
----------- ----------- ----------- ----------- -----------
Net investment income (a) ................... 0.66 0.55 0.68 0.78 0.57
Net realized and unrealized gains (losses) on
investments ............................ (0.55) 0.14 0.21 (0.30) 0.89
----------- ----------- ----------- ----------- -----------
Total from investment operations ............ 0.11 0.69 0.89 0.48 1.46
----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends from net investment income ..... (0.55) (0.63) -- (0.80) (0.58)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year ................ $ 10.35 $ 10.79 $ 10.73 $ 9.84 $ 10.16
=========== =========== =========== =========== ===========
TOTAL RETURN:
Total investment return (b) ................. 1.08% 6.80% 9.04% 4.70% 15.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000s) .............. $ 105,898 $ 96,693 $ 77,173 $ 76,009 $ 101,778
Ratio of expenses to average net assets (c) . 0.64%(d) 0.70% 0.70% 0.70%(e) 0.69%
Ratio of net investment income to average net
assets (c) ............................... 6.29%(d) 5.91% 6.59% 6.71%(f) 6.76%
Portfolio turnover ratio (g) ................ 28% 8% 29% 72% 112%
</TABLE>
(a) Per share data was calculated using average shares outstanding during
the period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(d) During the year ended December 31, 1999, the Fund experienced a
one-time reduction in its expenses of three basis points as a result of
expenses accrued in a prior period. The Fund's ratios disclosed above
reflect the actual rate at which expenses were incurred throughout the
current fiscal year without reduction.
(e) 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% for the
year ended December 31, 1996.
(f) Computed giving effect to Stein Roe's expense limitation undertaking.
(g) Portfolio turnover includes dollar roll transactions.
4
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
STEIN ROE MONEY MARKET FUND, VARIABLE SERIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997
------------ ------------ ------------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C>
Net asset value, beginning of year ..................... $ 1.000 $ 1.000 $ 1.000
------------ ------------ ------------
Net investment income (a) .............................. 0.047 0.050 0.050
------------ ------------ ------------
Net realized and unrealized gains on investments ....... -- -- --
------------ ------------ ------------
Total from investment operations ....................... 0.047 0.050 0.050
------------ ------------ ------------
Less distributions:
From net investment income .......................... (0.047) (0.050) (0.050)
------------ ------------ ------------
Net asset value, end of year ........................... $ 1.000 $ 1.000 $ 1.000
============ ============ ============
TOTAL RETURN:
Total investment return (b) ............................ 4.79% 5.17% 5.18%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000s) ......................... $ 170,539 $ 101,340 $ 67,137
Ratio of expenses to average net assets (c) ............ 0.52%(d) 0.62% 0.65%
Ratio of net investment income to average net assets (c)
4.75%(d) 4.99% 5.05%
</TABLE>
<TABLE>
<CAPTION>
1996 1995
------------ ------------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C>
Net asset value, beginning of year ..................... $ 1.000 $ 1.000
------------ ------------
Net investment income (a) .............................. 0.049 0.055
------------ ------------
Net realized and unrealized gains on investments ....... -- --
------------ ------------
Total from investment operations ....................... 0.049 0.055
------------ ------------
Less distributions:
From net investment income .......................... (0.049) (0.055)
------------ ------------
Net asset value, end of year ........................... $ 1.000 $ 1.000
============ ============
TOTAL RETURN:
Total investment return (b) ............................ 5.01% 5.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000s) ......................... $ 65,461 $ 64,992
Ratio of expenses to average net assets (c) ............ 0.65% 0.63%
Ratio of net investment income to average net assets (c)
4.90% 5.48%
</TABLE>
(a) Per share data was calculated using average shares outstanding during
the period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(d) During the year ended December 31, 1999, the Fund experienced a
one-time reduction in its expenses of two basis points as a result of
expenses accrued in a prior period. The Fund's ratios disclosed above
reflect the actual rate at which expenses were incurred throughout the
current fiscal year without the reduction.
5
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
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 per share. The extent of any
deviation between the Fund's NAV based upon market quotations or equivalents and
$1 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.
6
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
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. 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.
OTHER CLASS OF SHARES
The Funds also offer an additional class of shares, Class A shares, which are
not available in this prospectus. Your particular VA contract or VLI policy may
not offer these shares.
7
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
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:
Liberty Funds Distributor, Inc.
One Financial Center
Boston, MA 02111
(800) 426-3750
or by calling or writing the Participating Insurance Company which issued your
variable annuity contract or variable life insurance policy.
Information about the Funds (including the SAI) can be reviewed and copied at
the Public Reference Room of the Securities and Exchange Commission (SEC) in
Washington, D.C. Information on the Public Reference Room may be obtained by
calling the SEC at 202-942-8090. Reports and other information about the Funds
are available on the EDGAR database on the SEC's Internet site at
http://www.sec.gov. Copies of this information may be obtained, after paying a
duplicating fee, by electronic request at the following E-mail address:
[email protected] or by writing the SEC's Public Reference Section, Washington,
D.C. 20549-0102.
Investment Company Act file number: 811-05199
8
<PAGE>
STEINROE VARIABLE INVESTMENT TRUST
One Financial Center, Boston, Massachusetts 02111
STATEMENT OF ADDITIONAL INFORMATION
Dated June 1, 2000
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 June 1, 2000 and any supplement thereto. Financial
statements, which are contained in the Funds' December 31, 1999, Annual Report,
are incorporated by reference into this SAI. The Prospectus and Annual Report
may be obtained at no charge by calling Liberty Funds Distributor, Inc. at (800)
426-3750, 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
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
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 Accountants and Financial Statements.....................................22
Appendix A - Investment Techniques and Securities....................................23
</TABLE>
<PAGE>
GENERAL INFORMATION AND HISTORY
The SteinRoe Variable Investment Trust (the Trust) commenced operations
on January 1, 1989. The Trust is an open-end, diversified management investment
company currently consisting of five Funds with differing investment objectives,
policies and restrictions. Currently, the Trust consists of Stein Roe Small
Company Growth Fund, Variable Series (Small Company Growth 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 May 5, 1999,
Small Company Growth Fund was named Stein Roe Special Venture Fund, Variable
Series. Prior to November 15, 1997, Stein Roe 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, each with one or
more classes, 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
2
<PAGE>
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 Small
Company Growth 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 December 31,
1999, approximately 71.48% 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
3
<PAGE>
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'
4
<PAGE>
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;
5
<PAGE>
(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
6
<PAGE>
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 SMALL COMPANY GROWTH FUND
Small Company Growth 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
7
<PAGE>
(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 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:
8
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AT POSITION(S) HELD PRINCIPAL OCCUPATION(S)
MAY 1, 2000; ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
<S> <C> <C>
William D. Andrews, 52; Executive Vice President Executive vice president of Stein Roe
One South
Wacker Drive,
Chicago, IL 60606
John A. Bacon Jr., 72; Trustee Private investor
4N640 Honey Hill Road,
Box 296,
Wayne, IL 60184 (3)
Christine Balzano, 35; Vice President Senior vice president of Liberty Funds Services, Inc.;
245 Summer Street, formerly vice president and assistant vice president
Boston, MA 02210
William W. Boyd, 73; Trustee Chairman and director of Sterling Plumbing (manufacturer
2900 Golf Road, of plumbing products)
Rolling Meadows,
IL 60008 (2)(3)
Kevin M. Carome, 44; Executive Vice Senior vice president, legal, Liberty Funds Group LLC
One Financial Center, President; Secretary (an affiliate of Stein Roe) since Jan. 1999; general
Boston, MA 02111 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
Denise E. Chasmer, 31; Vice President Employee of Liberty Funds Services, Inc. and assistant
12100 East Iliff Avenue, vice president of Stein Roe since Nov. 1999; manager
Aurora, CO 80014 with Scudder Kemper Investments from Oct. 1995 to Nov.
1999; assistant manager with Scudder Kemper prior thereto
J. Kevin Connaughton, 35; Vice President; Vice president of Colonial Management Associates, Inc.
245 Summer Street, Treasurer ("CMA"), since February 1998; senior tax manager,
Boston, MA 02210 Coopers & Lybrand, LLP from April 1996 to January 1998;
vice president, 440 Financial Group/First Data Investor
Services Group prior thereto
Lindsay Cook, 48; Trustee Executive vice president of Liberty Financial Companies,
600 Atlantic Avenue, Inc. since March 1997; senior vice president prior
Boston, MA 02210 (1)(2) thereto
Michael G. Fisher, 30; Assistant Treasurer Tax manager with Liberty Funds Group since Oct. 1998;
245 Summer Street, tax manager with PricewaterhouseCoopers LLP prior thereto
Boston, MA 02210
William M. Garrison, 34; Vice President Vice president of Stein Roe since Feb. 1998; associate
One South Wacker Drive, portfolio manager for Stein Roe since August 1994
Chicago, IL 60606
</TABLE>
9
<PAGE>
<TABLE>
<S> <C> <C>
Stephen E. Gibson, 46; President Vice chairman of Stein Roe since Aug. 1998; chairman,
One Financial Center, CEO, president and director of Liberty Funds Group since
Boston, MA 02111 Dec. 1998; chairman of the Colonial Group from July 1998
to Dec. 1998; president of the Colonial Group from Dec.
1996 to Dec. 1998; chairman of Colonial Management
Associates, Inc. since Dec. 1998; CEO, president and
director of Colonial Management Associates since July
1996; managing director of Putnam Financial Services
prior thereto
Erik P. Gustafson, 36; Vice President Senior portfolio manager of Stein Roe; senior vice
One South Wacker Drive, president of Stein Roe since April 1996; vice president
Chicago, IL 60606 of Stein Roe prior thereto
Douglas A. Hacker, 44; Trustee Executive vice president and chief financial officer of
P.O. Box 66100, UAL, Inc. (airline) since July 1999; senior vice
Chicago, IL 60666 (3) president and chief financial officer of UAL, Inc. prior
thereto
Loren A. Hansen, 52; Executive Vice President Chief investment officer/equity of CMA since 1997;
One South Wacker Drive, executive vice president of Stein Roe since Dec. 1995;
Chicago, IL 60606 vice president of The Northern Trust (bank) prior thereto
Harvey B. Hirschhorn, 50; Vice President Executive vice president, senior portfolio manager, and
One South Wacker Drive, chief economist and investment strategist of Stein Roe;
Chicago, IL 60606 director of research of Stein Roe, 1991 to 1995
Timothy J. Jacoby, 47; Senior Vice President Fund treasurer for Liberty Funds Group LLC since Sept.
One Financial Center, 1996 and chief financial officer since Aug. 1997; senior
Boston, MA 02111 vice president of Fidelity Investments prior thereto
Janet Langford Kelly, 42; Trustee Executive vice president-corporate development, general
One Kellogg Square, counsel and secretary of Kellogg Company since Sept.
Battle Creek, MI 49016 (3) 1999; senior vice president, secretary and general
counsel of Sara Lee Corporation (branded, packaged,
consumer-products manufacturer) from 1995 to Aug. 1999;
partner of Sidley & Austin (law firm) prior thereto
Gail D. Knudsen, 37; Vice President; Vice president and assistant controller of CMA
245 Summer Street, Controller
Boston, MA 02210
Mary Dillon McKenzie, 46; Vice President President of Liberty Funds Services, Inc.
One Financial Center,
Boston, MA 02111
Charles R. Nelson, 57; Trustee Van Voorhis Professor of Political Economy, Department
Department of Economics, of Economics of the University of Washington
University of Washington,
Seattle, WA 98195 (3)
</TABLE>
10
<PAGE>
<TABLE>
<S> <C> <C>
Jane M. Naeseth, 50; Vice President Senior vice president of Stein Roe
One South Wacker Drive
Chicago, IL 60606
Nicholas S. Norton, 40; Vice President Senior vice president of Liberty Funds Services, Inc.
12100 East Iliff Avenue, since Aug. 1999; vice president of Scudder Kemper, Inc.
Aurora, CO 80014 prior thereto
Vincent P. Pietropaolo, 34; Assistant Secretary Vice president and counsel, Liberty Funds Group LLC
One Financial Center, since Dec. 1999; associate - investment management
Boston, MA 02111 practice group, Morgan, Lewis and Bockius, LLP from Oct.
1998 to Dec. 1999; legal specialist - federal regulatory
group, Putnam Investments from April 1997 to Oct. 1998;
independent contracting attorney from June 1996 to March
1997; student at Quinnipiac College School of Law prior
thereto
Thomas C. Theobald, 62; Trustee Managing director, William Blair Capital Partners
Suite 1300, (private equity fund)
222 West Adams Street,
Chicago, IL 60606 (3)
William M. Wadden IV, 41; Vice President Vice president of Stein Roe since June 1995; executive
One South Wacker Drive vice president of CSI Asset Management, Inc. prior
Chicago, IL 60606 thereto
</TABLE>
- -------------------------
(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.
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.
COMPENSATION OF TRUSTEES
The table set forth below presents certain information regarding the
fees paid to the Trustees for their services in such capacity during the year
ended December 31, 1999,
11
<PAGE>
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.
<TABLE>
<CAPTION>
Compensation from the Stein Roe
Fund Complex(1)
-----------------------------------
Aggregate Compensation Total Average Per
Name of Trustee from the Trust Compensation Series
- --------------------------------- --------------------------------- ------------------- --------------
<S> <C> <C> <C>
Thomas W. Butch -0- -0- -0-
Lindsay Cook -0- -0- -0-
John A. Bacon Jr. $12,700
William W. Boyd 13,200
Douglas A. Hacker 10,900
Janet Langford Kelly 12,700
Charles R. Nelson 13,200
Thomas C. Theobald 12,700
</TABLE>
- ---------------
(1) At December 31, 1999, the Stein Roe Fund Complex consisted of five
series of the Trust, 12 series of Liberty-Stein Roe Funds Investment
Trust, one series of Liberty-Stein Roe Funds Trust, four series of
Liberty-Stein Roe Funds Municipal Trust, four series of Liberty-Stein
Roe Funds Income Trust, five series of Liberty-Stein Roe Advisor Trust,
12 portfolios of SR&F Base Trust, Liberty-Stein Roe Advisor Floating
Rate Fund, Liberty-Stein Roe Institutional Floating Rate Income Fund,
and Stein Roe Floating Rate Limited Liability Company.
(2) Mr. Butch served as a trustee through October 31, 1999.
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 sole director of Stein Roe is C. Allen Merritt, Jr. Mr. Merritt is
Chief Operating Officer of LFC. His business address is
12
<PAGE>
Federal Reserve Plaza, 600 Atlantic Avenue, Boston, Massachusetts 02210.
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.
13
<PAGE>
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 December 31, 1999, pursuant to the Advisory
Agreements, each Fund paid Stein Roe management fees as follows:
<TABLE>
<CAPTION>
Annual Fee Rate
(as a percent of
average net assets) 1999 1998 1997
------------------- ---- ---- ----
<S> <C> <C> <C> <C>
Small Company Growth Fund 0.50% $ 810,605 $1,001,641
Growth Stock Fund 0.50 1,177,442 959,376
Balanced Fund 0.45 1,503,385 1,147,148
Mortgage Securities Fund 0.40 337,593 296,763
Money Market Fund 0.35 281,246 273,501
</TABLE>
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 December 31,
1999, pursuant to the Administration Agreement, each Fund paid Stein Roe or an
affiliate thereof administrative fees as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C>
Small Company Growth Fund $243,182 $300,492
Growth Stock Fund 353,233 287,813
Balanced Fund 495,128 472,383
Mortgage Securities Fund 126,597 111,286
Money Market Fund 121,428 101,786
</TABLE>
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 1999, 1998 and 1997,
the Trust paid Stein Roe fees of $_____, $141,081 and $139,826, 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.
14
<PAGE>
EXPENSE LIMITATION:
Stein Roe has agreed to reimburse all expenses of the Funds as follows
through April 30, 2001:
<TABLE>
<CAPTION>
Fund Expenses Exceeding
- ----- ------------------
<S> <C>
Small Company Growth 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
</TABLE>
UNDERWRITERS
Liberty Funds Distributor, Inc., One Financial Center, Boston, MA
02111, serves as the principal underwriter of the Trust. Liberty Funds
Distributor, Inc., is a subsidiary of LFC.
The Trustees have approved a Distribution Plan and Agreement (Plan)
pursuant to Rule 12b-1 under the 1940 Act for the Funds Class B shares. Under
the Plan, these Funds will pay the distributor a monthly service fee at the
aggregate annual rate of 0.25% of each Fund's average daily net assets. The
distributor may use the entire amount of such fees to defray the cost of
commissions and service fees paid to financial service firms (FSFs) and for
certain other purposes. Since the service fees are payable regardless of the
amount of the distributor's expenses, the distributor may realize a profit from
the fees.
The Plan authorizes any other payments by these Funds to the distributor and its
affiliates (including the Advisor) to the extent that such payments might be
construed to be indirect financing of the distribution of fund shares.
The Trustees believe the Plan could be a significant factor in the growth and
retention of Fund assets resulting in a more advantageous expense ratio and
increased investment flexibility which could benefit each Fund's shareholders.
The Plan will continue in effect from year to year so long as continuance is
specifically approved at least annually by a vote of the Trustees, including the
Trustees who are not interested persons of the Trust and have no direct or
indirect financial interest in the operation of the Plan or in any agreements
related to the Plan (Independent Trustees), cast in person at a meeting called
for the
15
<PAGE>
purpose of voting on the Plan. The Plan may not be amended to increase
the fee materially without approval by vote of a majority of the outstanding
voting securities of the relevant class of shares and all material amendments of
the Plan must be approved by the Trustees in the manner provided in the
foregoing sentence. The Plan may be terminated at any time by vote of a majority
of the Independent Trustees or by vote of a majority of the outstanding voting
securities of the relevant Fund's shares, on 60 days' written notice to the
distributor. The continuance of the Plan will only be effective if the selection
and nomination of the Trustees who are not interested persons of the Trust is
effected by such disinterested Trustees.
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 & Farnham Incorporated ("Stein Roe") places the orders for
the purchase and sale of portfolio securities and options and futures contracts
for its clients, including private clients and mutual fund clients ("Clients").
Stein Roe and its affiliate Colonial Management Associates, Inc. ("Colonial")
maintain a single, unified trading operation for trading equity securities.
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
16
<PAGE>
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. Stein Roe has
discretion for all trades of the Funds. 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.
Stein Roe maintains and periodically updates a list of approved brokers
and dealers which, in Stein Roe's judgment, are generally capable of providing
best price and execution and are financially stable. Stein Roe's traders are
directed to use only brokers and dealers on the approved list, except in the
case of Client designations of brokers or dealers to effect transactions for
such Clients' accounts. Stein Roe generally posts certain Client information on
the "Alert" broker database system as a means of facilitating the trade
affirmation and settlement process.
It is Stein Roe's practice, when feasible, to aggregate for execution
as a single transaction orders for the purchase or sale of a particular security
for the accounts of several Clients (and, when feasible, Colonial clients), in
order to seek a lower commission or more advantageous net price. The benefit, if
any, obtained as a result of such aggregation generally is allocated pro rata
among the accounts of Clients which participated in the aggregated transaction.
In some instances, this may involve the use of an "average price" execution
wherein a broker or dealer to which the aggregated order has been given will
execute the order in several separate transactions during the course of a day at
differing prices and, in such case, each Client participating in the aggregated
order will pay or receive the same price and commission, which will be an
average of the prices and commissions for the several separate transactions
executed by the broker or dealer.
17
<PAGE>
Stein Roe sometimes makes use of an indirect electronic access to the
New York Stock Exchange's "SuperDOT" automated execution system, provided
through a NYSE member floor broker, W&D Securities, Inc., a subsidiary of
Jeffries & Co., Inc., particularly for the efficient execution of smaller orders
in NYSE listed equities. Stein Roe sometimes uses similar arrangements through
Billings & Co., Inc. and Driscoll & Co., Inc., floor broker members of the
Chicago Stock Exchange, for transactions to be executed on that exchange. In
using these arrangements, Stein Roe must instruct the floor broker to refer the
executed transaction to another brokerage firm for clearance and settlement, as
the floor brokers do not deal with the public. Transactions of this type
sometimes are referred to as "step-in" or "step-out" transactions. The brokerage
firm to which the executed transaction is referred may include, in the case of
transactions effected through W&D Securities, brokerage firms which provide
Stein Roe investment research or related services.
Stein Roe places certain trades for the Funds through its affiliate
AlphaTrade, Inc. ("ATI"). ATI is a wholly owned subsidiary of Colonial
Management Associates, Inc. ATI is a fully disclosed introducing broker that
limits its activities to electronic execution of transactions in listed equity
securities. The Funds pay ATI a commission for these transactions. The Funds
have adopted procedures consistent with Investment Company Act Rule 17e-1
governing such transactions. Certain of Stein Roe's officers also serve as
officers, directors and/or employees of ATI.
CONSISTENT WITH THE RULES OF FAIR PRACTICE OF THE NATIONAL ASSOCIATION
OF SECURITIES DEALERS, INC. AND SUBJECT TO SEEKING BEST EXECUTING AND SUCH OTHER
POLICIES AS THE TRUSTEES OF THE FUNDS MAY DETERMINE, STEIN ROE MAY CONSIDER
SALES OF SHARES OF EACH OF THE FUNDS AS A FACTOR IN THE SELECTION OF
BROKER-DEALERS TO EXECUTE SUCH MUTUAL FUND SECURITIES TRANSACTIONS.
INVESTMENT RESEARCH PRODUCTS AND SERVICES FURNISHED BY BROKERS AND DEALERS
Stein Roe engages in the long-standing practice in the money management
industry of acquiring research and brokerage products and services ("research
products") from broker-dealer firms in return directing trades for Client
accounts to those firms. In effect, Stein Roe is using the commission dollars
generated from these Client accounts to pay for these research products. The
money management industry uses the term "soft dollars" to refer to this industry
practice. Stein Roe may engage in soft dollar transactions on trades for those
Client accounts for which Stein Roe has the discretion to select the
broker-dealers.
The ability to direct brokerage for a Client account belongs to the
Client and not to Stein Roe. When a Client grants Stein Roe the discretion to
select broker-dealers for Client trades, Stein Roe has a duty to seek the best
combination of net price and execution. Stein Roe faces a potential conflict of
interest with this duty when it uses Client trades to obtain soft dollar
products. This conflict exists because Stein Roe is able
18
<PAGE>
to use the soft dollar products in managing its Client accounts without paying
cash ("hard dollars") for the product. This reduces Stein Roe's expenses.
Moreover, under a provision of the federal securities laws applicable
to soft dollars, Stein Roe is not required to use the soft dollar product in
managing those accounts that generate the trade. Thus, the Client accounts that
generate the brokerage commission used to acquire the soft dollar product may
not benefit directly from that product. In effect, those accounts are cross
subsidizing Stein Roe's management of the other accounts that do benefit
directly from the product. This practice is explicitly sanctioned by a provision
of the Securities Exchange Act of 1934, which creates a "safe harbor" for soft
dollar transactions conducted in a specified manner. Although it is inherently
difficult, if not impossible, to document, Stein Roe believes that over time
most, if not all, Clients benefit from soft dollar products such that cross
subsidizations even out.
Stein Roe attempts to reduce or eliminate this conflict by directing
Client trades for soft dollar products only if Stein Roe concludes that the
broker-dealer supplying the product is capable of providing a combination of the
best net price and execution on the trade. As noted above, the best net price,
while significant, is one of a number of judgmental factors Stein Roe considers
in determining whether a particular broker is capable of providing the best net
price and execution. Stein Roe may cause a Client account to pay a brokerage
commission in a soft dollar trade in excess of that which another broker-dealer
might have charged for the same transaction.
Stein Roe acquires two types of soft dollar research products: (i)
proprietary research created by the broker-dealer firm executing the trade and
(ii) other products created by third parties that are supplied to Stein Roe
through the broker-dealer firm executing the trade.
Proprietary research consists primarily of traditional research
reports, recommendations and similar materials produced by the in house research
staffs of broker-dealer firms. This research includes evaluations and
recommendations of specific companies or industry groups, as well as analyses of
general economic and market conditions and trends, market data, contacts and
other related information and assistance. Stein Roe's research analysts
periodically rate the quality of proprietary research produced by various
broker-dealer firms. Based on these evaluations, Stein Roe develops target
levels of commission dollars on a firm-by-firm basis. Stein Roe attempts to
direct trades to each firm to meet these targets.
Stein Roe also uses soft dollars to acquire products created by third
parties that are supplied to Stein Roe through broker-dealers executing the
trade (or other broker-dealers who "step in" to a transaction and receive a
portion of the brokerage commission for the trade). These products include the
following:
19
<PAGE>
- - Database Services -- comprehensive databases containing current and/or
historical information on companies and industries. Examples include
historical securities prices, earnings estimates, and SEC filings.
These services may include software tools that allow the user to search
the database or to prepare value-added analyses related to the
investment process (such as forecasts and models used in the portfolio
management process).
- - Quotation/Trading/News Systems -- products that provide real time
market data information, such as pricing of individual securities and
information on current trading, as well as a variety of news services.
- - Economic Data/Forecasting Tools -- various macro economic forecasting
tools, such as economic data and economic and political forecasts for
various countries or regions.
- - Quantitative/Technical Analysis -- software tools that assist in
quantitative and technical analysis of investment data.
- - Fundamental Industry Analysis -- industry-specific fundamental
investment research.
- - Fixed Income Security Analysis -- data and analytical tools that
pertain specifically to fixed income securities. These tools assist in
creating financial models, such as cash flow projections and interest
rate sensitivity analyses, that are relevant to fixed income
securities.
- - Other Specialized Tools -- other specialized products, such as
specialized economic consulting analyses and attendance at investment
oriented conferences.
Many third-party products include computer software or on-line data
feeds. Certain products also include computer hardware necessary to use the
product.
Certain of these third party services may be available directly from
the vendor on a hard dollar basis. Others are available only through
broker-dealer firms for soft dollars. Stein Roe evaluates each product to
determine a cash ("hard dollars") value of the product to Stein Roe. Stein Roe
then on a product-by-product basis targets commission dollars in an amount equal
to a specified multiple of the hard dollar value to the broker-dealer that
supplies the product to Stein Roe. In general, these multiples range from 1.25
to 1.85 times the hard dollar value. Stein Roe attempts to direct trades to each
firm to meet these targets. (For example, if the multiple is 1.5:1.0, assuming a
hard dollar value of $10,000, Stein Roe will target to the broker-dealer
providing the product trades generating $15,000 in total commissions.)
The targets that Stein Roe establishes for both proprietary and for
third party research products typically will reflect discussions that Stein Roe
has with the broker-dealer providing the product regarding the level of
commissions it expects to receive for the product. However, these targets are
not binding commitments, and Stein Roe does not agree to direct a minimum amount
of commissions to any broker-dealer for soft dollar products. In setting these
targets, Stein Roe makes a determination that the value of the product is
reasonably commensurate with the cost of acquiring it. These targets are
established on a calendar year basis. Stein Roe will receive the product whether
or not
20
<PAGE>
commissions directed to the applicable broker-dealer are less than, equal to or
in excess of the target. Stein Roe generally will carry over target shortages
and excesses to the next year's target. Stein Roe believes that this practice
reduces the conflicts of interest associated with soft dollar transactions,
since Stein Roe can meet the non-binding expectations of broker-dealers
providing soft dollar products over flexible time periods. In the case of third
party products, the third party is paid by the broker-dealer and not by Stein
Roe. Stein Roe may enter into a contract with the third party vendor to use the
product. (For example, if the product includes software, Stein Roe will enter
into a license to use the software from the vendor.)
In certain cases, Stein Roe uses soft dollars to obtain products that
have both research and non-research purposes. Examples of non-research uses are
administrative and marketing functions. These are referred to as "mixed use"
products. As of the date of this SAI, Stein Roe acquires two mixed use products.
These are (i) a fixed income security data service and (ii) a mutual fund
performance ranking service. In each case, Stein Roe makes a good faith
evaluation of the research and non-research uses of these services. These
evaluations are based upon the time spent by Firm personnel for research and
non-research uses. Stein Roe pays the provider in cash ("hard dollars") for the
non-research portion of its use of these products.
Stein Roe may use research obtained from soft dollar trades in the
management of any of its discretionary accounts. Thus, consistent with industry
practice, Stein Roe does not require that the Client account that generates the
trade receive any benefit from the soft dollar product obtained through the
trade. As noted above, this may result in cross subsidization of soft dollar
products among Client accounts. As noted therein, this practice is explicitly
sanctioned by a provision of the Securities Exchange Act of 1934, which creates
a "safe harbor" for soft dollar transactions conducted in a specified manner.
In certain cases, Stein Roe will direct a trade to one broker-dealer
with the instruction that it execute the trade and pay over a portion of the
commission from the trade to another broker-dealer who provides Stein Roe with a
soft dollar research product. The broker-dealer executing the trade "steps out"
of a portion of the commission in favor of the other broker-dealer providing the
soft dollar product. Stein Roe may engage in step out transactions in order to
direct soft dollar commissions to a broker-dealer which provides research but
may not be able to provide best execution. Brokers who receive step out
commissions typically are brokers providing a third party soft dollar product
that is not available on a hard dollars basis. Stein Roe has not engaged in step
out transactions as a manner of compensating broker-dealers that sell shares of
investment companies managed by Stein Roe.
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-
21
<PAGE>
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,
22
<PAGE>
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.
23
<PAGE>
24
<PAGE>
25
<PAGE>
The table below shows information on brokerage commissions paid by
Small Company Growth 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.
26
<PAGE>
<TABLE>
<CAPTION>
SMALL COMPANY GROWTH STOCK
GROWTH FUND FUND BALANCED FUND
<S> <C> <C> <C>
Total amount of brokerage commissions paid during fiscal year $133,964 $257,982
ended 12/31/99.................................................
Amount of commissions paid to brokers or dealers who supplied 0 0
research services to Stein Roe.................................
Total dollar amount involved in such transactions:................ 0 0
Total amount of brokerage commissions paid during fiscal year
ended 12/31/98................................................. 396,775 180,194 400,313
Total brokerage fees paid during fiscal year ended 12/31/97....... 421,740 89,691 294,537
</TABLE>
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
27
<PAGE>
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
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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:
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<TABLE>
<S> <C> <C>
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
</TABLE>
For example, the yield of Money Market Fund's Class A shares for the
seven-day period ended December 31, 1999, were:
<TABLE>
<S> <C> <C> <C>
$.001108493 365
------------------------------- -------
Current Yield = $1.00 x 7 = 5.78%
[1+$.001108493]365/7
-------------------------------
Effective Yield = $1.00 - 1 = 5.95%
</TABLE>
In addition to fluctuations reflecting changes in net income of Money
Market Fund resulting from changes in income earned on its portfolio securities
and in its expenses, Money Market Fund's yield also would be affected if the
Fund were to restrict or supplement its dividends in order to maintain its net
asset value at $1.00. Portfolio changes resulting from net purchases or net
redemptions of Money Market Fund shares may affect yield. Accordingly, Money
Market Fund's yield may vary from day to day and the yield stated for a
particular past period is not a representation as to its future yield. Money
Market Fund's yield is not guaranteed and its principal is not insured; however,
the Fund will attempt to maintain its net asset value per share at $1.00.
Each of the Funds may quote total return figures from time to time.
Total return on a per share basis is the amount of dividends received per share
plus or minus the change in the net asset value per share for a given period.
Total return percentage may be calculated by dividing the value of a share at
the end of a given period by the value of the share at the beginning of the
period and subtracting one.
Average Annual Total Return is computed as follows:
ERV = P(1+T)n
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).
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For example, for a $1,000 investment in the Funds Class A shares, the
"Total Return," the "Total Return Percentage," and the "Average Annual Total
Return" for the life of the Funds (from January 1, 1989 to December 31, 1999)
were:
<TABLE>
<CAPTION>
Total Total Return Average Annual
Fund Return Percentage Total Return
---- ------ ---------- ------------
<S> <C> <C> <C>
Small Company Growth Fund $3,679 267.85% 13.91%
Growth Stock Fund 5,906 490.55 19.43
Balanced Fund 3,102 210.24 11.99
Mortgage Securities Fund 1,974 97.44 7.04
Money Market Fund 1,628 62.81 4.99
</TABLE>
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
December 31, 1999 the general account of Keyport owned of record approximately
27% 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
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<PAGE>
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,
2000 owned beneficially 5% or more of the outstanding shares of any Fund.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
The independent accountants for the Funds are PricewaterhouseCoopers
LLP, 160 Federal Street, Boston, MA 02110. The independent accountants audit and
report on the annual financial statements and provide tax return preparation
services and assistance and consultation in connection with the review of
various SEC filings.
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<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).
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<PAGE>
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
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<PAGE>
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.
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<PAGE>
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
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<PAGE>
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.
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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
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<PAGE>
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.
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<PAGE>
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,
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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.
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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
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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.
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.
(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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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
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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.
(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
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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.
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
(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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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
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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.
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PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Agreement and Declaration of Trust as amended on September 9,
1988 and October 5, 1988. (3)
(b) (1) By-Laws as amended and Restated through October 5,
1988. (3)
(2) Amendment dated February 8, 2000 to By-Laws.
(c) None
(d)(1) Fund Advisory Agreement, dated May 1, 1993, between the Trust on behalf
of the Capital Appreciation Fund (now named Stein Roe Small Company
Growth Fund, Variable Series) and Stein Roe & Farnham Incorporated. (3)
(2) Fund Advisory Agreement, dated May 1, 1993, between the Trust on behalf
of the Managed Growth Stock Fund (now named Stein Roe Growth Stock Fund,
Variable Series) and Stein Roe & Farnham Incorporated. (3)
(3) Fund Advisory Agreement, dated May 1, 1993, between the Trust on behalf
of the Managed Assets Fund (now named Stein Roe Balanced Fund, Variable
Series) and Stein Roe & Farnham Incorporated. (3)
(4) Fund Advisory Agreement, dated May 1, 1993, between the Trust on behalf
of the Mortgage Securities Income Fund (now named SteinRoe Mortgage
Securities Fund, Variable Series) and Stein Roe & Farnham Incorporated.
(3)
(5) Fund Advisory Agreement, dated December 9, 1988, between the Trust on
behalf of the Cash Income Fund (now named Stein Roe Money Market Fund,
Variable Series) and Stein Roe & Farnham Incorporated. (3)
(e) (1)Underwriting Agreement between the Trust and Liberty Funds
Distributor, Inc. dated August 3, 1999.
(2)12b-1 Plan Implementing Agreement between the Registrant and LFDI*
(f) None
(g)(1) Custodian Contract dated December 31, 1988 between the
Trust and State Street Bank and Trust Company. (4)
(2) First Amendment to Custodian Contract dated February 23,
1989. (4)
(3) Second Amendment to Custodian Contract dated January 23,
1993. (4)
(h)(1) Administration Agreement dated as of January 3, 1995
between the Trust, on behalf of each of its Funds, and
Stein Roe & Farnham Incorporated. (4)
(2) Transfer Agency Agreement dated as of November 3, 1998
among the Trust, Liberty Funds Services, Inc., and
SteinRoe Services Inc. (5)
(3) Accounting and Bookkeeping Agreement dated as of August 3, 1999 between
the Trust, on behalf of each of its Funds, and Stein Roe Farnham
Incorporated.
(4) Amended and Restated Participation Agreement dated April 3, 1998 among
the Trust, Keyport Life Insurance Company and Keyport Financial Services
Corp. (3)
(5) Participation Agreement dated as of October 1, 1993 among
the Trust, Keyport Financial Services Corp. and
Independence Life Annuity Company (formerly "Crown America
Life Insurance Company"). (4)
(6) Participation Agreement dated as of April 15, 1994 among the Trust, on
behalf of the Capital Appreciation Fund, Transamerica Occidental Life
Insurance Company, Stein Roe & Farnham Incorporated and Charles Schwab &
Co., Inc. (4)
(7) Participation Agreement dated as of December 1, 1994 among the Trust, on
behalf of the Capital Appreciation Fund, First Transamerica Life
Insurance Company, Stein Roe & Farnham Incorporated and Charles Schwab &
Co., Inc. (4)
(8) Participation Agreement among the Trust, on behalf of the Capital
Appreciation Fund, Great-West Life & Annuity Insurance Company, Stein Roe
& Farnham Incorporated and
Charles Schwab & Co., Inc. (2)
(9) Participation Agreement among the Trust, on behalf of the Capital
Appreciation Fund, Providian Life and Health Insurance Company and Stein
Roe & Farnham Incorporated (2)
(10) Participation Agreement dated May 8, 1998 among the Trust,
Keyport Benefit Life Insurance Company, and Keyport
Financial Services Corp. (4)
(11) Participation Agreement dated June 1, 1998 among the Trust, Stein Roe &
Farnham Incorporated, and Great-West Life & Annuity Insurance Company.
(i) Opinion and consent of counsel as to the legality of the
securities being registered. (3)
(j) Not applicable.
(k) Not applicable.
(l) Not applicable.
(m) Rule 12b-1 Distribution Plan.*
(n) Not applicable.
- -----------------
(1) Incorporated by Reference to Post-Effective Amendment No. 11
to this Registration Statement, filed April 1996.
(2) Incorporated by References to Post-Effective Amendment No. 12 to this
Registration Statement, filed April 1997.
(3) Incorporated by Reference to Post-Effective Amendment No. 13 to this
Registration Statement filed April 1998.
(4) Incorporated by Reference to Post-Effective Amendment No. 14 to this
Registration Statement filed May 1998.
(5) Incorporated by Reference to Post-Effective Amendment No. 16 to this
Registration Statement filed April 1999.
* To be filed by amendment.
<PAGE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.
Shares of the Trust registered pursuant to this Registration Statement will
be offered and sold to Keyport Life Insurance Company ("Keyport"), a stock life
insurance company organized under the laws of Rhode Island, and to certain of
its separate investment accounts and the respective separate investment accounts
of Liberty Life Assurance Company of Boston ("Liberty Life"), a stock life
insurance company organized as a Massachusetts corporation, Independence Life &
Annuity Company, a stock life insurance company organized under the laws of
Rhode Island ("Independence") and American Benefit Life Insurance Company, a
stock life insurance company organized under the laws of New York. As described
below, Keyport, Liberty Life, Independence and American Benefit are under common
control. The purchasers of insurance contracts and policies issued in connection
with such accounts will have the right to instruct Keyport, Liberty Life,
Independence and American Benefit with respect to the voting of the Registrant's
shares held by their respective separate accounts. Subject to such voting
instruction rights, Keyport, Liberty Life, Independence, American Benefit and
their respective separate accounts directly control the Registrant. In addition,
shares of Stein Roe Special Venture Fund, Variable Series currently are sold to
certain separate accounts of four insurance companies not affiliated with
Keyport, and shares of any of the Funds may in the future be sold to separate
accounts of other unaffiliated insurance companies.
Liberty Funds Distributor, Inc. the Trust's principal underwriter, Stein
Roe & Farnham Incorporated, the Trust's investment manager ("Stein Roe"),
Keyport, Independence are and American Benefit each wholly owned indirect
subsidiaries of Liberty Financial Companies, Inc. ("LFC"), Boston,
Massachusetts. As of December 31, 1999, Liberty Mutual Insurance Company
("LMIC"), Boston, Massachusetts, owned, indirectly, approximately 71.48% of the
combined voting power of the outstanding voting stock LFC (with the balance
being publicly-held). Liberty Life is a 90%-owned subsidiary of LMIC.
ITEM 25. INDEMNIFICATION
Article Tenth of the Agreement and Declaration of Trust of Registrant
(Exhibit a), which Article is incorporated herein by reference, provides that
Registrant shall provide indemnification of its trustees and officers (including
each person who serves or has served at Registrant's request as director,
officer, or trustee of another organization in which Registrant has any interest
as a shareholder, creditor or otherwise) ("Covered Persons") under specified
circumstances.
Section 17(h) of the Investment Company Act of 1940 ("1940 Act") provides
that neither the Agreement and Declaration of Trust nor the By-Laws of
Registrant, nor any other instrument pursuant to which Registrant is organized
or administered, shall contain any provision which protects or purports to
protect any trustee or officer of Registrant against any liability to Registrant
or its shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. In accordance with Section 17(h) of the
1940 Act, Article Tenth shall not protect any person against any liability to
Registrant or its shareholders to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his office.
To the extent required under the 1940 Act,
(i) Article Tenth does not protect any person against any liability to
Registrant or to its shareholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office;
(ii) in the absence of a final decision on the merits by a court or
other body before whom a proceeding was brought that a Covered Person was not
liable by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office, no
indemnification is permitted under Article Tenth unless a determination that
such person was not so liable is made on behalf of Registrant by (a) the vote of
a majority of the trustees who are neither "interested persons" of Registrant as
defined in Section 2(a)(19) of the 1940 Act nor parties to the proceeding
("disinterested, non-party trustees"), or (b) an independent legal counsel as
expressed in a written opinion; and
(iii) Registrant will not advance attorneys' fees or other expenses
incurred by a Covered Person in connection with a civil or criminal action, suit
or proceeding unless Registrant receives an undertaking by or on behalf of the
Covered person to repay the advance (unless it is ultimately determined that he
is entitled to indemnification) and (a) the Covered Person provides security for
his undertaking, or (b) Registrant is insured against losses arising by reason
of any lawful advance, or (c) a majority of the disinterested, non-party
trustees of Registrant or an independent legal counsel as expressed in a written
opinion, determine, based on a review of readily available facts (as opposed to
a full trial-type inquiry), that there is reason to believe that the Covered
Person ultimately will be found entitled to indemnification.
Any approval of indemnification pursuant to Article Tenth does not prevent
the recovery from any Covered Person of any amount paid to such Covered Person
in accordance with Article Tenth as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction not to have acted
in good faith in the reasonable belief that such Covered Person's action was in,
or not opposed to, the best interests of Registrant or to have been liable to
Registrant or its shareholders by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
such Covered Person's office.
Article Tenth also provides that its indemnification provisions are not
exclusive.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a trustee, officer, or controlling person of Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
Registrant, its trustees and officers, its investment adviser, the other
investment companies advised by Stein Roe, and persons affiliated with them are
insured against certain expenses in connection with the defense of actions,
suits, or proceedings, and certain liabilities that might be imposed as a result
of such actions, suits, or proceedings. Registrant will not pay any portion of
the premiums for coverage under such insurance that would (1) protect any
trustee or officer against any liability to Registrant or its shareholders to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office or (2) protect its investment adviser or principal underwriter, if
any, against any liability to Registrant or its shareholders to which such
person would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence, in the performance of its duties, or by reason of its
reckless disregard of its duties and obligations under its contract or agreement
with the Registrant; for this purpose the Registrant will rely on an allocation
of premiums determined by the insurance company.
In addition, Stein Roe maintains investment advisory professional liability
insurance to insure it, for the benefit of the Trust and its non-interested
trustees, against loss arising out of any error, omission, or breach of any duty
owed to the Trust or the Fund by the investment advisor.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Stein Roe is a direct wholly owned subsidiary of SteinRoe Services Inc.
("SSI"), which in turn, is a direct wholly owned subsidiary of LFC. LFC, as
stated in Item 24 above, is an indirect majority owned subsidiary of LMIC. Stein
Roe acts as investment adviser to individuals, trustees, pension and
profit-sharing plans, charitable organizations, and other investors. In addition
to the Registrant, it also acts as investment adviser to other no-load companies
having different investment policies.
For a two-year business history of officers and directors of
Stein Roe, please refer to the Form ADV of Stein Roe & Farnham
Incorporated and to the section of the Statement of Additional
Information (Part B) entitled "Investment Advisory Services. "
Certain directors and officers of Stein Roe also serve and have during the
past two years served in various capacities as officers, directors or trustees
of the Registrant or other investment companies managed by Stein Roe.
ITEM 27. PRINCIPAL UNDERWRITERS
Registrant's principal underwriter, Liberty Funds Distributor, Inc., a
subsidiary of Colonial Management Associates, Inc., acts as underwriter to
Liberty Funds Trust I, Liberty Funds Trust II, Liberty Funds Trust III, Liberty
Funds Trust IV, Liberty Funds Trust V, Liberty Funds Trust VI, Liberty Funds
Trust VII, Liberty Funds Trust IX, Liberty-Stein Roe Funds Investment Trust,
Liberty-Stein Roe Funds Income Trust, Liberty- Stein Roe Funds Municipal Trust,
Liberty-Stein Roe Advisor Trust, Liberty-Stein Roe Funds Institutional Trust,
Liberty-Stein Roe Funds Trust, Liberty-Stein Roe Advisor Floating Rate Fund,
Liberty-Stein Roe Institutional Floating Rate Income Fund, and SteinRoe Variable
Investment Trust. The table below lists the directors and officers of Liberty
Funds Distributor, Inc.
Position and Offices Positions and
Name and Principal with Principal Offices with
Business Address* Underwriter Registrant
- -------------------- --------------------- -------------
Anderson, Judith Vice President None
Babbitt, Debra VP & Compliance Officer None
Ballou, Rick Senior Vice President None
Bartlett, John Managing Director None
Blakeslee, James Senior Vice President None
Blumenfeld, Alex Vice President None
Bozek, James Senior Vice President None
Brown, Beth Vice President None
Burtman, Tracy Vice President None
Campbell, Patrick Vice President None
Chrzanowski, Daniel Vice President None
Clapp, Elizabeth A. Managing Director None
Conlin, Nancy L. Director; Clerk None
Davey, Cynthia Sr. Vice President None
Desilets, Marian H. Vice President None
Devaney, James Senior Vice President None
DiMaio, Steve Vice President None
Downey, Christopher Vice President None
Dupree, Robert Vice President None
Emerson, Kim P. Senior Vice President None
Erickson, Cynthia G. Senior Vice President None
Evans, C. Frazier Managing Director None
Feldman, David Managing Director None
Fifield, Robert Vice President None
Gariepy, Tom Vice President None
Gauger, Richard Vice President None
Gerokoulis, Stephen A. Senior Vice President None
Gibson, Stephen E. Director; Chairman of Board None
Goldberg, Matthew Senior Vice President None
Gupta, Neeti Vice President None
Geunard, Brian Vice President None
Harrington, Tom Sr. Vice President None
Hodgkins, Joseph Sr. Vice President None
Hussey, Robert Senior Vice President None
Iudice, Jr., Philip Treasurer and CFO None
Jones, Cynthia Vice President None
Jones, Jonathan Vice President None
Kelley, Terry M. Vice President None
Kelson, David W. Senior Vice President None
Libutti, Chris Vice President None
Martin, John Senior Vice President None
Martin, Peter Vice President None
McCombs, Gregory Senior Vice President None
McKenzie, Mary Vice President None
Menchin, Catherine Senior Vice President None
Miller, Anthony Vice President None
Moberly, Ann R. Senior Vice President None
Morse, Jonathan Vice President None
Nickodemus, Paul Vice President None
O'Shea, Kevin Managing Director None
Piken, Keith Vice President None
Place, Jeffrey Managing Director None
Powell, Douglas Vice President None
Predmore, Tracy Vice President None
Quirk, Frank Vice President None
Raftery-Arpino, Linda Senior Vice President None
Ratto, Gregory Vice President None
Reed, Christopher B. Senior Vice President None
Riegel, Joyce B. Vice President None
Robb, Douglas Vice President None
Sandberg, Travis Vice President None
Santosuosso, Louise Senior Vice President None
Schulman, David Senior Vice President None
Shea, Terence Vice President None
Sideropoulos, Lou Vice President None
Sinatra, Peter Vice President None
Smith, Darren Vice President None
Soester, Trisha Vice President None
Studer, Eric Vice President None
Sweeney, Maureen Vice President None
Tambone, James Chief Executive Officer None
Tasiopoulos, Lou President None
VanEtten, Keith H. Senior Vice President None
Wess, Valerie Senior Vice President None
Young, Deborah Vice President None
- ---------
* The address of Ms. Riegel is One South Wacker Drive, Chicago,
IL 60606. The address of each other director and officer is One
Financial Center, Boston, MA 02111.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Persons maintaining physical possession of accounts, books and other
documents required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and the Rules promulgated thereunder include Registrant's Secretary,
Kevin M. Carome; Stein Roe & Farnham Incorporated, Registrant's investment
adviser and administrator; Registrant's transfer and dividend disbursing agent,
Liberty Funds Services, Inc.; Registrant's principal underwriter, Liberty Funds
Distributor, Inc.; and Registrant's custodian, State Street Bank and Trust
Company. The address of the Registrant, the Secretary, the transfer agent, and
the underwriter is One Financial Center Boston, MA 02210-2214; the address of
Stein Roe & Farnham Incorporated is One South Wacker Drive, Chicago, IL 60606;
and the address of State Street Bank and Trust Company is 225 Franklin Street,
Boston, MA 02110.
ITEM 29. MANAGEMENT SERVICES
Pursuant to an Administration Agreement with the Registrant
on behalf of all the Funds dated as of January 3, 1995, Stein Roe provides each
of the Funds with administrative services. These services include the provision
of office space and equipment and facilities in connection with the maintenance
of the Registrant's headquarters, preparation and filing of required reports,
arrangements for meetings, maintenance of the Registrant's corporate books and
records, communication with shareholders, and oversight of custodial, accounting
and other services provided to the Funds by others. Stein Roe pays all
compensation of the Registrant's trustees, officers and employees who are
employees of Stein Roe. Stein Roe may, in its discretion, arrange for such
services to be provided by LFC or any of its 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 for pricing and bookkeeping services.
ITEM 30. UNDERTAKINGS
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Chicago and the State of Illinois, on
the 31st day of March, 2000.
STEINROE VARIABLE INVESTMENT TRUST
By STEPHEN E. GIBSON
Stephen E. Gibson
President
Pursuant to the requirements of the Securities Act of 1933, this amendment to
the Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
Signature Title Date
- ------------------------ ------------------- --------------
STEPHEN E. GIBSON President March 31, 2000
Stephen E. Gibson
Principal Executive Officer
TIMOTHY J. JACOBY Senior Vice- March 31, 2000
Timothy J. Jacoby President
Principal Financial Officer
GAIL D. KNUDSEN Controller March 31, 2000
Gail D. Knudsen
Principal Accounting Officer
JOHN A. BACON JR. Trustee March 31, 2000
John A. Bacon Jr.
WILLIAM W. BOYD Trustee March 31, 2000
William W. Boyd
LINDSAY COOK Trustee March 31, 2000
Lindsay Cook
DOUGLAS A. HACKER Trustee March 31, 2000
Douglas A. Hacker
JANET LANGFORD KELLY Trustee March 31, 2000
Janet Langford Kelly
CHARLES R. NELSON Trustee March 31, 2000
Charles R. Nelson
THOMAS C. THEOBALD Trustee March 31, 2000
Thomas C. Theobald
<PAGE>
EXHIBIT LIST
Exhibit Description
- ------- ----------------------------------------------
(b)(2) Amendment to By-Laws
(e) Underwriting Agreement
(h)(3) Accounting and Bookkeeping Agreement
(h)(11) Participation Agreement with Great-West Life &
Annuity Insurance Company
<PAGE>
CERTIFICATE
I, Nicolette D. Parrish, hereby certify that I am the duly
elected and acting Assistant Secretary of SteinRoe Variable
Investment Trust, a Massachusetts business trust (the "Trust") and
that the following is a true and correct copy of a certain
resolution duly adopted by the Board of Trustees of the Trust at a
meeting held in accordance with the By-Laws on February 8, 2000:
RESOLVED, that Section 6.01 of the By-Laws is amended and
restated as follows:
Section 6.01. General. All deeds, documents, transfers,
contracts, agreements and other instruments requiring
execution by the Trust shall be signed by the President, any
Executive Vice-President, any Senior Vice-President, any
Vice-President, the Controller, the Secretary, or the
Treasurer, or as the Board of Trustees may otherwise, from
time to time, authorize. Any such authorization may be
general or confined to specific instances.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day
of March, 2000.
/s/NICOLETTE D. PARRISH
Assistant Secretary
[SEAL]
STEINROE VARIABLE INVESTMENT TRUST
UNDERWRITING AGREEMENT WITH
LIBERTY FUNDS DISTRIBUTOR, INC.
AGREEMENT made as of April 23, 1999, as amended August 3,
1999, between SteinRoe Variable Investment Trust, a Massachusetts
business trust (the "Trust"), and Liberty Funds Distributor, Inc.,
a Massachusetts corporation (the "Underwriter").
W I T N E S S E T H:
WHEREAS, as the Trust is an open-end investment company
registered under the Investment Company Act of 1940 (the "1940
Act"), the shares of beneficial interest ("shares") of which are
registered under the Securities Act of 1933 (the "1933 Act"); and
WHEREAS, the Trust has agreed to sell its shares to the
separate accounts ("Separate Accounts") of various insurance
companies, including Keyport Life Insurance Company ("Keyport"),
investing in the Trust pursuant to a Participation Agreement in
order to fund such Separate Accounts and certain variable life
insurance policies and variable annuity contracts (the
"Contracts") issued by such insurance companies; and
WHEREAS, the Underwriter is a broker-dealer registered under
the Securities Exchange Act of 1934 (the "1934 Act) and is a
member of the National Association of Securities Dealers, Inc.
(the "NASD"); and
WHEREAS, the Underwriter is able and willing to serve as the
principal underwriter for sales of the Trust's shares to certain
Separate Accounts maintained by Participating Insurance Companies
in connection with the sale of the Contracts written by such
entities; and
WHEREAS, the Trust desires to appoint the Underwriter as the
principal underwriter for the Trust's shares that the Trust will
sell for the purpose of funding Contracts and any other variable
insurance products issued by Participating Insurance Companies
funded through their Separate Accounts under a Participation
Agreement facilitated by the Underwriter, and the Underwriter is
willing to accept such appointment.
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter contained, it is hereby agreed by and between the
parties hereto as follows:
1. The Trust hereby appoints the Underwriter as a principal
underwriter and distributor for the Trust, on the terms and
conditions herein provided, to sell its shares to the Separate
Accounts of Participating Insurance Companies, under Participation
Agreements facilitated by the Underwriter, in jurisdictions
wherein shares of the Trust may legally be offered to the Separate
Accounts for sale, it being understood that the Trust in its
absolute discretion may issue or sell shares directly to holders
of shares of the Trust upon such terms and conditions and for such
consideration, if any as it may determine, whether in connection
with the distribution of subscription or purchase rights, the
payment or reinvestment of dividends or distributions, or
otherwise. The Underwriter shall act solely as a disclosed agent
on behalf of and for account of the Trust. The Trust or its
transfer agent shall receive directly from the Separate Accounts
all payments for purchase of shares of the Trust, and shall pay
directly to the Separate Accounts all amounts due them upon
redemption of such shares, and the Underwriter shall have no
liability for the payment for purchase of shares of the Trust
which it sells as agent.
2. The Underwriter hereby accepts its appointment as a
principal underwriter and distributor for the Trust's shares with
respect to the transactions contemplated by Section 1 above. The
Underwriter shall be subject to the direction and control of the
Trust in the sale of its shares and shall not be obligated to sell
any specific number of shares of any Fund.
3. The Trust will use its best efforts to keep effectively
registered under the 1933 Act for sales herein contemplated such
shares as the Underwriter shall reasonably request and as the
Securities and Exchange Commission (the "SEC") shall permit to be
so registered.
4. Notwithstanding any other provision hereof, the Trust may
terminate, suspend or withdraw the offering of shares whenever, in
its sole discretion, it deems such action to be desirable.
5. Shares of the Trust shall be sold, repurchased or
redeemed at the current public offering price per share. The
current public offering price of the Trust's shares shall be the
net asset value per share as determined in the manner and at the
times as set forth in the current prospectus for the Trust.
6. The Trust shall continuously offer and redeem its shares
at net asset value without addition of selling commission sales
load or redemption charge. The Underwriter will receive no
compensation from the Trust for the performance of its duties
hereunder, except as otherwise specifically provided.
7. The Underwriter, or its agent, shall issue and deliver on
behalf of the Trust such confirmations of sales to the Separate
Accounts made by the Underwriter as agent pursuant to this
Agreement as may be required. Certificates, if any, shall be
issued or shares registered on the record books of the Trust or
its transfer or similar agent in such names and denominations as
the Underwriter may specify.
8. The Trust will furnish to the Underwriter from time to
time such information with respect to the Trust and its shares as
the Underwriter may reasonably request for use in connection with
the sale and distribution of shares of the Trust. The Trust will
furnish to the Underwriter in reasonable quantities, upon request
by the Underwriter, copies of annual and interim reports of the
Trust.
9. The Underwriter will not use, distribute or disseminate
or authorize the use, distribution or dissemination, in connection
with the sale and distribution of shares of the Trust, any
statements other than those contained in the Trust's current
prospectus, except such supplemental literature or advertising as
shall be lawful under federal and any state securities laws and
regulations. The Underwriter will furnish the Trust with copies
of all material containing such statements. Neither the
Underwriter nor any other person is authorized by the Trust to
give any information or to make any representations, other than
those contained in the registration statement (or related
prospectus or statement of additional information), or any
advertising or sales literature authorized by reasonable officers
of the Trust. The Underwriter shall cause any sales literature,
advertising, or other similar materials to be filed with and
reviewed by the NASD, the SEC, or any other required securities
regulatory body, as appropriate.
10. The Trust shall use its best efforts to qualify and
maintain the qualification of an appropriate number of shares of
the Trust and each Fund for sale under the federal securities laws
and the securities laws of such states, if any, as the Underwriter
may reasonably request. The Trust shall promptly notify the
Underwriter if the registration or qualification of any Trust
shares under Federal or any state securities laws, or the Trust's
registration under the 1940 Act, is suspended or terminated, or if
any governmental body or agency institutes proceedings to
terminate the offer and sale of any Trust shares in any
jurisdiction.
11. The Underwriter shall order shares of the Trust from the
Trust only to the extent that it shall have received purchase
orders therefor. The Underwriter will not make any short sales of
shares of the Trust.
12. In selling or reacquiring shares of the Trust the
Underwriter will in all respects conform to the requirements of
federal and state laws, if any, and the Rules of Conduct of the
NASD, relating to such sale or reacquisition, as the case may be.
The Underwriter will observe and be bound by all the provisions of
the Trust's Agreement and Declaration of Trust (and of any
fundamental policies adopted by the Trust pursuant to the 1940
Act, written notice of which shall have been given to the
Underwriter) which at the time in any way require, limit, restrict
or prohibit or otherwise regulate any action on the part of the
Underwriter.
13. The Underwriter will conform to the provisions hereof
and the registration statement at the time in effect under the
1933 Act and 1940 Act with respect to the Trust and the Trust's
shares, and the Underwriter shall not withhold the placing of
purchase orders so as to make a profit thereby.
14. The Trust will pay or cause to be paid expenses
(including the fees and disbursements of its own counsel) and all
taxes and fees payable to any federal, state, or other
governmental agencies on account of the registration or
qualifications of securities issued by the Trust or otherwise.
The Trust will also pay or cause to be paid expenses incident tot
he issuance of shares of beneficial interest, such as the cost of
share certificates, issue taxes, and fees of the transfer agent.
The Underwriter will pay all expenses in connection with its own
operations. All other expenses related hereto shall be borne by
the Trust or parties related to the Trust.
15. The Underwriter, or its agent, shall maintain all books
and records required by the 1934 Act and rules thereunder with
respect to purchase, redemption or repurchase of Trust shares
underwritten by the Underwriter. All books and records required
to be maintained by this paragraph shall be maintained and
preserved in conformity with the requirements of Rule 17a-3 and
17a-4 under the 1934 Act, be and remain the property of the
Underwriter, and be at all times subject to inspection by the SEC
in accordance with Section 17(a) of the 1934 Act. The Underwriter
shall itself maintain the books and records relating to the
Underwriter's general assets and liabilities or financial
statements, the computation of its aggregate indebtedness or net
capital, employment records or any other records not specifically
relating to particular purchases, redemptions or repurchases of
Trust shares.
16. The Underwriter shall be an independent contractor with
respect to the Trust and nothing herein contained shall constitute
the Underwriter, its agents or representatives, or any employee
thereof as employees of the Trust in connection with sale of
shares of the Trust. The Underwriter is responsible for its own
conduct and the employment, control and conduct of its agents,
representatives or employees. The Underwriter assumes full
responsibility for its agents, representatives and employees under
applicable statutes and agrees to pay all applicable employer
taxes.
17. The Underwriter shall indemnify and hold harmless the
Trust and each of its directors and officers (or former officers
and directors) and each person, if any, who controls the Trust
(collectively, "Indemnitees") against any loss, liability, claim,
damage, or expense (including the reasonable cost of investigating
and defending against the same and any counsel fees reasonably
incurred in connection therewith) incurred by any Indemnitees
under the 1933 Act or under common law or otherwise which arise
out of or are based upon (1) any untrue or alleged untrue
statement of a material fact contained in information furnished by
the Underwriter to the Trust for use in the Trust's registration
statement, prospectus and statement of additional information or
any supplements thereto (hereinafter collectively referred to as
the "prospectus," unless otherwise noted), or annual or interim
reports to shareholders, (2) any omission or alleged omission to
state a material fact in connection with such information
furnished by the Underwriter to the Trust which such information
furnished by the Underwriter to the Trust which is required to be
stated in any of such documents or necessary to make such
information not misleading, (3) any misrepresentation or omission
or alleged misrepresentation or omission to state a material fact
on the part of the Underwriter or any agent or employee of the
Underwriter or any other person for whose acts the Underwriter is
responsible, unless such misrepresentation or omission or alleged
misrepresentation or omission was made in reliance on written
information furnished by the Trust, (4) any untrue or alleged
untrue statement of a material fact, any omission or alleged
omission to state a material fact, or any other misrepresentation
or omission or alleged omission to state a material fact, on the
part of the Underwriter or any agent or employee of the
Underwriter or any other person for whose acts the Underwriter is
responsible, contained in or incorporated into any sales
literature or similar materials prepared by the Underwriter or any
such agent or employee of the Underwriter unless such
misrepresentation or omission or alleged misrepresentation or
omission was made in reliance on written information furnished by
the Trust, or (5) the willful misconduct or failure to exercise
reasonable care and diligence on the part of any such persons
enumerated in clauses (3) and (4) of this Section 17 with respect
to services rendered under this Agreement. This indemnity
provision, however, shall not operate to protect any officer or
Trustee of the Trust from any liability to the Trust or any
shareholder by reason or willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of the officer of such officer or Trustee.
In case any action shall be brought against any Indemnitee,
the Underwriter shall not be liable under its indemnity agreement
contained in this Section with respect to any claim made against
any Indemnitee, unless the Indemnitee shall have notified the
Underwriter in writing within a reasonable time after the summons
or other first legal process giving information of the nature of
the claim that shall have been served upon the Indemnitee (or
after the Indemnitee shall have received notice of such service on
any designated agent). Failure to notify the Underwriter of any
such claim shall not relieve it from liability which it may have
to the person against whom such action is brought otherwise than
on account of its indemnity agreement contained in this Section.
The Underwriter will be entitled to participate at its own expense
in the defense, or, if it so elects, to assume the defense of any
suit brought to enforce any such liability, but if the Underwriter
elects to assume the defense, such defense shall be conducted by
counsel choose by it and satisfactory to the Indemnitees which are
defendants in the suit. In the event the Underwriter elects to
assume the defense of any such suit and retain such counsel, the
Indemnitees which are defendants in the suit shall bear the fees
and expenses of any additional counsel retained by them, but, in
case the Underwriter does not elect to assume the defense of any
such suit, the Underwriter will reimburse the Indemnitees which
are defendants in the suit for the reasonable fees and expenses of
any counsel retained by them.
The Underwriter shall promptly notify the Trust of the
commencement of any litigation or proceedings in connection with
the issuance or sale of the shares.
The Trust will indemnify and hold harmless the Underwriter
against any loss, liability, claim, damage or expense, to which
the Underwriter may become subject insofar as such loss,
liability, claim, damage or expense (or action in respect thereof)
arise out of or are based upon any untrue or alleged untrue
statement of material fact contained in the Trust's registration
statement (or related prospectus) or arise out of or are based
upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading; and will reimburse the
Underwriter for any legal or other expenses reasonably incurred by
it in connection with investigating or defending against such
loss, claim, damage, liability or action; provided, however, that
the Trust shall not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in the Trust's prospectus in
reliance upon and in conformity with written information furnished
by the Underwriter specifically for use in the preparation
thereof.
The Trust shall not indemnify the Underwriter for any action
where a purchaser of the Contracts was not furnished or sent or
given, at or prior to written confirmation of the sale of the
Contracts, a copy of the then current prospectus for the Trust.
18. This Agreement shall become effective on the date hereof
and shall continue in effect until June 30, 2000, and from year to
year thereafter, but only so long as such continuance is
specifically approved in the manner required by the 1940 Act.
Either party hereto may terminate this Agreement without payment
of any penalty on any date by giving the other party at least six
months prior written notice of such termination specifying the
date fixed therefor. Without prejudice to any other remedies of
the Trust, in any such event the Trust may terminate this
Agreement at any time immediately upon any failure of fulfillment
of any of the obligations of the Underwriter hereunder.
19. This Agreement shall automatically terminate in the
event of its assignment. Without limiting the generality of the
foregoing, the term "assignment" when used in this Agreement,
shall have the meaning specified in the 1940 Act and the rules
thereunder.
20. Any notice under this Agreement shall be in writing,
addressed and delivered or mailed, postage prepaid, to the other
party at its principal executive offices (or such other address as
such other party may designate by notice under this Section 20).
21. All parties hereto are expressly put on notice of the
Trust's Agreement and Declaration of Trust dated June 9, 1987, and
all amendments thereto, all of which are on file with the
Secretary of the Commonwealth of Massachusetts and with the Boston
City Clerk, and the limitation of shareholder and trustee
liability contained therein. This Agreement has been executed by
and on behalf of the Trust by its representatives as such
representatives and not individually, and the obligations of the
Trust hereunder are not binding upon any of the Trustees,
officers, employees, agents or shareholders of the Trust
individually but are binding upon only the assets and property of
the Trust. With respect to any claim by the Underwriter for
recovery of any liability of the Trust arising hereunder allocated
to a particular Fund of the Trust if there be more than one
(whether in accordance with the express terms hereof or
otherwise), the Underwriter shall have recourse solely against the
assets of that Fund to satisfy such claim and shall have no
recourse against the assets of any other Fund for such purpose.
22. This Agreement shall be construed in accordance with the
laws of the Commonwealth of Massachusetts and the applicable
provisions of the 1940 Act and rules thereunder. To the extent
the applicable law of the Commonwealth of Massachusetts or any
provisions herein conflict with applicable provisions of the 1940
act or rules thereunder, the latter shall control.
IN WITNESS WHEREOF, the Trust and the Underwriter have each
caused this Agreement to be excited as of the day and year first
above written.
STEINROE VARIABLE INVESTMENT TRUST
By: THOMAS W. BUTCH
Thomas W. Butch
President
ATTEST:
NICOLETTE D. PARRISH
Nicolette D. Parrish
Assistant Secretary
LIBERTY FUNDS DISTRIBUTOR, INC.
By: LOU TASIOPOULOS
Lou Tasiopoulos
President
ATTEST:
KEVIN JACOBS
Kevin Jacobs
Assistant Clerk
STEIN ROE FUNDS
AMENDED AND RESTATED
ACCOUNTING AND BOOKKEEPING AGREEMENT
This Agreement is made this 3rd day of August, 1999 by and
between SteinRoe Variable Investment Trust, a Massachusetts
business trust, (hereinafter referred to as the "Trust") and Stein
Roe & Farnham Incorporated ("Stein Roe"), a Delaware corporation.
1. APPOINTMENT. The Trust hereby appoints Stein Roe to act as
its agent to perform the services described herein with respect to
each series of shares of the Trust (the "Series") identified in
and beginning on the date specified on Appendix I to this
Agreement, as may be amended from time to time. Stein Roe hereby
accepts appointment as the Trust's agent and agrees to perform the
services described herein.
2. ACCOUNTING.
(a) Pricing. For each Series of the Trust, Stein Roe shall
value all securities and other assets of the Series, and
compute the net asset value per share of such Series, at
such times and dates and in the manner and by such
methodology as is specified in the then currently
effective prospectus and statement of additional
information for such Series, and pursuant to such other
written procedures or instructions furnished to Stein Roe
by the Trust. To the extent procedures or instructions
used to value securities or other assets of a Series under
this Agreement are at any time inconsistent with any
applicable law or regulation, the Trust shall provide
Stein Roe with written instructions for valuing such
securities or assets in a manner which the Trust
represents to be consistent with applicable law and
regulation.
(b) Net Income. Stein Roe shall calculate with such frequency
as the Trust shall direct, the net income of each Series
of the Trust for dividend purposes and on a per share
basis. Such calculation shall be at such times and dates
and in such manner as the Trust shall instruct Stein Roe
in writing. For purposes of such calculation, Stein Roe
shall not be responsible for determining whether any
dividend or interest accruable to the Trust is or will be
actually paid, but will accrue such dividend and interest
unless otherwise instructed by the Trust.
(c) Capital Gains and Losses. Stein Roe shall calculate gains
or losses of each Series of the Trust from the sale or
other disposition of assets of that Series as the Trust
shall direct.
(d) Yields. At the request of the Trust, Stein Roe shall
compute yields for each Series of the Trust for such
periods and using such formula as shall be instructed by
the Trust.
(e) Communication of Information. Stein Roe shall provide the
Trust, the Trust's transfer agent and such other parties
as directed by the Trust with the net asset value per
share, the net income per share and yields for each Series
of the Trust at such time and in such manner and format
and with such frequency as the parties mutually agree.
(f) Information Furnished by the Trust. The Trust shall
furnish Stein Roe with any and all instructions,
explanations, information, specifications and
documentation deemed necessary by Stein Roe in the
performance of its duties hereunder, including, without
limitation, the amounts and/or written formula for
calculating the amounts, and times of accrual of
liabilities and expenses of each Series of the Trust. The
Trust shall also at any time and from time to time furnish
Stein Roe with bid, offer and/or market values of
securities owned by the Trust if the same are not
available to Stein Roe from a pricing or similar service
designated by the Trust for use by Stein Roe to value
securities or other assets. Stein Roe shall at no time be
required to commence or maintain any utilization of, or
subscriptions to, any such service which shall be the sole
responsibility and expense of the Trust.
3. RECORDKEEPING.
(a) Stein Roe shall, as agent for the Trust, maintain and keep
current and preserve the general ledger and other
accounts, books, and financial records of the Trust
relating to activities and obligations under this
Agreement in accordance with the applicable provisions of
Section 31(a) of the General Rules and Regulations under
the Investment Company Act of 1940, as amended (the
"Rules").
(b) All records maintained and preserved by Stein Roe pursuant
to this Agreement which the Trust is required to maintain
and preserve in accordance with the Rules shall be and
remain the property of the Trust and shall be surrendered
to the Trust promptly upon request in the form in which
such records have been maintained and preserved.
(c) Stein Roe shall make available on its premises during
regular business hours all records of a Trust for
reasonable audit, use and inspection by the Trust, its
agents and any regulatory agency having authority over the
Trusts.
4. INSTRUCTIONS, OPINION OF COUNSEL, AND SIGNATURES.
(a) At any time Stein Roe may apply to a duly authorized agent
of the Trust for instructions regarding the Trust, and may
consult counsel for such Trust or its own counsel, in
respect of any matter arising in connection with this
Agreement, and it shall not be liable for any action taken
or omitted by it in good faith in accordance with such
instructions or with the advice or opinion of such
counsel. Stein Roe shall be protected in acting upon any
such instruction, advice, or opinion and upon any other
paper or document delivered by the Trust or such counsel
believed by Stein Roe to be genuine and to have been
signed by the proper person or persons and shall not be
held to have notice of any change of authority of any
officer or agent of the Trust, until receipt of written
notice thereof from such Trust.
(b) Stein Roe may receive and accept a certified copy of a
vote of the Board of Trustees of the Trust as conclusive
evidence of (i) the authority of any person to act in
accordance with such vote or (ii) any determination or any
action by the Board of Trustees pursuant to its Agreement
and Declaration of Trust as described in such vote, and
such vote may be considered as in full force and effect
until receipt by Stein Roe of written notice to the
contrary.
5. COMPENSATION. The Trust shall reimburse Stein Roe from the
assets of the respective applicable Series of the Trust, for any
and all out-of-pocket expenses and charges in performing services
under this Agreement and such compensation as is provided in
Appendix II to this Agreement, as amended from time to time.
Stein Roe shall invoice the Trust as soon as practicable after the
end of each calendar month, with allocation among the respective
Series and full detail, and the Trust shall promptly pay Stein Roe
the invoiced amount.
6. CONFIDENTIALITY OF RECORDS. Stein Roe agrees not to disclose
any information received from the Trust to any other client of
Stein Roe or to any other person except its employees and agents,
and shall use its best efforts to maintain such information as
confidential. Upon termination of this Agreement, Stein Roe shall
return to the Trust all records in the possession and control of
Stein Roe related to such Trust's activities, other than Stein
Roe's own business records, it being also understood and agreed
that any programs and systems used by Stein Roe to provide the
services rendered hereunder will not be given to any Trust.
7. LIABILITY AND INDEMNIFICATION.
(a) Stein Roe shall not be liable to any Trust for any action
taken or thing done by it or its employees or agents on
behalf of the Trust in carrying out the terms and
provisions of this Agreement if done in good faith and
without negligence or misconduct on the part of Stein Roe,
its employees or agents.
(b) The Trust shall indemnify and hold Stein Roe, and its
controlling persons, if any, harmless from any and all
claims, actions, suits, losses, costs, damages, and
expenses, including reasonable expenses for counsel,
incurred by it in connection with its acceptance of this
Agreement, in connection with any action or omission by it
or its employees or agents in the performance of its
duties hereunder to the Trust, or as a result of acting
upon instructions believed by it to have been executed by
a duly authorized agent of the Trust or as a result of
acting upon information provided by the Trust in form and
under policies agreed to by Stein Roe and the Trust,
provided that: (i) to the extent such claims, actions,
suits, losses, costs, damages, or expenses relate solely
to one or more Series, such indemnification shall be only
out of the assets of that Series or group of Series; (ii)
this indemnification shall not apply to actions or
omissions constituting negligence or misconduct on the
part of Stein Roe or its employees or agents, including
but not limited to willful misfeasance, bad faith, or
gross negligence in the performance of their duties, or
reckless disregard of their obligations and duties under
this Agreement; and (iii) Stein Roe shall give the Trust
prompt notice and reasonable opportunity to defend against
any such claim or action in its own name or in the name of
Stein Roe.
(c) Stein Roe shall indemnify and hold harmless the Trust from
and against any and all claims, demands, expenses and
liabilities which such Trust may sustain or incur arising
out of, or incurred because of, the negligence or
misconduct of Stein Roe or its agents or contractors, or
the breach by Stein Roe of its obligations under this
Agreement, provided that: (i) this indemnification shall
not apply to actions or omissions constituting negligence
or misconduct on the part of such Trust or its other
agents or contractors and (ii) such Trust shall give Stein
Roe prompt notice and reasonable opportunity to defend
against any such claim or action in its own name or in the
name of such Trust.
8. FURTHER ASSURANCES. Each party agrees to perform such further
acts and execute such further documents as are necessary to
effectuate the purposes hereof.
9. DUAL INTERESTS. It is understood and agreed that some person
or persons may be trustees, officers, or shareholders of both the
Trusts and Stein Roe, and that the existence of any such dual
interest shall not affect the validity hereof or of any
transactions hereunder except as otherwise provided by specific
provision of applicable law.
10. AMENDMENT AND TERMINATION. This Agreement may be modified or
amended from time to time, or terminated, by mutual agreement
between the parties hereto and may be terminated by at least one
hundred eighty (180) days' written notice given by one party to
the other. Upon termination hereof, the Trust shall pay to Stein
Roe such compensation as may be due from it as of the date of such
termination, and shall reimburse Stein Roe for its costs,
expenses, and disbursements payable under this Agreement to such
date. In the event that, in connection with termination, a
successor to any of the duties or responsibilities of Stein Roe
hereunder is designated by a Trust by written notice to Stein Roe,
Stein Roe shall promptly upon such termination and at the expense
of such Trust, deliver to such successor all relevant books,
records, and data established or maintained by Stein Roe under
this Agreement and shall cooperate in the transfer of such duties
and responsibilities, including provision, at the expense of such
Trust, for assistance from Stein Roe personnel in the
establishment of books, records, and other data by such successor.
11. ASSIGNMENT. Any interest of Stein Roe under this Agreement
shall not be assigned or transferred either voluntarily or
involuntarily, by operation of law or otherwise, without prior
written notice to the Trust.
12. USE OF AFFILIATED COMPANIES AND SUBCONTRACTORS. In connection
with the services to be provided by Stein Roe under this
Agreement, Stein Roe may, to the extent it deems appropriate, and
subject to compliance with the requirements of applicable laws and
regulations and upon receipt of approval of the Trustees, make use
of (i) its affiliated companies and their directors, trustees,
officers, and employees and (ii) subcontractors selected by Stein
Roe, provided that Stein Roe shall supervise and remain fully
responsible for the services of all such third parties in
accordance with and to the extent provided by this Agreement. All
costs and expenses associated with services provided by any such
third parties shall be borne by Stein Roe or such parties.
13. NOTICE. Any notice under this Agreement shall be in writing,
addressed and delivered or sent by registered mail, postage
prepaid to the other party at such address as such other party may
designate for the receipt of such notices. Until further notice
to the other parties, it is agreed that the address of the Trust
and Stein Roe is One South Wacker Drive, Chicago, Illinois 60606,
Attention: Secretary.
14. NON-LIABILITY OF TRUSTEES AND SHAREHOLDERS. Any obligation of
the Trust hereunder shall be binding only upon the assets of that
Trust (or the applicable Series thereof), as provided in the
Agreement and Declaration of Trust of that Trust, and shall not be
binding upon any Trustee, officer, employee, agent or shareholder
of the Trust or upon any other Trust. Neither the authorization
of any action by the Trustees or the shareholders of the Trust,
nor the execution of this Agreement on behalf of the Trust shall
impose any liability upon any Trustee or any shareholder. Nothing
in this Agreement shall protect any Trustee against any liability
to which such Trustee would otherwise be subject by willful
misfeasance, bad faith or gross negligence in the performance of
his duties, or reckless disregard of his obligations and duties
under this Agreement. In connection with the discharge and
satisfaction of any claim made by Stein Roe against the Trust
involving more than one Series, the Trust shall have the exclusive
right to determine the appropriate allocations of liability for
any such claim between or among the Series.
15. REFERENCES AND HEADINGS. In this Agreement and in any such
amendment, references to this Agreement and all expressions such
as "herein," "hereof," and "hereunder," shall be deemed to refer
to this Agreement as amended or affected by any such amendments.
Headings are placed herein for convenience of reference only and
shall not be taken as part hereof or control or affect the
meaning, construction or effect of this Agreement. This Agreement
may be executed in any number of counterparts, each of which shall
be deemed an original.
16. GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Illinois.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the day and year first above written.
STEINROE VARIABLE INVESTMENT TRUST
By: THOMAS W. BUTCH
Attest: Thomas W. Butch, President
NICOLETTE D. PARRISH
Nicolette D. Parrish
Assistant Secretary
STEIN ROE & FARNHAM INCORPORATED
By: THOMAS W. BUTCH
Attest: Thomas W. Butch, President,
NICOLETTE D. PARRISH Mutual Funds Division
Nicolette D. Parrish
Assistant Secretary
<PAGE>
STEINROE VARIABLE INVESTMENT TRUST
ACCOUNTING & BOOKKEEPING AGREEMENT
APPENDIX I
The series of the Trust currently subject to this Agreement are as
follows:
Series Effective Date
Stein Roe Money Market Fund, Variable Series August 3, 1999
Stein Roe Mortgage Securities Fund,
Variable Series August 3, 1999
Stein Roe Balanced Fund, Variable Series August 3, 1999
Stein Roe Growth Stock Fund, Variable Series August 3, 1999
Stein Roe Small Company Growth Fund,
Variable Series August 3, 1999
Dated: August 3, 1999
<PAGE>
STEINROE VARIABLE INVESTMENT TRUST
ACCOUNTING & BOOKKEEPING AGREEMENT
APPENDIX II
For the services provided under the Accounting & Bookkeeping
Agreement (the "Agreement"), the Trust shall pay Stein Roe an
annual fee with respect to each series, calculated and paid
monthly, equal to $25,000 plus .0025 percent per annum of the
average daily net assets of the series in excess of $50 million.
Such fee shall be paid within thirty days after receipt of monthly
invoice.
FUND PARTICIPATION AGREEMENT
Stein Roe Variable Investment Trust
<PAGE>
TABLE OF CONTENTS
ARTICLE I Sale of Fund Shares ........................3
ARTICLE II. Representations and Warranties..............6
ARTICLE III. Prospectus and Proxy Statements; Voting.....8
ARTICLE IV. Sales Material and Information.............10
ARTICLE V. Fees and Expenses..........................12
ARTICLE VI. Diversification and Qualification..........14
ARTICLE VII. Potential Conflicts and Compliance With
Shared Funding Exemptive Order.............16
ARTICLE VIII. Indemnification............................19
ARTICLE IX. Applicable Law ............................25
ARTICLE X. Termination................................25
ARTICLE XI. Notices ...................................27
ARTICLE XII. Miscellaneous..............................28
SCHEDULE A Contracts..................................32
SCHEDULE B Designated Portfolios......................33
SCHEDULE C Administrative Services ...................34
SCHEDULE D Reports per Section 6.6....................35
SCHEDULE E Expenses ..................................37
PARTICIPATION AGREEMENT
AMONG
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STEINROE VARIABLE INVESTMENT TRUST,
and
STEIN ROE & FARNHAM, INCORPORATED
This Agreement, made and entered into as of this lst day of
June, 1998 by and among GREAT-WEST LIFE & ANNUITY INSURANCE
COMPANY (hereinafter "GWL&A"), a Colorado life insurance company,
on its own behalf and on behalf of its Separate Account
FutureFunds Series Account (hereinafter "FutureFunds" or the
"Account"); STEINROE VARIABLE INVESTMENT TRUST, a business trust
organized under the laws of Massachusetts (hereinafter the
"Fund"); and STEIN ROE & FARNHAM, INCORPORATED hereinafter the
"Adviser"), a Delaware corporation.
WHEREAS, the Fund engages in business as an open-end
management investment company and is available to act as the
investment vehicle for separate accounts established for variable
life insurance policies and/or variable annuity contracts
(collectively, the "Variable Insurance Products") to be offered by
insurance companies, including GWL&A, which have entered into
participation agreements similar to this Agreement (hereinafter
"Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into
several series of shares, each designated a "Portfolio" and
representing the interest in a particular managed portfolio of
securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities
and Exchange Commission (hereinafter the "SEC"), dated July 1,
1988 (File No. 812-7044), granting Participating Insurance
Companies and variable annuity and variable life insurance
separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as
amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the
extent necessary to permit shares of the Fund to be sold to and
held by variable annuity and variable life insurance separate
accounts of life insurance companies that may or may not be
affiliated with one another (hereinafter the "Shared Funding
Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management
investment company under the 1940 Act and shares of the
Portfolio(s) are registered under the Securities Act of 1933, as
amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment
adviser under the Investment Advisers Act of 1940, as amended, and
any applicable state securities laws; and
WHEREAS, FutureFunds is a duly organized, validly existing
segregated asset account, established by resolution of the Board
of Directors of GWL&A on November 15, 1983, to set aside and
invest assets attributable to the group variable annuity
contracts; and
WHEREAS, GWL&A has registered FutureFunds as a unit
investment trust under the 1940 Act and has registered the
securities deemed to be issued by FutureFunds and the variable
annuity contracts supported wholly or partially by FutureFunds
under the 1933 Act; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations, GWL&A intends to purchase shares of the
Portfolio(s) listed in Schedule B attached hereto and incorporated
by reference, as it may be amended from time to time by mutual
written agreement (the "Designated Portfolio(s)"), on behalf of
the Account to fund the group variable annuity contracts sold
through the FutureFunds (collectively, the "Contracts") and the
Fund is authorized to sell such shares to unit investment trusts
such as the Account at net asset value; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations, the Account also intends to purchase shares in
other open-end investment companies or series thereof, all of
which are not affiliated with the Fund (the "Unaffiliated Funds")
on behalf of the Account to fund the Contracts; and
NOW, THEREFORE, in consideration of their mutual promises,
GWL&A, the Fund and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to GWL&A those shares of the
Designated Portfolio(s) which the Account orders, executing such
orders each Business Day at the net asset value next computed
after receipt by the Fund or its designee of the order for the
shares of the Portfolios. For purposes of this Section 1.1, GWL&A
shall be the designee of the Fund for receipt of such orders and
receipt by such designee shall constitute receipt by the Fund,
provided that the Fund receives notice of any such order by 11:00
a.m. Mountain time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange is
open for regular session trading and on which the Fund calculates
its net asset value pursuant to the rules of the SEC.
1.2. The Fund agrees to make shares of the Designated
Portfolio(s) available for purchase at the applicable net asset
value per share by GWL&A and the Account on each Business Day on
which the Fund calculates its Designated Portfolio(s)' net asset
value pursuant to rules of the SEC, and the Fund shall calculate
such net asset value on each day which the New York Stock Exchange
is open for regular session trading. Notwithstanding the
foregoing, the Board of Trustees of the Fund (hereinafter the
"Board") may refuse to sell shares of any Portfolio to any person,
or suspend or terminate the offering of shares of any Portfolio if
such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board, acting in
good faith and in light of their fiduciary duties under federal
and any applicable state laws, necessary in the best interests of
the shareholders of such Portfolio.
1.3. The Fund will not sell shares of the Designated
Portfolio(s) to any other Participating Insurance Company,
separate account unless an agreement containing provisions
substantially the same as Sections 2.1, 3.6, 3.7, 3.8, and Article
VII of this Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on GWL&A's request,
any full or fractional shares of the Fund held by GWL&A, executing
such requests on each Business Day at the net asset value next
computed after receipt by the Fund or its designee of the request
for redemption. To the extent permitted by the 1940 Act, requests
for redemption identified by GWL&A, or its agent, as being in
connection with surrenders, transfers, or death benefits under the
Contracts, upon prior written notice, may be executed within seven
(7) calendar days after receipt by the Fund or its designee of the
requests for redemption. This Section 1.4 may be amended, in
writing, by the parties consistent with the requirements of the
1940 Act and interpretations thereof. For purposes of this
Section 1.4, GWL&A shall be the designee of the Fund for receipt
of requests for redemption and receipt by such designee shall
constitute receipt by the Fund, provided that the Fund receives
notice of any such request for redemption by 11:00 A.M. Mountain
time on the next following Business Day.
1.5 The Parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive; the Fund's shares
may be sold to other Participating Insurance Companies (subject to
Section 1.3 and Article VI hereof) and the cash value of the
Contracts may be invested in other investment companies.
1.6. GWL&A shall pay for Fund shares by 4:00 p.m. Eastern
time on the same Business Day after the Fund receives notice of an
order in accordance with the provisions of Section 1.1 hereof.
Payment shall be in federal funds transmitted by wire and/or by a
credit for any shares redeemed the same day as the purchase.
1.7. The Fund shall pay and transmit the proceeds of
redemptions of Fund shares by 2:00 p.m. Eastern time on the same
Business Day a redemption order is received in accordance with
Section 1.4 hereof. Payment shall be in federal funds transmitted
by wire and/or a credit for any shares purchased the same day as
the redemption.
1.8. Issuance and transfer of the Fund's shares will be by
book entry only. Stock certificates will not be issued to GWL&A
or the Account. Shares ordered from the Fund will be recorded in
an appropriate title for the Account or the appropriate sub-
account of the Account.
1.9. The Fund shall furnish same day notice (by wire or
telephone, followed by written confirmation) to GWL&A of any
income dividends or capital gain distributions payable on the
Designated Portfolio(s)' shares. GWL&A hereby elects to receive
all such income dividends and capital gain distributions as are
payable on the Portfolio shares in additional shares of that
Portfolio. GWL&A reserves the right to revoke this election and
to receive all such income dividends and capital gain
distributions in cash. The Fund shall notify GWL&A by the end of
the next following Business Day of the number of shares so issued
as payment of such dividends and distributions.
1.10. The Fund shall make the net asset value per share for
each Designated Portfolio available to GWL&A on a daily basis as
soon as reasonably practical after the net asset value per share
is calculated and shall use its best efforts to make such net
asset value per share available by 6:00 p.m. Eastern time. In the
event of an error in the computation of a Designated Portfolio's
net asset value per share ("NAV") or any dividend or capital gain
distribution (each, a "pricing error"), the Adviser or the Fund
shall immediately notify GWL&A as soon as possible after the
discovery of the error. Such notification may be verbal, but
shall be confirmed promptly in writing in accordance with Article
XI of this Agreement. A pricing error shall be corrected as
follows: (a) if the pricing error results in a difference between
the erroneous NAV and the correct NAV of less than $0.01 per
share, then no corrective action need be taken; (b) if the pricing
error results in a difference between the erroneous NAV and the
correct NAV equal to or greater than $0.01 per share, but less
than 1/2 of 1% of the Designated Portfolio's NAV at the time of
the error, then the Adviser shall reimburse the Designated
Portfolio for any loss, after taking into consideration any
positive effect of such error; however, no adjustments to
Contractowner Account need be made; and (c) if the pricing error
results in a difference between the erroneous NAV and the correct
NAV equal to or greater than 1/2 of 1% of the Designated
Portfolio's NAV at the time of the error, then the Adviser shall
reimburse the Designated Portfolio for any loss (without taking
into consideration any positive effect of such error) and shall
reimburse GWL&A for the costs of adjustments made to correct the
Contractowner Account in accordance with the provisions of
Schedule E. If an adjustment is necessary to correct a material
error which has caused Contractowners to receive less than the
amount to which they are entitled, the number of shares of the
applicable sub-account of such Contractowners will be adjusted and
the amount of any underpayments shall be credited by the Adviser
to GWL&A for crediting of such amounts to the applicable
Contractowners Account. Upon notification by the Adviser of any
overpayment due to a material error, GWL&A shall promptly remit to
the Adviser any overpayment that has not been paid to
Contractowners; however, Adviser acknowledges that GWL&A does not
intend to seek additional payments from any Contractowner who,
because of a pricing error, may have underpaid for units of
interest credited to his/her account. In no event shall GWL&A be
liable to Contractowners for any such adjustments or underpayment
amounts. A pricing error within categories (b) or (c) above shall
be deemed to be "materially incorrect" or constitute a "material
error" for purposes of this Agreement.
The standards set forth in this Section 1.10 are based on the
Parties' understanding of the views expressed by the staff of the
Securities and Exchange Commission ("SEC") as of the date of this
Agreement. In the event the views of the SEC staff are later
modified or superseded by SEC or judicial interpretation, the
parties shall amend the foregoing provisions of this Agreement to
comport with the appropriate applicable standards, on terms
mutually satisfactory to all Parties.
ARTICLE II. Representations and Warranties
2.1. GWL&A represents and warrants that the Contracts will
be issued and sold in compliance in all material respects with all
applicable federal and state laws and that the sale of the
Contracts shall comply in all material respects with state
insurance suitability requirements. GWL&A further represents and
warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and
validly established the Account prior to any issuance or sale of
units thereof as a segregated asset account under Section 10-7-
401, et.seq. of the Colorado Insurance Law.
2.2. The Fund represents and warrants that Designated
Portfolio(s) shares sold pursuant to this Agreement shall be
registered under the 1933 Act, duly authorized for issuance and
sold in compliance with all applicable federal securities laws
including without limitation the 1933 Act, the 1934 Act, and the
1940 Act and that the Fund is and shall remain registered under
the 1940 Act. The Fund shall amend the registration statement for
its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its
shares.
2.3. The Fund reserves the right to adopt a plan pursuant to
Rule 12b-1 under the 1940 Act and to impose an asset-based or
other charge to finance distribution expenses as permitted by
applicable law and regulation. In any event, the Fund and Adviser
agree to comply with applicable provisions and SEC staff
interpretations of the 1940 Act to assure that the investment
advisory or management fees paid to the Adviser by the Fund are in
accordance with the requirements of the 1940 Act. To the extent
that the Fund decides to finance distribution expenses pursuant to
Rule 12b-1, the Fund undertakes to have its Board, a majority of
whom are not interested persons of the Fund, formulate and approve
any plan pursuant to Rule 12b-1 under the 1940 Act to finance
distribution expenses.
2.4. The Fund represents and warrants that it will make
every effort to ensure that the investment policies, fees and
expenses of the Designated Portfolio(s) are and shall at all times
remain in compliance with the insurance and other applicable laws
of the State of Colorado and any other applicable state to the
extent required to perform this Agreement. The Fund further
represents and warrants that it will make every effort to ensure
that Designated Portfolio(s) shares will be sold in compliance
with the insurance laws of the State of Colorado and all
applicable state insurance and securities laws. The Fund shall
register and qualify the shares for sale in accordance with the
laws of the various states if and to the extent required by
applicable law. GWL&A and the Fund will endeavor to mutually
cooperate with respect to the implementation of any modifications
necessitated by any change in state insurance laws, regulations or
interpretations of the foregoing that affect the Designated
Portfolio(s) (a "Law Change"), and to keep each other informed of
any Law Change that becomes known to either party. In the event
of a Law Change, the Fund agrees that, except in those
circumstances where the Fund has advised GWL&A that its Board of
Directors has determined that implementation of a particular Law
Change is not in the best interest of all of the Fund's
shareholders with an explanation regarding why such action is
lawful, any action required by a Law Change will be taken.
2.5. The Fund represents and warrants that it is lawfully
organized and validly existing under the laws of the State of
Massachusetts and that it does and will comply in all material
aspects with the 1940 Act.
2.6. The Adviser represents and warrants that it is and
shall remain duly registered under all applicable federal and
state securities laws and that it shall perform its obligations
for the Fund in compliance in all material respects with the laws
of the State of Delaware and any applicable state and federal
securities laws.
2.7. The Fund and the Adviser represent and warrant that all
of their officers, employees, investment advisers, and other
individuals or entities dealing with money and/or securities of
the Fund are, and shall continue to be at all times, covered by a
blanket fidelity bond or similar coverage for the benefit of the
Fund in an amount not less than the minimal coverage required by
Section 17g-(1) of the 1940 Act or related provisions as may be
promulgated from time to time. The aforesaid bond shall include
coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.8. The Fund will provide GWL&A with as much advance notice
as is reasonably practicable of any material change affecting the
Designated Portfolio(s) (including, but not limited to, any
material change in its registration statement or prospectus
affecting the Designated Portfolio(s) and any proxy solicitation
affecting the Designated Portfolio(s) and consult with GWL&A in
order to implement any such change in an orderly manner,
recognizing the expenses of changes and attempting to minimize
such expenses by implementing them in conjunction with regular
annual updates of the prospectus for the Contracts. The Fund or
Adviser agree to share equitably in expenses incurred by GWL&A as
a result of actions taken by the Fund, consistent with the
allocation of expenses contained in Schedule E attached hereto and
incorporated herein by reference.
2.9. GWL&A represents and warrants, for purposes other than
diversification under Section 817 of the Internal Revenue Code of
1986, as amended (the "Code"), that the Contracts are currently
treated as annuity contracts under applicable provisions of the
Code, and that it will make every effort to maintain such
treatment and that it will notify the Fund and the Adviser
immediately upon having a reasonably basis for believing that the
Contracts have ceased to be so treated or that they might not be
so treated in the future. In addition, GWL&A represents and
warrants that the Account is a "segregated asset account" and that
interests in the Account are offered exclusively through the
purchase of or transfer into a "variable contract" within the
meaning of such terms under Section 817 of the Code and the
regulations thereunder. GWL&A will use every effort to continue
to meet such definitional requirements, and it will notify the
Fund and the Adviser immediately upon having a reasonable and good
faith basis for believing that such requirements have ceased to be
met or that they might not be met in the future.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. At least annually, the Fund or the Adviser shall
provide GWL&A with as many copies of the Fund's current prospectus
for the Designated Portfolio(s) as GWL&A may reasonably request
for marketing purposes (including distribution to Contractowners
with respect to new sales of a Contract). If requested by GWL&A
in lieu thereof, the Adviser or Fund shall provide such
documentation (including camera-ready copy and/or disk copy of the
current prospectus for the Designated Portfolio(s) also need pdf
format for digital prospectus) and other assistance as is
reasonably necessary in order for GWL&A once each year (or more
frequently if the prospectus for the Designated
Portfolio(s) are amended) to have the prospectus for any
Unaffiliated Funds and the Fund's prospectus for the Designated
Portfolio(s) printed together in one document. The Fund and
Adviser agree that the prospectuses (and semi-annual and annual
reports) for the Designated Portfolio(s) will described only the
Designated Portfolio(s) and will not name or describe any other
portfolios or series that may be in the Fund unless required by
law.
3.2. If applicable state or federal laws or regulations
require that the Statement of Additional Information ("SAI") for
the Fund be distributed to all Contractowners, then the Fund
and/or the Adviser shall provide GWL&A with copies of the Fund's
SAI or documentation thereof for the Designated Portfolios in such
quantities and/or with expenses to be borne in accordance with
Schedule E hereof, as GWL&A may reasonably require to permit
timely distribution thereof to Contractowners.
3.3. The Fund and/or the Adviser shall provide GWL&A with
copies of the Fund's proxy material, reports to stockholders and
other communications to stockholders for the Designated
Portfolio(s) in such quantity, with expenses to be borne in
accordance with Schedule E hereof, as GWL&A may reasonably request
to permit timely distribution thereof to Contractowners.
3.4. GWL&A assumes sole responsibility for ensuring that the
materials provided by the Fund in accordance with Sections 3.1
through 3.3 are delivered to Contractowners and prospective
Contractowners in accordance with applicable federal and state
securities laws and applicable insurance law.
3.5. It is understood and agreed that, except with respect
to information regarding GWL&A provided in writing, GWL&A is not
responsible for the content of the prospectus or SAI for the
Designated Portfolio(s). It is also understood and agreed that,
except with respect to information regarding the Fund, the Adviser
or the Designated Portfolio(s) provided in writing by the Fund or
the Adviser, neither the Fund nor the Adviser are responsible for
the content of the prospectus or SAI for the Contracts.
3.6. If and to the extent required by law, GWL&A shall:
(i) solicit voting instructions from Contractowners;
(ii) vote the Designated Portfolio(s) shares in accordance
with instructions from Contractowners; and
(iii) vote Designated Portfolio(s) shares for which no
instructions have been received in the same proportion
as Designated Portfolio(s) shares for which instructions
have been received from Contractowners, so long as and
to the extent that the SEC continues to interpret the
1940 Act to require pass-through voting privileges for
variable contract owners. GWL&A reserves the
right to vote Fund shares held in any segregated asset
account in its own right, to the extent permitted by
law.
3.7. GWL&A shall be responsible for assuring that each of
their separate Account holding shares of a Designated Portfolio
calculates voting privileges as directed by the Fund and agreed to
by the Fund and GWL&A. The Fund agrees to promptly notify GWL&A
of any changes of interpretations or amendments of the Shared
Funding Exemptive Order.
3.8. The Fund will comply with all provisions of the 1940
Act requiring voting by shareholders, and in particular the Fund
will either provide for annual meetings (except insofar as the SEC
may interpret Section 16 of the 1940 Act not to require such
meetings) or, as the Fund currently intends, comply with Section
16(c) of the 1940 Act (although the Fund is not one of the trusts
described in Section 16(c) of that Act) as well as with Sections
16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the SEC's interpretation of the
requirements of Section 16(a) with respect to periodic elections
of directors or trustees and with whatever rules the Commission
may promulgate with respect thereto.
3.9. GWL&A shall in no way recommend or oppose or interfere
with the solicitation of proxies for Fund shares held by
Contractowners without the prior written consent of the Fund,
which consent may be withheld in the Fund's sole discretion.
GWL&A will not initiate or solicit Contractowners to initiate any
proxy solicitation except to the extent that the failure of GWL&A
to so initiate or solicit would under the circumstances, be in
contravention with applicable federal or state law.
ARTICLE IV. Sales Material and Information
4.1. GWL&A shall furnish, or shall cause to be furnished, to
the Fund or its designee, each piece of sales literature or other
promotional material that GWL&A develops or proposes
to use and in which the Fund (or a Portfolio thereof), its
investment adviser or one of its sub-advisers is named in
connection with the Contracts, at least ten (10) Business Days
prior to its use. No such material shall be used if the Fund
objects to such use within five (5) Business Days after receipt of
such material.
4.2. GWL&A shall not give any information or make any
representations or statements on behalf of the Fund or Adviser in
connection with the sale of the Contracts other than the
information or representations contained in the registration
statement or prospectus for the Fund shares, as such registration
statement and prospectus may be amended or supplemented from time
to time, or in reports or proxy statements for the Fund, or in
sales literature or other promotional material approved by the
Fund or by the Adviser, except with the permission of the Fund or
the Adviser.
4.3. The Fund shall furnish, or shall cause to be furnished,
to GWL&A a copy of each piece of sales literature or other
promotional material in which GWL&A and/or its separate account(s)
is named at least ten (10) Business Days prior to its use. No such
material shall be used if GWL&A objects to such use within five
(5) Business Days after receipt of such material.
4.4. The Fund and the Adviser shall not give any information
or make any representations on behalf of GWL&A or concerning
GWL&A, the Account, or the Contracts other than the information or
representations contained in disclosure documents for the
Contracts, as such disclosure documents may be amended or
supplemented from time to time, or in reports for the Account, or
in sales literature or other promotional material approved by
GWL&A or its designee, except with the permission of GWL&A.
4.5. The Fund will provide to GWL&A at least one complete
copy of all registration statements, prospectuses, SAIs, reports,
proxy statements, sales literature and other promotional materials
designed for use in connection with the Contracts, and all
amendments to any of the above, that relate to the Designated
Portfolio(s), contemporaneously with the filing of such
document(s) with the SEC or NASD or other regulatory authorities.
The Fund will provide to GWL&A at least one copy of any exemptive
application and requests for no-action letters at such time as the
SEC staff may grant such application or request, to the extent
only that such applications and requests relate to the Fund's
investment objectives and policies or to the purchase of Fund
shares on behalf of the Account to fund the Contracts.
4.6. GWL&A will provide to the Fund at least one complete
copy of all solicitations for voting instructions, sales
literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to
any of the above, that relate to the Contracts or the Account,
contemporaneously with the filing of such document(s) with the
SEC, NASD, or other regulatory authority.
4.7. For purposes of this Article IV, the phrase "sales
literature or other promotional material" includes, but is not
limited to, advertisements (such as material published, or
designed for use in, a newspaper, magazine, or other periodical,
radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media; e.g.,
on-line networks such as the Internet or other electronic media),
sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including
brochures, circulars, research reports, market letters, form
letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article),
educational or training materials or other communications
distributed or made generally available to some or all agents or
employees, and registration statements, prospectuses, SAIs,
shareholder reports, and proxy materials and any other material
constituting sales literature or advertising under the NASD rules,
the 1933 Act or the 1940 Act.
4.8. At the request of any party to this Agreement, each
other party will make available to the other party's independent
auditors and/or representative of the appropriate regulatory
agencies, all records, data and access to operating procedures
that may be reasonably requested in connection with compliance and
regulatory requirements related to this Agreement or any party's
obligations under this Agreement.
ARTICLE V. Fees and Expenses
5.1. The Fund shall pay no fee or other compensation to
GWL&A under this Agreement, and GWL&A shall pay no fee or other
compensation to the Fund or Adviser under this Agreement, although
the parties hereto will bear certain expenses in accordance with
Schedule E, Articles III, V, and other provisions of this
Agreement.
5.2. All expenses incident to performance by the Fund and
Adviser under this Agreement shall be paid by the appropriate
party, as further provided in Schedule E. The Fund shall
see to it that all shares of the Designated Portfolio(s) are
registered and authorized for issuance in accordance with
applicable federal law and, if and to the extent required, in
accordance with applicable state laws prior to their sale.
5.3. The parties shall bear the expenses of routine annual
distribution (mailing costs) of the Fund's prospectus and
distribution (mailing costs) of the Fund's proxy materials and
reports to owners of Contracts offered by GWL&A, as provided in
Schedule E.
5.4. The Fund and Adviser acknowledge that a principal
feature of the Contracts is the Contractowner's ability to choose
from a number of Unaffiliated Funds (and portfolios or series
thereof), including the Designated Portfolio(s) and the
Unaffiliated Funds, and to transfer the Contract's cash value
between funds and portfolios. The Fund and Adviser agree to
cooperate with GWL&A in facilitating the operation of the Account
and the Contracts as described in the prospectus for the
Contracts, including but not limited to cooperation in
facilitating transfers between Unaffiliated Funds.
5.5. GWL&A agrees to provide certain administrative
services, specified in Schedule C attached hereto and incorporated
herein by reference, in connection with the arrangements
contemplated by this Agreement. As compensation for the services
rendered, as specified in Schedule C hereto, the Adviser agrees to
pay GWL&A a monthly Administrative Service Fee based on the
percentage per annum on Schedule C hereto applied to the average
daily value of the shares of the Designated Portfolio(s) held in
the Account with respect to Contracts sold by GWL&A. This monthly
Administrative Service Fee is due and payable before the 15th
(fifteenth) day following the last day of the month to which it
relates. The parties acknowledge and agree that the services
referred to in this Section 5.5 and Schedule C hereto are
recordkeeping, shareholder communication, and other transaction
facilitation and processing, and related administrative services
only and are not the services of an underwriter or a principal
underwriter of the Fund.
ARTICLE VI. Diversification and Qualification
6.1. The Fund and Adviser represent and warrant that the
Fund will at all times sell its shares and invest its assets in
such a manner as to ensure that the Contracts will be treated as
variable life insurance and/or variable annuity contracts under
the Code, and the regulations issued thereunder. Without limiting
the scope of the foregoing, the Fund and Adviser represent and
warrant that the Fund and each Designated Portfolio thereof will
at all times comply with Section 817(h) of the Code and Treasury
Regulation [Section] 1.817-5, as amended from time to time, and
any Treasury interpretations thereof, relating to the
diversification requirements for variable annuity, endowment, or
life insurance contracts and any amendments or other modifications
or successor provisions to such Section or Regulations. The Fund
and the Adviser agree that shares of the Designated Portfolio(s)
will be sold only to Participating Insurance Companies and their
separate Account.
6.2. No shares of Designated Portfolio of the Fund will be
sold to the general public.
6.3. The Fund and Adviser represent and warrant that the
Fund and each Designated Portfolio is currently qualified as a
Regulated Investment Company under Subchapter M of the Code, and
that each Designated Portfolio will maintain such qualification
(under Subchapter M or any successor or similar provisions) as
long as this Agreement is in effect.
6.4. The Fund or Adviser will notify GWL&A immediately upon
having a reasonable basis for believing that the Fund or any
Designated Portfolio has ceased to comply with the aforesaid
Section 817(h) diversification or Subchapter M qualification
requirements or might not so comply in the future.
6.5. Without in any way limiting the effect of Sections 8.2
and 8.3 hereof and without in any way limiting or restricting
other remedies available to GWL&A, the Adviser will pay all costs
associated with or arising out of any failure, or any anticipated
or reasonably foreseeable failure, of the Fund or any Designated
Portfolio to comply with Sections 6.1, 6.2, or 6.3 hereof,
including all costs associated with reasonable and appropriate
corrections or responses to any such failure; such costs may
include, but are not limited to, the costs involved in creating,
organizing, and registering a new investment company as a funding
medium for the Contracts and/or the costs of obtaining whatever
regulatory authorizations are required to substitute shares of
another investment company for those of
the failed Portfolio (including but not limited to an order
pursuant to Section 26(b) of the 1940 Act); such costs are to
include, but are not limited to, fees and expenses of legal
counsel and other advisors to GWL&A and any federal income taxes
or tax penalties and interests thereon (or "toll charges" or
exactments or amounts paid in settlement) incurred by GWL&A with
respect to itself or owners of its Contracts in connection with
any such failure or anticipated or reasonably foreseeable failure.
For purposes of this section 6.5 and Sections 8.2 and 8.3, a
failure to comply with Section 817(h) diversification or
Subchapter M qualification requirements shall not include any non-
compliance with such sections that is corrected within any grace
periods allowed under the Code.
6.6. The Fund at the Fund's expense shall provide GWL&A or
its designee with reports certifying compliance with the aforesaid
Section 817(h) diversification and Subchapter M qualification
requirements, at the times provided for and substantially in the
form attached hereto as Schedule D and incorporated herein by
reference; provided, however, that providing such reports does not
relieve the Fund of its responsibility for such compliance or of
its liability for any non-compliance.
6.7. GWL&A agrees that if the Internal Revenue Service
("IRS") asserts in writing in connection with any governmental
audit or review of GWL&A or, to GWL&A's knowledge, or any
Contractowner that any Designated Portfolio has failed to comply
with the diversification requirements of Section 817(h) of the
Code or GWL&A otherwise becomes away of any facts that could give
rise to any claim against the Fund or the Adviser as a result of
such failure or alleged failure:
(a) GWL&A shall promptly notify the Fund and the Adviser of
such assertion or potential claim;
(b) GWL&A shall consult with the Fund and the Adviser as to
how to minimize any liability that may arise as a result of
such failure or alleged failure;
(c) GWL&A shall use its best efforts to minimize any
liability of the Fund and the Adviser resulting from such
failure, including, without limitation, demonstrating,
pursuant to Treasury Regulations, Section 1.817-5(a)(2), to
the commissioner of the IRS that such failure was
inadvertent;
(d) any written materials to be submitted by GWL&A to the
IRS, any Contractowner or any other claimant in connection
with any of the foregoing proceedings or contests (including,
without limitation, any such materials to be submitted to the
IRS pursuant to Treasury Regulations, Section 1.817-5(a)(2))
shall be provided by GWL&A to the Fund and the Adviser
(together with any supporting information or analysis) within
at least two (2) business days prior to submission;
(e) GWL&A shall provide the Fund and the Adviser with such
cooperation as the Fund and the Adviser shall reasonably
request (including, without limitation, by permitting the
Fund and the Adviser to review the relevant books and records
of GWL&A) in order to facilitate review by the Fund and the
Adviser of any written submissions provided to it or its
assessment of the validity or amount of any claim against it
arising from such failure or alleged failure;
(f) GWL&A shall not with respect to any claim of the IRS or
any Contractowner that would give rise to a claim against the
Fund and the Adviser (i) compromise or settle any claim (ii)
accept any adjustment on audit, or (iii) forego any allowable
administrative or judicial appeals, without the express
written consent of the Fund and the Adviser, which shall not
be unreasonably withheld; provided that, GWL&A shall not be
required to appeal any adverse judicial decision unless the
Fund and the Adviser shall have provided an opinion of
independent counsel to the effect that a reasonable basis
exists for taking such appeal; and further provided that the
Fund and the Adviser shall bear the costs and expenses,
including reasonable attorney's fees, incurred by GWL&A in
complying with this clause (f).
ARTICLE VII. Potential Conflicts and Compliance With Shared
Funding Exemptive Order
7.1. The Board will monitor the Fund for the existence of
any material irreconcilable conflict between the interests of the
contract owners of all separate Accounts investing in the Fund.
An irreconcilable material conflict may arise for a variety of
reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public
ruling, private letter ruling, no-action or interpretive letter,
or any similar action by insurance, tax, or securities regulatory
authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of
any Portfolio are being
managed; (e) a difference in voting instructions given by variable
annuity contract and variable life insurance contract owners or by
contract owners of different Participating Insurance Companies; or
(f) a decision by a Participating Insurance Company to disregard
the voting instructions of contract owners. The Board shall
promptly inform GWL&A if it determines that an irreconcilable
material conflict exists and the implications thereof.
7.2. GWL&A will report any potential or existing conflicts
of which it is aware to the Board. GWL&A will assist the Board in
carrying out its responsibilities under the Shared Funding
Exemptive Order, by providing the Board with all information
reasonably necessary for the Board to consider any issues raised.
This includes, but is not limited to, an obligation by GWL&A to
inform the Board whenever contract owner voting instructions are
disregarded. Such responsibilities shall be carried out by GWL&A
with a view only to the interests of its Contractowners.
7.3. If it is determined by a majority of the Board, or a
majority of its trustees who are not interested persons of the
Fund, the Adviser or any sub-adviser to any of the Designated
Portfolios (the "Independent Trustees"), that a material
irreconcilable conflict exists, GWL&A and other Participating
Insurance Companies shall, at their expense and to the extent
reasonably practicable (as determined by a majority of the
Independent Trustees), take whatever steps are necessary to remedy
or eliminate the irreconcilable material conflict, up to and
including: (1) withdrawing the assets allocable to some or all of
the separate Account from the Fund or any Designated Portfolio and
reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be
implemented to a vote of all affected contract owners and, as
appropriate, segregating the assets of any appropriate group
(i.e., annuity contract owners, life insurance contract owners, or
variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to
the affected contract owners the option of making such a change;
and (2) establishing a new registered management investment
company or managed separate account.
7.4. If a material irreconcilable conflict arises because of
a decision by GWL&A to disregard contract owner voting
instructions and that decision represents a minority position or
would preclude a majority vote, GWL&A may be required, at the
Fund's election, to withdraw the Account's investment in the Fund
and terminate this Agreement; provided, however that such
withdrawal and termination shall be limited to the extent required
by the foregoing material irreconcilable conflict as
determined by a majority of the Independent Trustees. Any such
withdrawal and termination must take place within six (6) months
after the Fund gives written notice that this provision is being
implemented, and until the end of that six month period the
Adviser and the Fund shall continue to accept and implement orders
by GWL&A for the purchase (and redemption) of shares of the Fund.
7.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to
GWL&A conflicts with the majority of other state regulators, then
GWL&A will withdraw the Account's investment in the Fund and
terminate this Agreement within six months after the Board informs
GWL&A in writing that it has determined that such decision has
created an irreconcilable material conflict; provided, however,
that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the
Board. Until the end of the foregoing six month period, the Fund
shall continue to accept and implement orders by GWL&A for the
purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this
Agreement, a majority of the Independent Trustees shall determine
whether any proposed action adequately remedies any irreconcilable
material conflict, but in no event will the Fund be required to
establish a new funding medium for the Contracts. GWL&A shall not
be required by Section 7.3 to establish a new funding medium for
the Contracts if an offer to do so has been declined by vote of a
majority of Contract owners affected by the irreconcilable
material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable
material conflict, then GWL&A will withdraw the Account's
investment in the Fund and terminate this Agreement within six (6)
months after the Board informs GWL&A in writing of the foregoing
determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of
the Independent Trustees.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T)
are amended, or Rule 6e-3 is adopted, to provide exemptive relief
from any provision of the 1940 Act or the rules promulgated
thereunder with respect to shared funding (as defined in the
Shared Funding Exemptive Order) on terms and conditions materially
different from those contained in the Shared Funding Exemptive
Order, then (a) the Fund and/or Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to
comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as
adopted, to
the extent such rules are applicable; and (b) Sections 3.6, 3.7,
3.8, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue
in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By GWL&A
8.1(a). GWL&A agrees to indemnify and hold harmless the Fund
and the Adviser and each of their officers and directors or
trustees and each person, if any, who controls the Fund or the
Adviser within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all losses, claims, expenses,
damages, liabilities (including amounts paid in settlement with
the written consent of GWL&A) or litigation (including reasonable
legal and other expenses) to which the Indemnified Parties may
become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, expenses, damages,
liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's
shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained
in the registration statement or prospectus or SAI
covering the Contracts or contained in the Contracts or
sales literature for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this Agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished in writing to GWL&A
by or on behalf of the Adviser or Fund for use in
the registration statement or prospectus for the
Contracts or in the Contracts or sales literature (or any
amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares;
or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus or
sales literature of the Fund not supplied by GWL&A or
persons under its control) or wrongful conduct of GWL&A
or persons under its control, with respect to the sale or
distribution of the Contracts or Fund Shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in
the registration statement, prospectus, or sales
literature of the Fund, or any amendment thereof or
supplement thereto, or the omission or alleged omission
to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, if such a statement or omission was made
in reliance upon information furnished in writing to the
Fund by or on behalf of GWL&A; or
(iv) arise as a result of any failure by GWL&A to provide the
services and furnish the materials under the terms of
this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by GWL&A in
this Agreement or arise out of or result from any other
material breach of this Agreement by GWL&A, including
without limitation Section 2.10 and Section 6.7 hereof.
as limited by and in accordance with the provisions of Sections
8.1(b) and 8.1(c) hereof.
8.1(b). GWL&A shall not be liable under this indemnification
provision with respect to any losses, claims, expenses, damages,
liabilities or litigation to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this
Agreement or to any of the Indemnified Parties.
8.1(c). GWL&A shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified GWL&A in
writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify GWL&A of any such
claim shall not relieve GWL&A from any liability which it may have
to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision,
except to the extent that GWL&A has been prejudiced by such
failure to give notice. In case any such action is brought
against the Indemnified Parties, GWL&A shall be entitled to
participate, at its own expense, in the defense of such action.
GWL&A also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After
notice from GWL&A to such party of GWL&A's election to assume the
defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and GWL&A will
not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently
in connection with the defense thereof other than reasonable costs
of investigation.
8.1(d). The Indemnified Parties will promptly notify GWL&A of
the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund Shares or the
Contracts or the operation of the Fund for which the Indemnified
Parties intend to seek indemnification from GWL&A.
8.2. Indemnification by the Adviser
8.2(a). The Adviser agrees to indemnify and hold harmless
GWL&A and its directors and officers and each person, if any, who
controls GWL&A within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this
Section 8.2) against any and all losses, claims, expenses,
damages, liabilities (including amounts paid in settlement with
the written consent of the Adviser) or litigation (including
reasonable legal and other expenses) to which the Indemnified
Parties may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's
shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in the registration statement or prospectus or SAI or
sales literature or other promotional material of the
Fund prepared by the Fund or the Adviser (or any
amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the
alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
Agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished in writing
to the Adviser or Fund by or on behalf of GWL&A for use
in the registration statement or prospectus for the Fund
or in sales literature (or any amendment or supplement)
or otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus, SAI
or sales literature or other promotional material for the
Contracts not supplied by the Adviser or persons under
its control) or wrongful conduct of the Fund or Adviser
or persons under their control, with respect to the sale
or distribution of the Contracts or Fund shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in
a registration statement, prospectus, SAI, or sales
literature covering the Contracts or any amendment
thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statement or
statements therein not misleading, if such
statement or omission was made in reliance upon
information furnished in writing to GWL&A by or on behalf
of the Adviser or Fund; or
(iv) arise as a result of any failure by the Fund or the
Adviser to provide the services and furnish the materials
under the terms of this Agreement (including a failure,
whether unintentional or in good faith or otherwise, to
comply with the diversification and other qualification
requirements specified in Article VI of this Agreement);
or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Fund or
Adviser in this Agreement or arise out of or result from
any other material breach of this Agreement by the
Adviser or the Fund; or
(vi) to the extent set forth in Section 1.10, arise out of or
result from the incorrect or untimely calculation or
reporting of the daily net asset value per share or
dividend or capital gain distribution rate;
as limited by and in accordance with the provisions of Sections
8.2(b) and 8.2(c) hereof. This indemnification is in addition to
and apart from the responsibilities and obligations of the Adviser
specified in Article VI hereof.
8.2(b). The Adviser shall not be liable under this
indemnification provision with respect to any losses, claims,
expenses, damages, liabilities or litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence
in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to any of the Indemnified Parties.
8.2(c). The Adviser shall not be liable under this
indemnification provision with respect to any claim made against
an Indemnified Party unless such Indemnified Party shall have
notified the Adviser in writing within a reasonable time after the
summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified
Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify
the Adviser of any such claim shall not relieve the Adviser from
any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this
indemnification provision, except to the extent that the Adviser
has been prejudiced by such failure to give notice. In case any
such action is brought against the Indemnified Parties, the
Adviser will be entitled to participate, at its own expense, in
the defense thereof. The Adviser also shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named
in the action. After notice from the Adviser to such party of the
Adviser's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel
retained by it, and the Adviser will not be liable to such party
under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
8.2(d). GWL&A agrees promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of
its officers and directors in connection with the issuance or sale
of the Contracts or the operation of the Account for which GWL&A
intend to seek indemnification from the Adviser.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless GWL&A
and its directors and officers and each person, if any, who
controls GWL&A within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this
Section 8.3) against any and all losses, claims, expenses,
damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal
and other expenses) to which the Indemnified Parties may be
required to pay or become subject under any statute or regulation,
at common law or otherwise, insofar as such losses, claims,
expenses, damages, liabilities or expenses (or actions in respect
thereof) or settlements, are related to the operations of the Fund
and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of
this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification and other qualification
requirements specified in Article VI of this Agreement);
or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other
material breach of this Agreement by the Fund; or
(iii) arise out of or result from the incorrect or untimely
calculation or reporting of the daily net asset value per
share or dividend or capital gain distribution rate;
as limited by and in accordance with the provisions of Sections
8.3(b) and 8.3(c) hereof.
8.3(b). The Fund shall not be liable under this
indemnification provision with respect to any losses, claims,
expenses, damages, liabilities or litigation to which an
Indemnified Party would otherwise by subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence
in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to any of the Indemnified Parties.
8.3(c). The Fund shall not be liable under this
indemnification provision with respect to any claim made against
an Indemnified Party unless such Indemnified Party shall have
notified the Fund in writing within a reasonable time after the
summons or other first legal process giving information of the
nature of the claim shall have served upon such Indemnified Party
(or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the
Fund of any such claim shall not relieve it from any liability
which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this
indemnification provision, except to the extent that the Fund has
been prejudiced by such failure to give notice. In case any such
action is brought against the Indemnified Parties, the Fund will
be entitled to participate, at its own expense, in the defense
thereof. The Fund also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's
election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel
retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
8.3(d). GWL&A agrees promptly to notify the Fund of the
commencement of any litigation or proceedings against itself or
any of its respective officers or directors in connection with
this Agreement, the issuance or sale of the Contracts, the
operation of the Account, or the sale or acquisition of shares of
the Fund for which GWL&A intend to seek indemnification from the
Fund.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of State
of Colorado, without regard to the Colorado Conflict of Laws
provisions.
9.2. This Agreement shall be made subject to the provisions
of the 1933, 1934 and 1940 Acts, and the rules and regulations and
rulings thereunder, including such exemptions from those statutes,
rules and regulations as the Securities and Exchange Commission
may grant (including, but not limited
to the Shared Funding Exemptive Order) and the terms hereof shall
be interpreted and construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party, with or without cause, with
respect to some or all Portfolios, upon six (6) months
advance written notice delivered to the other parties;
provided, however, that such notice shall not be given
earlier than six (6) months following the date of this
Agreement;
or
(b) at the option of GWL&A by written notice to the other
parties with respect to any Portfolio based upon GWL&A's
reasonable and good faith determination that shares of such
Portfolio are not reasonably available to meet the
requirements of the Contracts; or
(c) at the option of GWL&A by written notice to the other
parties with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such
law precludes the use of such shares as the underlying
investment media of the Contracts issued or to be issued by
GWL&A; or
(d) at the option of the Fund in the event that formal
administrative proceedings are instituted against
GWL&A by the NASD, the SEC, the Insurance Commissioner or
like official of any state or any other regulatory body
regarding GWL&A's duties under this Agreement or related to
the sale of the Contracts, the operation of any Account, or
the purchase of the Fund shares if the Fund reasonably
determines in its sole judgement exercised in good faith,
that any such administrative proceedings will have a material
adverse effect upon the ability of GWL&A to perform its
obligations under this Agreement; or
(e) at the option of GWL&A in the event that formal
administrative proceedings are instituted against the Fund or
Adviser by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body, if
GWL&A reasonably determines in its sole judgement
exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the
ability of the Fund or Adviser to perform their obligations
under this Agreement; or
(f) at the option of GWL&A by written notice to the Fund and
the Adviser with respect to any Portfolio if GWL&A reasonably
and in good faith believes that the Portfolio will fail to
meet the Section 817(h) diversification requirements or
Subchapter M qualifications specified in Article VI hereof;
or
(g) at the option of either the Fund or Adviser, if (i) the
Fund or Adviser, respectively, shall determine, in their sole
judgement reasonably exercised in good faith, that GWL&A has
suffered a material adverse change in their business or
financial condition or is the subject of material adverse
publicity and that material adverse
change or publicity will have a material adverse impact on
GWL&A's ability to perform its obligations under this
Agreement, (ii) the Fund or Adviser notifies GWL&A of that
determination and its intent to terminate this Agreement, and
(iii) after considering the actions taken by GWL&A and any
other changes in circumstances since the giving of such
notice, the determination of the Fund or Adviser shall
continue to apply on the sixtieth (60th) day following the
giving of that notice, which sixtieth day shall be the
effective date of termination; or
(h) at the option of either GWL&A, if (i) GWL&A shall
determine, in its sole judgment reasonably exercised in good
faith, that either the Fund or Adviser has suffered a
material adverse change in its business or financial
condition or is the subject of material adverse publicity and
that material adverse change or publicity will have a
material adverse impact upon the Fund's or the Adviser's
ability to perform its obligations under this Agreement, (ii)
GWL&A notifies the Fund or the Adviser, as appropriate, of
that determination and its intent to terminate this
Agreement, and (iii) after considering the actions taken by
the Fund or the Adviser and any other changes in
circumstances since the giving of such notice, the
determination of GWL&A shall continue to apply on the
sixtieth (60th) day following the giving of that notice,
which sixtieth day shall be the effective date of
termination; or
(i) at the option of any non-defaulting party hereto in the
event of a material breach of this Agreement by any party
hereto (the "defaulting party") other than as described in
10.1(a)-(h); provided, that the non-defaulting party gives
written notice thereof to the defaulting party, with copies
of such notice to all other non-defaulting parties, and if
such breach shall not have been remedied within thirty (30)
days after such written notice is given, then the non-
defaulting party giving such written notice may terminate
this Agreement by giving thirty (30) days written notice of
termination to the defaulting party.
10.2. Notice Requirement. No termination of this Agreement
shall be effective unless and until the party terminating this
Agreement gives prior written notice to all other parties of its
intent to terminate, which notice shall set forth the basis for
such termination. Furthermore,
(a) in the event any termination is based upon the provisions
of Article VII, or the provisions of Section 10.1(a),
10.1(g), 10.1(h) or 10.1(i) of this Agreement, the prior
written notice shall be given in advance of the effective
date of termination as required by those provisions unless
such notice period is shortened by mutual written agreement
of the parties;
(b) in the event any termination is based upon the provisions
of Section 10.1(d) or 10.1(e) of this Agreement, the prior
written notice shall be given at least sixty (60) days before
the effective date of termination; and
(c) in the event any termination is based upon the provisions
of Section 10.1(b), 10.1(c) or 10.1(f), the prior written
notice shall be given in advance of the effective date of
termination, which date shall be determined by the party
sending the notice.
10.3. Effect of Termination. Notwithstanding any
termination of this Agreement other than as a result of failure by
either the Fund or GWL&A to meet Section 817(h) of the Code
diversification requirements, the Fund and the Adviser, shall, at
the option of GWL&A, continue to make available additional shares
of the Designated Portfolios pursuant to the terms and conditions
of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as
"Existing Contracts"). Specifically, without limitation, the
owners of the Existing Contracts shall be permitted to reallocate
investments in the Designated Portfolio(s), redeem investments in
the Designated Portfolios(s) and/or invest in the Designated
Portfolios upon the making of additional purchase payments under
the Existing Contracts. The parties agree that this Section 10.3
shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by
Article VII of this Agreement.
10.4. Surviving Provisions. Notwithstanding any termination
of this Agreement, each party's obligations under Article VIII to
indemnify other parties shall survive and not be affected by any
termination of this Agreement. In addition, with respect to
Existing Contracts, all provisions of this Agreement shall also
survive and not be affected by any termination of this Agreement.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by
registered or certified mail to the other party at the address of
such party set forth below or at such other address as such party
may from time to time specify in writing to the other party.
If to the Fund:
SteinRoe Variable Investment Trust
One South Wacker Drive, 32nd Floor
Chicago, IL 60606
Attention: Legal Department
If to GWL&A:
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, CO 80111
Attention: Assistant Vice President, Law Department
If to the Adviser:
Stein Roe & Farnham, Inc.
One South Wacker Drive, 32nd Floor
Chicago, IL 60606
Attention: Legal Department
ARTICLE XII. Miscellaneous
12.1. Subject to the requirements of legal process and
regulatory authority, each party hereto shall treat as
confidential the names and addresses of the owners of the
Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as
permitted by this Agreement, shall not disclose, disseminate or
utilize such names and addresses and other confidential
information without the express written consent of the affected
party until such time as such information may come into the public
domain. Without limiting the foregoing, no party hereto shall
disclose any information that another party has designated as
proprietary.
12.2. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate
any of the provisions hereof or otherwise affect their
construction or effect.
12.3. This Agreement may be executed simultaneously in two
or more counterparts, each of which taken together shall
constitute one and the same instrument.
12.4. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the
remainder of the Agreement shall not be affected thereby.
12.5. Each party hereto shall cooperate with each other
party and all appropriate governmental authorities (including
without limitation the SEC, the NASD and state insurance
regulators) and shall permit such authorities reasonable access to
its books and records in connection with any investigation or
inquiry relating to this Agreement or the transactions
contemplated hereby. Notwithstanding the generality of the
foregoing, each party hereto further agrees to furnish the
Colorado Insurance Commissioner with any information or reports in
connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the
variable annuity and/or variable life operations of GWL&A are
being conducted in a manner consistent with the Colorado Variable
Annuity Life Insurance Regulations, Colorado Variable Annuity
Regulations, as applicable, and any other applicable law or
regulations.
12.6. Any controversy or claim arising out of or relating to
this Agreement, or breach thereof, may, upon the agreement of all
parties, be settled by arbitration in a forum jointly selected by
the relevant parties (but if applicable law requires some other
forum, then such other forum) in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, or
other arbitration rules as mutually agreed to by parties and
judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof.
12.7. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all
rights, remedies and obligations, at law or in equity, which the
parties hereto are entitled to under state and federal laws.
12.8. This Agreement or any of the rights or obligations
hereunder may not be assigned by any party without the prior
written consent of all parties hereto.
12.9. GWL&A is hereby expressly put on notice of the
limitation of liability as set forth in the Trust Instrument of
the Fund and agree that the obligations assumed by the Fund
pursuant to this Agreement shall be limited in any case to the
Fund and its assets and GWL&A shall seek satisfaction of any such
obligation from the shareholders of the Fund or the Adviser, the
Trustees, officers, employees or agents of the Fund, or any of
them, except to the extent permitted under this Agreement.
12.10. GWL&A agrees that the obligations assumed by the
Adviser pursuant to this Agreement shall be limited in any case to
the Adviser and its assets and GWL&A shall not seek satisfaction
of any such obligations from the shareholders of the Adviser, the
directors, officers, employees or agents of the Adviser, or any of
them, except to the extent permitted under this Agreement.
12.11. The Fund and the Adviser agree that the obligations
assumed by GWL&A pursuant to this Agreement shall be limited in
any case to GWL&A and its respective assets and neither the Fund
nor the Adviser shall seek satisfaction of any such obligation
from the shareholders of GWL&A or its directors, officers,
employees or agents or any of them, except to the extent permitted
under this Agreement.
12.12. No provision of this Agreement may be deemed or
construed to modify or supersede any contractual rights, duties,
or indemnifications, as between the Adviser and the Fund.
12.13. No provisions of this Agreement may be amended or
modified in any manner except by a written agreement properly
authorized and executed by both parties.
IN WITNESS WHEREOF, each of the parties hereto has caused
this Agreement to be executed in its name and on its behalf by its
duly authorized representative and its seal to be hereunder
affixed hereto as of the date specified below.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By its authorized officer,
By: [SIGNATURE]
Title: Assistant Vice President
Date: June 1, 1998
STEINROE VARIABLE INVESTMENT TRUST
By its authorized officer,
By: KEVIN M. CAROME
Title: Assistant Secretary
Date: June 1, 1998
STEIN ROE & FARNHAM, INCORPORATED
By its authorized officer,
By: THOMAS W. BUTCH
Title: President- Mutual Funds Division
Date: June 1, 1998
SCHEDULE A
Contracts Form Numbers
- --------- ------------
FutureFunds
SCHEDULE B
Designated Portfolios
- ---------------------
Stein Roe Balanced Fund, Variable Series
SCHEDULE C
Administrative Services
A. Administrative services to purchasers of Contracts shall
be the responsibility of GWL&A and not the Fund or the Adviser.
Such services include the provision of properly registered and
licensed personnel and systems necessary for all customer
servicing and support for both Designated Portfolio(s) and
Contract information and questions including:
respond to Contractowner inquiries
delivery of prospectus-both Designated Portfolios and Contracts
preparation and delivery of quarterly statements
maintenance of all Contractowner records
provision of tax reporting, as applicable
entry of initial and subsequent orders
transfer of cash to Designated Portfolio(s)
explanation of obligations and characteristics of Designated
Portfolio(s)
facilitation of transfers between Designated Portfolio(s)
and/or Unaffiliated Funds
B. For the administrative services provided, GWL&A shall
receive a fee of 0.15% per annum of the average daily net asset
value of the Designated Portfolio(s) held by GWL&A's customers,
payable by the Adviser to GWL&A, such payments being due and
payable within 15 (fifteen) days after the last day of the month
to which such payment relates.
C. The Fund will calculate the asset balance for each day on
which the fee is to be paid pursuant to this Agreement with
respect to each Designated Portfolio.
SCHEDULE D
Reports per Section 6.6
With regard to the reports relating to the quarterly testing
of compliance with the requirement of Section 817(h) and
Subchapter M under the Internal Revenue Code (the "Code") and the
regulations thereunder, the Fund shall provide within twenty (20)
Business Days of the close of the calendar quarter (45 days for
the last quarter) a report to GWL&A in the Form D1 attached hereto
and incorporated herein by reference, regarding the status under
such sections of the Code of the Designated Portfolio(s), and if
necessary, identification of any remedial action to be taken to
remedy non-compliance.
With regard to the reports relating to the year-end testing
of compliance with the requirements of Subchapter M of the Code,
referred to hereinafter as "RIC status," the Fund will provide a
year-end report within 45 days after the end of the calendar year.
However, if a problem with regard to RIC status, as defined below,
is identified in any of the quarterly reports, on a weekly basis
thereafter, additional interim reports will be provided
specifically addressing the problems identified in such report.
If any interim report memorializes the cure of the problem,
subsequent interim reports will not be required.
A problem with regard to RIC status is defined as any
violation of the following standards, as referenced to the
applicable sections of the Code:
(a) If, at the Fund's fiscal year end, less than ninety
percent of gross income is derived from sources of income
specified in Section 851(b)(2);
(b) If, at the Fund's fiscal year end, thirty percent or
greater gross income is derived from the sale or disposition
of assets specified in Section 851(b)(3);
(c) If, at the end of each fiscal quarter end, less than
fifty percent of the value of the Fund's total assets
consists of assets specified in Sections 851(b)(4)(A); and
(d) If, at the end of each fiscal quarter end, no more than
twenty-five percent of the value of total assets of the Fund
is invested in the securities of one issuer, as that
requirement is set forth in Section 851(b)(4)(B).
FORM D1
CERTIFICATE OF COMPLIANCE
I, _______, a duly authorized officers, director or agent of
_____ Fund hereby certify that ______ Fund is in compliance with
all requirements of Section 817(h) and Subchapter M of the
Internal Revenue Code(the "Code") and the regulations thereunder
as required in the Fund Participation Agreement among Great-West
Life & Annuity Insurance Company, and ________________ other than
the exceptions discussed below:
Exceptions Remedial Action
_______________________________ ______________________________
_______________________________ ______________________________
_______________________________ ______________________________
_______________________________ ______________________________
_______________________________ ______________________________
_______________________________ ______________________________
_______________________________ ______________________________
_______________________________ ______________________________
_______________________________ ______________________________
_______________________________ ______________________________
_______________________________ ______________________________
_______________________________ ______________________________
_______________________________ ______________________________
If no exception to report, please indicate "None."
Signed this ___ day of ________, _____.
_______________________________________
(Signature)
By: ___________________________________
(Type or Print Name and Title/Position)
SCHEDULE E
EXPENSES
The Fund and/or Adviser, and GWL&A will coordinate the functions
and pay the costs of completing these functions based upon an
allocation of costs in the tables below. Costs shall be allocated
to reflect the Fund's share of the total costs determined
according to the number of pages of the Fund's respective portions
of the document.
<TABLE>
<CAPTION>
Item Function Party Responsible Party Responsible
for Coordination for Expense
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mutual Fund Printing of GWL&A Fund or Adviser,
Prospectus combined as applicable
prospectuses
- --------------------------------------------------------------------------------------
Fund or Adviser GWL&A Fund or Adviser,
shall supply as applicable
GWL&A film/disk
or such number of
Designated Portfolio(s)
prospectus(es) as
GWL&A requires for
printing combined
prospectus
- --------------------------------------------------------------------------------------
Distribution to New GWL&A GWL&A
and Inforce Clients
- --------------------------------------------------------------------------------------
Distribution to GWL&A GWL&A
Prospective Clients
- --------------------------------------------------------------------------------------
Mutual Fund If Required by Fund Fund or Adviser Fund or Adviser
Prospectus Update or Adviser
& Distribution
- --------------------------------------------------------------------------------------
If Required by GWL&A GWL&A GWL&A
- --------------------------------------------------------------------------------------
Item Function Party Responsible Party Responsible
for Coordination for Expense
- --------------------------------------------------------------------------------------
Mutual Fund SAI Printing Fund or Adviser Fund or Adviser
- --------------------------------------------------------------------------------------
Distribution GWL&A GWL&A
- --------------------------------------------------------------------------------------
Product Disclosure Printing GWL&A GWL&A
Documents
- --------------------------------------------------------------------------------------
Distribution GWL&A GWL&A
- --------------------------------------------------------------------------------------
Item Function Party Responsible Party Responsible
for Coordination for Expense
- --------------------------------------------------------------------------------------
Proxy Material for Printing if proxy Fund or Adviser Fund or Adviser
Mutual Fund: required by Law
- --------------------------------------------------------------------------------------
Distribution GWL&A Fund or Adviser
(including labor)
if proxy required
by Law
- --------------------------------------------------------------------------------------
Printing & distri- GWL&A GWL&A
bution if required
by GWL&A
- --------------------------------------------------------------------------------------
Item Function Party Responsible Party Responsible
for Coordination for Expense
- --------------------------------------------------------------------------------------
Mutual Fund Annual & Printing of GWL&A Fund or Adviser
Semi-Annual Report combined reports
- --------------------------------------------------------------------------------------
Distribution GWL&A GWL&A
- --------------------------------------------------------------------------------------
Other communication If Required by GWL&A Fund or Adviser
to New and Fund or Adviser
Prospective clients
- --------------------------------------------------------------------------------------
If Required GWL&A GWL&A
by GWL&A
- --------------------------------------------------------------------------------------
Item Function Party Responsible Party Responsible
for Coordination for Expense
- --------------------------------------------------------------------------------------
Other communication Distribution GWL&A Fund or Adviser
to inforce (including labor)
if required by
the Fund or Adviser
- --------------------------------------------------------------------------------------
If Required GWL&A GWL&A
by GWL&A
- --------------------------------------------------------------------------------------
Item Function Party Responsible Party Responsible
for Coordination for Expense
- --------------------------------------------------------------------------------------
Errors in Share Price Cost of error GWL&A Fund or Adviser
calculation pursuant to participants
to Section 1.10
- --------------------------------------------------------------------------------------
Cost of admin- GWL&A Fund or Adviser
istrative work
to correct error
- --------------------------------------------------------------------------------------
Operations of the All operations and Fund or Adviser Fund or Adviser
Fund related expenses,
including the cost
of registration and
qualification of shares,
taxes on the issuance
or transfer of shares,
cost of management of
the business affairs of
the Fund, and expenses
paid or assumed by the
fund pursuant to any
rule 12b-1 plan
- --------------------------------------------------------------------------------------
Operations of the All operations and GWL&A GWL&A
Account related expenses
- --------------------------------------------------------------------------------------
</TABLE>
