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. 18 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940[X]
Amendment No. 20 [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
[X] on May 1, 2000 pursuant to paragraph (b) of Rule 485
[ ] 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 St., 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>
STEINROE VARIABLE
INVESTMENT TRUST
PROSPECTUS
May 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
* * * *
Trust shares are 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>
THE TRUST........................................................3
THE FUNDS........................................................3
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....................4
Stein Roe Growth Stock Fund, Variable Series................7
Stein Roe Small Company Growth Fund, Variable Series........9
Stein Roe Mortgage Securities Fund, Variable Series........11
Stein Roe Money Market Fund, Variable Series...............14
OTHER INVESTMENTS AND RISKS.....................................17
TRUST MANAGEMENT ORGANIZATIONS..................................19
The Trustees...............................................19
The Adviser: Stein Roe & Farnham Incorporated..............19
Portfolio Managers.........................................19
FINANCIAL HIGHLIGHTS............................................21
SHAREHOLDER INFORMATION.........................................26
<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>
INVESTMENT GOAL-STEIN ROE BALANCED FUND, VARIABLE SERIES
- --------------------------------------------------------
Stein Roe Balanced Fund, Variable Series, seeks high total
investment return.
PRIMARY INVESTMENT STRATEGY
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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 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 change 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 calendar-year total
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 and the Lehman
Brothers Government/Corporate Bond Index, which are broad-based
measures of market performance. The chart and table are intended
to illustrate some of the risks of investing in the Fund by
showing the changes in the Fund's performance. All returns
include the reinvestment of dividends and distributions. As with
all mutual funds, past performance does not predict the Fund's
future performance. Performance results include any expense
reduction arrangements. If these arrangements were not in place,
then the performance results would have been lower. Any reduction
arrangements may be discontinued at any time. The Fund's
performance results do not reflect the cost of insurance and
separate account charges which are imposed under your VA contract
or VLI policy.
Calendar-Year Total Returns
<BAR CHART>
YEAR-BY-YEAR TOTAL RETURNS
30.00%
25.00% 27.93% 25.43%
20.00%
15.00% 15.63% 16.82%
10.00% 12.54% 12.53%
5.00% 7.53% 9.29%
0.00%
- -5.00% -0.69% -3.19%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
[ ] Balanced Fund
</BAR CHART>
Best quarter: 4th quarter 1999, +12.39%
Worst quarter: 3rd quarter 1990, -10.04%
1 Year 5 Years 10 Years
Stein Roe Balanced Fund, Variable Series 12.53% 16.50% 11.99%
S&P 500 Index* 21.03% 28.54% 18.19%
Lehman Brothers Government/Corporate
Bond Index* -2.15% 7.61% 7.65%
________
*The S&P 500 Index and the Lehman Brothers Government/Corporate
Bond Index are unmanaged groups of stocks that differ from the
Fund's composition; they are not available for direct investment.
<PAGE>
INVESTMENT GOAL-STEIN ROE GROWTH STOCK FUND, VARIABLE SERIES
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Stein Roe Growth Stock Fund, Variable Series, seeks long-term
growth of capital.
PRIMARY INVESTMENT STRATEGY
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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 calendar-year total
returns. The performance table following the bar chart shows how
the Fund's average annual returns compare with those of a broad
measure of market performance for one year, five years and 10
years. We compare the Fund to the S&P 500 Index, a broad-based
measure of market performance. The chart and table are intended
to illustrate some of the risks of investing in the Fund by
showing the changes in the Fund's performance. All returns
include the reinvestment of dividends and distributions. As with
all mutual funds, past performance does not predict the Fund's
future performance. Performance results include any expense
reduction arrangements. If these arrangements were not in place,
then the performance results would have been lower. Any reduction
arrangements may be discontinued at any time. The Fund's
performance results do not reflect the cost of insurance and
separate account charges which are imposed under your VA contract
or VLI policy.
Calendar-Year Total Returns
<BAR CHART>
YEAR-BY-YEAR TOTAL RETURNS
60.00%
50.00%
40.00% 48.03%
30.00% 37.73% 32.28% 36.94%
20.00% 21.28% 27.91%
10.00%
0.00% 6.63% 4.97%
- -10.00% -1.65% -6.35%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
[ ] Growth Stock Fund
</BAR CHART>
Best quarter: 4th quarter 1998, +26.43%
Worst quarter: 3rd quarter 1990, -17.42%
1 Year 5 Years 10 Years
Stein Roe Growth Stock Fund,
Variable Series 36.94% 31.08% 19.43%
S&P 500 Index* 21.03% 28.54% 18.19%
________
*The S&P 500 Index is an unmanaged group of stocks that differs
from the Fund's composition; it is not available for direct
investment.
<PAGE>
INVESTMENT 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 calendar-year total
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 your VA contract
or VLI policy.
Calendar Year Total Returns
<BAR CHART>
YEAR-BY-YEAR TOTAL RETURNS
60.00%
40.00% 48.02%
20.00% 37.25% 35.68% 11.75% 26.94%
0.00% 14.48% 1.19% 7.81%
- -10.00% -8.91%
- -20.00% -17.30%
- -40.00%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
[ ] Small Company Growth Fund
</BAR CHART>
Best quarter: 4th quarter 1999, +35.39%
Worst quarter: 3rd quarter 1990, -21.18%
1 Year 5 Years 10 Years
Stein Roe Small Company Growth
Fund, Variable Series 48.02% 13.36% 13.91%
S&P SmallCap 600 Index* 12.41% 17.05% 13.04%
________
*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>
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.
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 assure 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 calendar-year total
returns. The performance table following the bar chart shows how
the Fund's average annual returns compare with those of a broad
measure of market performance for one year, five years and 10
years. We compare the Fund to the Lehman Mortgage-Backed
Securities Index, a broad-based measure of market performance.
The chart and table are intended to illustrate some of the risks
of investing in the Fund by showing the changes in the Fund's
performance. All returns include the reinvestment of dividends
and distributions. As with all mutual funds, past performance
does not predict the Fund's future performance. Performance
results include any expense reduction arrangements. If these
arrangements were not in place, then the performance results would
have been lower. Any reduction arrangements may be discontinued
at any time. The Fund's performance results do not reflect the
cost of insurance and separate account charges which are imposed
under your VA contract or VLI policy.
Calendar-Year Total Returns
<BAR CHART>
YEAR-BY-YEAR TOTAL RETURNS
20.00%
15.00% 15.74%
10.00% 14.48%
5.00% 9.10% 5.96% 6.26% 9.04% 6.80%
0.00% 4.70% 1.08%
- -5.00% -1.47%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
[ ] Mortgage Securities Fund
</BAR CHART>
Best quarter: 3rd quarter 1991, +5.13%
Worst quarter: 1st quarter 1994, -1.77%
1 Year 5 Years 10 Years
Stein Roe Mortgage Securities
Fund, Variable Series 1.08% 7.34% 7.04%
Lehman Mortgage-Backed
Securities Index* 1.86% 7.98% 7.78%
________
*The Lehman Mortgage-Backed Securities Index is an unmanaged group
of securities that differs from the Fund's composition; it is not
available for direct investment.
<PAGE>
INVESTMENT 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.
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 calendar-year total
returns. The chart is intended to illustrate some of the risks of
investing in the Fund by showing the changes in the Fund's
performance. All returns include the reinvestment of dividends
and distributions. As with all mutual funds, past performance
does not predict the Fund's future performance. Performance
results include any expense reduction arrangements. If these
arrangements were not in place, then the performance results would
have been lower. Any reduction arrangements may be discontinued
at any time. The Fund's performance results do not reflect the
cost of insurance and separate account charges which are imposed
under your VA contract or VLI policy.
Calendar-Year Total Returns
<BAR CHART>
YEAR-BY-YEAR TOTAL RETURNS
10.00%
8.00%
6.00% 7.95%
4.00% 5.99% 5.62% 5.01% 5.18% 5.17% 4.79%
2.00% 3.64% 2.78% 3.67%
0.00%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
[ ] Money Market Fund
</BAR CHART>
Best quarter: 1st quarter 1990, +2.04%
Worst quarter: 3rd quarter 1993, +0.67%
<PAGE>
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.
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
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 and administrative 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.
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.
<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 December 31, 1999, have been audited by
PricewaterhouseCoopers LLP, independent accountants, whose
reports, along with the financial statements, are 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.
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%
<FN>
(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.
</TABLE>
<PAGE>
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%
<FN>
(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.
</TABLE>
<PAGE>
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%
<FN>
(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.
</TABLE>
<PAGE>
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%
<FN>
(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.
</TABLE>
<PAGE>
Stein Roe Money Market 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 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
Net investment income (a) 0.047 0.050 0.050 0.049 0.055
-------- -------- -------- -------- --------
Net realized and unrealized gains
on investments - - - - -
-------- -------- -------- -------- --------
Total from investment operations 0.047 0.050 0.050 0.049 0.055
-------- -------- -------- -------- --------
Less distributions:
From net investment income (0.047) (0.050) (0.050) (0.049) (0.055)
-------- -------- -------- -------- --------
Net asset value, end of year $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
Total return:
Total investment return (b) 4.79% 5.17% 5.18% 5.01% 5.62%
Ratios/supplemental data:
Net assets, end of year (000s) $170,539 $101,340 $67,137 $65,461 $64,992
Ratio of expenses to average
net assets (c) 0.52%(d) 0.62% 0.65% 0.65% 0.63%
Ratio of net investment income
to average net assets (c) 4.75%(d) 4.99% 5.05% 4.90% 5.48%
<FN>
(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.
</TABLE>
<PAGE>
SHAREHOLDER INFORMATION
Purchases and Redemptions
The Participating Insurance Companies place daily orders to
purchase and redeem shares of the Funds. These orders generally
reflect the net effect of instructions they receive from holders
of their VA contracts and VLI policies and certain other terms of
those contracts and policies. The Trust issues and redeems shares
at NAV without imposing any selling commission, sales load or
redemption charge. Shares generally are sold and redeemed at
their NAV next determined after receipt of purchase or redemption
requests from Participating Insurance Companies. The right of
redemption may be suspended or payment postponed whenever
permitted by applicable law and regulations.
How a Fund's Share Price is Determined
Each Fund's share price is its NAV next determined. NAV is the
difference between the values of a Fund's assets and liabilities
divided by the number of shares outstanding. We determine NAV at
the close of regular trading on the New York Stock Exchange
(NYSE)-normally 4 p.m. New York time.
Money Market Fund. The valuation of the Money Market Fund's
securities is based on their amortized cost, which does not take
into account unrealized gains or losses, in an attempt to maintain
its NAV at $1 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.
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.
<PAGE>
FOR MORE INFORMATION
Adviser: Stein Roe & Farnham Incorporated
You can get more information about the Funds' investments in the
Funds' semiannual and annual reports to shareholders. The annual
report contains a discussion of the market conditions and
investment strategies that significantly affected the Funds'
performance over the last fiscal year.
You may wish to read the Funds' Statement of Additional
Information (SAI) for more information on a Fund and the
securities in which it invests. The SAI is incorporated into this
prospectus by reference, which means that it is considered to be
part of this prospectus.
You can get free copies of the annual report and the SAI, request
other information and discuss your questions about the Funds by
writing:
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
- ----------------------------------------------------------------
<PAGE>
STEINROE VARIABLE
INVESTMENT TRUST
PROSPECTUS
May 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 Money Market Fund, Variable Series
* * * *
Trust shares are 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>
THE TRUST.......................................................3
THE FUNDS.......................................................3
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....................4
Stein Roe Growth Stock Fund, Variable Series................7
Stein Roe Small Company Growth Fund, Variable Series........9
Stein Roe Money Market Fund, Variable Series...............11
OTHER INVESTMENTS AND RISKS....................................14
TRUST MANAGEMENT ORGANIZATIONS.................................16
The Trustees...............................................16
The Adviser: Stein Roe & Farnham Incorporated..............16
Portfolio Managers.........................................16
FINANCIAL HIGHLIGHTS...........................................18
SHAREHOLDER INFORMATION........................................22
<PAGE>
THE TRUST
SteinRoe Variable Investment Trust (Trust) includes five separate
mutual funds (Funds), each with its own investment goal and
strategies. This prospectus contains information about the
following Funds in the Trust:
* Stein Roe Balanced Fund, Variable Series
* Stein Roe Growth Stock Fund, Variable Series
* Stein Roe Small Company Growth 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>
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 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 change 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 calendar-year total
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 and the Lehman
Brothers Government/Corporate Bond Index, which are broad-based
measures 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.
<BAR CHART>
YEAR-BY-YEAR TOTAL RETURNS
30.00%
25.00% 27.93% 25.43%
20.00%
15.00% 15.63% 16.82%
10.00% 12.54% 12.53%
5.00% 7.53% 9.29%
0.00%
- -5.00% -0.69% -3.19%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
[ ] Balanced Fund
</BAR CHART>
Calendar-Year Total Returns
Best quarter: 4th quarter 1999, +12.39%
Worst quarter: 3rd quarter 1990, -10.04%
1 Year 5 Years 10 Years
Stein Roe Balanced Fund, Variable Series 12.53% 16.50% 11.99%
S&P 500 Index* 21.03% 28.54% 18.19%
Lehman Brothers Government/Corporate
Bond Index* -2.15% 7.61% 7.65%
________
*The S&P 500 Index and the Lehman Brothers Government/Corporate
Bond Index are unmanaged groups of stocks that differ from the
Fund's composition; they are not available for direct investment.
<PAGE>
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 calendar-year total
returns. The performance table following the bar chart shows how
the Fund's average annual returns compare with those of a broad
measure of market performance for one year, five years and 10
years. We compare the Fund to the S&P 500 Index, a broad-based
measure of market performance. The chart and table are intended
to illustrate some of the risks of investing in the Fund by
showing the changes in the Fund's performance. All returns
include the reinvestment of dividends and distributions. As with
all mutual funds, past performance does not predict the Fund's
future performance. Performance results include any expense
reduction arrangements. If these arrangements were not in place,
then the performance results would have been lower. Any reduction
arrangements may be discontinued at any time. The Fund's
performance results do not reflect the cost of insurance and
separate account charges which are imposed under your VA contract
or VLI policy.
Calendar-Year Total Returns
<BAR CHART>
YEAR-BY-YEAR TOTAL RETURNS
60.00%
50.00%
40.00% 48.03%
30.00% 37.73% 32.28% 36.94%
20.00% 21.28% 27.91%
10.00%
0.00% 6.63% 4.97%
- -10.00% -1.65% -6.35%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
[ ] Growth Stock Fund
</BAR CHART>
Best quarter: 4th quarter 1998, +26.43%
Worst quarter: 3rd quarter 1990, -17.42%
1 Year 5 Years 10 Years
Stein Roe Growth Stock Fund,
Variable Series 36.94% 31.08% 19.43%
S&P 500 Index* 21.03% 28.54% 18.19%
________
*The S&P 500 Index is an unmanaged group of stocks that differs
from the Fund's composition; it is not available for direct
investment.
<PAGE>
INVESTMENT 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 calendar-year total
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 your VA contract
or VLI policy.
Calendar Year Total Returns
<BAR CHART>
YEAR-BY-YEAR TOTAL RETURNS
60.00%
40.00% 48.02%
20.00% 37.25% 35.68% 11.75% 26.94%
0.00% 14.48% 1.19% 7.81%
- -10.00% -8.91%
- -20.00% -17.30%
- -40.00%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
[ ] Small Company Growth Fund
</BAR CHART>
Best quarter: 4th quarter 1999, +35.39%
Worst quarter: 3rd quarter 1990, -21.18%
1 Year 5 Years 10 Years
Stein Roe Small Company Growth
Fund, Variable Series 48.02% 13.36% 13.91%
S&P SmallCap 600 Index* 12.41% 17.05% 13.04%
________
*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>
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.
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 calendar-year total
returns. The chart is intended to illustrate some of the risks of
investing in the Fund by showing the changes in the Fund's
performance. All returns include the reinvestment of dividends
and distributions. As with all mutual funds, past performance
does not predict the Fund's future performance. Performance
results include any expense reduction arrangements. If these
arrangements were not in place, then the performance results would
have been lower. Any reduction arrangements may be discontinued
at any time. The Fund's performance results do not reflect the
cost of insurance and separate account charges which are imposed
under your VA contract or VLI policy.
Calendar-Year Total Returns
<BAR CHART>
YEAR-BY-YEAR TOTAL RETURNS
10.00%
8.00%
6.00% 7.95%
4.00% 5.99% 5.62% 5.01% 5.18% 5.17% 4.79%
2.00% 3.64% 2.78% 3.67%
0.00%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
[ ] Money Market Fund
</BAR CHART>
Best quarter: 1st quarter 1990, +2.04%
Worst quarter: 3rd quarter 1993, +0.67%
<PAGE>
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.
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
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 and administrative 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 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.
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.
<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 December 31, 1999, have been audited by
PricewaterhouseCoopers LLP, independent accountants, whose
reports, along with the financial statements, are 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.
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%
<FN>
(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.
</TABLE>
<PAGE>
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%
<FN>
(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.
</TABLE>
<PAGE>
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%
<FN>
(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.
</TABLE>
<PAGE>
Stein Roe Money Market 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 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
Net investment income (a) 0.047 0.050 0.050 0.049 0.055
-------- -------- -------- -------- --------
Net realized and unrealized gains
on investments - - - - -
-------- -------- -------- -------- --------
Total from investment operations 0.047 0.050 0.050 0.049 0.055
-------- -------- -------- -------- --------
Less distributions:
From net investment income (0.047) (0.050) (0.050) (0.049) (0.055)
-------- -------- -------- -------- --------
Net asset value, end of year $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
Total return:
Total investment return (b) 4.79% 5.17% 5.18% 5.01% 5.62%
Ratios/supplemental data:
Net assets, end of year (000s) $170,539 $101,340 $67,137 $65,461 $64,992
Ratio of expenses to average
net assets (c) 0.52%(d) 0.62% 0.65% 0.65% 0.63%
Ratio of net investment income
to average net assets (c) 4.75%(d) 4.99% 5.05% 4.90% 5.48%
<FN>
(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.
</TABLE>
<PAGE>
SHAREHOLDER INFORMATION
Purchases and Redemptions
The Participating Insurance Companies place daily orders to
purchase and redeem shares of the Funds. These orders generally
reflect the net effect of instructions they receive from holders
of their VA contracts and VLI policies and certain other terms of
those contracts and policies. The Trust issues and redeems shares
at NAV without imposing any selling commission, sales load or
redemption charge. Shares generally are sold and redeemed at
their NAV next determined after receipt of purchase or redemption
requests from Participating Insurance Companies. The right of
redemption may be suspended or payment postponed whenever
permitted by applicable law and regulations.
How a Fund's Share Price is Determined
Each Fund's share price is its NAV next determined. NAV is the
difference between the values of a Fund's assets and liabilities
divided by the number of shares outstanding. We determine NAV at
the close of regular trading on the New York Stock Exchange
(NYSE)-normally 4 p.m. New York time.
Money Market Fund. The valuation of the Money Market Fund's
securities is based on their amortized cost, which does not take
into account unrealized gains or losses, in an attempt to maintain
its NAV at $1 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.
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.
<PAGE>
FOR MORE INFORMATION
Adviser: Stein Roe & Farnham Incorporated
You can get more information about the Funds' investments in the
Funds' semiannual and annual reports to shareholders. The annual
report contains a discussion of the market conditions and
investment strategies that significantly affected the Funds'
performance over the last fiscal year.
You may wish to read the Funds' Statement of Additional
Information (SAI) for more information on a Fund and the
securities in which it invests. The SAI is incorporated into this
prospectus by reference, which means that it is considered to be
part of this prospectus.
You can get free copies of the annual report and the SAI, request
other information and discuss your questions about the Funds by
writing:
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
- --------------------------------------------------------------
<PAGE>
STEINROE VARIABLE
INVESTMENT TRUST
PROSPECTUS
May 1, 2000
* Stein Roe Balanced Fund, Variable Series
* Stein Roe Growth Stock Fund, Variable Series
* Stein Roe Mortgage Securities Fund, Variable Series
* Stein Roe Money Market Fund, Variable Series
* * * *
Trust shares are 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>
THE TRUST.......................................................3
THE FUNDS.......................................................3
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....................4
Stein Roe Growth Stock Fund, Variable Series................7
Stein Roe Mortgage Securities Fund, Variable Series.........9
Stein Roe Money Market Fund, Variable Series...............12
OTHER INVESTMENTS AND RISKS....................................15
TRUST MANAGEMENT ORGANIZATIONS.................................17
The Trustees...............................................17
The Adviser: Stein Roe & Farnham Incorporated..............17
Portfolio Managers.........................................17
FINANCIAL HIGHLIGHTS...........................................19
SHAREHOLDER INFORMATION........................................23
<PAGE>
THE TRUST
SteinRoe Variable Investment Trust (Trust) includes five separate
mutual funds (Funds), each with its own investment goal and
strategies. This prospectus contains information about the
following Funds in the Trust:
* Stein Roe Balanced Fund, Variable Series
* Stein Roe Growth Stock 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>
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 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 change 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 calendar-year total
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 and the Lehman
Brothers Government/Corporate Bond Index, which are broad-based
measures of market performance. The chart and table are intended
to illustrate some of the risks of investing in the Fund by
showing the changes in the Fund's performance. All returns
include the reinvestment of dividends and distributions. As with
all mutual funds, past performance does not predict the Fund's
future performance. Performance results include any expense
reduction arrangements. If these arrangements were not in place,
then the performance results would have been lower. Any reduction
arrangements may be discontinued at any time. The Fund's
performance results do not reflect the cost of insurance and
separate account charges which are imposed under your VA contract
or VLI policy.
Calendar-Year Total Returns
<BAR CHART>
YEAR-BY-YEAR TOTAL RETURNS
30.00%
25.00% 27.93% 25.43%
20.00%
15.00% 15.63% 16.82%
10.00% 12.54% 12.53%
5.00% 7.53% 9.29%
0.00%
- -5.00% -0.69% -3.19%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
[ ] Balanced Fund
</BAR CHART>
Best quarter: 4th quarter 1999, +12.39%
Worst quarter: 3rd quarter 1990, -10.04%
1 Year 5 Years 10 Years
Stein Roe Balanced Fund, Variable Series 12.53% 16.50% 11.99%
S&P 500 Index* 21.03% 28.54% 18.19%
Lehman Brothers Government/Corporate
Bond Index* -2.15% 7.61% 7.65%
________
*The S&P 500 Index and the Lehman Brothers Government/Corporate
Bond Index are unmanaged groups of stocks that differ from the
Fund's composition; they are not available for direct investment.
<PAGE>
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 calendar-year total
returns. The performance table following the bar chart shows how
the Fund's average annual returns compare with those of a broad
measure of market performance for one year, five years and 10
years. We compare the Fund to the S&P 500 Index, a broad-based
measure of market performance. The chart and table are intended
to illustrate some of the risks of investing in the Fund by
showing the changes in the Fund's performance. All returns
include the reinvestment of dividends and distributions. As with
all mutual funds, past performance does not predict the Fund's
future performance. Performance results include any expense
reduction arrangements. If these arrangements were not in place,
then the performance results would have been lower. Any reduction
arrangements may be discontinued at any time. The Fund's
performance results do not reflect the cost of insurance and
separate account charges which are imposed under your VA contract
or VLI policy.
Calendar-Year Total Returns
<BAR CHART>
YEAR-BY-YEAR TOTAL RETURNS
60.00%
50.00%
40.00% 48.03%
30.00% 37.73% 32.28% 36.94%
20.00% 21.28% 27.91%
10.00%
0.00% 6.63% 4.97%
- -10.00% -1.65% -6.35%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
[ ] Growth Stock Fund
</BAR CHART>
Best quarter: 4th quarter 1998, +26.43%
Worst quarter: 3rd quarter 1990, -17.42%
1 Year 5 Years 10 Years
Stein Roe Growth Stock Fund,
Variable Series 36.94% 31.08% 19.43%
S&P 500 Index* 21.03% 28.54% 18.19%
________
*The S&P 500 Index is an unmanaged group of stocks that differs
from the Fund's composition; it is not available for direct
investment.
<PAGE>
INVESTMENT 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.
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 assure 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 calendar-year total
returns. The performance table following the bar chart shows how
the Fund's average annual returns compare with those of a broad
measure of market performance for one year, five years and 10
years. We compare the Fund to the Lehman Mortgage-Backed
Securities Index, a broad-based measure of market performance.
The chart and table are intended to illustrate some of the risks
of investing in the Fund by showing the changes in the Fund's
performance. All returns include the reinvestment of dividends
and distributions. As with all mutual funds, past performance
does not predict the Fund's future performance. Performance
results include any expense reduction arrangements. If these
arrangements were not in place, then the performance results would
have been lower. Any reduction arrangements may be discontinued
at any time. The Fund's performance results do not reflect the
cost of insurance and separate account charges which are imposed
under your VA contract or VLI policy.
Calendar-Year Total Returns
<BAR CHART>
YEAR-BY-YEAR TOTAL RETURNS
20.00%
15.00% 15.74%
10.00% 14.48%
5.00% 9.10% 5.96% 6.26% 9.04% 6.80%
0.00% 4.70% 1.08%
- -5.00% -1.47%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
[ ] Mortgage Securities Fund
</BAR CHART>
Best quarter: 3rd quarter 1991, +5.13%
Worst quarter: 1st quarter 1994, -1.77%
1 Year 5 Years 10 Years
Stein Roe Mortgage Securities
Fund, Variable Series 1.08% 7.34% 7.04%
Lehman Mortgage-Backed
Securities Index* 1.86% 7.98% 7.78%
________
*The Lehman Mortgage-Backed Securities Index is an unmanaged group
of securities that differs from the Fund's composition; it is not
available for direct investment.
<PAGE>
INVESTMENT 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.
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 calendar-year total
returns. The chart is intended to illustrate some of the risks of
investing in the Fund by showing the changes in the Fund's
performance. All returns include the reinvestment of dividends
and distributions. As with all mutual funds, past performance
does not predict the Fund's future performance. Performance
results include any expense reduction arrangements. If these
arrangements were not in place, then the performance results would
have been lower. Any reduction arrangements may be discontinued
at any time. The Fund's performance results do not reflect the
cost of insurance and separate account charges which are imposed
under your VA contract or VLI policy.
Calendar-Year Total Returns
<BAR CHART>
YEAR-BY-YEAR TOTAL RETURNS
10.00%
8.00%
6.00% 7.95%
4.00% 5.99% 5.62% 5.01% 5.18% 5.17% 4.79%
2.00% 3.64% 2.78% 3.67%
0.00%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
[ ] Money Market Fund
</BAR CHART>
Best quarter: 1st quarter 1990, +2.04%
Worst quarter: 3rd quarter 1993, +0.67%
<PAGE>
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 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% 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.
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
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 and administrative 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 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 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.
<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 December 31, 1999, have been audited by
PricewaterhouseCoopers LLP, independent accountants, whose
reports, along with the financial statements, are 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.
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%
<FN>
(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.
</TABLE>
<PAGE>
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%
<FN>
(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.
</TABLE>
<PAGE>
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%
<FN>
(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.
</TABLE>
<PAGE>
Stein Roe Money Market 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 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
Net investment income (a) 0.047 0.050 0.050 0.049 0.055
-------- -------- -------- -------- --------
Net realized and unrealized gains
on investments - - - - -
-------- -------- -------- -------- --------
Total from investment operations 0.047 0.050 0.050 0.049 0.055
-------- -------- -------- -------- --------
Less distributions:
From net investment income (0.047) (0.050) (0.050) (0.049) (0.055)
-------- -------- -------- -------- --------
Net asset value, end of year $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
Total return:
Total investment return (b) 4.79% 5.17% 5.18% 5.01% 5.62%
Ratios/supplemental data:
Net assets, end of year (000s) $170,539 $101,340 $67,137 $65,461 $64,992
Ratio of expenses to average
net assets (c) 0.52%(d) 0.62% 0.65% 0.65% 0.63%
Ratio of net investment income
to average net assets (c) 4.75%(d) 4.99% 5.05% 4.90% 5.48%
<FN>
(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.
</TABLE>
<PAGE>
SHAREHOLDER INFORMATION
Purchases and Redemptions
The Participating Insurance Companies place daily orders to
purchase and redeem shares of the Funds. These orders generally
reflect the net effect of instructions they receive from holders
of their VA contracts and VLI policies and certain other terms of
those contracts and policies. The Trust issues and redeems shares
at NAV without imposing any selling commission, sales load or
redemption charge. Shares generally are sold and redeemed at
their NAV next determined after receipt of purchase or redemption
requests from Participating Insurance Companies. The right of
redemption may be suspended or payment postponed whenever
permitted by applicable law and regulations.
How a Fund's Share Price is Determined
Each Fund's share price is its NAV next determined. NAV is the
difference between the values of a Fund's assets and liabilities
divided by the number of shares outstanding. We determine NAV at
the close of regular trading on the New York Stock Exchange
(NYSE)-normally 4 p.m. New York time.
Money Market Fund. The valuation of the Money Market Fund's
securities is based on their amortized cost, which does not take
into account unrealized gains or losses, in an attempt to maintain
its NAV at $1 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.
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.
<PAGE>
FOR MORE INFORMATION
Adviser: Stein Roe & Farnham Incorporated
You can get more information about the Funds' investments in the
Funds' semiannual and annual reports to shareholders. The annual
report contains a discussion of the market conditions and
investment strategies that significantly affected the Funds'
performance over the last fiscal year.
You may wish to read the Funds' Statement of Additional
Information (SAI) for more information on a Fund and the
securities in which it invests. The SAI is incorporated into this
prospectus by reference, which means that it is considered to be
part of this prospectus.
You can get free copies of the annual report and the SAI, request
other information and discuss your questions about the Funds by
writing:
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
- --------------------------------------------------------------
<PAGE>
STEINROE VARIABLE
INVESTMENT TRUST
PROSPECTUS
May 1, 2000
* Stein Roe Balanced Fund, Variable Series
* * * *
Trust shares are 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>
THE TRUST..................................................3
THE FUND...................................................4
Investment Goal........................................4
Primary Investment Strategy............................4
Primary Investment Risks...............................4
Performance History....................................5
OTHER INVESTMENTS AND RISKS................................7
TRUST MANAGEMENT ORGANIZATIONS.............................8
The Trustees...........................................8
The Adviser: Stein Roe & Farnham Incorporated..........8
Portfolio Manager......................................8
FINANCIAL HIGHLIGHTS.......................................9
SHAREHOLDER INFORMATION...................................10
<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 Stein Roe
Balanced Fund, Variable Series. Other Funds may be added or
deleted from time to time.
The Trust's Funds are investment options under variable annuity
contracts (VA contracts) and variable life insurance policies (VLI
policies) issued by life insurance companies (Participating
Insurance Companies). Some (but not all) Participating Insurance
Companies are affiliated with the investment adviser to the Funds.
Participating Insurance Companies invest in the Funds through
separate accounts that they set up for that purpose. Owners of VA
contracts and VLI policies invest in sub-accounts of those
separate accounts through instructions they give to their
insurance company.
The prospectuses of the Participating Insurance Companies'
separate accounts describe which Funds are available to the
purchasers of their own VA contracts and VLI policies.
<PAGE>
THE FUND
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.
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 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 change 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 calendar-year total
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 and the Lehman
Brothers Government/Corporate Bond Index, which are broad-based
measures of market performance. The chart and table are intended
to illustrate some of the risks of investing in the Fund by
showing the changes in the Fund's performance. All returns
include the reinvestment of dividends and distributions. As with
all mutual funds, past performance does not predict the Fund's
future performance. Performance results include any expense
reduction arrangements. If these arrangements were not in place,
then the performance results would have been lower. Any reduction
arrangements may be discontinued at any time. The Fund's
performance results do not reflect the cost of insurance and
separate account charges which are imposed under your VA contract
or VLI policy.
Calendar-Year Total Returns
<BAR CHART>
YEAR-BY-YEAR TOTAL RETURNS
30.00%
25.00% 27.93% 25.43%
20.00%
15.00% 15.63% 16.82%
10.00% 12.54% 12.53%
5.00% 7.53% 9.29%
0.00%
- -5.00% -0.69% -3.19%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
[ ] Balanced Fund
</BAR CHART>
Best quarter: 4th quarter 1999, +12.39%
Worst quarter: 3rd quarter 1990, -10.04%
1 Year 5 Years 10 Years
Stein Roe Balanced Fund, Variable Series 12.53% 16.50% 11.99%
S&P 500 Index* 21.03% 28.54% 18.19%
Lehman Brothers Government/Corporate
Bond Index* -2.15% 7.61% 7.65%
________
*The S&P 500 Index and the Lehman Brothers Government/Corporate
Bond Index are unmanaged groups of stocks that differ from the
Fund's composition; they are not available for direct investment.
<PAGE>
OTHER INVESTMENTS AND RISKS
The first portion of this prospectus describes the Fund's
principal investment strategy and principal investment risks. In
seeking to meet its investment goals, the Fund also may invest in
other securities and use other investment techniques. The Fund
may elect not to buy any of these other securities or use any of
these other investment techniques. The 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 the 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 the Fund or could cause
the Fund's total return to decrease. The SAI also contains the
Fund's fundamental and non-fundamental investment policies.
The Board of Trustees can change the Fund's investment objective
without shareholder approval.
Futures and Options
The 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
The 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 Fund does not have limits on portfolio turnover. Turnover may
vary significantly from year to year. Stein Roe does not expect
it to exceed 100% under normal conditions. The Fund generally
intends to purchase securities for long-term investment although,
to a limited extent, it 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 the Fund's return.
Temporary Defensive Positions
When Stein Roe believes that a temporary defensive position is
necessary, the Fund may invest, without limit, in high-quality
debt securities or hold assets in cash and cash equivalents.
Stein Roe is not required to take a temporary defensive position,
and market conditions may prevent such an action. The Fund may
not achieve its investment objective if it takes a defensive
position.
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
The Trustees
The business of the Trust and the Fund is supervised by the
Trust's Board of Trustees. The SAI contains names of and
biographical information on the Trustees.
The Adviser: Stein Roe & Farnham Incorporated
Stein Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
IL 60606, manages the day-to-day operations of the Fund. Stein
Roe has advised and managed mutual funds since 1949. As of
December 31, 1999, Stein Roe managed more than $30.1 billion in
assets. For the 1999 fiscal year, the Trust paid Stein Roe
management and administrative fees at the rate of 0.60% of the
average daily net assets of the Fund.
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 Fund. 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 the
Fund's portfolio, pursuant to procedures adopted by the Board of
Trustees.
Portfolio Manager
Harvey B. Hirschhorn has been portfolio manager of the Fund since
1996. He joined Stein Roe in 1973 and is executive vice president
and chief economist and investment strategist.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table that follows is intended to help
you understand the Fund's financial information for the last five
fiscal years. The total returns in the table represent the return
that investors earned assuming that they reinvested all dividends
and distributions. Certain information in the table reflects the
financial results for a single Fund share. This information is
included in the Fund's financial statements, which, for the year
ended December 31, 1999, have been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report,
along with the financial statements, is included in the Fund's
annual report, which is available upon request. KPMG LLP audited
the financial statements for the years 1995 through 1998. The
Fund's total returns presented below do not reflect the cost of
insurance and other company separate account charges which vary
with the VA contracts or VLI policies.
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%
<FN>
(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.
</TABLE>
<PAGE>
SHAREHOLDER INFORMATION
Purchases and Redemptions
The Participating Insurance Companies place daily orders to
purchase and redeem shares of the Fund. These orders generally
reflect the net effect of instructions they receive from holders
of their VA contracts and VLI policies and certain other terms of
those contracts and policies. The Trust issues and redeems shares
at NAV without imposing any selling commission, sales load or
redemption charge. Shares generally are sold and redeemed at
their NAV next determined after receipt of purchase or redemption
requests from Participating Insurance Companies. The right of
redemption may be suspended or payment postponed whenever
permitted by applicable law and regulations.
How the Fund's Share Price is Determined
The Fund's share price is its NAV next determined. NAV is the
difference between the values of the Fund's assets and liabilities
divided by the number of shares outstanding. We determine NAV at
the close of regular trading on the New York Stock Exchange
(NYSE)-normally 4 p.m. New York time.
To calculate the NAV on a given day, we value each stock listed or
traded on a stock exchange at its latest sale price on that day.
If there are no sales that day, we value the security at the most
recently quoted bid price. We value each over-the-counter
security or National Association of Securities Dealers Automated
Quotation (Nasdaq) security as of the last sale price for that
day. We value all other over-the-counter securities that have
reliable quotes at the latest quoted bid price.
We value long-term debt obligations and securities convertible
into common stock at fair value. Pricing services provide the
Fund with the value of the securities. When the price of a
security is not available, including days when we determine that
the sale or bid price of the security does not reflect that
security's market value, we value the security at a fair value
determined in good faith under procedures established by the Board
of Trustees.
We value a security at fair value when events have occurred after
the last available market price and before the close of the NYSE
that materially affect the security's price. In the case of
foreign securities, this could include events occurring after the
close of the foreign market and before the close of the NYSE. The
Fund's foreign securities may trade on days when the NYSE is
closed. We will not price shares on days that the NYSE is closed
for trading and Participating Insurance Companies may not purchase
or redeem shares.
Dividends and Distributions
The Fund intends to declare and distribute, as dividends or
capital gains distributions, at least annually, substantially all
of its net investment income and net profits realized from the
sale of portfolio securities, if any, to its shareholders
(Participating Insurance Companies' separate accounts). The net
investment income of the Fund consists of all dividends or
interest received by the Fund, less expenses (including the
investment advisory and administrative fees). Income dividends
will be declared and distributed annually. All net short-term and
long-term capital gains of the Fund, net of carry-forward losses,
if any, realized during the fiscal year, are declared and
distributed periodically, no less frequently than annually. All
dividends and distributions are reinvested in additional shares of
the Fund at NAV, as of the record date for the distributions.
Taxes
For information regarding applicable taxes, please see the
prospectus relating to your Participating Insurance Company's
separate account.
<PAGE>
FOR MORE INFORMATION
Adviser: Stein Roe & Farnham Incorporated
You can get more information about the Fund's investments in the
Fund's semiannual and annual reports to shareholders. The annual
report contains a discussion of the market conditions and
investment strategies that significantly affected the Fund's
performance over the last fiscal year.
You may wish to read the Fund's Statement of Additional
Information (SAI) for more information on the Fund and the
securities in which it invests. The SAI is incorporated into this
prospectus by reference, which means that it is considered to be
part of this prospectus.
You can get free copies of the annual report and the SAI, request
other information and discuss your questions about the Fund by
writing:
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 Fund (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 Fund 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
- -----------------------------------------------------------------
<PAGE>
STEINROE VARIABLE
INVESTMENT TRUST
PROSPECTUS
May 1, 2000
* Stein Roe Growth Stock Fund, Variable Series
* * * *
Trust shares are 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>
THE TRUST..................................................3
THE FUND...................................................3
Investment Goal........................................4
Primary Investment Strategy............................4
Primary Investment Risks...............................4
Performance History....................................4
OTHER INVESTMENTS AND RISKS................................6
TRUST MANAGEMENT ORGANIZATIONS.............................7
The Trustees...........................................7
The Adviser: Stein Roe & Farnham Incorporated..........7
Portfolio Manager......................................7
FINANCIAL HIGHLIGHTS.......................................8
SHAREHOLDER INFORMATION....................................9
<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 Stein Roe
Growth Stock Fund, Variable Series. Other Funds may be added or
deleted from time to time.
The Trust's Funds are investment options under variable annuity
contracts (VA contracts) and variable life insurance policies (VLI
policies) issued by life insurance companies (Participating
Insurance Companies). Some (but not all) Participating Insurance
Companies are affiliated with the investment adviser to the Funds.
Participating Insurance Companies invest in the Funds through
separate accounts that they set up for that purpose. Owners of VA
contracts and VLI policies invest in sub-accounts of those
separate accounts through instructions they give to their
insurance company.
The prospectuses of the Participating Insurance Companies'
separate accounts describe which Funds are available to the
purchasers of their own VA contracts and VLI policies.
THE FUND
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>
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 calendar-year total
returns. The performance table following the bar chart shows how
the Fund's average annual returns compare with those of a broad
measure of market performance for one year, five years and 10
years. We compare the Fund to the S&P 500 Index, a broad-based
measure of market performance. The chart and table are intended
to illustrate some of the risks of investing in the Fund by
showing the changes in the Fund's performance. All returns
include the reinvestment of dividends and distributions. As with
all mutual funds, past performance does not predict the Fund's
future performance. Performance results include any expense
reduction arrangements. If these arrangements were not in place,
then the performance results would have been lower. Any reduction
arrangements may be discontinued at any time. The Fund's
performance results do not reflect the cost of insurance and
separate account charges which are imposed under your VA contract
or VLI policy.
Calendar-Year Total Returns
<BAR CHART>
YEAR-BY-YEAR TOTAL RETURNS
60.00%
50.00%
40.00% 48.03%
30.00% 37.73% 32.28% 36.94%
20.00% 21.28% 27.91%
10.00%
0.00% 6.63% 4.97%
- -10.00% -1.65% -6.35%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
[ ] Growth Stock Fund
</BAR CHART>
Best quarter: 4th quarter 1998, +26.43%
Worst quarter: 3rd quarter 1990, -17.42%
1 Year 5 Years 10 Years
Stein Roe Growth Stock Fund,
Variable Series 36.94% 31.08% 19.43%
S&P 500 Index* 21.03% 28.54% 18.19%
________
*The S&P 500 Index is an unmanaged group of stocks that differs
from the Fund's composition; it is not available for direct
investment.
<PAGE>
OTHER INVESTMENTS AND RISKS
The first portion of this prospectus describes the Fund's
principal investment strategy and principal investment risks. In
seeking to meet its investment goals, the Fund also may invest in
other securities and use other investment techniques. The Fund
may elect not to buy any of these other securities or use any of
these other investment techniques. The 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 the 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 the Fund or could cause
the Fund's total return to decrease. The SAI also contains the
Fund's fundamental and non-fundamental investment policies.
The Board of Trustees can change the Fund's investment objective
without shareholder approval.
Portfolio Turnover
The Fund does not have limits on portfolio turnover. Turnover may
vary significantly from year to year. Stein Roe does not expect
it to exceed 100% under normal conditions. The Fund generally
intends to purchase securities for long-term investment although,
to a limited extent, it 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 the Fund's return.
Temporary Defensive Positions
When Stein Roe believes that a temporary defensive position is
necessary, the Fund may invest, without limit, in high-quality
debt securities or hold assets in cash and cash equivalents.
Stein Roe is not required to take a temporary defensive position,
and market conditions may prevent such an action. The Fund may
not achieve its investment objective if it takes a defensive
position.
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
The Trustees
The business of the Trust and the Fund is supervised by the
Trust's Board of Trustees. The SAI contains names of and
biographical information on the Trustees.
The Adviser: Stein Roe & Farnham Incorporated
Stein Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
IL 60606, manages the day-to-day operations of the Fund. Stein
Roe has advised and managed mutual funds since 1949. As of
December 31, 1999, Stein Roe managed more than $30.1 billion in
assets. For the 1999 fiscal year, the Trust paid Stein Roe
management and administrative fees at the rate of 0.65% of the
average daily net assets of the Fund.
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 Fund. 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 the
Fund's portfolio, pursuant to procedures adopted by the Board of
Trustees.
Portfolio Manager
Erik P. Gustafson is portfolio manager of the Fund and has managed
Stein Roe Growth Stock Fund and Stein Roe Young Investor Fund
since 1994. Mr. Gustafson joined Stein Roe in 1992 as a portfolio
manager for privately managed accounts and is a senior vice
president.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table that follows is intended to help
you understand the Fund's financial information for the last five
fiscal years. The total returns in the table represent the return
that investors earned assuming that they reinvested all dividends
and distributions. Certain information in the table reflects the
financial results for a single Fund share. This information is
included in the Fund's financial statements, which, for the year
ended December 31, 1999, have been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report,
along with the financial statements, is included in the Fund's
annual report, which is available upon request. KPMG LLP audited
the financial statements for the years 1995 through 1998. The
Fund's total returns presented below do not reflect the cost of
insurance and other company separate account charges which vary
with the VA contracts or VLI policies.
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%
<FN>
(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.
</TABLE>
<PAGE>
SHAREHOLDER INFORMATION
Purchases and Redemptions
The Participating Insurance Companies place daily orders to
purchase and redeem shares of the Fund. These orders generally
reflect the net effect of instructions they receive from holders
of their VA contracts and VLI policies and certain other terms of
those contracts and policies. The Trust issues and redeems shares
at NAV without imposing any selling commission, sales load or
redemption charge. Shares generally are sold and redeemed at
their NAV next determined after receipt of purchase or redemption
requests from Participating Insurance Companies. The right of
redemption may be suspended or payment postponed whenever
permitted by applicable law and regulations.
How the Fund's Share Price is Determined
The Fund's share price is its NAV next determined. NAV is the
difference between the values of the Fund's assets and liabilities
divided by the number of shares outstanding. We determine NAV at
the close of regular trading on the New York Stock Exchange
(NYSE)-normally 4 p.m. New York time.
To calculate the NAV on a given day, we value each stock listed or
traded on a stock exchange at its latest sale price on that day.
If there are no sales that day, we value the security at the most
recently quoted bid price. We value each over-the-counter
security or National Association of Securities Dealers Automated
Quotation (Nasdaq) security as of the last sale price for that
day. We value all other over-the-counter securities that have
reliable quotes at the latest quoted bid price.
We value long-term debt obligations and securities convertible
into common stock at fair value. Pricing services provide the
Fund with the value of the securities. When the price of a
security is not available, including days when we determine that
the sale or bid price of the security does not reflect that
security's market value, we value the security at a fair value
determined in good faith under procedures established by the Board
of Trustees.
We value a security at fair value when events have occurred after
the last available market price and before the close of the NYSE
that materially affect the security's price. In the case of
foreign securities, this could include events occurring after the
close of the foreign market and before the close of the NYSE. The
Fund's foreign securities may trade on days when the NYSE is
closed. We will not price shares on days that the NYSE is closed
for trading and Participating Insurance Companies may not purchase
or redeem shares.
Dividends and Distributions
The Fund intends to declare and distribute, as dividends or
capital gains distributions, at least annually, substantially all
of its net investment income and net profits realized from the
sale of portfolio securities, if any, to its shareholders
(Participating Insurance Companies' separate accounts). The net
investment income of the Fund consists of all dividends or
interest received by the Fund, less expenses (including the
investment advisory and administrative fees). Income dividends
will be declared and distributed annually. All net short-term and
long-term capital gains of the Fund, net of carry-forward losses,
if any, realized during the fiscal year, are declared and
distributed periodically, no less frequently than annually. All
dividends and distributions are reinvested in additional shares of
the Fund at NAV, as of the record date for the distributions.
Taxes
For information regarding applicable taxes, please see the
prospectus relating to your Participating Insurance Company's
separate account.
<PAGE>
FOR MORE INFORMATION
Adviser: Stein Roe & Farnham Incorporated
You can get more information about the Fund's investments in the
Fund's semiannual and annual reports to shareholders. The annual
report contains a discussion of the market conditions and
investment strategies that significantly affected the Fund's
performance over the last fiscal year.
You may wish to read the Fund's Statement of Additional
Information (SAI) for more information on the Fund and the
securities in which it invests. The SAI is incorporated into this
prospectus by reference, which means that it is considered to be
part of this prospectus.
You can get free copies of the annual report and the SAI, request
other information and discuss your questions about the Fund by
writing:
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 Fund (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 Fund 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
- ----------------------------------------------------------------
<PAGE>
STEINROE VARIABLE
INVESTMENT TRUST
PROSPECTUS
May 1, 2000
* Stein Roe Small Company Growth Fund, Variable Series
* * * *
Trust shares are 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>
THE TRUST.................................................3
THE FUND..................................................3
Investment Goal.......................................4
Primary Investment Strategy...........................4
Primary Investment Risks..............................4
Performance History...................................4
OTHER INVESTMENTS AND RISKS...............................6
TRUST MANAGEMENT ORGANIZATIONS............................7
The Trustees..........................................7
The Adviser: Stein Roe & Farnham Incorporated.........7
Portfolio Manager.....................................7
FINANCIAL HIGHLIGHTS......................................8
SHAREHOLDER INFORMATION...................................9
<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 Stein Roe
Small Company Growth 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 FUND
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>
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 calendar-year total
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 your VA contract
or VLI policy.
Calendar Year Total Returns
<BAR CHART>
YEAR-BY-YEAR TOTAL RETURNS
60.00%
40.00% 48.02%
20.00% 37.25% 35.68% 11.75% 26.94%
0.00% 14.48% 1.19% 7.81%
- -10.00% -8.91%
- -20.00% -17.30%
- -40.00%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
[ ] Small Company Growth Fund
</BAR CHART>
Best quarter: 4th quarter 1999, +35.39%
Worst quarter: 3rd quarter 1990, -21.18%
1 Year 5 Years 10 Years
Stein Roe Small Company Growth
Fund, Variable Series 48.02% 13.36% 13.91%
S&P SmallCap 600 Index* 12.41% 17.05% 13.04%
________
*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>
OTHER INVESTMENTS AND RISKS
The first portion of this prospectus describes the Fund's
principal investment strategy and principal investment risks. In
seeking to meet its investment goals, the Fund also may invest in
other securities and use other investment techniques. The Fund
may elect not to buy any of these other securities or use any of
these other investment techniques. The 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 the 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 the Fund or could cause
the Fund's total return to decrease. The SAI also contains the
Fund's fundamental and non-fundamental investment policies.
The Board of Trustees can change the Fund's investment objective
without shareholder approval.
Short Sales
The 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 Fund does not have limits on portfolio turnover. Turnover may
vary significantly from year to year. Stein Roe does not expect
it to exceed 150% under normal conditions. The Fund generally
intends to purchase securities for long-term investment although,
to a limited extent, it 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 the Fund's return.
Temporary Defensive Positions
When Stein Roe believes that a temporary defensive position is
necessary, the Fund may invest, without limit, in high-quality
debt securities or hold assets in cash and cash equivalents.
Stein Roe is not required to take a temporary defensive position,
and market conditions may prevent such an action. The Fund may
not achieve its investment objective if it takes a defensive
position.
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
The Trustees
The business of the Trust and the Fund is supervised by the
Trust's Board of Trustees. The SAI contains names of and
biographical information on the Trustees.
The Adviser: Stein Roe & Farnham Incorporated
Stein Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
IL 60606, manages the day-to-day operations of the Fund. Stein
Roe has advised and managed mutual funds since 1949. As of
December 31, 1999, Stein Roe managed more than $30.1 billion in
assets. For the 1999 fiscal year, the Trust paid Stein Roe
management and administrative fees at a rate of 0.65% of the
average daily net assets of the Fund.
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 Fund. 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 the
Fund's portfolio, pursuant to procedures adopted by the Board of
Trustees.
Portfolio Manager
William M. Garrison has been portfolio manager of the Fund since
October 1998. Mr. Garrison is a vice president of Stein Roe,
which he joined in 1989. He has been an associate portfolio
manager of the Stein Roe Balanced Fund since 1995 and has been an
equity research analyst with Stein Roe since 1993.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table that follows is intended to help
you understand the Fund's financial information for the last five
fiscal years. The total returns in the table represent the return
that investors earned assuming that they reinvested all dividends
and distributions. Certain information in the table reflects the
financial results for a single Fund share. This information is
included in the Fund's financial statements, which, for the year
ended December 31, 1999, have been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report,
along with the financial statements, is included in the Fund's
annual report, which is available upon request. KPMG LLP audited
the financial statements for the years 1995 through 1998. The
Fund's total returns presented below do not reflect the cost of
insurance and other company separate account charges which vary
with the VA contracts or VLI policies.
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%
<FN>
(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.
</TABLE>
<PAGE>
SHAREHOLDER INFORMATION
Purchases and Redemptions
The Participating Insurance Companies place daily orders to
purchase and redeem shares of the Fund. These orders generally
reflect the net effect of instructions they receive from holders
of their VA contracts and VLI policies and certain other terms of
those contracts and policies. The Trust issues and redeems shares
at NAV without imposing any selling commission, sales load or
redemption charge. Shares generally are sold and redeemed at
their NAV next determined after receipt of purchase or redemption
requests from Participating Insurance Companies. The right of
redemption may be suspended or payment postponed whenever
permitted by applicable law and regulations.
How the Fund's Share Price is Determined
The Fund's share price is its NAV next determined. NAV is the
difference between the values of the Fund's assets and liabilities
divided by the number of shares outstanding. We determine NAV at
the close of regular trading on the New York Stock Exchange
(NYSE)-normally 4 p.m. New York time.
To calculate the NAV on a given day, we value each stock listed or
traded on a stock exchange at its latest sale price on that day.
If there are no sales that day, we value the security at the most
recently quoted bid price. We value each over-the-counter
security or National Association of Securities Dealers Automated
Quotation (Nasdaq) security as of the last sale price for that
day. We value all other over-the-counter securities that have
reliable quotes at the latest quoted bid price.
We value long-term debt obligations and securities convertible
into common stock at fair value. Pricing services provide the
Fund with the value of the securities. When the price of a
security is not available, including days when we determine that
the sale or bid price of the security does not reflect that
security's market value, we value the security at a fair value
determined in good faith under procedures established by the Board
of Trustees.
We value a security at fair value when events have occurred after
the last available market price and before the close of the NYSE
that materially affect the security's price. In the case of
foreign securities, this could include events occurring after the
close of the foreign market and before the close of the NYSE. The
Fund's foreign securities may trade on days when the NYSE is
closed. We will not price shares on days that the NYSE is closed
for trading and Participating Insurance Companies may not purchase
or redeem shares.
Dividends and Distributions
The Fund intends to declare and distribute, as dividends or
capital gains distributions, at least annually, substantially all
of its net investment income and net profits realized from the
sale of portfolio securities, if any, to its shareholders
(Participating Insurance Companies' separate accounts). The net
investment income of the Fund consists of all dividends or
interest received by the Fund, less expenses (including the
investment advisory and administrative fees). Income dividends
will be declared and distributed annually. All net short-term and
long-term capital gains of the Fund, net of carry-forward losses,
if any, realized during the fiscal year, are declared and
distributed periodically, no less frequently than annually. All
dividends and distributions are reinvested in additional shares of
the Fund at NAV, as of the record date for the distributions.
Taxes
For information regarding applicable taxes, please see the
prospectus relating to your Participating Insurance Company's
separate account.
<PAGE>
FOR MORE INFORMATION
Adviser: Stein Roe & Farnham Incorporated
You can get more information about the Fund's investments in the
Fund's semiannual and annual reports to shareholders. The annual
report contains a discussion of the market conditions and
investment strategies that significantly affected the Fund's
performance over the last fiscal year.
You may wish to read the Fund's Statement of Additional
Information (SAI) for more information on the Fund and the
securities in which it invests. The SAI is incorporated into this
prospectus by reference, which means that it is considered to be
part of this prospectus.
You can get free copies of the annual report and the SAI, request
other information and discuss your questions about the Fund by
writing:
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 Fund (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 Fund 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
- --------------------------------------------------------------
<PAGE>
STEINROE VARIABLE
INVESTMENT TRUST
PROSPECTUS
May 1, 2000
* Stein Roe Money Market Fund, Variable Series
* * * *
Trust shares are 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>
THE TRUST....................................................3
THE FUND.....................................................4
Investment Goal..........................................4
Primary Investment Strategy..............................4
Primary Investment Risks.................................4
Performance History......................................5
OTHER INVESTMENTS AND RISKS..................................7
TRUST MANAGEMENT ORGANIZATIONS...............................7
The Trustees.............................................7
The Adviser: Stein Roe & Farnham Incorporated............7
Portfolio Manager........................................7
FINANCIAL HIGHLIGHTS.........................................8
SHAREHOLDER INFORMATION......................................9
<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 Stein Roe
Money Market Fund, Variable Series. Other Funds may be added or
deleted from time to time.
The Trust's Funds are investment options under variable annuity
contracts (VA contracts) and variable life insurance policies (VLI
policies) issued by life insurance companies (Participating
Insurance Companies). Some (but not all) Participating Insurance
Companies are affiliated with the investment adviser to the Funds.
Participating Insurance Companies invest in the Funds through
separate accounts that they set up for that purpose. Owners of VA
contracts and VLI policies invest in sub-accounts of those
separate accounts through instructions they give to their
insurance company.
The prospectuses of the Participating Insurance Companies'
separate accounts describe which Funds are available to the
purchasers of their own VA contracts and VLI policies.
<PAGE>
INVESTMENT 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.
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 calendar-year total
returns. The chart is intended to illustrate some of the risks of
investing in the Fund by showing the changes in the Fund's
performance. All returns include the reinvestment of dividends
and distributions. As with all mutual funds, past performance
does not predict the Fund's future performance. Performance
results include any expense reduction arrangements. If these
arrangements were not in place, then the performance results would
have been lower. Any reduction arrangements may be discontinued
at any time. The Fund's performance results do not reflect the
cost of insurance and separate account charges which are imposed
under your VA contract or VLI policy.
Calendar-Year Total Returns
<BAR CHART>
YEAR-BY-YEAR TOTAL RETURNS
10.00%
8.00%
6.00% 7.95%
4.00% 5.99% 5.62% 5.01% 5.18% 5.17% 4.79%
2.00% 3.64% 2.78% 3.67%
0.00%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
[ ] Money Market Fund
</BAR CHART>
Best quarter: 1st quarter 1990, +2.04%
Worst quarter: 3rd quarter 1993, +0.67%
<PAGE>
OTHER INVESTMENTS AND RISKS
The first portion of this prospectus describes the Fund's
principal investment strategy and principal investment risks. In
seeking to meet its investment goals, the Fund also may invest in
other securities and use other investment techniques. The Fund
may elect not to buy any of these other securities or use any of
these other investment techniques. The Fund may not always
achieve its investment goal.
The Statement of Additional Information (SAI) contains additional
information about the 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 the Fund or could cause the Fund's total return to
decrease. The SAI also contains the Fund's fundamental and non-
fundamental investment policies.
The Board of Trustees can change the Fund's investment objective
without shareholder approval.
<PAGE>
TRUST MANAGEMENT ORGANIZATIONS
The Trustees
The business of the Trust and the Fund is supervised by the
Trust's Board of Trustees. The SAI contains names of and
biographical information on the Trustees.
The Adviser: Stein Roe & Farnham Incorporated
Stein Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
IL 60606, manages the day-to-day operations of the Fund. Stein
Roe has advised and managed mutual funds since 1949. As of
December 31, 1999, Stein Roe managed more than $30.1 billion in
assets. For the 1999 fiscal year, the Trust paid Stein Roe
management and administrative fees at the rate of 0.50% of the
average daily net assets of the Fund.
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 Fund. 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.
Portfolio Manager
Jane M. Naeseth has been portfolio manager of the Fund since its
inception. She has managed Stein Roe Cash Reserves Fund since
1980. Ms. Naeseth is a senior vice president of Stein Roe, which
she joined in 1977.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table that follows is intended to help
you understand the Fund's financial information for the last five
fiscal years. The total returns in the table represent the return
that investors earned assuming that they reinvested all dividends
and distributions. Certain information in the table reflects the
financial results for a single Fund share. This information is
included in the Fund's financial statements, which, for the year
ended December 31, 1999, have been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report,
along with the financial statements, is included in the Fund's
annual report, which is available upon request. KPMG LLP audited
the financial statements for the years 1995 through 1998. The
Fund's total returns presented below do not reflect the cost of
insurance and other company separate account charges which vary
with the VA contracts or VLI policies.
Stein Roe Money Market 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 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
Net investment income (a) 0.047 0.050 0.050 0.049 0.055
-------- -------- -------- -------- --------
Net realized and unrealized gains
on investments - - - - -
-------- -------- -------- -------- --------
Total from investment operations 0.047 0.050 0.050 0.049 0.055
-------- -------- -------- -------- --------
Less distributions:
From net investment income (0.047) (0.050) (0.050) (0.049) (0.055)
-------- -------- -------- -------- --------
Net asset value, end of year $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
Total return:
Total investment return (b) 4.79% 5.17% 5.18% 5.01% 5.62%
Ratios/supplemental data:
Net assets, end of year (000s) $170,539 $101,340 $67,137 $65,461 $64,992
Ratio of expenses to average
net assets (c) 0.52%(d) 0.62% 0.65% 0.65% 0.63%
Ratio of net investment income
to average net assets (c) 4.75%(d) 4.99% 5.05% 4.90% 5.48%
<FN>
(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.
</TABLE>
<PAGE>
SHAREHOLDER INFORMATION
Purchases and Redemptions
The Participating Insurance Companies place daily orders to
purchase and redeem shares of the Fund. These orders generally
reflect the net effect of instructions they receive from holders
of their VA contracts and VLI policies and certain other terms of
those contracts and policies. The Trust issues and redeems shares
at NAV without imposing any selling commission, sales load or
redemption charge. Shares generally are sold and redeemed at
their NAV next determined after receipt of purchase or redemption
requests from Participating Insurance Companies. The right of
redemption may be suspended or payment postponed whenever
permitted by applicable law and regulations.
How the Fund's Share Price is Determined
The Fund's share price is its NAV next determined. NAV is the
difference between the values of the Fund's assets and liabilities
divided by the number of shares outstanding. We determine NAV at
the close of regular trading on the New York Stock Exchange
(NYSE)-normally 4 p.m. New York time.
The valuation of the Fund's securities is based on their amortized
cost, which does not take into account unrealized gains or losses,
in an attempt to maintain its NAV at $1 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.
We value a security at fair value when events have occurred after
the last available market price and before the close of the NYSE
that materially affect the security's price. In the case of
foreign securities, this could include events occurring after the
close of the foreign market and before the close of the NYSE. The
Fund's foreign securities may trade on days when the NYSE is
closed. We will not price shares on days that the NYSE is closed
for trading and Participating Insurance Companies may not purchase
or redeem shares.
Dividends and Distributions
The Fund intends to declare and distribute, as dividends or
capital gains distributions, at least annually, substantially all
of its net investment income and net profits realized from the
sale of portfolio securities, if any, to its shareholders
(Participating Insurance Companies' separate accounts). The net
investment income of the Fund consists of all dividends or
interest received by the Fund, less expenses (including the
investment advisory and administrative fees). Dividends are
declared daily and are reinvested monthly in shares of the Fund at
the NAV per share of $1. All net short-term and long-term capital
gains of the Fund, net of carry-forward losses, if any, realized
during the fiscal year, are declared and distributed periodically,
no less frequently than annually.
Taxes
For information regarding applicable taxes, please see the
prospectus relating to your Participating Insurance Company's
separate account.
<PAGE>
FOR MORE INFORMATION
Adviser: Stein Roe & Farnham Incorporated
You can get more information about the Fund's investments in the
Fund's semiannual and annual reports to shareholders. The annual
report contains a discussion of the market conditions and
investment strategies that significantly affected the Fund's
performance over the last fiscal year.
You may wish to read the Fund's Statement of Additional
Information (SAI) for more information on the Fund and the
securities in which it invests. The SAI is incorporated into this
prospectus by reference, which means that it is considered to be
part of this prospectus.
You can get free copies of the annual report and the SAI, request
other information and discuss your questions about the Fund by
writing:
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 Fund (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 Fund 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
- -----------------------------------------------------------------
<PAGE>
STEINROE VARIABLE INVESTMENT TRUST
One Financial Center, Boston, Massachusetts 02111
STATEMENT OF ADDITIONAL INFORMATION
Dated May 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 May 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
Page
General Information and History................................2
Mixed and Shared Funding.......................................3
Investment Restrictions........................................4
Portfolio Turnover.............................................7
Purchases and Redemptions......................................8
Trustees and Officers..........................................8
Management Arrangements.......................................12
Trust Charges and Expenses....................................13
Underwriters..................................................14
Custodian.....................................................14
Portfolio Transactions........................................14
Net Asset Value...............................................21
Taxes.........................................................22
Investment Performance........................................23
Record Shareholders...........................................25
Independent Accountants and Financial Statements..............25
Appendix A - Investment Techniques and Securities.............26
<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 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 March 31, 2000, approximately 71.30%
of the combined voting power of LFC's outstanding voting stock was
held by Liberty Mutual Insurance Company (Liberty Mutual). One or
more of the Funds may from time to time become funding vehicles
for VA contracts or VLI policies of other Participating Insurance
Companies, including other entities not affiliated with Keyport,
LFC or Liberty Mutual.
The interests of owners of VA contracts and VLI policies
could diverge based on differences in state regulatory
requirements, changes in the tax laws or other unanticipated
developments. The Trust does not foresee any such differences or
disadvantages at this time. However, the Trustees will monitor
for such developments to identify any material irreconcilable
conflicts and to determine what action, if any, should be taken in
response to such conflicts. If such a conflict were to occur, one
or more separate accounts might be required to withdraw its
investments in one or more Funds or shares of another Fund may be
substituted. This might force a Fund to sell securities at
disadvantageous prices.
INVESTMENT RESTRICTIONS
Each Fund operates under the investment restrictions listed
below. Restrictions numbered (i) through (viii) are fundamental
policies which may not be changed for a Fund without approval of a
majority of the outstanding voting shares of a Fund, defined as
the lesser of the vote of (a) 67% of the shares of a Fund at a
meeting where more than 50% of the outstanding shares are present
in person or by proxy or (b) more than 50% of the outstanding
shares of a Fund. Other restrictions are not fundamental policies
and may be changed with respect to a Fund by the Trustees without
shareholder approval.
The following investment restrictions apply to each Fund
except as otherwise indicated. A Fund may not:
(i) with respect to 75% of the value of the total assets of a
Fund, invest more than 5% of the value of its total assets, taken
at market value at the time of a particular purchase, in the
securities of any one issuer, except (a) securities issued or
guaranteed by the U.S. government or its agencies or
instrumentalities, and (b) [with respect to Money Market Fund
only] certificates of deposit, bankers' acceptances and repurchase
agreements;
(ii) purchase securities of any one issuer if more than 10% of the
outstanding voting securities of such issuer would at the time be
held by the Fund;
(iii) act as an underwriter of securities, except insofar as it
may be deemed an underwriter for purposes of the Securities Act of
1933 on disposition of securities acquired subject to legal or
contractual restrictions on resale;
(iv) invest in a security if more than 25% of its total assets
(taken at market value at the time of a particular purchase) would
be invested in the securities of issuers in any particular
industry, except that this restriction does not apply to: (i)
securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, (ii) [with respect to Money Market
Fund only] certificates of deposit and bankers' acceptances and
repurchase agreements or (iii) [as to Money Market Fund only]
securities of issuers in the financial services industry;
(v) purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, and
securities issued by companies which invest in real estate or
interests therein), commodities or commodity contracts (except
that it may enter into (a) futures and options on futures and (b)
forward contracts);
(vi) purchase securities on margin (except for use of short-term
credits as are necessary for the clearance of transactions), make
short sales of securities, or participate on a joint or a joint
and several basis in any trading account in securities (except in
connection with transactions in options, futures, and options on
futures);
(vii) make loans, but this restriction shall not prevent a Fund
from (a) buying a part of an issue of bonds, debentures, or other
obligations which are publicly distributed, or from investing up
to an aggregate of 15% of its total assets (taken at market value
at the time of each purchase) in parts of issues of bonds,
debentures or other obligations of a type privately placed with
financial institutions, (b) investing in repurchase agreements, or
(c) lending portfolio securities, provided that it may not lend
securities if, as a result, the aggregate value of all securities
loaned would exceed 15% of its total assets (taken at market value
at the time of such loan); or
(viii) borrow, except that it may (a) borrow up to 33 1/3% of its
total assets from banks, taken at market value at the time of such
borrowing, as a temporary measure for extraordinary or emergency
purposes, but not to increase portfolio income (the total of
reverse repurchase agreements and such borrowings will not exceed
33 1/3% of its total assets, and the Fund will not purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of its
total assets) and (b) enter into transactions in options, futures,
and options on futures.
Each Fund is also subject to the following restrictions and
policies, which are not fundamental and may be changed by the
Trustees without shareholder approval. A Fund may not:
(a) invest in companies for the purpose of exercising control or
management;
(b) purchase more than 3% of the stock of another investment
company; or purchase stock of other investment companies equal to
more than 5% of the Fund's total assets (valued at time of
purchase) in the case of any one other investment company and 10%
of such assets (valued at the time of purchase) in the case of all
other investment companies in the aggregate; any such purchases
are to be made in the open market where no profit to a sponsor or
dealer results from the purchase, other than the customary
broker's commission, except for securities acquired as part of a
merger, consolidation or acquisition of assets;
(c) mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held by it,
except as may be necessary in connection with (i) permitted
borrowings and (ii) options, futures and options on futures;
(d) issue senior securities, except to the extent permitted by the
Investment Company Act of 1940 (including permitted borrowings);
(e) purchase portfolio securities for the Fund from, or sell
portfolio securities to, any of the officers and directors or
Trustees of the Trust or of its investment adviser;
(f) invest more than 5% of its net assets (valued at time of
purchase) in warrants, nor more than 2% of its net assets in
warrants that are not listed on the New York or American Stock
Exchanges;
(g) write an option on a security unless the option is issued by
the Options Clearing Corporation, an exchange or similar entity;
(h) buy or sell an option on a security, a futures contract or an
option on a futures contract unless the option, the futures
contract or the option on the futures contract is offered through
the facilities of a recognized securities association or listed on
a recognized exchange or similar entity;
(i) purchase a put or call option if the aggregate premiums paid
for all put and call options exceed 20% of its net assets (less
the amount by which any such positions are in-the-money),
excluding put and call options purchased as closing transactions;
or
(j) invest more than 15% [except as to Money Market Fund, 10%] of
the Fund's net assets (taken at market value at the time of each
purchase) in illiquid securities including repurchase agreements
maturing in more than seven days.
Further, as to Money Market Fund with respect to 100% of its
assets, SEC rules prohibit the Fund from investing more than 5% of
its assets, taken at market value at the time of purchase, in the
securities of any one issuer; provided that (i) the Fund may
invest more than 5% of its assets in securities issued or
guaranteed by the U.S. Government or its agencies or
instrumentalities and (ii) the Fund may invest more than 5% of its
assets for a period of up to three business days after the
purchase thereof (but not more than 25% of its assets) in the
securities of any one first-tier issuer (as determined by
Securities and Exchange Commission rules); provided, further, that
the Fund may not make more than one investment in accordance with
this exception at any one time.
Under normal market conditions, Money Market Fund will invest
at least 25% of its assets in securities of issuers in the
financial services industry. This policy may cause the Fund to be
more adversely affected by changes in market or economic
conditions and other circumstances affecting the financial
services industry. The financial services industry includes
issuers that, according to the Directory of Companies Required to
File Annual Reports with the Securities and Exchange Commission
(the Commission), are in the following categories: state banks;
national banks; savings and loan holding companies; personal
credit institutions; business credit institutions; mortgage-backed
securities; finance services; security and commodity brokers,
dealers and services; life, accident and health insurance
carriers; fire, marine, casualty and surety insurance carriers;
insurance agents, brokers and services.
Additional Voluntary Restrictions Pertaining to 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 (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, for which
the Funds pay dealer spreads. 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:
Name, Age at May 1, 2000;
Address;
Position(s) held with the Trust;
Principal occupation(s) during past five years
William D. Andrews, 52;
One South Wacker Drive, Chicago, IL 60606;
Executive Vice President;
Executive vice president of Stein Roe
John A. Bacon Jr., 72;
4N640 Honey Hill Road, Box 296, Wayne, IL 60184 (3);
Trustee;
Private investor
Christine Balzano, 35;
245 Summer Street, Boston, MA 02210;
Vice President;
Senior vice president of Liberty Funds Services, Inc.; formerly
vice president and assistant vice president
William W. Boyd, 73;
2900 Golf Road, Rolling Meadows, IL 60008 (2)(3);
Trustee;
Chairman and director of Sterling Plumbing (manufacturer of
plumbing products)
Kevin M. Carome, 44;
One Financial Center, Boston, MA 02111;
Executive Vice President; Secretary;
Senior vice president, legal, Liberty Funds Group LLC (an
affiliate of Stein Roe) since Jan. 1999; general counsel and
secretary of Stein Roe since Jan. 1998; associate general counsel
and vice president of Liberty Financial Companies, Inc. (the
indirect parent of Stein Roe) through Jan. 1999
Denise E. Chasmer, 31;
12100 East Iliff Avenue, Aurora, CO 80014;
Vice President;
Employee of Liberty Funds Services, Inc. and assistant vice
president of Stein Roe since Nov. 1999; manager with Scudder
Kemper Investments from Oct. 1995 to Nov. 1999; assistant manager
with Scudder Kemper prior thereto
J. Kevin Connaughton, 35;
245 Summer Street, Boston, MA 02210;
Vice President; Treasurer;
Vice president of Colonial Management Associates, Inc. ("CMA"),
since February 1998; senior tax manager, Coopers & Lybrand, LLP
from April 1996 to January 1998; vice president, 440 Financial
Group/First Data Investor Services Group prior thereto
Lindsay Cook, 48;
600 Atlantic Avenue, Boston, MA 02210 (1)(2);
Trustee;
Executive vice president of Liberty Financial Companies, Inc.
since March 1997; senior vice president prior thereto
Michael G. Fisher, 30;
245 Summer Street, Boston, MA 02210;
Assistant Treasurer;
Tax manager with Liberty Funds Group since Oct. 1998; tax manager
with PricewaterhouseCoopers LLP prior thereto
William M. Garrison, 34;
One South Wacker Drive, Chicago, IL 60606;
Vice President;
Vice president of Stein Roe since Feb. 1998; associate portfolio
manager for Stein Roe since August 1994
Stephen E. Gibson, 46;
One Financial Center, Boston, MA 02111;
President;
Vice chairman of Stein Roe since Aug. 1998; chairman, CEO,
president and director of Liberty Funds Group since 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;
One South Wacker Drive, Chicago, IL 60606;
Vice President;
Senior portfolio manager of Stein Roe; senior vice president of
Stein Roe since April 1996; vice president of Stein Roe prior
thereto
Douglas A. Hacker, 44;
P.O. Box 66100, Chicago, IL 60666 (3);
Trustee;
Executive vice president and chief financial officer of UAL, Inc.
(airline) since July 1999; senior vice president and chief
financial officer of UAL, Inc. prior thereto
Loren A. Hansen, 52;
One South Wacker Drive, Chicago, IL 60606;
Executive Vice President;
Chief investment officer/equity of CMA since 1997; executive vice
president of Stein Roe since Dec. 1995; vice president of The
Northern Trust (bank) prior thereto
Harvey B. Hirschhorn, 50;
One South Wacker Drive, Chicago, IL 60606;
Vice President;
Executive vice president, senior portfolio manager, and chief
economist and investment strategist of Stein Roe; director of
research of Stein Roe, 1991 to 1995
Janet Langford Kelly, 42;
One Kellogg Square, Battle Creek, MI 49016 (3);
Trustee;
Executive vice president-corporate development, general counsel
and secretary of Kellogg Company since Sept. 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;
245 Summer Street, Boston, MA 02210;
Vice President; Controller;
Vice president and assistant controller of CMA
Mary Dillon McKenzie, 46;
One Financial Center, Boston, MA 02111;
Vice President;
President of Liberty Funds Services, Inc.
Charles R. Nelson, 57;
Department of Economics, University of Washington, Seattle, WA
98195 (3);
Trustee;
Van Voorhis Professor of Political Economy, Department of
Economics of the University of Washington
Jane M. Naeseth, 50;
One South Wacker Drive, Chicago, IL 60606;
Vice President;
Senior vice president of Stein Roe
Nicholas S. Norton, 40;
12100 East Iliff Avenue, Aurora, CO 80014;
Vice President;
Senior vice president of Liberty Funds Services, Inc. since Aug.
1999; vice president of Scudder Kemper, Inc. prior thereto
Vincent P. Pietropaolo, 34;
One Financial Center, Boston, MA 02111;
Assistant Secretary;
Vice president and counsel, Liberty Funds Group LLC since Dec.
1999; associate - investment management 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;
Suite 1300, 222 West Adams Street, Chicago, IL 60606 (3);
Trustee;
Managing director, William Blair Capital Partners (private equity
fund)
William M. Wadden IV, 41;
One South Wacker Drive, Chicago, IL 60606;
Vice President;
Vice president of Stein Roe since June 1995; executive vice
president of CSI Asset Management, Inc. prior thereto
_____________________
(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, and total fees
paid to them by all other investment companies affiliated with the
Trust. The Trustees are paid an annual retainer plus an
attendance fee for each meeting of the Board or standing committee
thereof attended. Trustees do not receive any pension or
retirement benefits from the Trust. No officers of the Trust or
other individuals who are affiliated with the Trust receive any
compensation from the Trust for services provided to it.
Compensation from the
Stein Roe Fund Complex(1)
-----------------------
Aggregate Compensation Total Average
Name of Trustee from the Trust Compensation Per Series
- ------------------- -------------------- ------------ ----------
Thomas W. Butch (2) -0- -0- -0-
Lindsay Cook -0- -0- -0-
John A. Bacon Jr. $12,700 $103,450 $2,299
William W. Boyd 13,200 109,950 2,443
Douglas A. Hacker 10,900 93,950 2,088
Janet Langford Kelly 12,700 103,450 2,299
Charles R. Nelson 13,200 108,050 2,401
Thomas C. Theobald 12,700 103,450 2,299
_______________
(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, four 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 an affiliated 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 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.
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:
Annual Fee
Rate(as a
percent of
average
net assets) 1999 1998 1997
- ----------------------------------------------------------------
Small Company Growth
Fund 0.50% $ 569,580 $ 810,605 $1,001,641
Growth Stock Fund 0.50 1,583,203 1,177,442 959,376
Balanced Fund 0.45 1,749,012 1,503,385 1,147,148
Mortgage Securities
Fund 0.40 405,687 337,593 296,763
Money Market Fund 0.35 462,410 281,246 273,501
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:
1999 1998 1997
----------------------------------------------------------
Small Company Growth Fund $170,856 $243,182 $300,492
Growth Stock Fund 474,944 353,233 287,813
Balanced Fund 588,899 495,128 472,383
Mortgage Securities Fund 153,092 126,597 111,286
Money Market Fund 197,888 121,428 101,786
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
$146,470, $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.
Expense Limitation:
Stein Roe has agreed to reimburse all expenses of the Funds
as follows through April 30, 2001:
Fund Expenses Exceeding
-------------------------------------------------------
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
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.
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 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.
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 combination of net price and execution 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 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:
* 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 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 may use 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. 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-dealer is believed
capable of providing the best combination of net 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 Small Company Growth Fund an amount in
respect of Small Company Growth Fund's assets allocable to Small
Company Growth Fund shares held in separate accounts of such
unaffiliated Participating Insurance Companies in respect of VA
contracts issued by such entities and sold through such
arrangements. Stein Roe does not cause the Trust or any Fund to
pay brokerage commissions higher than those obtainable from other
broker-dealers in recognition of such sales of VA contracts or VLI
policies.
In light of the fact that Stein Roe may also provide advisory
services to the Participating Insurance Companies, and to other
advisory accounts that may or may not be registered investment
companies, securities of the same issuer may be included, from
time to time, in the portfolios of the Funds and these other
entities where it is consistent with their respective investment
objectives. If these entities desire to buy or sell the same
portfolio security at about the same time, combined purchases and
sales may be made, and in such event the security purchased or
sold normally will be allocated at the average price and as nearly
as practicable on a pro-rata basis in proportion to the amounts
desired to be purchased or sold by each entity. While it is
possible that in certain instances this procedure could adversely
affect the price or number of shares involved in the Funds'
transactions, it is believed that the procedure generally
contributes to better overall execution of the Funds' portfolio
transactions.
Because Stein Roe's personnel may also provide investment
advisory services to the Participating Insurance Companies and
other advisory clients, it may be difficult to quantify the
relative benefits received by the Trust and these other entities
from research provided by broker-dealers.
The Trust has arranged for the Bank, as its custodian, to act
as a soliciting dealer to accept any fees available to the Bank as
a soliciting dealer in connection with any tender offer for a
Fund's portfolio securities. The Bank will credit any such fees
received against its custodial fees. However, the Board has been
advised by counsel that recapture by a mutual fund currently is
not permitted under the Rules of Conduct of the National
Association of Securities Dealers, Inc.
The Trust's purchases and sales of securities not traded on
securities exchanges generally are placed by Stein Roe with market
makers for these securities on a net basis, without any brokerage
commissions being paid by the Trust. Net trading does involve,
however, transaction costs. Included in prices paid to
underwriters of portfolio securities is the spread between the
price paid by the underwriter to the issuer and the price paid by
the purchasers. Each Fund's purchases and sales of portfolio
securities in the over-the-counter market usually are transacted
with a broker-dealer on a net basis without any brokerage
commission being paid by such Fund, but do reflect the spread
between the bid and asked prices. Stein Roe may also transact
purchases of some portfolio securities directly with the issuers.
With respect to a Fund's purchases and sales of portfolio
securities transacted with a broker or dealer on a net basis,
Stein Roe may also consider the part, if any, played by the broker
or dealer in bringing the security involved to Stein Roe's
attention, including investment research related to the security
and provided to the Fund.
The table below shows information on brokerage commissions
paid by 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.
Small
Growth Company
Stock Growth Balanced
Fund Fund Fund
- -------------------------------------------------------------------
Total amount of brokerage
commissions paid during
fiscal year ended 12/31/99 $ 313,982 $ 189,736 $ 251,359
Amount of commissions paid
to brokers or dealers
who supplied research
services to Stein Roe 176,705 127,859 191,996
Total dollar amount involved
in such transactions: 115,483,614 137,410,527 617,975,254
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 4 21,740 89,691 294,537
NET ASSET VALUE
The net asset value of the shares of each of the Funds is
determined by dividing the total assets of each Fund, less all
liabilities (including accrued expenses), by the total number of
shares outstanding.
The valuation of Money Market Fund's securities is based upon
their amortized cost, which does not take into account unrealized
gains or losses. This method involves initially valuing an
instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of
the impact of fluctuating interest rates on the market value of
the instrument. While this method provides certainty in
valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price
Money Market Fund would receive if it sold the security. During
periods of declining interest rates, the quoted yield on shares of
Money Market Fund may tend to be higher than a like computation
made by a fund with identical investments utilizing a method of
valuation based upon market prices and estimates of market prices
for all of its portfolio securities. Thus, if the use of
amortized cost by the Fund resulted in a lower aggregate portfolio
value on a particular day, a prospective investor in Money Market
Fund would be able to obtain a somewhat higher yield if he
purchased shares of Money Market Fund on that day than would
result from investment in a fund utilizing solely market values,
and existing investors in Money Market Fund would receive less
investment income. The converse would apply in a period of rising
interest rates.
The proceeds received by each Fund for each purchase or sale
of its shares, and all income, earnings, profits and proceeds
thereof, subject only to the rights of creditors, will be
specifically allocated to such Fund, and constitute the underlying
assets of that Fund. The underlying assets of each Fund will be
segregated on the books of account, and will be charged with the
liabilities in respect to such Fund and with a share of the
general liabilities of the Trust.
TAXES
Each Fund has elected to be treated and to qualify as a
"regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986 (Code). As a result of such election, for
any tax year in which a Fund meets the investment limitations and
the distribution, diversification and other requirements referred
to below, that Fund will not be subject to federal income tax, and
the income of the Fund will be treated as the income of its
shareholders. Under current law, since the shareholders are life
insurance company "segregated asset accounts," they will not be
subject to income tax currently on this income to the extent such
income is applied to increase the values of VA contracts and VLI
policies.
Among the conditions for qualification and avoidance of
taxation at the Trust level, Subchapter M imposes investment
limitations, distribution requirements, and requirements relating
to the diversification of investments. The requirements of
Subchapter M may affect the investments made by each Fund. Any of
the applicable diversification requirements could require a sale
of assets of a Fund that would affect the net asset value of the
Fund.
Pursuant to the requirements of Section 817(h) of the Code,
the only shareholders of the Trust and its Funds will be
Participating Insurance Companies and their separate accounts that
fund VA contracts, VLI policies and other variable insurance
contracts. The prospectus that describes a particular VA contract
or VLI policy discusses the taxation of both separate accounts and
the owner of such contract or policy.
Each Fund intends to comply with the requirements of Section
817(h) and the related regulations issued thereunder by the
Treasury Department. These provisions impose certain
diversification requirements affecting the securities in which the
Funds may invest and other limitations. The diversification
requirements of Section 817(h) of the Code are in addition to the
diversification requirements under Subchapter M and the Investment
Company Act of 1940. The consequences of failure to meet the
requirements of Section 817(h) could result in taxation of the
Participating Insurance Companies offering the VA contracts and
VLI policies and immediate taxation of all owners of the contracts
and policies to the extent of appreciation on investment under the
contracts. The Trust believes it is in compliance with these
requirements.
The Secretary of the Treasury may issue additional rulings or
regulations that will prescribe the circumstances in which an
owner of a variable insurance contract's control of the
investments of a segregated asset account may cause such owner,
rather than the insurance company, to be treated as the owner of
the assets of a segregated asset account. It is expected that
such regulations would have prospective application. However, if
a ruling or regulation were not considered to set forth a new
position, the ruling or regulation could have retroactive effect.
The Trust therefore may find it necessary, and reserves the
right to take action to assure, that a VA contract or VLI policy
continues to qualify as an annuity or insurance contract under
federal tax laws. The Trust, for example, may be required to
alter the investment objectives of any Fund or substitute the
shares of one Fund for those of another. No such change of
investment objectives or substitution of securities will take
place without notice to the contract and policy owners with
interests invested in the affected Fund and without prior approval
of the Securities and Exchange Commission, or the approval of a
majority of such owners, to the extent legally required.
To the extent a Fund invests in foreign securities,
investment income received by the Fund from sources within foreign
countries may be subject to foreign income taxes withheld at the
source. The United States has entered into tax treaties with many
foreign countries which entitle a Fund to a reduced rate of tax or
exemption from tax on such income. Gains and losses from foreign
currency dispositions, foreign-currency denominated debt
securities and payables or receivables, and foreign currency
forward contracts are subject to special tax rules that generally
cause them to be recharacterized as ordinary income and losses,
and may affect the timing and amount of the Fund's recognition of
income, gain or loss.
It is impossible to determine the effective rate of foreign
tax in advance since the amount of a Fund's assets, if any, to be
invested within various countries will fluctuate and the extent to
which tax refunds will be recovered is uncertain. The Funds
intend to operate so as to qualify for treaty-reduced tax rates
where applicable.
The preceding is a brief summary of some relevant tax
considerations. This discussion is not intended as a complete
explanation or a substitute for careful tax planning and
consultation with individual tax advisors.
INVESTMENT PERFORMANCE
Money Market Fund may quote a "Current Yield" or "Effective
Yield" from time to time. The Current Yield is an annualized
yield based on the actual total return for a seven-day period.
The Effective Yield is an annualized yield based on a daily
compounding of the Current Yield. These yields are each computed
by first determining the "Net Change in Account Value" for a
hypothetical account having a share balance of one share at the
beginning of a seven-day period (Beginning Account Value),
excluding capital changes. The Net Change in Account Value will
always equal the total dividends declared with respect to the
account, assuming a constant net asset value of $1.00.
The yields are then computed as follows:
Net Change in Account Value 365
--------------------------- ----
Current Yield = Beginning Account Value x 7
[1 + Net Change in Account Value]365/7
--------------------------------------
Effective Yield = Beginning Account Value - 1
For example, the yield of Money Market Fund for the seven-day
period ended December 31, 1999, were:
$.001108493 365
--------------- ---
Current Yield = $1.00 x 7 = 5.78%
[1+$.001108493]365/7
Effective Yield = $1.00 - 1 = 5.95%
In addition to fluctuations reflecting changes in net income
of Money Market Fund resulting from changes in income earned on
its portfolio securities and in its expenses, Money Market Fund's
yield also would be affected if the Fund were to restrict or
supplement its dividends in order to maintain its net asset value
at $1.00. Portfolio changes resulting from net purchases or net
redemptions of Money Market Fund shares may affect yield.
Accordingly, Money Market Fund's yield may vary from day to day
and the yield stated for a particular past period is not a
representation as to its future yield. Money Market Fund's yield
is not guaranteed and its principal is not insured; however, the
Fund will attempt to maintain its net asset value per share at
$1.00.
Each of the Funds may quote total return figures from time to
time. Total return on a per share basis is the amount of
dividends received per share plus or minus the change in the net
asset value per share for a given period. Total return percentage
may be calculated by dividing the value of a share at the end of a
given period by the value of the share at the beginning of the
period and subtracting one.
n
Average Annual Total Return is computed as follows: ERV = P(1+T)
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period at the
end of the period (or fractional portion).
For example, for a $1,000 investment in the Funds, the "Total
Return," the "Total Return Percentage," and the "Average Annual
Total Return" for the life of the Funds (from January 1, 1989 to
December 31, 1999) were:
Total Average
Total Return Annual
Fund Return Percentage Total Return
- -----------------------------------------------------------------
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
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 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 review services and
assistance and consultation in connection with the review of
various SEC filings. The financial statements of the Trust and
reports of independent accountants appearing in the December 31,
1999, annual report of the Trust are incorporated in this SAI by
reference.
<PAGE>
APPENDIX A
INVESTMENT TECHNIQUES AND SECURITIES
MONEY MARKET INSTRUMENTS
Each of the Funds may invest in money market instruments to
the extent and of the type and quality described in the
Prospectus.
Certificates of Deposit
Certificates of deposit are receipts issued by a bank in
exchange for the deposit of funds. The issuer agrees to pay the
amount deposited plus interest to the bearer of the receipt on the
date specified on the Certificate. The Certificate usually can be
traded in the secondary market prior to maturity.
Certificates of deposit will be limited to U.S. dollar-
denominated certificates of banks (U.S. or foreign) having total
assets of at least $1 billion, or the equivalent in other
currencies, as of the date of their most recently published
financial statements and of branches of such banks (U.S. or
foreign).
The Funds will not acquire time deposits or obligations
issued by the International Bank for Reconstruction and
Development, the Asian Development Bank or the Inter-American
Development Bank.
Bankers' Acceptances
Bankers' acceptances typically arise from short term credit
arrangements designed to enable businesses to obtain funds to
finance commercial transactions. Generally, an acceptance is a
time draft drawn on a bank by an exporter or an importer to obtain
a stated amount of funds to pay for specific merchandise.
The draft is then "accepted" by the bank that, in effect,
unconditionally guarantees to pay the face value of the instrument
on its maturity date. The acceptance may then be held by the
accepting bank as an earning asset or it may be sold in the
secondary market at the going rate of discount for a specific
maturity. Although maturities for acceptances can be as long as
270 days, most acceptances have maturities of six months or less.
Bankers' acceptances acquired by the Funds must be payable in
U.S. dollars and have been accepted by banks having total assets
at the time of purchase in excess of $1 billion, or the equivalent
in other currencies, and of branches of such banks (U.S. or
foreign).
MORTGAGE-BACKED SECURITIES
Mortgage Pass-Through Certificates
A Mortgage Pass-Through Certificate is a Mortgage-Backed
Security representing a participation interest in mortgage loans
or a beneficial undivided interest in a specified pool containing
mortgage loans.
The aggregate dollar balance of the mortgage loans (or
participation interests) in a specified pool is generally
identical to the balance of the Mortgage Pass-Through Certificate
held by the Certificate holder. As the balance in the mortgage
pool is paid down by scheduled payments of principal and interest
and by prepayments or other early or unscheduled recoveries of
principal, the balance of the Mortgage Pass-Through Certificate is
paid down correspondingly as all such payments are "passed
through" to the Certificate holder (in this case, to the Funds).
The average interest rate payable on the mortgage loans, the
"coupon rate," is somewhat higher than the "pass-through rate"
payable under the Mortgage Pass-Through Certificate. The
difference between the coupon rate and the pass-through rate is
generally paid to the servicer of the mortgage loans as servicing
compensation. Servicing includes collecting payments, remitting
payments to the Certificate holders, holding and disbursing escrow
funds for payment of taxes and insurance premiums, periodically
inspecting the properties, and servicing foreclosures in the event
of unremedied defaults.
Under the terms of the Certificate, the due date for passing
through funds to the Certificate holders is some specified period
after the payment date on the mortgage loans. The regular pass-
through installment is paid on the due date by the entity
servicing the mortgage pool, in most cases regardless of whether
or not it has been collected from the borrower.
A particular mortgage pool will consist of mortgage loans of
one of the following types: fixed interest mortgage loans with a
maturity of not more than 30 years; adjustable interest rate
mortgage loans (that is, where the interest rate is not fixed but
varies in accordance with a formula or an index) with a maturity
of not more than 40 years; shared appreciation mortgage loans with
a maturity of not more than 30 years; growing equity mortgage
loans (where the monthly payment of principal increases in amount
and the maturity may be less than 30 years); graduated payment
mortgage loans (where the amount of the scheduled monthly payments
at the beginning of the loan term are insufficient to fully
amortize the loan and the monthly payment amount therefore
increases after a specified period or periods); second mortgages
with fixed or adjustable rates with a maturity of not more than 30
years; graduated payment adjustable rate mortgage loans; and other
alternative mortgage instruments which may combine some of the
characteristics listed above. For example, graduated payment,
graduated equity, and shared appreciation mortgage loans can have
a fixed or variable interest rate. In addition, new types of
mortgage loans may be created in the future, and as Mortgage Pass-
Through Certificates representing interests in pools of new types
of mortgage loans are developed and offered to investors, the Fund
will, consistent with its investment policies and objective,
consider investing in such Certificates.
Certain Mortgage Pass-Through Certificates purchased will
represent interests in mortgage pools containing graduated payment
adjustable rate mortgage loans or "GPARMs." These are adjustable
interest rate mortgage loans with a graduated payment feature.
The scheduled monthly payment amount on this type of loan at the
beginning of the loan term is insufficient to fully amortize the
loan; that is, the scheduled payments are insufficient to pay off
the entire loan during the term. Because the monthly mortgage
payments during the early years of graduated payment mortgage
loans may not even be sufficient to pay the current interest due,
GPARMs may involve negative amortization; that is, the unpaid
principal balance of the mortgage loan may increase because any
unpaid balance of the interest due will be added to the principal
amount of the mortgage loan. GPARMs also involve increases in the
payment amount, because at one or more times during the early
years of the loan term, the monthly mortgage payments (principal
and interest) increase to a level that will fully amortize the
loan. The monthly payment amount may also be increased (or
decreased) to reflect changes in the interest rate. In addition,
the loan term may be lengthened or shortened from time to time,
corresponding to an increase or decrease in the interest rate.
GNMA Certificates
GNMA Certificates represent part ownership of a pool of
mortgage loans. These loans (issued by lenders such as mortgage
bankers, commercial banks and savings and loan associations) are
either insured by the Federal Housing Administration (FHA) or the
Farmers Home Administration (FMHA), or guaranteed by the Veterans
Administration (VA). A "pool" or group of such mortgages is
assembled and, after being approved by GNMA, is offered to
investors through securities dealers. Once approved by GNMA, the
timely payment of interest and principal on each mortgage is
guaranteed by GNMA and backed by the full faith and credit of the
U.S. Government. GNMA is also empowered to borrow without
limitation from the Treasury, if necessary, to make any payments
required under its guarantee. GNMA Certificates differ from bonds
issued without a sinking fund in that principal is paid back
monthly by the borrower over the term of the loan rather than
returned in a lump sum at maturity. GNMA Certificates are called
"modified pass-through" securities because both interest and
principal payments, including prepayments (net of fees paid to the
issuer and GNMA), are passed through to the holder of the
Certificate regardless of whether or not the mortgagor actually
makes the payment.
The average life of GNMA Certificates is likely to be
substantially less than the original maturity of the mortgage
pools underlying the securities. Prepayments of principal by
mortgagors and mortgage foreclosures will usually result in the
return of the greatest part of principal invested well before the
maturity of the mortgages in the pool. (Note: Due to the GNMA
guarantee, foreclosures impose little risk to principal
investment.) As prepayment rates of individual mortgage pools
vary widely, it is not possible to accurately predict the average
life of a particular issue of GNMA Certificates.
The coupon rate or interest on GNMA Certificates is lower
than the interest rate paid on the VA-guaranteed or FHA-insured
mortgages underlying the Certificates, but only by the amount of a
relatively modest fee paid to GNMA and the issuer.
The coupon rate by itself, however, does not indicate the
yield which will be earned on the Certificates for the following
reasons:
1. Certificates may be issued at a premium or discount, rather
than at par;
2. After issuance, Certificates may trade in the secondary market
at a premium or discount;
3. Interest is earned monthly, rather than semiannually as for
traditional bonds, and monthly compounding has the effect of
raising the effective yield earned on GNMA Certificates; and
4. The actual yield of each GNMA Certificate is influenced by the
prepayment experience of the mortgage pool underlying the
Certificate; that is, if mortgagors pay off their mortgages early,
the principal returned to Certificate holders may be reinvested at
more or less favorable rates.
Since the inception of the GNMA mortgage-backed securities
program in 1970, the amount of GNMA Certificates outstanding has
grown rapidly. The size of the market and the active
participation in the secondary market by securities dealers and
many types of investors make the GNMA Certificates highly liquid
instruments. Valuations of GNMA Certificates are readily
available from securities dealers and depend on, among other
things, the level of market rates, the Certificate's coupon rate
and the prepayment experience of the pool of mortgages backing
each Certificate.
FNMA Certificates
The Federal National Mortgage Association (FNMA) is a
corporation organized and existing under the laws of the U.S. and
issues FNMA Certificates under the authority contained in the
Federal National Mortgage Association Charter Act. FNMA
Certificates are Mortgage Pass-Through Certificates issued and
guaranteed by FNMA. The obligations of FNMA under its guaranty
are obligations solely of FNMA and are not backed by, nor entitled
to, the full faith and credit of the U.S.
Each FNMA Certificate represents a fractional undivided
interest in a pool of conventional, FHA-insured or VA-guaranteed
mortgage loans purchased or formed by FNMA. The mortgage loans
are either provided from FNMA's own portfolio or are purchased
from primary lenders that satisfy certain criteria developed by
FNMA, including depth of mortgage origination experience,
servicing experience and financial capacity.
When the mortgage loans are not provided from FNMA's own
portfolio, FNMA may purchase an entire loan pool from a single
lender and issue Certificates backed by the pool alone.
Alternatively, FNMA may package a pool made up of loans purchased
from a number of lenders. The mortgage loans are held by FNMA in
its capacity as trustee pursuant to the terms of a trust indenture
for the benefit of the Certificate holders.
Each FNMA mortgage pool will consist of mortgage loans
evidenced by promissory notes on one-family or two-to-four family
residential properties. Mortgage loans with varying interest
rates may be included in a single pool. Currently, substantially
all FNMA mortgage pools consist of fixed interest rate and growing
equity mortgage loans, although FNMA mortgage pools may also
consist of adjustable interest rate mortgage loans or other types
of mortgage loans. Loans with varying loan-to-value ratios may be
included in a single pool, but each conventional mortgage loan
with a loan-to-value ratio which exceeds 80% must be insured
against default and the mortgage insurance must insure that
portion of the loan balance which exceeds 75% of the property
value. The maximum loan term is 40 years. Each mortgage loan must
conform to FNMA's published requirements or guidelines with
respect to maximum principal amount, loan-to-value ratio,
underwriting standards and hazard insurance coverage.
Pursuant to the trust indenture, FNMA is responsible for
servicing and administering the mortgage loans in a pool but
contracts with the lender (the seller of the mortgage loans, or
seller/servicer), or another eligible servicing institution, to
perform such functions under the supervision of FNMA. The
servicers are obligated to perform diligently all services and
duties customary to the servicing of mortgages as well as those
specifically prescribed by the FNMA Seller/Servicer Guide. FNMA
has the right to remove servicers for cause.
The pass-through rate on the FNMA Certificates is not greater
than the lowest annual interest rate borne by an underlying
mortgage loan in the pool, less a specified minimum annual
percentage of the outstanding principal balance. The fee to FNMA
representing compensation for servicing and for FNMA's guaranty
(out of which FNMA will compensate seller/servicers) is, for each
underlying mortgage loan, the difference between the interest rate
on the mortgage loan and the pass-through rate.
The minimum size of a FNMA pool is $1 million of mortgage
loans. Registered holders purchase Certificates in amounts not
less than $25,000.
FHLMC Certificates
The Federal Home Loan Mortgage Corporation (FHLMC) is a
corporate instrumentality of the U.S. created pursuant to an act
of Congress on July 24, 1970, primarily for the purpose of
increasing availability of mortgage credit for the financing of
then urgently needed housing. It seeks to provide an enhanced
degree of liquidity for residential mortgage investors primarily
by assisting in the development of secondary markets for
conventional mortgage loans. FHLMC obtains its funds by selling
mortgages and interests therein (such as Mortgage Pass-Through
Certificates), and by issuing debentures and otherwise borrowing
funds.
FHLMC Certificates represent undivided interests in specified
groups of conventional mortgage loans and/or participation
interests therein underwritten and owned by FHLMC. FHLMC
periodically forms groups of whole mortgage loans and/or
participations in connection with its continuing sales program.
Typically, at least 95% of the aggregate principal balance of the
mortgage loans in a group consists of single-family mortgage loans
and not more than 5% consists of multi-family loans. The FHLMC
Certificates are issued in fully registered form only, in original
unpaid principal balances of $25,000, $100,000, $200,000,
$500,000, $1 million and $5 million. The FHLMC Certificates are
not guaranteed by the U.S. or by any Federal Home Loan Bank and do
not constitute a debt or obligation of the U.S. or any Federal
Home Loan Bank.
FHLMC guarantees to each registered holder of a FHLMC
Certificate the timely payment of interest accruing at the
application certificate rate on the unpaid principal balance
outstanding on the mortgage loans to the extent of such holder's
percentage of participation therein. FHLMC also guarantees to
each registered holder of a FHLMC Certificate collection of all
principal on the mortgage loans without any offset or deduction,
to the extent of such holder's pro rata share. Pursuant to these
guaranties, FHLMC indemnifies holders of FHLMC Certificates
against any reduction in principal by reason of charges for
property repairs, maintenance and foreclosure.
To permit a measure of marketability for holders of FHLMC
Certificates, FHLMC has provided since June 20, 1975, and expects
to continue to provide, bid quotations for outstanding FHLMC
Certificates. Informational bid quotations are available daily on
Telerate Financial Information Network or from FHLMC's regional
offices.
Non-Governmental Mortgage Pass-Through Certificates
A Non-Governmental Mortgage Pass-Through Certificate is a
security issued by a mortgage banker, financial institution or
other entity and represents an undivided interest in a mortgage
pool consisting of a number of mortgage loans secured by single-
family residential properties. Non-Governmental Certificates do
not represent an interest in or obligation of the issuing or
servicing entity. The mortgage loans in a pool are held in trust
by a qualified bank. These private (or conventional) mortgages
are not insured by the VA, FHA or any other governmental agency.
In some cases, private commercial insurance or other credit
support may apply.
A typical mortgage pool consists of from 100 to 1000
individual mortgage loans. The aggregate dollar balance of the
mortgage loans in a pool will be generally at least $5 million.
These pools contain mortgage loans originated, serviced and
otherwise administered by an affiliate of the sponsor of the pool.
It is expected that each of the underlying mortgage loans
will have a loan-to-value ratio at origination (based on an
independent appraisal of the mortgage property obtained by the
originator of the loan) of 90% or less. Generally, the amount of
the mortgage loans in excess of 80% of such appraised value will
be insured with a private mortgagor insurer. In some instances,
other mechanisms, such as a bank letter of credit or
senior/subordinated class structures, are used in place of
mortgage guaranty insurance but serve a similar credit support
function.
The entities originating and servicing the underlying
mortgage loans generally advance to Certificate holders any
principal and interest payments not collected from the mortgagors.
However, the obligations, if any, to make those advances are
limited only to those amounts that are reimbursable under the
mortgage guaranty insurance policy.
The property securing each of the mortgage loans in a
mortgage pool will be covered by standard hazard insurance
policies insuring against losses due to various causes, including
fire, lightning and windstorm. The amount of each policy is at
least equal to the lesser of the outstanding principal balance of
the mortgage loan or the maximum insurable value of the
improvements securing the mortgage loan. Since certain other
physical risks (including earthquakes, mudflows and floods) are
not otherwise insured against, the institution originating and
servicing the loans typically purchases a special hazard insurance
policy for each mortgage pool to cover such risks. The special
hazard insurance generally is in the amount of 1% of the aggregate
principal balances of the mortgage loans in each mortgage pool, or
the sum of the balance of the two largest mortgage loans in the
mortgage pool, whichever is greater, at the time of formation of
the mortgage pool.
Any hazard losses not covered by either the standard hazard
policies or the special hazard insurance policy will not be
insured against and, accordingly, will be borne by the Fund and
therefore by the Fund's shareholders.
The pooling and servicing agreement for a Non-Governmental
Certificate generally permits, but does not require, the entity
originating and servicing the mortgage loans to repurchase from
the mortgage pool all remaining mortgage loans. The right to
repurchase typically is subject to the aggregate principal
balances of the mortgage loans at the time of repurchase being
less than 20% of the aggregate principal balances of the mortgage
loans at the time of issuance of the Certificate.
Real Estate Mortgage Investment Conduits (REMICs)
A REMIC is an entity formed either as a partnership,
corporation or trust which holds a fixed pool of mortgages and
issues multiple classes of interests at varying maturities
entitling holders to receive specified principal amounts and
interest payments at fixed rates.
Timely payment of principal and interest from a REMIC will be
dependent upon risks associated with the underlying mortgage loans
held by the REMIC. These risks include the potential for
delinquency and default by mortgagors, fluctuating interest rates,
inflation and reduced market demand for qualified market loans.
EQUIPMENT TRUST CERTIFICATES
Balanced Fund may invest in Equipment Trust Certificates.
Equipment Trust Certificates are a mechanism for financing
the purchase of transportation equipment, such as railroad cars
and locomotives, trucks, airplanes and oil tankers.
Under an Equipment Trust Certificate, the equipment is used
as the security for the debt and title to the equipment is vested
in a trustee. The trustee leases the equipment to the user; i.e.,
the railroad, airline, trucking or oil company. At the same time,
Equipment Trust Certificates in an aggregate amount equal to a
certain percentage of the equipment's purchase price are sold to
lenders. The trustee pays the proceeds from the sale of
Certificates to the manufacturer. In addition, the company using
the equipment makes an initial payment of rent equal to the
balance of the purchase price to the trustee, which the trustee
also pays to the manufacturer. The trustee collects lease
payments from the company and uses the payments to pay interest
and principal on the Certificates. At maturity, the Certificates
are redeemed and paid, the equipment is sold to the company and
the lease is terminated.
Generally, these Certificates are regarded as obligations of
the company that is leasing the equipment and are shown as
liabilities in its balance sheet as a capitalized lease in
accordance with generally accepted accounting principals.
However, the company does not own the equipment until all the
Certificates are redeemed and paid. In the event the company
defaults under its lease, the trustee terminates the lease. If
another lessee is available, the trustee leases the equipment to
another user and makes payments on the Certificates from new lease
rentals.
OPTIONS, FUTURES AND OTHER DERIVATIVES
Except for Money Market Fund, each Fund may purchase and
write both call options and put options on securities, indexes and
foreign currencies, and enter into interest rate, index and
foreign currency futures contracts and options on such futures
contracts (futures options) in order to achieve its investment
objective, to provide additional revenue, or to hedge against
changes in security prices, interest rates or currency exchange
rates. A Fund also may use other types of options, futures
contracts, futures options, and other types of forward or
investment contracts linked to individual securities, interest
rates, foreign currencies, indices or other benchmarks (derivative
products) currently traded or subsequently developed and traded,
provided the Trustees determine that their use is consistent with
the Fund's investment objective.
Options
A Fund may purchase and write both put and call options on
securities, indexes or foreign currencies in standardized
contracts traded on recognized securities exchanges, boards of
trade or similar entities, or quoted on Nasdaq. A Fund also may
purchase agreements, sometimes called cash puts, which may
accompany the purchase of a new issue of bonds from a dealer that
the Fund might buy as a temporary defensive measure.
An option on a security (or index or foreign currency) is a
contract that gives the purchase (holder) of the option, in return
for a premium, the right to buy from (call) or sell to (put) the
seller (writer) of the option the security underlying the option
(or the cash value of the index or a specified quantity of the
foreign currency) at a specified exercise price at any time during
the term of the option (normally not exceeding nine months). The
writer of an option on an individual security or on a foreign
currency has the obligation upon exercise of the option to deliver
the underlying security or foreign currency upon payment of the
exercise price or to pay the exercise price upon delivery of the
underlying security or foreign currency. Upon exercise, the
writer of an option on an index is obligated to pay the difference
between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option. (An
index is designed to reflect specified facets of a particular
financial or securities market, a specific group of financial
instruments or securities, or certain other economic indicators.)
A Fund will write call options and put options only if they
are "covered." For example, in the case of a call option on a
security, the option is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration upon
conversion or exchange of other securities held in its portfolio
(or, if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by its
custodian).
If an option written by a Fund expires, the Fund realizes a
capital gain equal to the premium received at the time the option
was written. If an option purchased by a Fund expires, the Fund
realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may
be closed out by an offsetting purchase or sale of an option of
the same series (type, exchange, underlying security, currency or
index, exercise price and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be
effected when a Fund desires.
A Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the
premium received from writing the option, or, if it is more, the
Fund will realize a capital loss. If the premium received from a
closing sale transaction is more than the premium paid to purchase
the option, the Fund will realize a capital gain or, if it is
less, the Fund will realize a capital loss. The principal factors
affecting the market value of a put or a call option include
supply and demand, interest rates, the current market price of the
underlying security, currency or index in relation to the exercise
price of the option, the volatility of the underlying security,
currency or index, and the time remaining until expiration.
A put or call option purchased by a Fund is an asset of the
Fund, valued initially at the premium paid for the option. The
premium received for an option written by a Fund is recorded as a
deferred credit. The value of an option purchased or written is
marked-to-market daily and is valued at the closing price on the
exchange on which it is traded or, if not traded on an exchange or
no closing price is available, at the mean between the last bid
and asked prices.
Risks Associated with Options
There are several risks associated with transactions in
options. For example, there are significant differences between
the securities and the currency markets and the options markets
that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its
objectives. A decision as to whether, when and how to use options
involves the exercise of skill and judgment, and even a well-
conceived transaction may be unsuccessful to some degree because
of market behavior or unexpected events.
There can be no assurance that a liquid market will exist
when a Fund seeks to close out an option position. If a Fund were
unable to close out an option that it had purchased, it would have
to exercise the option in order to realize any profit or the
option would expire and become worthless. If a Fund were unable
to close out a covered call option that it had written on a
security or a foreign currency, it would not be able to sell the
underlying security or currency unless the option expired. As the
writer of a covered call option on a security, a Fund foregoes,
during the option's life, the opportunity to profit from increases
in the market value of the security covering the call option above
the sum of the premium and the exercise price of the call. As the
writer of a covered call option on a foreign currency, the Fund
foregoes, during the option's life, the opportunity to profit from
appreciation of the currency covering the call.
If trading were suspended in an option purchased or written
by a Fund, the Fund would not be able to close out the option. If
restrictions on exercise were imposed, the Fund might be unable to
exercise an option it has purchased. Except to the extent that a
call option on an index written by the Fund is covered by an
option on the same index purchased by the Fund, movements in the
index may result in a loss to the Fund; however, such losses may
be mitigated by changes in the value of the Fund's portfolio
securities during the period the option was outstanding.
Futures Contracts and Options on Futures Contracts
A Fund may use interest rate, index and foreign currency
futures contracts. An interest rate, index or foreign currency
futures contract provides for the future sale by one party and
purchase by another party of a specified quantity of a financial
instrument, the cash value of an index/1/ or a specified quantity
of a foreign currency at a specified price and time. A public
market exists in futures contracts covering a number of indexes
(including, but not limited to, the Standard & Poor's 500 Stock
Index, the Value Line Composite Index and the New York Stock
Exchange Composite Index), certain financial instruments
(including, but not limited to: U.S. Treasury bonds, U.S.
Treasury notes and Eurodollar certificates of deposit) and foreign
currencies. Other index and financial instrument futures
contracts are available and it is expected that additional futures
contracts will be developed and traded.
- ------------------
/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.
- ------------------
A Fund may purchase and write call and put futures options.
Futures options possess many of the same characteristics as
options on securities, indexes and foreign currencies (discussed
above). A futures option gives the holder the right, in return
for the premium paid, to assume a long position (call) or a short
position (put) in a futures contract at a specified exercise price
at any time during the period of the option. Upon exercise of a
call option, the holder acquires a long position in the futures
contract and the writer is assigned the opposite short position.
In the case of a put option, the opposite is true.
To the extent required by regulatory authorities having
jurisdiction over a Fund, such Fund will limit its use of futures
contracts and futures options to hedging transactions. For
example, a Fund might use futures contracts to hedge against or
gain exposure to fluctuations in the general level of stock prices
or anticipated changes in interest rates or currency exchange
rates which might adversely affect either the value of the Fund's
securities or the price of the securities that the Fund intends to
purchase. Although other techniques could be used to reduce that
Fund's exposure to stock price and interest rate and currency
fluctuations, the Fund may be able to hedge its exposure more
effectively and perhaps at a lower cost by using futures contracts
and futures options.
A Fund will only enter into futures contracts and futures
options that are standardized and traded on an exchange, board of
trade or similar entity or quoted on an automated quotation
system.
The success of any futures transaction depends on Stein Roe
correctly predicting changes in the level and direction of stock
prices, interest rates, currency exchange rates and other factors.
Should those predictions be incorrect, a Fund's return might have
been better had the transaction not been attempted; however, in
the absence of the ability to use futures contracts, Stein Roe
might have taken portfolio actions in anticipation of the same
market movements with similar investment results but, presumably,
at greater transaction costs.
When a purchase or sale of a futures contract is made by a
Fund, the Fund is required to deposit with its custodian (or
broker, if legally permitted) a specified amount of cash or U.S.
Government securities or other securities acceptable to the broker
(initial margin). The margin required for a futures contract is
set by the exchange on which the contact is traded and may be
modified during the term of the contract. The initial margin is
in the nature of a performance bond or good faith deposit on the
futures contract, which is returned to the Fund upon termination
of the contract, assuming all contractual obligations have been
satisfied. A Fund expects to earn interest income on its initial
margin deposits. A futures contract held by a Fund is valued
daily at the official settlement price of the exchange on which it
is traded. Each day the Fund pays or receives cash, called
"variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking-to-market."
Variation margin paid or received by a Fund does not represent a
borrowing or loan by the Fund but is instead settlement between
the Fund and the broker of the amount one would owe the other if
the futures contract had expired at the close of the previous day.
In computing daily net asset value, a Fund will mark-to-market its
open futures positions.
The Fund is also required to deposit and maintain margin with
respect to put and call options on futures contracts written by
it. Such margin deposits will vary depending on the nature of the
underlying futures contract (and the related initial margin
requirements), the current market value of the option and other
futures positions held by the Fund.
Although some futures contracts call for making or taking
delivery of the underlying property, usually these obligations are
closed out prior to delivery by offsetting purchases or sales of
matching futures contracts (same exchange, underlying property and
delivery month). If an offsetting purchase price is less than the
original sale price, the Fund engaging in the transaction realizes
a capital gain, or if it is more, the Fund realizes a capital
loss. Conversely, if an offsetting sale price is more than the
original purchase price, the Fund engaging in the transaction
realizes a capital gain, or if it is less, the Fund realizes a
capital loss. The transaction costs must also be included in
these calculations.
Risks Associated with Futures
There are several risks associated with the use of futures
contracts and futures options. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in
the futures contract. There can be no guarantee that there will
be a correlation between price movements in the hedging vehicle
and in the portfolio securities being hedged. In addition, there
are significant differences between the securities and the
currency markets and the futures markets that could result in an
imperfect correlation between the markets, causing a given
transaction not to achieve its objectives. The degree of
imperfection of correlation depends on circumstances such as:
variations in speculative market demand for futures, futures
options and the related securities or currencies, including
technical influences in futures and futures options trading and
differences between the Fund's investments being hedged and the
securities or currencies underlying the standard contracts
available for trading. For example, in the case of index futures
contracts, the composition of the index, including the issuers and
the weighting of each issue, may differ from the composition of
the Fund's portfolio, and, in the case of interest rate futures
contracts, the interest rate levels, maturities, and
creditworthiness of the issues underlying the futures contract may
differ from the financial instruments held in the Fund's
portfolio. A decision as to whether, when and how to use futures
contracts involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful to some degree
because of market behavior or unexpected security price, interest
rate or currency exchange rate trends.
Futures exchanges may limit the amount of fluctuation
permitted in certain futures contract prices during a single
trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of the current
trading session. Once the daily limit has been reached in a
futures contract subject to the limit, no more trades may be made
on that day at a price beyond that limit. The daily limit governs
only price movements during a particular trading day and therefore
does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for
several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of positions and subjecting
some holders of futures contracts to substantial losses. Stock
index futures contracts are not normally subject to such daily
price change limitations.
There can be no assurance that a liquid market will exist at
a time when a Fund seeks to close out a futures or futures option
position. The Fund would be exposed to possible loss on the
position during the interval of inability to close, and would
continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed
above are relatively new instruments without a significant long-
term trading history. As a result, there can be no assurance that
an active secondary market will develop or continue to exist.
Limitations on Options and Futures
A Fund will not enter into a futures contract or purchase an
option thereon if, immediately thereafter, the initial margin
deposits for futures contracts held by that Fund plus premiums
paid by it for open futures option positions, less the amount by
which any such positions are "in-the-money,"/2/ would exceed 5% of
the Fund's total assets.
- -------------
/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.
- -------------
When purchasing a futures contract or writing a put option on
a futures contract, a Fund must maintain with its custodian (or
broker, if legally permitted) cash or cash equivalents (including
any margin) equal to the market value of such contract. When
writing a call option on a futures contract, the Fund similarly
will maintain with its custodian cash or cash equivalents
(including any margin) equal to the amount by which such option is
in-the-money until the option expires or is closed out by the
Fund.
A Fund may not maintain open short positions in futures
contracts, call options written on futures contracts or call
options written on indexes if, in the aggregate, the market value
of all such open positions exceeds the current value of the
securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative
volatility of the relationship between the portfolio and the
positions. For this purpose, to the extent the Fund has written
call options on specific securities in its portfolio, the value of
those securities will be deducted from the current market value of
the securities portfolio.
In order to comply with Commodity Futures Trading Commission
(CFTC) Regulation 4.5 and thereby avoid being deemed a "commodity
pool operator," each Fund will use commodity futures or commodity
options contracts solely for bona fide hedging purposes within the
meaning and intent of CFTC Regulation 1.3(z), or, with respect to
positions in commodity futures and commodity options contracts
that do not come within the meaning and intent of CFTC Regulation
1.3(z), the aggregate initial margin and premiums required to
establish such positions will not exceed 5% of the fair market
value of the assets of a Fund, after taking into account
unrealized profits and unrealized losses on any such contracts it
has entered into [in the case of an option that is in-the-money at
the time of purchase, the in-the-money amount (as defined in
Section 190.01(x) of the CFTC Regulations) may be excluded in
computing such 5%].
Taxation of Options and Futures
If a Fund exercises a call or put option it holds, the
premium paid for the option is added to the cost basis of the
security purchased (call) or deducted from the proceeds of the
security sold (put). For cash settlement options and futures
options exercised by a Fund, the difference between the cash
received at exercise and the premium paid is a capital gain or
loss.
If a call or put option written by a Fund is exercised, the
premium is included in the proceeds of the sale of the underlying
security (call) or reduces the cost basis of the security
purchased (put). For cash settlement options and futures options
written by a Fund, the difference between the cash paid at
exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in
capital gain or loss. If an option written by a Fund was in-the-
money at the time it was written and the security covering the
option was held for more than the long-term holding period prior
to the writing of the option, any loss realized as a result of a
closing purchase transaction will be long-term. The holding
period of the securities covering an in-the-money option will not
include the period of time the option is outstanding.
If a Fund writes an equity call option/3/ other than a
"qualified covered call option," as defined in the Internal
Revenue Code, any loss on such option transaction, to the extent
it does not exceed the unrealized gains on the securities covering
the option, may be subject to deferral until the securities
covering the option have been sold.
- -------------
/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).
- -------------
A futures contract held until delivery results in capital
gain or loss equal to the difference between the price at which
the futures contract was entered into and the settlement price on
the earlier of delivery notice date or expiration date. If a Fund
delivers securities under a futures contract, the Fund also
realizes a capital gain or loss on those securities.
For federal income tax purposes, a Fund generally is required
to recognize as income for each taxable year its net unrealized
gains and losses as of the end of the year on futures, futures
options and non-equity options positions (year-end mark-to-
market). Generally, any gain or loss recognized with respect to
such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and
40% short-term, without regard to the holding periods of the
contracts. However, in the case of positions classified as part
of a "mixed straddle," the recognition of losses on certain
positions (including options, futures and futures options
positions, the related securities and certain successor positions
thereto) may be deferred to a later taxable year. Sale of futures
contracts or writing of call options (or futures call options) or
buying put options (or futures put options) that are intended to
hedge against a change in the value of securities held by a Fund:
(1) will affect the holding period of the hedged securities; and
(2) may cause unrealized gain or loss on such securities to be
recognized upon entry into the hedge.
If a Fund were to enter into a short index future, short
index futures option or short index option position and the Fund's
portfolio were deemed to "mimic" the performance of the index
underlying such contract, the option or futures contract position
and the Fund's stock positions would be deemed to be positions in
a mixed straddle, subject to the above-mentioned loss deferral
rules.
In order for a Fund to continue to qualify for federal income
tax treatment as a regulated investment company, at least 90% of
its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
foreign currencies, or other income (including but not limited to
gains from options and futures contracts). In addition, gains
realized on the sale or other disposition of securities held for
less than three months must be limited to less than 30% of the
Fund's annual gross income. Any net gain realized from futures
(or futures options) contracts will be considered gain from the
sale of securities and therefore be qualifying income for purposes
of the 90% requirement. In order to avoid realizing excessive
gains on securities held less than three months, the Fund may be
required to defer the closing out of certain positions beyond the
time when it would otherwise be advantageous to do so.
Warrants
Each Fund except Money Market Fund may invest in warrants;
however, not more than 5% of a Fund's assets (at the time of
purchase) will be invested in warrants, other than warrants
acquired in units or attached to other securities. Warrants
purchased must be listed on a national stock exchange or the
Nasdaq system. Warrants are speculative in that they have no
voting rights, pay no dividends, and have no right with respect to
the assets of the corporation issuing them. Warrants basically
are options to purchase equity securities at a specific price
valid for a specific period of time. They do not represent
ownership of the securities, but only the right to buy them.
Warrants differ from call options in that warrants are issued by
the issuer of the security that may be purchased on their
exercise, whereas call options may be written or issued by anyone.
The prices of warrants do not necessarily move parallel to the
prices of the underlying securities.
"WHEN-ISSUED" SECURITIES AND COMMITMENT AGREEMENTS
Each Fund may purchase and sell securities on a when-issued
and delayed-delivery basis.
When-issued or delayed-delivery transactions arise when
securities are purchased or sold by the Funds with payment and
delivery taking place in the future in order to secure what is
considered to be an advantageous price and yield to the Funds at
the time of entering into the transaction. However, yields
available in the market when delivery takes place may be higher
than the yields on securities to be delivered. When the Funds
engage in when-issued and delayed-delivery transactions, the Funds
rely on the buyer or seller, as the case may be, to consummate the
sale. Failure to do so may result in the Funds missing the
opportunity to obtain a price or yield considered to be
advantageous. When-issued and delayed-delivery transactions may
be expected to occur a month or more before delivery is due.
However, no payment or delivery is made by the Funds until they
receive payment or delivery from the other party to the
transaction. A separate account of liquid assets equal to the
value of such purchase commitments will be maintained with the
Trust's custodian until payment is made and will not be available
to meet redemption requests. When-issued and delayed-delivery
agreements are subject to risks from changes in value based upon
changes in the level of interest rates and other market factors,
both before and after delivery. The Funds do not accrue any
income on such securities prior to their delivery. To the extent
a Fund engages in when-issued and delayed-delivery transactions,
it will do so for the purpose of acquiring portfolio securities
consistent with its investment objectives and policies and not for
the purpose of investment leverage.
Most Mortgage Pass-Through Certificates (especially FNMA and
Non-Governmental Certificates), whether they represent interests
in pools of fixed or adjustable interest rate mortgage loans, may
be purchased pursuant to the terms of firm commitment or standby
commitment agreements. Under the terms of these agreements, a
Fund will bind itself to accept delivery of a Mortgage Pass-
Through Certificate at some future settlement date (typically
three to six months from the date of the commitment agreement) at
a stated price. The standby commitment agreements create an
additional risk for a Fund because the other party to the standby
agreement generally will not be obligated to deliver the security,
but the Fund will be obligated to accept it if delivered.
Depending on market conditions (particularly on the demand for,
and supply of, Mortgage Pass-Through Certificates), the Fund may
receive a commitment fee for assuming this obligation. If
prevailing market interest rates increase during the period
between the date of the agreement and the settlement date, the
other party can be expected to deliver the security and, in
effect, pass any decline in value to the Fund. If the value of
the security increases after the agreement is made, however, the
other party is unlikely to deliver the security. In other words,
a decrease in the value of the securities to be purchased under
the terms of standby commitment agreements will likely result in
the delivery of the security, and therefore such decrease will be
reflected in the Fund's net asset value. However, any increase in
the value of the securities to be purchased will likely result in
the non-delivery of the security and, therefore, such increase
will not affect the net asset value unless and until the Fund
actually obtains the security.
RESTRICTED SECURITIES
Restricted securities are acquired through private placement
transactions, directly from the issuer or from security holders,
generally at higher yields or on terms more favorable to investors
than comparable publicly traded securities. Privately placed
securities are not readily marketable and ordinarily can be sold
only in privately negotiated transactions to a limited number of
purchasers or in public offerings made pursuant to an effective
registration statement under the Securities Act of 1933. Private
or public sales of such securities by a Fund may involve
significant delays and expense. Private sales require
negotiations with one or more purchasers and generally produce
less favorable prices than the sale of comparable unrestricted
securities. Public sales generally involve the time and expense
of preparing and processing a registration statement under the
Securities Act of 1933 and may involve the payment of underwriting
commissions; accordingly, the proceeds may be less than the
proceeds from the sale of securities of the same class which are
freely marketable.
<PAGE>
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. (6)
(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) Underwriting Agreement between the Trust and Liberty Funds
Distributor, Inc. dated August 3, 1999. (6)
(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. (6)
(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. (6)
(i) Opinion and consent of counsel as to the legality of the
securities being registered. (3)
(j) (1) Consent of PricewaterhouseCoopers LLP, independent
accountants.
(2) Consent of KPMG LLP, independent accountants.
(k) Not applicable.
(l) Not applicable.
(m) Not applicable.
(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.
(6) Incorporated by Reference to Post-Effective Amendment No. 17
to this Registration Statement filed March 2000.
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 certifies
that it meets all of the requirements for effectiveness of this
registration statement pursuant to Rule 485(b) under the
Securities Act of 1933 and 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 20th day of April, 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 April 20, 2000
Stephen E. Gibson
Principal Executive Officer
TIMOTHY J. JACOBY Senior Vice- April 20, 2000
Timothy J. Jacoby President
Principal Financial Officer
GAIL D. KNUDSEN Controller April 20, 2000
Gail D. Knudsen
Principal Accounting Officer
JOHN A. BACON JR. Trustee April 20, 2000
John A. Bacon Jr.
WILLIAM W. BOYD Trustee April 20, 2000
William W. Boyd
LINDSAY COOK Trustee April 20, 2000
Lindsay Cook
DOUGLAS A. HACKER Trustee April 20, 2000
Douglas A. Hacker
JANET LANGFORD KELLY Trustee April 20, 2000
Janet Langford Kelly
CHARLES R. NELSON Trustee April 20, 2000
Charles R. Nelson
THOMAS C. THEOBALD Trustee April 20, 2000
Thomas C. Theobald
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EXHIBIT LIST
Exhibit Description
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(j)(1) Consent of PricewaterhouseCoopers LLP
(j)(2) Consent of KPMG LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Post-
Effective Amendment No. 20 to the registration statement on Form
N-1A (the "Registration Statement") of our reports dated February
14, 2000 and February 16, 2000, relating to the financial
statements and financial highlights which appear in the December
31, 1999 Annual Report to Shareholders of SteinRoe Variable
Investment Trust (Stein Roe Balanced Fund, Variable Series; Stein
Roe Growth Stock Fund, Variable Series; Stein Roe Money Market
Fund, Variable Series; Stein Roe Mortgage Securities Fund,
Variable Series and Stein Roe Small Company Growth Fund, Variable
Series), which are also incorporated by reference into the
Registration Statement. We also consent to the references to us
under the headings "Financial Highlights" and "Independent
Accountants and Financial Statements" in such Registration
Statement.
PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 20, 2000
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INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders of
SteinRoe Variable Investment Trust:
We have audited the statement of changes in net assets for the
year ended December 31, 1998 and the financial highlights for each
of the years in the four-year period ending December 31, 1998 of
the Stein Roe Small Company Growth Fund, Variable Series; Stein
Roe Growth Stock Fund, Variable Series, Stein Roe Balanced Fund,
Variable Series; Stein Roe Mortgage Securities Fund, Variable
Series; Stein Roe Money Market Fund, Variable Series, all
constituent funds of SteinRoe Variable Investment Trust (the
"Funds"). The statement of changes in net assets and the
financial highlights are the responsibility of the Funds
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
statement of changes in net assets and the financial highlights
are free of material misstatements. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the statements of changes in net assets and the
financial highlights referred to above present fairly, in all
material respects, the results of their changes in net assets for
the year ended December 31, 1998 and the financial highlights for
each of the years in the four-year period ending December 31,
1998, in conformity with generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
February 12, 1999
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CONSENT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders
of SteinRoe Variable Investment Trust:
We consent to the reference to our Firm under the headings
"Financial Highlights" in the Prospectuses and to the inclusion in
Part C of the Registration Statement our report dated February 12,
1999 covering the statement of changes in net assets for the year
ended December 31, 1998 and the financial highlights for each of
the years in the four-year period ending December 31, 1998 of the
Stein Roe Small Company Growth Fund, Variable Series; Stein Roe
Growth Stock Fund, Variable Series; Stein Roe Balanced Fund,
Variable Series; Stein Roe Mortgage Securities Fund, Variable
Series; Stein Roe Money Market Fund, Variable Series, all
constituent funds of SteinRoe Variable Investment Trust.
KPMG LLP
Chicago, Illinois
April 20, 2000
